Two vintage games come to mind as we in the United States inch our way toward the November elections: Pac-Man and Whac-a-Mole.
For those too young to remember, Pac-Man was an electronic game whereby the player chewed up all the lesser players, gobbling its way to the next level and ultimately the win. For years, we’ve been watching real-life games of Pac-Man in the travel and tourism industry. I remember the day when there were about 15 major airlines; we’ve consolidated to three major U.S. carriers and a handful of regional suppliers.
Likewise, this month Marriott International finally closed on its acquisition of Starwood Hotels & Resorts, creating by far the largest hotel company in the world. We’ve seen other major mergers over the last decade, and so we are now left with a handful of hotel companies that control the vast majority of rooms supply in the U.S. through their brands and affiliations.
For years we’ve heard brand managers champion the notion that it’s their product, their loyalty program, their bedroom, their value proposition that’s better than the competitor because of “fill in the blank.” While it may be true that one bed is more comfortable than another, or that you can only double-dip with Brand H points, the mergers belie the idea that the bedroom is not a commodity.
In fact, the big brands read the writing on the wall quite a few years ago and telegraphed their intentions to the world. The internet had democratized the reservations eco-sphere because customers can now, with the click of a mouse, compare all hotels in a market, by location, quality, amenity and price. The telegraph read, “We’re protecting market share and have created a collection of unique independent hotels throughout the U.S. and the world that allows the discerning traveler more choice and still earn points.” Marriott International created Autograph, Hilton Worldwide Holdings created Curio. This contradicts the unique selling proposition of the brand and power of brand standards.
The brands’ battle with independents however, is a small firefight of inconvenience compared to the ongoing war with the online travel agencies. The OTAs were also playing Pac-Man, gobbling each other up faster than you can whisper “monopoly.” At one time we had Hotel Reservations Network, Travelocity, Hotels.com, Orbitz, Priceline, Sidestep.com, Trivago, Kayak, Hotels.com, Booking.com, Expedia.com, CheapTravel.com, Agoda and a host of others.
We now have two remaining parent players, Expedia and Priceline—each owning a stable of consumer brand names that dominate the global online booking world—and some lesser-known, but effective players such as TravelZoo, TripAdvisor, and HotelsTonight.
As Pac-Man-like consolidation proceeded among the big brands and also within the OTA space, a recurring game of Whac-a-Mole emerged again and again. In this game, the big brands try to beat down the OTAs—whom they perceive as moles trying to eat their lunch—by stealing market share. The OTAs dive low and respond by burrowing another tunnel and popping up elsewhere on the board. I can barely remember all the various versions of this game, but it began with the big brands beating up on the many OTAs over a favorable net rate/inventory and commission structure, which the big brands still enjoy to this day.
The OTAs responded by giving them a favorable commission structure but giving the independents better sort-order placement, i.e. page one in return for even higher commission structure. The brands demanded page-one placement, too. The OTAs responded by expanding page one from 10 listings to 25, to now 50 or more, i.e. the perpetual scroll.
The brands whacked back, creating a brands-only consortium, TravelWeb—a private label offering owned by Hilton, Hyatt, Marriot, Six Continents, Starwood and Pegasus—and partnered with Priceline in 2003; it didn’t work. By 2012, the big brands, themselves somewhat consolidated, formed yet another alliance, this time RoomKey—so much for the supposed differentiation; this, too, hasn’t worked.
Beginning in 2015, members-only rates and private labeling—effectively another fence—were the big brands’ hammer response to the OTAs continuing to capture increased share. Expedia specifically responded with “dimming” of brand names and also launching its Accelerator program to allow hotels to buy preferred placement by bidding up commissions.
Meanwhile, some brands are now offering their loyalty program rates directly on the big OTAs, yet others have started to offer rates and inventory on nontraditional booking sites, such as vacation websites.
As for independents, while the reach and advertising power of the OTAs will continue to be a determinant to their success, as long as the cost of the booking remains lower than costs of brand and franchise fees, independents will remain just that. Total alignment, with the hammer or the mole, is antithetical to being independent.
So what does all this have to do with upcoming elections? Nothing really, other than to point out that by 9 November, we’ll know the election results, whereas with this game of big brand versus OTA, as with Pac-Man and Whac-a-Mole, the outcome is far from certain. Be sure to vote.
George Jordan is senior vice president – operations for Oxford Hotels & Resorts, overseeing a cluster of three-, four-, and 4 ½ -star hotels, both operating and under development. Mr. Jordan has worked in hotels for over 30 years including the Arizona Biltmore, The St. Paul, The Marquette, The Drake, Raffaello Hotel, Hotel Felix, and most recently The Godfrey Hotel Chicago. New openings currently orchestrated by Mr. Jordan include the Godfrey Hotel Boston, and LondonHouse Chicago. Mr. Jordan rose through the ranks while attending college at University of Southern California and Arizona State University, where he obtained a B.S. in finance. George has served as area food and beverage director for Hilton International, based out of the Drake Hotel Chicago, and also as hotel manager at the Drake. George joined the Oxford team in 2009 as area general manager; he was promoted to senior vice president in 2012. His daily duties include oversight of Hotel Felix, Hotel Cass, Godfrey Hotel, and contributes his operational and marketing expertise to acquisition activities. George is a well-respected leader and a member of many Chicago civic organizations including The Magnificent Mile Association, CCTB, DLC and serves on the board of directors for Lawson House YMCA and on the advisory council of De Paul University’s School of Hospitality. Mr. Jordan writes a quarterly column for Hotel News Now and is slated to be a cast member in an upcoming reality TV series.
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