Nothing (or almost) is eternal so did our ancestors, but that the situation could change so quickly in recent years, we did not expect for sure. The matter that the giants of the online booking system may suffer losses, go into crisis, could even fail as happened to an agency of Booking Online in Germany, was something really unexpected.
Let’s do a walk together to explain what is happening, taking as example one of the largest OTA in the world market: Booking.com.
10 years ago, getting into Booking.com was hard. It was a privilege and it seemed you had to have certain requirements to be included in their hotels’ list. To be in Booking.com was a real privilege: they chose only a few accommodations in every area, with special features, with at least 8 rooms (for this hoteliers lied, claiming they have more rooms than they had). I mean, getting into Booking.com was not so easy.
Every structure was in, paid 15% commission for every successful booking. And Booking.com finalized many bookings: good for the facilities and for them for sure – considering also that since they have their registered office in the Netherlands, they do not even pay the VAT and do not refund it to us. Okay, but who cares, the matter is that they send reservations as sand. Then there was the big step: the possibility to change the commission percentage to be paid to Booking.com, so as to improve the ranking. This means the highest percentage, the highest position and: more visibility = more bookings. Forget the fact that this concept is completely against all the facilities, which in order to sell rooms they were ready to give the OTA commissions up to 30%. Personally, I tried for a week with a commission of 30% to be among the first results in other important nearby cities, such as Florence. I got a good number of reservations, but I paid a lot because of the commissions so that I did immediately understand that the game wasn’t worth.
NOW: My neighbor, who has a holiday house in the hills with 2 bedrooms, is on Booking.com. But how?! How is it possible?! A house and is on Booking? With only 2 old and dusty rooms! Something has changed.
Today Booking.com does not make distinctions: they let each type of structure enter, large or small, with many rooms or even only 1. The important thing is to insert more facilities as possible, that can collect more fees. This is up to them, but it also means lowering drastically the level. It is ok for the times we live in, but not to be sold in this way.
Then a few weeks ago, the strange news of the failure of the German Agency for Booking Online (www.corriere.it). Whaaaaat?? What happened? A moment of reflection was required with some hammering questions: HOW CAN AN OTA FAIL? HOW CAN A GIANT as the CLEVER HOTELS FAIL? WHAT ARE THE REASONS?
Maybe too much competition, but this assumption lasts very little, considering that this year the Dutch agency received the award of website of the year for online bookings. Then, how come?
And here we are finally down to it and thanks for coming to read this far. The matter is that managers are tired of paying commissions to the OTAs and obviously prefer to have direct bookings. So we understood we should create excellent websites and, above all, nice and functional Booking Engine in order to have a lot of direct bookings with a good conversion rate.
Nevertheless it is not always so, and despite a huge difference in rate between the OTA and your own website, guests often prefer to book with the OTAs. We do not know the reasons, but it seems that the OTAs inspire confidence, more than the direct contact with the structure. The most said sentence of the guests is: “I have always booked with them (the OTAs).” Today, however, thanks to the crisis you go hunting for the best possible price. So we will find more and more advantageous rates by booking on the official site of the facilities for 2 reasons:
- Facilities save money when they do not pay the cost of the commission
- The customer pays less, has better services and often also some extra little gift
We are moving towards the reclaiming for the rooms and the facilities of those who sell directly and a decrease in bookings from the OTAs. And this is good to hear.
Now, however, as already pointed out in the article on TripConnect, there is the problem of parity-rate: you shouldn’t offer a better price on your site compared to what is offered by OTAs. Perhaps you had never noticed, but when we signed various agreements with Booking.com, with Hotel.de, Initalia, HRS, Expedia, Venere and company, we have also agreed not to offer a lower price in our own sites. Do you realize? Is pure madness. And this was a reason why TripConnect couldn’t last: since you can’t offer a lower rate, otherwise Booking.com, for example, writes you immediately a nice letter asking you to align the rates. (Oh, by the way, who knows how happy they are the developers of those programs that with a single click lined up all the OTAs’ rates ensuring the parity-rate).
So what did we do? We looked for a few hotels that had joined TripConnect and offered lower prices on their official sites (sometimes there was even € 30.00 of difference between the price on Booking.com and the official site). Then, we wrote to Booking.com saying that some hotels did not respect the parity rate and we were wondering if the clause was still effective.
They replied us they are unable to control all the facilities but they would have written for sure to the hotels to correct the rates. What’s the end? After 3 months, the rates are always the same and it is always cheaper booking on the official sites you see on TripConnect than on Booking.com.
We’re almost there, one more step and we get to the core.
What happened a few days ago? it happens that:
“The best price’s clause, imposed by the hotel portal HRS constitutes an infringement of competition law. This was established by the Bundeskartellamt (the German Antitrust Authority)which banned HRS to continue applying the so-called most-favored-nation clause and ordered the cancellation of it from the contracts done with hotels from 1 March 2014. A similar procedure started against the portals Booking.com and Expedia, which use similar clauses in their contracts [Fiat Flash].
So what I had expected in this article had its evolution. But the matter is dramatic, because they did not try to enforce the parity-rate. No, indeed! They get rid of it, man!
And finally we get to the core: why parity-rate is over? Why is it better to get rid of this clause instead of enforcing it? Who decided this? Who they asked? Is it a good thing or a bad thing? Who is behind all this?
At first glance it seems a really great thing: I can offer the best price on my website so that guests book with my website because they save. I will not receive e-mails from the OTAs saying I violated the parity-rate. Yeahhhhh!
But the question remains open: why was removed? Are you already there? Do you have in mind as ever, right? That’s right, there is someone behind that drove this thing. If someone has not yet figured out, I’ll show you with last steps.
Why should you join TripConnect (paying over € 780.00) if you couldn’t offer a lower price than the other OTAs ? For the same price it’s obvious the guest will choose an OTAs, for all the above said reasons (because they are famous because he is used to , because he trusts them more, etc) . Thus the hotelier will always try to offer a lower rate on his site, risking of being contacted by the OTAs for the clause-rate parity. But none write you asking to level all the rate. So the parity-rate goes down the drain. Indeed, it is even made a law that prohibits the clause from 1 March 2014. Why Booking.com does not enforce this clause? Because, like all the other OTAs, has signed an agreement with Tripadvisor and takes a takes a lot of money.
They eliminated the parity-rate to allow hoteliers to offer a cheaper rate on TripConnect. This will lead to a scary increase of facilities that will join TripConnect by Tripadvisor, facilities that will pay a lot of money for pay-per-click, will spend an average of € 3,570.00 per year to enable the Business Profile in order to have TripConnect.
Thus TripAdvisor pays all the OTAs so that the hotel can show cheaper rates for its official website (ensuring many more customers who will join to the new platform). As a result, reservations on OTAs will drop because customers will book the lowest price through the official website and the OTAs that for more than 20 years have been with us (living upon us) will inevitably go out of business.
Following the just made logical argument, the prediction is that the facilities will cancel all the contracts they have with the OTAs to have one and only one contact and intermediary of all this will be TripConnect. In fact, on balance, it would seem better to pay around € 400.00 per month for Tripadvisor and TripConnect that pay commissions to the OTAs which, of course, would amount to much more than that at the end of the year. So the best thing to do would be to close all the contracts with the OTAs, subscribe to the Tripadvisor Business Profile, activate TripConnect for your own structure and sell the rooms exclusively through your official website through TripConnect. But if you think about it, at the end TripConnect is just another OTA. Because if the rates of your official website go along with the ones you have on Booking.com, you are f****d and the guest will book again with the OTA.
And then, dulcis in fundo, to reflect a little: would you trust your business in exclusive to TripAdvisor who can’t even manage the reviews on its own site? And with them you can’t even speak directly, except through lawyers. Eventually, as a portal of reviews has turned into another on-line reservation website. And what about your image, your advertising, your broker; do you really want to be given only to Tripadvisor?
If it keeps on going like this, the OTAs for sure will have short life (unfortunately for us), and the abolition of the rate-parity clause is not at all good news actually.