The stand-off between InterContinental and Expedia which has seen the former refusing to let its hotels appear on the latter’s websites is finally over.
But the signing of the multi-year agreement by IHG marks a new phase of conflict between hotel operators and third-party intermediaries rather than the end of it.
Back in August 2004, IHG stopped doing business with Expedia (and sister sites such as hotels.com) claiming that Expedia was failing to honour its code of practice for third-party intermediaries.
This stated that the intermediaries were not to “engage in confusing and potentially unclear marketing practices” and had to “respect IHG’s trademarks”.
IHG was particularly miffed at third-parties that bought up website names and keywords that were similar to its brands and then directing traffic to the third party’s own websites.
Although IHG’s sentiments were shared by most of its rival hotel brands, it was only IHG that went so far to publicly castigate Expedia.
The battle three years ago was around the merchant model where the third party websites bought up allocations of rooms and sold them off to consumers. Hoteliers had handed over the rooms at knock-down prices thanks to the collapse in demand that occurred from 2001 but the superior distribution and marketing muscle of the third parties meant massive mark-ups were obtained, as much as 30% or even 40%.
Strengthening demand and wiser heads at the hotel companies led to the balance of power shifting back to hotel operators. So what is there to worry about now?
The business model of the third parties has moved on with Expedia, the biggest of the bunch, leading the way. Rather than just be an Online Travel Agency (Expedia has the biggest share of the OTA market in the US with more than a third of sales), Expedia and others are now generating significant revenues through advertising on its sites. Citigroup analysts reckon Expedia’s sales through advertising are already worth $200m a year. The depth of user reviews is a particularly powerful weapon in this arena and Expedia owns leader in the travel field, TripAdvisor.
The IHG deal sees IHG pay both per booking and for clicks on its hotels made by visitors to Expedia’s websites. Expedia intends to roll out this model with its other hotel suppliers.
The big fear in the first intermediary wars was that hotel brands would be commoditised with OTAs becoming the main hotel brands that travellers identified with.
The second war is seeing this over-simplified perspective changing. A possible analogy is to see OTAs becoming the retailers while hotel operators and brands become the suppliers.
The hotel brand still matters but the connection with the consumer at point of purchase is at risk of becoming more distant. How long before we see own-label OTA hotel brands?
It is significant that the biggest threats to the OTAs in their push into regions such as Europe is not seen as hoteliers but existing bricks and mortar travel agents as the latter raise their game.