Recent advances in artificial intelligence’s handling of digital advertising have increased the possibilities for hotels to grow direct bookings and compete with online travel agencies, a new study found.
AI-powered ad campaigns, especially when managed alongside manual campaigns, increased the direct revenue share for hotels that implemented them, according to a white paper released Wednesday by hotel technology provider D-Edge Hospitality Solutions.
Findings from the study, which sought to calculate the real costs of direct distribution, should incentivize independent and smaller hotel groups to pursue more direct bookings, said Jean-Dominique Brivet, chief digital agency officer at D-Edge.
“The first step is understanding that doing everything with OTAs and not working on that direct distribution is not a good thing in the long term,” he said in an interview with PhocusWire. “Getting bookings from an OTA is easy ... but it means that you give your global online distribution to one or two actors. Changing this with direct distribution adds future control to what you sell and the price you sell it.”
The first step is understanding that doing everything with OTAs and not working on that direct distribution is not a good thing in the long term.
Jean-Dominique Brivet – D-Edge
The new study echoes findings from similar reports.
For example, the 2023 Digital Hotel Operations Study released last month by the hospitality professional services provider H2c found that record online direct bookings are driving hotel innovation by making guest data more accessible. The report, based on feedback from 84 hotel chains representing 17,406 properties with more than 2 million rooms, concluded that the trend could boost business — but only if hotels continue to push forward on increasing digitalization.
Siteminder’s annual report on booking trends, also released in January, found that direct bookings maintained the momentum built during the pandemic.
“Travelers have become more comfortable booking via a property’s website in the last four years in search of personalized and hidden deals,” according to the report, based on more than 115 million bookings at 40,000 hotels. “The hoteliers driving website traffic effectively and making sure they’re easily bookable are being rewarded with a deeper connection to their guests.”
Another recent study from hospitality technology specialist SHR Group found the share of reservations from direct bookings fell from 39% to 38% in 2023 when group, wholesale and other contract bookings weren’t included. The report, based on analysis of more than 2,000 international hotels representing 50 million room nights, led company officials to predict intensifying competition for customer loyalty.
“Hotel technology is leveling the playing field for hoteliers and their ability to compete for leads, but that return on investment won’t remain the same forever,” said SHR Group CEO Rod Jimenez. “The race to bring guests into loyalty programs and win greater influence over how and where they shop for travel, possibly for the rest of their lives, is becoming much more intense. Personalization and ownership of the guest profile are top of the agenda for the [online travel agencies] and hotel operators alike.”
Cost of ad-driven bookings decreasing
D-Edge’s study is based on an analysis of 1,221 independent hotels and hotel groups across Europe and Asia. It focuses on a set of clients utilizing D-Edge technology solutions and digital marketing services between 2019 and 2023.
The analysis found that hotels saw 36% of their online booking revenue from direct channels when they implemented digital marketing campaigns, such as keyword purchases and presence on metasearch. This proved a big advantage over hotels that didn’t pursue a digital ad strategy.
“When we split our customer panel, separating hotels using our digital ad services from those who aren’t, the result was striking: Those using digital advertising generated 20% more direct revenue than those who didn’t,” Brivet said.
As part of the study, D-Edge conducted a series of tests to identify optimal uses of AI. Giving AI full control increased bookings — but increased costs even more. It was better to have no restrictions on the AI algorithm while manually bidding on the keywords that drove revenue. And the best alternative combined as many channels as possible — using Google’s Performance Max and Meta’s Advantage+ along with standard search ads on Google, Bing and Yahoo! — optimized by AI models and human managed models.
The report concluded the cost of ad-driven bookings is decreasing, in part due to decreasing costs per click, a global increase in the average rate for hotel rooms and the effect of Google’s free booking links. The average cost for direct distribution was pegged at 3.3% of gross bookings, far lower than average commission costs on OTAs.
The Google advantage
Google stood out in the study. It accounted for 61% of the revenue generated through ad-driven campaigns for hotels. And Google’s Performance Max (PMax) tool leverages its machine learning to enhance conversions across its network, including Search, Display, YouTube, Discover, Gmail and Maps, the report said.
In a recent blog post announcing the sunsetting of its commission-based-bidding products for hotel ads, Michael Trauttmansdorff, Google’s director of product management for travel ads, extolled the advantages of the company’s AI-driven tools.
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“A bidding strategy anchored in AI will make it easier for you to market at the speed of consumers,” Trauttmansdorff said. “And in an ever-evolving privacy environment, it will bring you one step closer to meeting people’s expectations and multiplying your results.”
The D-Edge report agrees. It describes how PMax uses AI to consider things like audience targeting, creative content, budget optimization and bidding strategies. Hotels can tailor the budget for bidding strategy, choosing whether to focus on conversions, conversion value and optional targets like return on ad spend (ROAS).
Such tools give even independent hotels the ability to compete with large online travel agencies, according to the report.
“We are very confident that this will become a key part of every hotel’s digital marketing strategy as a way to increase direct revenue in ways that were previously too expensive or complex,” the report stated.
One caveat could come next month when full compliance begins for the European Union’s Digital Markets Act, which aims to ensure fair and open digital markets by preventing large companies from abusing their market power. Google and other large companies such as Facebook-parent Meta, Amazon, Apple, TikTok-parent Bytedance and Microsoft have come under particular scrutiny.
“DMA could upset the current balance of forces in the online booking sector, making it essential for hoteliers to stay at the forefront of digital and technological strategies,” Brivet said.
Pricing strategy key to more direct booking
Using online travel agencies like Booking.com and Expedia will remain an important source of revenue for hotels, some of which use OTAs for three-quarters or more of their revenue, said Jean-Louis Boss, a former executive with D-Edge, now a consultant who oversaw the research for the study.
If [hotels] have non-competitive pricing on their website, nobody will book on the website.
Jean-Louis Boss – D-Edge
“But we think it’s not a good way to manage a hotel and to improve the profitability of the hotel,” he said. “What we think at D-Edge is that hoteliers don’t have to put their eggs in one basket.”
In an era when every hotel has a website and a booking engine, the key driver to more direct bookings is a pricing strategy that shares the savings from not paying OTA commissions with the consumer, Boss added.
“If [hotels] have non-competitive pricing on their website, nobody will book on the website,” Boss said. “If they want to drastically improve their direct revenue, they need to have a very competitive price on their website, if possible a lower price compared to the price on Booking and Expedia. This has an incredible impact on the performance of the direct revenue on hotels. This is a key differentiator. Even for a five-star hotel.”
Added Brivet, “Everybody’s looking for a price at the end.”