Business in business travel
It has been a very hectic start to the year at Hotelzon, although that is not unusual. The company has changed, evolving into a technology provider for the travel industry from that of a traditional hotel booking agency business model. Change is always challenging and will always have its pro’s and con’s, and here it is no different. We have been coming up with new ideas, processes and ways of working, whilst leaving some of the old activities behind, and focusing on what we do best – software. Over 300 man years of development, we have created Software as a service (SaaS) – a model which integrates directly to tens of thousands of hotels and other content providers. Proven customer cases have encouraged us to put even greater emphasis on technology and its successful delivery.
I used to think that coming from a financial software systems background, how difficult can it be booking hotels? Well, I smile when I think of it, nowadays. The travel industry is a melting-pot of different technologies dating back to the 1960’s, to future technologies that need to seamlessly integrate with each other. When the end user wants to select a hotel to book, they don’t want to know that the data presented comes from tens of different sources with a whole host of data-cleansing and conversions in the background in order to present them in a comparable format.
The online travel business is a combination of Global Distribution Systems (GDS) and Alternative Distribution Systems (ADS), and it’s the same with Hotelzon. This combination creates a unique and extensive content base, serving the customer in the best possible way. New online travel agencies (OTA) are emerging and disappearing like mushrooms in the autumn, all seeking end users to attract them to book from their site. Often the technology behind these websites is a familiar, large, online player, such as Expedia, or an affiliate, such as Hotels.com. All share the same revenue, which is paid by hotels as commission. You would be amazed to know that there can be as many as six layers of different technologies when you book a hotel online. Needless to say, this creates pressure on the hotels to manage their distribution, so that the costs don’t sky-rocket. In other industries, a shift to online almost always results in a better price for the end-user and reduced costs for selling to the product or service provider as a result of decreasing sales and marketing costs.
However, within our industry, it is almost the other way around. Sales and marketing costs – in this case ‘distribution’ costs – can exceed 25% for the hotel, depending on the channels it uses. Search engine optimization (SEO) and search engine marketing (SEM) have key roles in attracting end users to the website. Global OTA’s are paying fortunes on SEO and SEM, and as such, are dominating the market.
But where does that leave the hotel? Not even the largest hotel-chains in the world can compete with such marketing. If you look for any hotel on Google, the first 3-10 results are large OTA’s… you are lucky if you’re on the first page, even if you are using SEO/SEM as part of your marketing strategy. Online leisure sales is therefore a costly way of selling and it exceeds your direct sales efforts on price, by far. The other alternative is not to distribute your properties through these channels, but then you will not receive those bookings, either. Again, in a normal industry, you would add the additional cost to the channel, so that the end user would pay some of the distribution costs, but as a hotel, you are often ‘held hostage’ by what is called ‘price parity’ with your online travel agency partners. This clause means that you cannot sell your rooms cheaper through any other channel, including your own property. In other words, you are stuck. Search engines, with their search-word pricing and large online travel agencies, are making money and hotels are losing their margins.
Of course, there are exceptions to the rule, and some hoteliers have become much smarter with their loyalty programmes, web and distribution strategies, making an art of the latter, but individual hotels can end up being at the mercy of online domination. Corporates don’t want to pay the middle-man, they want to consolidate their hotel spend and negotiate the best rates, using the channels that allow them to do so and still use online bookings. In their case – to lower the cost of booking and to gain the best savings. The corporate travel industry is therefore less attractive to the major leisure sites and it gets very complicated with its travel budgets, travel policies, preferences, group bookings, mobile bookings, reporting etc. This is where Hotelzon is excelling and winning new global corporates and major travel agencies for our customers.