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Elephant in the Room

 We have been open eight years.

Our numbers naturally went up each year, and for the first few years so did our returns. However ...

Since booking engines have become THE method of booking beds, our numbers have continued to go up, while our revenue, paradoxically, has gone down.

It's not logical, but the reason is obvious. Perhaps this is not the same in other markets, but in the budget market the profit margins are small and rely on turnover of guests.

Our profits are being eaten up by booking engines and because is such an effective, good booking engine, they of course take most of that.

The argument is that they take a lot of the work out of marketing the business, so they of course deserve a slice of that cake. In cities this may well be true, but in smaller towns and resorts I'm not so sure.

A few years ago all we had to do was have a presence on the internet. A good little website, sign up with the local tourism office and get onto the main accommodation directories. Good signage, and job done. People looked up accommodation, found our name and details and if they liked us, booked.

Before that, before the Internet (I know, it's hard to imagine now) we were in brochures, registered with the local tourist bureau and relied on posters, flyers and of course the Yellow Pages (business directory.)

With each of these, we would charge accordingly and receive the money directly from the customer. They were coming to the town looking for us, and as long as we were visible we'd get the bookings.

That has changed, and over the past three years especially, changed dramatically, 

Since booking engines and apps have taken over the process, people don't look anywhere near the area they are visiting for accommodation. they go straight to a booking app. Even when they are driving into town, or pulling into your driveway, EVEN standing in your reception, they will booking on the phone rather than ask you face to face for accommodation.

It was brought home to me the other day just how insidious this has become. I had a couple who were walk ins. they politely asked the price. I told them the normal price and said because they were walking in and not booking on a booking engine I would be able to give them a 10% discount. job done I thought.

Not even close.

They said they could get it at more than 20% off if they booked directly with the booking engine. I said, "Really?"

They explained they have a deal and do it all the time. They book with one engine and get extra discounts, and a bonus deduction every ten bookings. We are a hostel, a rather good one as we have been voted the best in Australia and that isn't easy to maintain. We charge $33 per person per night and it includes everything from free home made pancakes every morning, free unlimited wifi, a stage, use of musical instruments, sports and movie channels, a soccer pitch and volleyball, free BBQ, free tea and coffee, free movies, in fact everything you would expect to pay more for in an expensive hotel is included for our guests.

My 10% discount took the price down to $30 per night. They said they would consider paying $22 cash, otherwise they would booking online. I couldn't do that, 22 is what we would have charged 20 years ago. So, they stood in front of me and on their phone app booked two beds, the booking came through to me on my phone for the advertised price of thirty odd dollars as advertised on the booking engine. From that we of course pay 12% which takes it to around $26.

They, however, paid $18 each, and the booking engine STILL made a profit.

Multiply these numbers by tens and hundreds of millions, realise that booking engines pay millions to be where they are on Google, and all we're left with really is a booking parasite, taking money from businesses and providing nothing in the way of return. People would have come to the town to be guests and paid you anyway, but by becoming the middleman booking engines have created a new role and to maintain their market share can afford to discount YOUR carefully calculated prices to buy customers, simply by spending some of their commission (your money) to buy them.

I know this is a forum and the last thing they would want is to see a post suggesting the company is a parasite. I get that. I just cant see what else they can be called. We have paid nearly $80,000 in commissions over the last 8 years, most of this in the last four years. At an average of $30 per night that means that over 2,360 overnight fees have been paid to booking engines, for guests who would have found us anyway had the booking engine not been there. The linen, power, water, wear and tear, gas, breakage, theft, wages, rent etc for 2,360 night has been lost.

Obviously we don't have a choice. Booking engines are here to stay and trying to compete without them is nearly impossible because they have made themselves indispensable. Which I think is ironic, given that they weren't required in the first place.

It's a great business, much like Uber.

Have I missed something?

2 Replies

Sanjeev Kumar

Quite a long message, but well explained. we pay £350K+ as group to per annum. This is the way forward if you want to be in business. Just think that without any OTAs how you could have advertised or market your business. Think it is a marketing cost and then add your profit on top of it. Its look easy to say but difficult to maintain, however that's the way it is now. You should be ahead of your competition this is the"mantra" i can advise :)

1 year ago
Angela @Promhills

The person that ultimately looses is the consumer. I have to factor commission payments into all my bookings and assume that all bookings will attract a commission, therefore I price accordingly and any direct bookings are a bonus. If the commission wasn't there, my overall prices would be cheaper, however, I would be spending advertising dollars elsewhere, like brochures, magazine adverts, newspapers etc etc like we used to. Yes, the number of walk-ins had dramatically decreased so less direct revenue there, but we used to pay for other advertising that we don't anymore, now we pay for it as a percentage of bookings, not as a set dollar amount we forked out anyway, regardless of if it brought bookings to us.

1 year ago