Wednesday, April 18, 2007

Googles continued threat to the Online Travel Agencies

Guest Editor Post from Michael Potts of e-interactive

A few weeks ago Google announced that it was to launch a "pay-per-action" advertising medium through its adsense network. Reaction to the news by the search community has been surprisingly muted, perhaps because this strategy reaches into an online marketing realm that search engines have never been before - affiliate marketing.

For many years pay-per-action marketing (a form of online advertising where the advertiser pay only when an advert actually provides a sale, or other action), has been the nearly exclusive domain of affiliate marketing networks. Some private affiliate marketing networks do exist but the scale of these pales into insignificance against the large affiliate networks of players like Commission Junction and Tradedoubler. These networks have hundreds of thousands of publishers willing to take adverts and be paid on a cost per action basis. About 81% of advertisers use a sale as the “action” that they pay for.

Google’s move is significant for online travel space, not least because affiliate marketing is one of darlings of the major online travel brands. Additionally:
  1. Google has MANY more publishers than any of the affiliate marketing networks. This means that now ANY online travel supplier has pay-per-action access (ZERO RISK ACCESS) to a vast array of publishers that simply weren't available before. In the past affiliate networks and affiliate marketing generally have tended to be solely the concern of larger travel suppliers like OTA's and hotel chains;
  2. If this move affects the ability of affiliate marketing networks to continue to own this space, then it also means that the OTA’s are not going to have it all their own;
  3. Smaller travel suppliers, like independent hotels, can now easily access an advertising medium that is charged in a more similar way as their traditional distribution - as a cost against each booking. There is no need to understand the advertising ROI based on a click through rate or cost per click; and
  4. Google's (previously demonstrated) ability to optimize ad campaigns to maximize ad revenue means that this new product will most likely work well.
THE RESULT: For the independent travel supplier Google is looking like a simple to understand, zero risk advertising medium to rival the OTA's. For the OTA’s it likely means a more uphill playing field in the drive to attract targeted buyers to their websites

So does this signal a bigger move into online travel for Google? Probably not, no. There have been various rumours about Google product releases related to the online travel market, for instance in this blog in ZDnet, but the threat that this possesses has never really been taken seriously. For a start if Google did seriously go after this vertical with their own engine, content and supply they would risk seriously denting ad revenues from the OTA's.

However a move into the affiliate marketing space does pose a greater threat to OTA's as Google provides an even better distribution opportunity for travel suppliers desperate to avoid the high levels of commission payment to online distributors like Expedia (Expedia "normally" charges hoteliers 25% commission on the sale price for the right to place product there.) And once travel suppliers are all hooked on Google it really is time that the OTA's sat up and took some serious notice.

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