The Harvard Business Review (HBR) plans to publish a fictionalized case study about hotel distribution, and it has been teasing a version of the article on its website.
It's written by two well-regarded industry analysts: Chekitan Dev, a professor at Cornell University’s School of Hotel Administration in Ithaca, New York, and Peter O’Connor, a professor at the ESSEC Business School in Paris.
The authors have fictionalized the story of European and North American executives agonizing over a decision to invest in a hotel metasearch platform. Their fictional approach makes the story livelier and also cloaks proprietary data in fudged numbers.
Tnooz suspects that the story of HotelShield is a poorly camouflaged description of Room Key, a metasearch site launched in 2012 by Choice Hotels International, Hilton Worldwide, Hyatt Hotels, InterContinental Hotels, Marriott International and Wyndham Hotel Group.
As in real life with Room Key, the major hotel chains discussed in this case study intend the imaginary HotelShield to act as a counter-weight to the rise of third-party distribution channels run by Expedia Inc and Priceline Group.
The fictional HotelShield works the same way as Room Key does. Visitors to the websites of the major chains who click away from the brand.com site without booking will see an advertisement appear in a separate little window that invites them to use Room Key HotelShield to search for hotels from several major hotel chains -- not just the chain site they had been visiting.
The goal is to tempt users to compare rates via Room Key’s, I mean, "HotelShield's", larger subset of hotels rather than go off to an online travel agency or metasearch.
The HBR article contrasts Room Key, I mean, HotelShield, with the previously failed resurrection of TravelWeb, disguised with a different name, too.
Well, yes. Room Key has been moderately more successful than TravelWeb.
But Room Key hasn't exactly set the hotel distribution world on fire, either. The comparison in the case study implies that Room Key, um, HotelShield, is a more viable and successful model than it has proven to actually be.
Many of the market dynamics discussed in the article also seem like challenges circa, say 2009, despite the case study's nods to recent Expedia Inc acquisitions of Orbitz and Travelocity.
To be fair, the case study -- as it is presented in draft form on HBR's website -- doesn't have an ending. It doesn't definitively evaluate or praise Room Key. Like many HBR case studies, it instead intends to provoke thought and it avoids prescribe a cute answer.
Some of the valid questions that the case study raises are in this section:
"HotelShield was unproven in the marketplace. The business model was sound, but would consumers, especially European travelers, take to the pop-under ads? Could the venture convert enough shoppers to make this a viable channel for Ervaring and scare the OTAs into lowering their fees?"
Dev and O'Conner once again show themselves to be sharp analysts and clear writers, with an eye for drama -- making them always worth a read.
Yet still: this case study's describes dynamics in hotel distribution that seem either out-of-date or, at least, incomplete.
For insight into the broader trends in the hotel industry, I contacted Robert Cole, who runs the RockCheetah consultancy and is Phocuswright's senior lodging and leisure travel research analyst.
He didn't comment on the article but he did email me his perspective on overall industry trends:
"There are some very interesting things happening that are the result of the fragmentation of the hotel industry, how hotel budgets work and a general lack of financial acumen/discipline that leads to counter-productive pricing and contracting decisions.
"I won't even get into what happens with the demise of rate parity or the underlying return on human capital.
"In short, hoteliers are largely willing to pay metasearch platforms more than OTAs are willing to pay. They are also eager to pay through a commission on delivered business as opposed to actively managing an expense line item. At the present time, there is no financial incentive for meta-search to offer radically lower pricing to hoteliers.
"New distribution deals all seem to be floating a 10-15% commission range.
"Considering that most branded hotels are paying out between 10-15% of room revenue in fees, 12-17% in local room occupancy taxes and a couple more points for credit card processing, anywhere from 35% to 50% is being siphoned off of the top-line total guest payment* [see Comments section below] before labor, operating costs, management fees, debt service and taxes are factored into the equation.
"The bottom line is that there are currently some ugly fundamentals facing hoteliers. While business is relatively strong, having substantially recovered from the global financial crisis, the next downturn could be particularly challenging – especially for hotel owners."
JUDGE FOR YOURSELF: "Case Study: Should a Hotelier Invest in a New Kind of Online Travel Agency?"
For background, here's Tnooz's update on Room Key, last year
From yesterday: An Accor executive discusses the chain's strategy of containment regarding OTAs