NB: This is a guest article by Andrey Spektor, founding CEO of Gimmonix (Carsolize).
We constantly monitor the technologies used and products offered by travel brands worldwide - and have found some striking oddities.
The tendency these days of many established brands is to use low-margin affiliate iFrames and white labels for high-profit segments like hotels.
The large assortment of accommodations coupled with a free, turn-key operation certainly has an appeal, but is it really worth the real cost?
By using affiliate programs, travel brands not only diminish their profit margin to ridiculously low levels, but also support the rapid exponential growth of their greatest online rival.
Affiliate networks are great for young entrepreneurs - not serious travel brands
Three companies (who are doing a great job for themselves) bite into a growing segment of the global travel industry, forming what we refer to as The Beast:
- Expedia (aka Hotels.com, Egencia, Hotwire, eLong, Venere, CarRentals, etc)
- Travelocity (aka Zuji, WCTravel, Lastminute.com, etc)
- Priceline (aka Booking.com, Traveljigsaw, Agoda, Rentalcars, etc)
Affiliate programs are perfect for startups who know very little about the intricacies of the travel industry, and have little to no money in their pockets.
Following a quick sign up process, an iFrame is ready to be installed on your site – with numerous properties available for instant booking.
Your share? Around 3% to 7% - at best.
While it is a great start for someone new to the industry, it hardly makes any sense for professional organizations and well-funded travel startups to follow this path.
75% of revenue is fed to The Beast
With average hotel booking value of EUR 250, 5% affiliate VS >20% wholesaler commissions – travel brands lose up to 75% of their revenue - as much as EUR 40 per booking!
Considering a normal booking conversion rate of 2.5%, a well positioned online travel brand with 100,000 visitors a month gives away as much as EUR 100,000 every single month to their affiliate network. Looking for a self-destructing industry?
Look no further! Every referral dollar earned, feeds $40 to the OTA beast.
Selling traffic is not sustainable
Many young OTAs have attracted significant investment in recent years.
- With all the hype Hipmunk created, for hotels it still just links to Hotelscombined, which then redirects to leading OTAs for actual bookings.
- Russian newbie Ostrovok, links to Expedia.
These and other brands have attracted substantial investments, and the list goes on.
At an estimated 300:1 conversion, selling one’s traffic a buck a pop might be cool, but in the long run it’s not sustainable: with full dependency on traffic, these OTAs will die as soon as user acquisition cost becomes too high, which is a matter of time, given the growing market share of The Beast.
Professional travel brands are committing silent suicide
The bankruptcies of large local tour operators and the financial hardships of global, so-called old-school brands witnessed in recent years are a testimony of the need for change.
Travel brands must earn well on sales to thrive. Feeding The Beast exacerbates the situation, making things harder to fix as time goes by.
These companies, with supplier agreements in place, IATA licenses, and BSP arrangements, will thrive only by providing their sub-agents and online clients with true value, and that can be achieved by putting their resources together.
Sounds hard to do? It must be easier than being consumed by The Beast.
Those feeding the beast are bound to be consumed by it
Whether you are an established travel brand or an innovative OTA, redirecting your traffic to The Beast is not sustainable and something must be done.
Existing technology and prevalence of professional wholesale resources makes it possible to beat the Beast in its own game instead of feeding it. It is time to take back what is yours – your clients, and those 75% of the profit you are willingly giving away.
Why are you feeding The Beast?
NB: This is a guest article by Andrey Spektor, founding CEO of Gimmonix (Carsolize).
NB2:Scary beast image via Shutterstock.