IN-DEPTH: The path to booking a hotel room or air ticket remains a complex one. One of the major challenges to date relates to travel product pricing and availability altering regularly. Ritesh Gupta reports

US-based online travel companies are keenly evaluating areas such as brand engagement, getting more out of every marketing dollar, offering flexible booking options and mobile portfolios. To address some of these issues, some players are forming strategic alliances. Priceline’s recent acquisition of travel research site Kayak is one that has really shaken things up. “I think the (Priceline-Kayak) deal caught many by surprise,” says Lincoln Merrihew, managing director of Automotive and Travel at Compete.

Indeed this strategic alliance between two of the industry’s biggest players, and one which values Kayak at $1.8 billion, represents a further shift in the whole revolution of travel distribution. The deal, which is expected to close in the first quarter of next year, also significantly adds to Priceline’s rapidly expanding influence in global travel.

So what exactly does it deliver?  

1. Economies of scale:According to Merrihew, initial impressions are that it is a solid move as long as the current audience overlap between the two sites is not too great - the smaller the overlap, the larger the net pool of customers.  “There are also opportunities for marketing and technology economies of scale; however, there are countless instances including outside of travel where promised or hoped for economies of scale never materialised,” he says.

2. The ability to tap meta-search users:The deal shows the importance Priceline places on travel meta-search. “Priceline realise that even though they spend a fortune on search engine marketing, they respect that there are a growing band of meta search users out there and they need to get into this specific space to take advantage and to grow in the meta-search area,” says Matthew Harris, executive general manager - EMEA & Americas, The Wotif Group.

Kayak alone processed over a billion queries in the first ten months of this year.

As far as Kayak’s performance as a travel meta-search brand is concerned, the company is on a strong footing. In the first quarter of this year, three quarters of its query volume featured users who directly visited Kayak’s websites or used its mobile applications.

As far as revenue generation goes, Kayak’s top ten travel suppliers and OTAs contributed over 60% of its revenues in the first quarter. Of this total, Expedia and its affiliates, accounted for 23%.  

3. Mobile strength:  Kayak processed 56 million queries through its mobile applications in the third quarter, an 87% increase over the same period last year. In addition, since October its mobile apps have also been downloaded over 20 million times.  “Of course, the another major bonus worth mentioning as, one of the reasons Priceline probably came to their decision was Kayak’s undoubted success in the mobile search space, and whether some of the mutual technology initiatives in this space can be shared, primarily to the benefit of Priceline,” says Harris.

4. An inorganic expansion route:It should also be noted that Priceline, as a travel group, has a successful track record with acquisitions.

“It’s also fair to say, that – primarily by acquisition - Priceline has successfully delivered their business model in multiple international markets. They have certainly done so a lot more successfully than Kayak in the past. So the meta-search tool can certainly benefit from Priceline’s cultural and multinational know how by entering more markets,” says Harris.

Kayak has admitted that it has limited international experience even though it has local websites in 15 countries outside the US. Revenue from non-US geographies was $17.3 million in the third quarter, growing by 40% over the same period last year.

Different Tactics  

Recent developments in the online travel space indicate that a lot is happening. Online travel intermediaries have to stave off increasing competition from suppliers. Supplier websites are growing faster than online travel agencies in the US. Big entities be they Expedia or Priceline are keenly evaluating areas such as product development, marketing, global expansion and, of course, their mobile portfolio. It is clear that some of the areas that heavyweights in this business are looking at:

  •  Operational efficiencies – Bringing down the cost-per-acquisition.

  •  Revenue optimisation – Making the most of traffic that is being generated.

  •  Stronger brand – Higher recall, improving upon customer experience - satisfaction at various touchpoints.

  •  Product development – There is a huge focus on their mobile portfolio.

  •  Global expansion - The likely outcome of organic expansion or strategic alliances seems to be stamping authority on a global scale.   

According to Harris, aninteresting outcome from the Priceline-Kayak deal, is the fact that Expedia chose to in many respects go in the opposite direction when disassociating themselves from TripAdvisor, their own meta-based function. “Showing that maybe the two juggernauts see different tactics in growing and diversifying their business further down the track. Expedia, for example, have gone more aggressively down the affiliate route – pushing their EAN (Expedia Affiliate Network) and TAAP (Travel Agent Affiliate Programme) businesses,” added Harris. In one of our articles last week, we also highlighted how Expedia believes its recent move to give travellers more choice at the booking stage is going work in its favour.  

Striving to improve

The path to purchase isn’t a straightforward one. But it is clear that if brand loyalty is strong, and if your customers come to your site, be it for a supplier or an intermediary, then the ability to cross-sell or up-sell additional products is more likely. 

OTAs certainly need to become more pro-active and empathetic to their customer’s needs, says Harris.

A transactional date, destination, price and book model only simply doesn’t cut it anymore. OTAs need to provide inspiration to their customers and ‘excite’ or ‘influence’ them to book.

Harris also points out that hotels are becoming wiser and more powerful.  The tools available to them that allow them to distribute without the use of a third party are becoming more readily available and more cost effective in the form of channel management and full service PMS/CRS solutions. Therefore those OTAs, whose costs are rising in order for them to constantly grow via CPC, SEM or traditional marketing spend, simply won’t be allowed to continually pass the costs on to the hotel by increasing their margins.

“This means the OTA has to add more variety through sales channels – opaque for example, which [as we’ve seen with Hotwire, Secret Escapes etc] will continue to grow, as will closed user groups where niche markets can be targeted and immediate volume can be driven,” says Harris.

All this means that the surviving OTAs are going to be those with the existing brand awareness and reach, those that have a good level of repeat business and finally those that have a relationship with the hotel that translates somewhere in between ‘we need them, they want us’ or vice versa.

It also probably means that smaller OTAs, unless very specialised or niche will be acquired or swallowed up by the larger ones unless they are prepared to diversify and move with the times – as we have seen recently.