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Against the backdrop of ever increasing power for online travel agencies (OTAs) like Expedia and Booking.com, an alternative movement is forming, which supports the fate of small and independent hotels.
In part one of this 4-part series, Thomas Magnuson, co-founder and CEO of Magnuson Hotels, discussed the “pay per click” black hole, and how Expedia and Booking.com spent a combined US$3.8 billion on marketing in 2014. With such spending power, OTAs are becoming increasingly important in the booking process, and independents are becoming more reliant on OTAs to bring in business. Here, in the second part of this interview series, Skye Legon, co-founder and CEO of start-up BookBedder explains how his team is trying to change this power balance.
Online travel agency Booking.com is a big success story and it’s becoming so successful that it is starting to cause problems for hotels. Hotels are both happy and unhappy with the major platforms: they bring them lots of bookings, but the conditions are sometimes constraining, and commissions can be high. Hotels are seeing a growing proportion of bookings coming through OTAs, and are putting the emphasis on direct booking to combat this. Direct booking tends to plateau at around 15% of their reservations though, and the real reason is that most clients don’t want to book direct. They like Booking.com because it has got a huge choice of hotels, and they can use one site for all of their bookings. An independent hotel can’t compete with that, and so we said: “Is there a way to create a portal that gives the client the same value as Booking.com, with ease of use and a large choice, but that brings bookings to hotels in a more reasonable manner?”
We started to look into the costs of online booking, and if you look at Priceline’s annual fiscal results, you see that its IT costs are negligible, standing at only about 2% of its overall costs. However around 56% of its total spend is on Google Adwords, the cost of which is reflected in hotels’ booking commissions. That told us there is a lot of scope for savings if we can get away from this Google Adwords model. Independent hotels on their own have no power, but collectively they are sitting on a huge potential client base. So we worked out how to create a platform bringing these hotels together and to tap into this potential client base, the advantage of which is that we can acquire clients at a lower cost than Google Adwords. This means we can charge less commission to hotels, and the hotel can offer lower prices to the customer. The idea is to share the marketing effort between independent hotels to generate a user base at a low cost, all the while giving the client a one-stop shop for his hotel booking.
We’ve built the platform, and to kick off BookBedder, we are working with a third-party aggregator of inventory because we need to have a huge choice of hotels for clients. Now that we have the platform, we are contacting hotels to integrate them into the platform and work directly together. To drive customer acquisition, we say to hotels “when your clients join BookBedder and travel elsewhere in the world, we will share the commission generated with you”. A hotelier here in Lausanne doesn’t want his client to go across the street to another hotel, but when his client goes to London, he is not in competition, and he has no problem sending his client to a specific hotel in London. The hotel in London is happy to have a new client at a reasonable commission rate and part of the commission will actually go back to the hotel that brought him the new client, so this is really the mechanism that we’re putting into place.
The nice thing is that there is a consumer trend towards more personalised individual experiences, and independent hotels by definition each have an individual personality already. Chains need to create this artificially, so they invent sub-brands to try and capture some of that independent spirit back. We de facto have that independent spirit in the sense that we’re bringing independent hotels together. I think that is something that is important and something we need to capitalise on. From a traveller point of view, we target consumers who have some spending power, and who want to book in a more responsible manner, a smarter manner working for social good. There is a collaborative and anti-conformist aspect to this. Everybody books on Booking.com. We are aiming more for this individual spirit to get away from the factory experience of the large booking sites.
I think the Airbnb parallel is interesting, because Airbnb really freaks out hotels. Airbnb has really revolutionised things, by turning consumers into providers. For us, the focus would be more on banding hotels together to have more strength against OTAs and chains, helped by a loyal group of clients. If we can create a crowdsourcing environment between hoteliers and their clients, that would be fantastic.
I agree that direct booking is heavy friction. We’re taking a first step by giving the hotel a single website that it can direct its clients to, and that can be used for bookings throughout the world. Next, we’ve tried to create a very clean website. It’s a question of taste, no doubt, but I think Booking.com has a very ugly website. For it, the goal is not being pretty; its goal is to convert, and it does that the best in the world, but it’s a very busy website. There’s tons of information that’s written really small, and we’ve tried to create a booking site that is similar enough to the booking websites, but one that’s cleaner and not heavily loaded with blinking things and “a person booked two minutes ago” messages. The site is responsive, so it works well already on a mobile phone. Having a seamless multi-platform service is the goal, but we have to put priorities on development, so dedicated apps will be further down the road.
I want to revolutionise customer acquisition through crowdsourcing. That is the essence of what we’re trying to do; finding a more efficient way to do customer acquisition that is beneficial for both the supplier and the consumer. That is my overall vision. In time, what I would really like to do is to help hotels remain independent. In the US, we’ve seen a lot of franchising of hotels, which removes much of their individual soul. In Europe, hotels are under similar pressure. I think it would be sad to turn our back on that. We’re not a chain; we’re a network helping hotels to preserve their individual spirit and personality.