Monday, December 17, 2007

Meta search vs OTA: Should an OTA buy a meta-search company?

Was asked an interesting question about meta-search and online retail by a share analyst reader. Paraphrased, the question was
We get plenty of Private Equity calls relating to meta-search companies. Most want to know if these companies would work in Europe and who would be interested in buying them. Do you think that an online travel agency could/would buy a meta-search engine?
The main difference between a meta-search company (Sidestep, Kayak, Bezurk etc) and an online travel agency (Orbitz, Expedia, Travelocity etc) is that the first group are media companies and the second are retailers. The common element is that each is after the traveller - wants to attract travellers to the site to commit to a revenue generating activity. However the meta-search media business requires very different approaches to marketing, customer retention and business development than the OTA. This is because the activity the consumer is engaged in is different, the tools for retaining customers are different and the revenue model is different. Will quickly touch on each and then look at whether or not an OTA should buy one.

Customer Activity - You would think that since the activity on both meta-search and OTA is search that there would be little difference in customer activity. However the difference here is what is going on in the customer's mind. A consumer on an OTA is experience hunting. Is looking for advice, support, connection - all of the things a consumer desires from a retailer. In meta-search the consumer is singular in their focus - give me the cheapest price on the exact thing I want. This is why OTAs invest so much in brand and customer care. Meta-searchers are traffic arbitragers - they survive by buying traffic at a cheaper rate than advertisers will pay for referrals.

Customer Retention - Retailers can work to keep customers by offering discounts, exclusive deals and targeted promotions - ie product. Meta-search retention comes through bringing consumers into the search experience through reviews, social networking and new inventory connections - ie content.

Revenue Model - commission vs pay per click; cash from consumers vs bucks from media buyers; selling travel vs selling eyeballs.

OTAs therefore have the advantage in customer retention and breadth of marketing tools. But meta-search has the advantage in ease of access to supply and significantly reduced operational costs (no need for customer care and reduced supplier relations costs).

It is because meta-search is media rather than retailer that the biggest meta-search deal around was Farechase being bought by a media company - Yahoo!. However this does not cancel out an OTA as a potential buyer of meta-search. We have a very power example of success in an OTA buying, owning and running a media company through Expedia's ownership of TripAdvisor. Any acquiring OTA just has to embrace being a media company.

I am a fan of the meta-model but (as with all web companies) it is all about good product and execution. There is lots of success in travel so far for meta-search but comparison experts like Pricegrabber have already failed in moving to travel. The fit with a media company is stronger than that of an OTA. Of course - haunting the whole sector is whether or not the general untargeted search people (ie Google) develop the more targeted tools of meta-search.


Anonymous said...

Interesting post. I'm not so sure, though, that the consumer is really that aware of the difference between metasearch and an OTA and therefore whether they are likely to behave much differently. They may be more price sensitive but this could just as easily be because that's how most metasearch engines market themselves.

This would suggest that there is room for an OTA to buy a metasearch and the metasearch may benefit from cheap access to some of the OTAs "experiental" - although cannibalism might be a problem.

The mixed transaction / media model that Expedia announced with IHG recently would also suggest significant overlap.

Another thing you might see more of is meta search white labels where a meta search engine acts as a content integrator for other media companies

Anonymous said...

So what your saying its like a huge shopping center versus a shop

if we where to use live Centro Shopping centers in Australia versus McDonalds.

Mcdonalds lives on its own and does well and may occasionally be implanted in a shopping center.

Occasionally the shopping center does not do so well as they run out of money ......going broke....

But McDonalds will keep advertising and finding other locations.

Is this a good example....

Tim Hughes said...

Dan - I agree that most of the time the consume does not know the difference. A consumer can go through the same activity (search) and have the same result (travel transaction) and not care that they have changed sites or moved providers. However the mechanics of operating a meta-search and the business model - especially customer retention are the important differences. Again I see scope for OTAs buying meta-search but when they do they have to be clear in their acquisition plans that acquiring a meta-search company means entering the media business.

Anon - I like your example and the cultural references to the 3 month drop in the AU stock exchange. Another example is the difference between owning a catalogue retailer and owning a yellow pages listing service.

Anonymous said...

I think your most important statement in this excellent piece was articulating the gap between; what Meta search engines do and what OTA’s offer.

This is the point that the opportunities and threats become apparent.

Meta’s offer a price based commodity search. I bought my mother’s Xmas present (garden shears) from the same Meta engine that I organized their fare to

Australia from. For the Meta business it is all the same, it is the aggregation of similar content from multiple online suppliers, viewed in a standard display in a funky media tool.

What is clear is that OTA’s & other travel sites trading in single or limited commodities are clearly under threat from Meta engines. Meta engines often offer a faster & more

pleasant search experience than OTA’s who are competing for the same online oxygen. Single or limited dimensional OTA’s are clearly under threat as they can only compete on price.

Once the consumer knows they want to travel Thai or stay at the Kulong Beach Villas then Meta’s have it all over OTA’s. The reason being that the consumer is searching for the best price on a single commodity of transport or accommodation, they don’t mind who provides it as long as the price is right as they still get to consume the brand of their choice Thai or Kulong.

Therefore I think that if an OTA buys a Meta company they may just be failing to address more fundamental business issues which are emerging as a result of the changing online landscape.

Don said...

I think you did a great job here of explaining the difference between these two entities to the travel consumer. Of course, I suspect that they probably don't care, as long as they feel they've received a "good deal," which the larger franchises are now guaranteeing that the shopper will find on the branded websites.

Anonymous said...

As a very shrewed shopper i can tell you i have never found total parity at any hotel. They all play games just like consumers do.

A hotel calls the room name different on different sites to achieve different prices as markets have diverged so widely its impossible to have all cars in Black.....Henry Ford Rest in peace