Another World Travel Market has come and gone. I held my Genesys Digital Transformation Summit there on the Tuesday. The seminar room was completely full and we all heard some really interesting presentations.
I split the Summit into two sessions: “Established Players Make Good” and “New Entrants and Business Models”. One of my new entrant speakers was Suzie Barber, co-Founder of Hotel Bonanza. Her new business is very simple to explain but, if it manages to take off, could have profoundly beneficial implications for the hotel industry.
What Hotel Bonanza is trying to do is to break the power of the mega-accommodation intermediaries with a fairer business model that will appeal to both hoteliers and consumers. Booking.com and Expedia, between them, now control such a high percentage of the European online hotel bookings market that they may be able operate in a duopolistic manner, using their market power to subject hotels to some quite onerous commercial terms. Skift reports some research that predicts that Priceline Group (Booking.com’s parent company) and Expedia will control 94 per cent of all online hotel bookings by 2020.
According to Suzie, commission rates are averaging around 15% with up to 30% being charged and, moreover, if you want your hotel to be found in an online travel agent’s (OTA) search results listing you will have to pay more commission to be listed higher up the search results.
Hotel Bonanza’s plan is to charge a flat rate 8% commission and to list hotels using an algorithm heavily weighted on proximity to search location.
As far as rate parity is concerned, there will be no issue here. Hotel Bonanza will not ask for rate parity, so properties should be able to sell at whatever price they like on their own website.
So far, Hotel Bonanza has signed up 6,000 hotels. Feedback from hoteliers has, of course, been overwhelmingly positive. Comments received include, “We can’t tell you how happy we are to see somebody take on the likes of Booking.com and Expedia. We will support you all the way – where do we sign up?” and “I am so happy to see somebody thinking about the accommodation providers at last. We will be signing up now.”
Naturally, Hotel Bonanza will not be able to compete with Booking,com’s and Expedia’s online advertising expenditure, so it has evolved a customer loyalty scheme. The company will offer consumers a 5% discount on every room they book for an annual fee of £10. This will be paid for by Hotel Bonanza, not the accommodation providers.
To quantify how much the two big boys are spending on online advertising you can take a look at another Skift article from 2014. This stated that, as noted in an eMarketer report, “RBC Capital Markets estimated that the Priceline Group will spend $1.5 billion with Google globally in 2014, and Expedia Inc., will chip in $1 billion. Those figures can only have increased in the last two years and may go some way to explain where a good proportion of the revenue from high hotel commissions may be going.
What will be interesting to watch is the competitive response of Booking.com and Expedia. Right now, I doubt that Hotel Bonanza is on their radar and, even when it launches early next year, it is hardly going to offer any competition to these mega-OTAs. However, that 8% commission will be very attractive to hoteliers and you could imagine Hotel Bonanza becoming the booking channel of preference.
If Hotel Bonanza starts to grow what might the reaction be? If hotels are on Hotel Bonanza could Booking.com and Expedia suggest to hotels that they will be taken off sale? That doesn’t sound legal to me. Could the big two set their search results algorithms to move hotels down their search listings if they are on Hotel Bonanza? Might Hotel Bonanza be bought and closed down?
I don’t know what the competitive response will be but I would be interested to hear your thoughts. Suzie says that if there is a combative reaction from her larger competitors that this will be good. It will prove that she is doing the right thing launching a business that is, in her words, “…a credible alternative to Booking.com and Expedia with fairness and transparency at our core.”