The Kayak vs Bing Difference 1 - The Customers Are Different
While both OTAs and Meta-search are about linking bookers with suppliers, they do it by focusing on different customers. The OTA (the retailer) owes their livelihood to the punter, to the customer. The person they get their money from is the consumer making a booking. The meta-search company owes its livelihood to the advertiser, to the supplier. They get their money from the click buyers, suppliers and media companies that buy the eyeballs looking for travel. I concede that there is cross over as many OTAs have large media/partner marketing businesses. But this does not change the dynamics of this difference. If you believe that to "follow the money" reveals the truth then the difference in where the money comes from for each business and therefore who the customer is for each business is significant.
Difference 2 - The Marketing Levers Are Different
Both businesses are websites, both participate in organic and paid search, each operates off-line brand campaigns and online affiliate networks but there is a critical part of the marketing funnel (assuming we still believe there is a marketing funnel) that is very different between the two models. The front end of the funnel for both are similar but it is in the management of repeat customers and customer loyalty (the back of the funnel) that the two businesses are very different. OTAs build loyalty through deal hunting, sales, customer service, customer contact and building unique product. Put another way, by looking to own the entire customer experience of booking travel. Associating themselves in the mind of the consumer as the whole travel experience and only person that can be trusted. Since meta-search companies are not the ultimate destination, they need to build retention through convincing consumers that only meta-search can provide the best price. A one dimensional way of retaining customers that can be very powerful if you get it right but hard to execute on. OTAs focus on owning the customer to bring return visits, whereas meta-search focuses on a (hopefully) repeatable series of "wow, check out that price" moments.
Difference 3 - the size of the prize
With OTAs and meta-search being in different businesses (retail vs media) they are actually competing in markets that are very different in dynamics and most important in size. Let me use the US market as an example of this.
PhoCusWright estimate the size of the US online leisure/unmanaged travel travel market for 2008 was around US$95 billion in their latest US Online Travel Overview Update. This is the market that the OTAs are fighting for against other OTAs and supplier direct.
The Internet Advertising Board (along with Pricewaterhouse Coopers) issue every year an Internet Advertising Revenue report. In their March 2009 report (PDF copy here) they cited the 2008 online advertising spend in the US as US$23.4 billion. On page 12 of the report (again PDF here) they say Leisure Travel as a category was responsible for 6% of the spend - or US$1.4 billion. That is the meta-search battle zone.
There is no clearer indication of the difference between two businesses than evidence that they are chasing different pots of money. The OTAs are fighting with suppliers and each other for a $95 billion dollar market. The meta-search companies are fighting with Google, the portals and other meta-search groups for a $1.4billion dollar market.
To be fair, the IAB report does not fully track affiliate commissions and CPA deals. They track three classifications - Search, Display and Classifieds. Within that they are tracking cost per click inside Search and lead generation payments. But in all likelihood they are understating the size of the market for meta-search. However, even if you double or triple the leisure online travel market measurement it is still only a fraction of the size of the market for sales of online travel. Which make sense. The advertising market for an industry has to be smaller than the industry itself.
I don't raise any this to say that retail is better than media. If I did I would have to find a way to combat the argument that media should have a much higher gross and net margin than retail. Instead I raise these to highlight that the CEOs of meta-search companies and OTAs are looking at very different things when they are planning and executing in terms of customers, marketing channels and the markets they are chasing. If you agree they are looking at different things then you agree they are very different businesses.
Though different business, the interdependence is clear. Good meta-search has the power to shift share away between the OTAs and to supplier direct. Similarly the OTAs have the power of offering discounts and sales to direct customers that meta-search cannot match.
It is a great battle to watch (and be a part of). But in watching (and joining) this battle we need to know the differences if we want to set the right tactics and strategies. What to do you think? Between OTAs and meta-search which one is Rocky and which one Hulk Hogan?
Hat tip and thanks to Steven Gong from Wego.com (funnily enough a meta-search company) for answering my tweet for online advertising market size with a link to the IAB report.
16 comments:
Good article Tim.
Some interesting view points.
Another point to consider, is that the $95b on the table is presumably TTV - not revenue. ie. the OTA's have to give back the bulk of it to the supplier. Media model is different. The turnover IS the revenue. If comparing OTA vs Meta or Media, you really need to compare OTA total potential REVENUE pie vs media etc. Otherwise it would be apples and pears. Still quite a gap though. :-)
Agree with all of this except for Loyalty as an OTA marketing lever.
Loyalty is a tricky one online.
I imagine that, for the most part, "web only" travel bookers just want CHEAP and they'll scratch around anywhere until they find it. Hence the attraction of meta-search/aggregation.
Not sure it's the right audience to be spruiking service credentials to. I don't think they're listening.
Sure, some beautiful search/book technology might sway the balance in someone's favour but the latest innovation (How much do you love sliders?) is always just around the corner.
My own experience of speaking to travellers who booked online is that they often have no idea if they've booked with an OTA, direct with a supplier or "with" an aggregator. There's just this quiet sense of "I did it all by myself" pride generated by booking through "the web". (It had to be a bargain, right?)
So I'm not sure the marketing levers are that different.
I do find it odd that there doesn't seem to be anyone in the bricks-and-mortar space waving the service/loyalty banner as vigorously as they should. Even weirder when you consider they're charging for it now. All I see when I pick up the paper and scan the ads from the "Travel Professionals/Experts/Specialists" is really a stoush for the title of "Package Deal King".
Loyalty. Getting trickier offline too, it seems.
@John - thanks
@Paul - agree on the TTV piece. The margins on media and travel retail are very different. That said, the meta-search business has a lot of traffic arbitrage at its core. That is meta-search companies buying traffic from Google and then selling it to suppliers/OTAs. The margins on that part of the game are shrinking for meta-search.
@Penny - all very good points on loyalty. Thanks
Interesting article Tim.
Given the constant lure of the best fare or best hotel rate what's interesting from my point of view is what's best for the affiliate marketer out there.
Do you benefit most from a revenue share on a booking which obviously is impacted by conversion rates or do you make more by referring more customers as they browse around for the best deal?
I think this would differ from market to market especially in those markets where online booking is low. The meta-search model would generate revenue for the affiliate even where the booking is made offline, or not at all, especially where the user is using the web more as a research tool than for purchasing.
In a co-brand type situation does the customer return to the affiliate or go direct to the OTA next time around to make their booking in which case the affiliate builds no long term value and just helps to build the OTA's brand.
With the meta-search scenario is the affiliate creating more value for the user by showing the best prices out there and in so doing create a more compelling reason for the user to return the next time they need to book?
lot to digest..
poses the question, would frequent travellers use meta-search or ota's?
i havent seen a example of meta-search (flight/accom) allowing contact, payment, frequent flyer, membership details to be stored.
a limitation given frequent travellers dont like re-entering info.
i think meta-search predominantly focuses on leisure, as opposed to un-managed business, in which case not necessarily an issue.
Hello Tim,
On the Spanish market the volume of metasearch is still low for OTAs (less than 10%) because the user does not know the difference between both. On other more developed markets might be a difference but not on the markets where metasearch is the "newcommer".
For me the difference that the metasearch must transmit is that metasearch is the "tool" to make the search shorter, and the OTA is the "shop" that will deliver the service and that has to develop the brand to be more trustable.
Anyway metasearch without OTA has no way (at least on flight search) to grow as the OTA is the only organization providing the mixture of different providers on the same result and that can close sale in one transaction.
great discussion
I agree with Tim the margins on Meta search engines must be squeezed.
These customers are the last ones you want as an OTA therefore you should pay a lower CPC which will impact on the arbitrage and profit from this.
From my experience in other industries where the comparison engines are strong this hurts the whole industry. Already you see comparison sites not reflecting the true costs to the customer with taxes, service chargesand FX fees not being included into the display price.
@Graham - thanks for comments. Interesting insights.
@Steve - my guess is that frequent travellers will use both for research. But will move more and more to booking through a handful of selected/preferred OTAs.
@diego - thanks for the view from Spain.
@John - agree completely that there a display issues on meta-search sites, especially around taxes and inclusions
Don't forget that the OTAs and Meta-search engines are completely in bed with each other. I often read articles which indicate that the real customers of Meta-search are the suppliers, but in reality most of the click traffic from Meta-search engines ends up going right back into the hands of the OTAs!
A third side of this is that suppliers are trying to cut into OTA AND meta-search revenues with their "best rate guarantee." They want people who are savvy enough to book online booking on their site directly and avoid paying either marketing or sales commissions.
In that sense, meta-search may have an advantage, because suppliers would rather pay for driving traffic than share revenue with a travel agency.
Tim,
Interesting article, and good comments.
While you make some very good points Tim, I think there's still a fundamental misunderstanding of what meta-search really is.
At hotelicopter (hotel meta-search), we aggregate the entirety of rates and availability available on our 30+ OTA and supplier partner sites. So we're aggregating information for the consumer. For us, meta doesn't equate to "cheap," it equates to "informed." And we all know that an informed consumer is a happy consumer.
We help these travelers because by aggregating all the available hotel content, they see twice the number of hotels on hotelicopter that they see on the big OTAs. They see 5 or 10 different rates for each hotel, so they are likely to be exposed to various net rates that OTAs have negotiated directly with the suppliers, as well as seeing what the hotel is charging for a direct booking, and in addition the GDS rates available to all OTAs.
When a consumer has more information at their disposal (including review information btw - we display full TripAdvisor reviews as well as reviews from Facebook friends directly in the search results), they can make a better decision. In our case, that means they can find a hotel they wouldn't have seen on an OTA, or they can book with the supplier directly, or they can book at the cheapest rate, or they can book with their favorite OTA brand. So they may not be booking with the low cost provider, just the *best* one for them.
Another point I'd like to make - we generate a lot of our revenues via the CPA model. This means we generate a commission off the total booking. So of course we're directly aligned with our OTA and supplier partners, because we only get paid when they get paid, and we only get paid when the customer pays. So of course we are focused on best matching up travelers to OTAs or suppliers, and as such we're focused on creating the best possible user experience. And we're definitely focused on the $50 billion online hotel booking market.
I would direct your readers to a blog post I wrote on hotel meta-search last year, back when we were still called VibeAgent.
http://www.hotelicopter.com/blog/2008/06/27/presenting-the-case-for-hotel-meta-search/
Also (shameless plug), we just announced today that hotelicopter is the first major travel site to launch hotel ratings through Facebook Connect, check it out!
http://www.hotelicopter.com/news/hotelicopter-launches-hotel-ratings-through-facebook-connect/
Thanks Tim for creating such a dynamic forum for discussion, you're always a great read.
Adam Healey
CEO, hotelicopter
@Adam - thanks for the great comment. Thanks also fthe feedback and contracts on the holicopter promo. Was a great piece of viral PR
Awesome article Tim! Great job.
Very thorough - but the average user doesn't know or care about any of this.
A user goes to a meta-search when she is convinced that her friendly OTA can't deliver the goods.
Since in most cases, this is incorrect - a Meta-search user is an OTA-agnostic user with zero loyalty.
@Places - it is a very good point. Though meta and OTAs are targeting different customers as per my post, the consumer is undertaking the same experience - shopping for travel. The traveller will notice lots of difference in the experience of course. The Meta-search company cannot bundled or give discounts. The OTA company only offers inventory from OTA negotiated suppliers.
I dont think these means that the majority of meta-search users are OTA agnostic. A consumer may still have a strong bias based on brand and previous purchase behaviour.
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