Little more than six
months ago, the one topic that kept travel executives awake at night was Google
increasingly siphoning off industry profits by moving deeper and deeper into
the travelers’ user funnel.
It took a
once-in-a-lifetime pandemic to turn the entire industry dynamic upside down.
With travel coming to a complete standstill during spring 2020, travel companies cut
marketing spending down to literally zero.
But travel will eventually come back - although possibly
not in the same shape and size - and previous
crises in travel have shown that players that most aggressively captured
Google's search traffic during the recovery phase ended up on the winning side
of history.
This begs the
question: With travel companies having the unique opportunity to hit the
marketing reset button, will they swing back to their old investment habits
once travelers hit the road or will they throw away the old search marketing
playbook and try to rewrite their user acquisition strategy from scratch?
Add to the mix the
current roar of battle drums between the travel industry and Google due to the
search giant’s inflexible stance on outstanding invoices despite the
pandemic-driven cash crunch - could this be the proverbial drop that spills the
glass triggering a change in paradigm?
A glimpse inside the mind of the largest travel ad spenders
Booking Holdings and
Expedia Group shelled out a combined $11
billion in 2019, and search and other Google ad inventory (YouTube, remarketing, etc.) took the lion’s share of this budget. Going through public statements of
these travel giants during these last months provides some hints on where the
industry is heading.
Booking Holdings,
possibly the e-commerce poster child in building an online empire on the back
of Google, has been touting in its last quarterly earnings how more than 50% of
its room nights are booked through “direct channels.” It remains unclear if
direct channel includes branded paid search, where Google still earns its ad
toll. This traffic can typically represent up to 30% of paid search marketing
for well-known brands, but remains significantly more profitable than generic
keywords thanks to lower CPCs and high conversion.
Booking’s CEO Glenn
Fogel also states, “We also see things like an increasing percentage mix from
our Genius customers this quarter as well. Certainly, we could have increased
it perhaps if we were willing to spend a huge amount of money on brand
marketing, but I made the point about why that would not be the most efficient
use of our money.”
Booking Holdings' direct
sales strategy seems to be more focused on cross-pollinating traffic across its
different travel services by building the so-called “connected trip” than
increasing branding investment to unreasonable levels.
This may suggest
that Booking Holdings will stick to the strategy that propelled it to first place:
gobble in as much Google traffic as possible when demand is back. Booking’s
boss phrases it as follows, “I’ll confine myself to saying, look, we’re always
looking for high-quality traffic at the right price… And that’s what we’re
going to continue to do.”
Expedia Group, led by its
new boss Peter Kern, has been busy during the pandemic to better coordinate its
search marketing investment across its portfolio of brands to optimize group
investment. As Kern points out, “Our marketing teams will have a great
opportunity to stop competing with each other and start optimizing for the
group of brands instead of for a single brand against another.”
He also remarked in the
company's first quarter earnings call that, with marketing close to zero, “knowing
what your brands can drive themselves without performance is an important part
of this. So I think this low will give us more insight into that as we climb
out.”
In May, asked about reducing
further Google advertising, Kern acknowledged that Expedia doesn’t want to “cut
off our nose to spite our face.”
So despite the old
investment adage, “past performance is no guarantee of future results,” the two
largest Google spenders in travel seem to signal that there is no way around the
search gatekeeper to crank up their sales machine once travelers hit the road
again.
Travelers marketers’ Groundhog Day?
A number of
underlying dynamics can explain why travel companies have no alternative to again
falling into the rabbit hole of Google’s marketing acquisition spiral:
- Back to the future - The pandemic-driven acceleration of a
hyper-connected world allows the search giant to lock its users even deeper
into its integrated travel ecosystem. Travel players will find little
alternative in the digital landscape to capture pent-up demand during the
recovery phase.
- No free lunch - Google's ongoing shift to harvest free into paid search by increasing exposure to
sponsored results seems to have no limits. If there is need for proof, look no
further than to tours and activities, where organic traffic has been severely
decimated last month with the integration in the top of Google’s Ad Box in
similar fashion to hotel and vacation rental. Car rentals and the rest of
travel verticals should hold their breath for future changes to come. This trend will force marketers to step up their search
marketing budgets for years to come while free organic traffic gradually
evaporates.
- The cookies Armageddon - Google Chrome is following Safari's step
in phasing out third-party
cookies by the end of 2022, which will make it much harder to
track users and serve targeted ads. The need to use first-party cookies
collected via logged users will only increase the power of Google's single loop
ecosystem (Chrome, Gmail, YouTube, Android, etc.). Advertisers will need to
rely on ad serving platforms to match collected email addresses with other
trusted user data around the web. The leading market platform in the western world
happens to be Google Search Ads 360.
- The quality score siren song - Search engine marketing is a scale game that has benefited
the large travel players thanks to Google’s so-called Quality Score. The ad
auction on keywords will accept lower winning bids from advertisers with large
search budgets thanks to their higher quality score, earned through better click
through rates (CTR) of established brands and ongoing optimization of ad
messages and landing pages. Top OTAs will think twice before drastically
reducing their search budgets and potentially breaking the virtuous cycle,
letting new entrants climb up the ad ranks.
- The attribution
conundrum - Pinpointing which marketing investment triggered the
actual buying decision in complex purchases like a holiday trip has proven to
be elusive to marketing science despite the wealth of available data. Most
players in travel have stuck to the decade old “last-click attribution model,”
assigning the sale to the last placement where the customer clicked before the
booking. Search sitting at the final step of the customer journey allows Google
to get most of the credit in the marketing mix. Booking.com’s marketing boss
Arjan Dijk recently noted that a distinction
between brand and search engine marketing was “a bit old school,” but it
remains a big question mark if attribution models in the travel sphere will
fundamentally evolve in the years to come.
The OTAs’ prisoner’s dilemma
The travel industry in the post-pandemic recovery will be
confronted with the paradox of the classical prisoner’s dilemma game, in which
two parties acting in their own self-interest do not produce the optimal
outcome.
Reinventing the marketing playbook to avoid falling once
again under the iron grip of Google might be the right thing to do, but how do
you keep newcomers away from eating your lunch and more importantly, how do you
feed the growth machine in a Google-first world once travel demand is back?
Choosing the tried and tested search marketing path will
certainly be the safer bet to jump back on the growth bandwagon, but “feeding
the beast” might ultimately end up transforming OTAs and travel suppliers into
mere low margin content providers or fulfillers of the Google travel ecosystem.
The potential silver bullet for the travel industry might
come from the regulatory side. Antitrust authorities in the United States and
Europe are increasing their scrutiny on tech giants and specifically in
Google's case, their search market and ad serving monopoly. How fast and decisive regulators will strike and to what
extent it might change the industry dynamics remains an open question.
Travel executives sucked up in the current crisis might be
hoping that soon the only reason for sleepless nights is how to walk the fine
line of capturing as much growth as possible without being crushed by Google in
the long run. Use this moment to get back to the drawing board and sketch a
range of different scenarios and marketing mix strategies to enjoy some restful
sleep once planes start crowding the sky again.