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Disruptors: Hotel advertising gets complicated

TripAdvisor is a traveler-magnet. With over 315 million unique visitors dropping by its branded network of websites every month to peruse its more than 915,000 listings for hotels and other specialty lodging, it is the world’s largest travel site. Following TripAdvisor’s launch of its meta-search booking platform in 2013 and Instant Booking in 2014, hotel groups are still struggling to incorporate the channel into their advertising strategies.

Meta-search is sold on a bid-based cost-per-click (CPC) basis and works similarly to Kayak and Google Hotel Finder – passing the user to the hotel website to complete the booking.  Instant Booking is different. The hotel is sold without leaving the TripAdvisor website (although the reservation is still made with the hotel and the hotel remains merchant of record). Instant Booking eliminates the latency and inefficiency of the website handoff that is reportedly preferred by consumers. It is sold on a cost-per-action (CPA) basis, which is closer in nature to the commissionable agency booking model employed by OTAs.

TripAdvisor ran into a wrinkle when it first launched Instant Booking. According to Bank of America/Merrill Lynch, when initially launched, Instant Booking used a bid-based CPA model with a minimum bid floor of 6%. However, after both Expedia and Priceline balked at participating (preferring to stay with the CPC meta-search model) TripAdvisor had an inefficient bidding marketplace and had to make changes.

Now, if a hotel pays a 12% commission, they will have their instant booking button appear in 25% of search results, or 50% if a 15% commission is paid.  As a result, many of the major hotel groups have followed the lead of the OTAs and remained with the CPC model.  With higher commission levels, the hotel groups are now reportedly concerned about creating a third, powerful, commission-based OTA.

Despite the hoteliers’ concerns regarding commission levels, the reality is that hotels tend to prefer paying commissions over allocating advertising budgets. No hotel has never suspended room sales because the commission spend was tracking over forecast. However, even hotels running extremely profitable CPC campaigns may not be able to access incremental budget to opportunistically extend/expand campaigns.

Due to the fragmentation across brands, management companies and hotel owners and their respective business models, revenue streams and budgets, the funding of advertising campaigns can become problematic. All parties, including their respective digital agencies, need to cooperate and collaborate to profitably capture demand from large traffic sources like TripAdvisor. How they choose to accomplish that task remains to be seen.

 


Contributed by Robert Cole, RockCheetah, Menomonee Falls, Wisconsin

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