Executive Roundtable: Street Talk (11/9/17), Phocuswright Conference
Rachael Rothman, Sr. Analyst, Gaming, Lodging, and Leisure at Susquehanna Financial Group
(on hotel demand)
“I think we know from the industry-wide data that there is a definite shift to book direct…I would also just highlight that going back 30 years from hotel school, we always thought of brands as occupancy insurance and now that we’re getting 92 months into the recovery, I think you’re going to see that brand power come back into effect, and you’ve seen some of the hotel owners that have moved away from branded product and that relied on things like Expedia and Priceline actually suffer and underperform. And so I think it’s being proven out to the owners and to the operators that the brands actually are working and scale is working. Occupancies are at all time highs in the hotel industry, my stocks are at all time highs, and there are no signs [of] waning demand…there’s not a ton of pricing power but it isn’t a demand issue.”
(on hotels possibly filling the OTA gap on meta spend)
“They are unlikely to step in to fill that gap. I think historically that has not necessarily been a customer that they wanted. I view it as someone who’s pretty brand agnostic and price sensitive. I think what you could see though is some of the bigger brands stepping in with something like Instagram and Facebook and saying ‘hey Rachel, I see that you’re celebrating you’re 10-year wedding anniversary at the Ritz Carlton in Naples…how about next year you go to the Ritz Carlton Dana Point and you book today and we give you 20% off’. They already know I’m a loyal Ritz Carlton customer, they can see that I’m taking photos and interacting…and they can go direct to the customer with a targeted offer.”
(on alternative accommodations)
“First, there is some thought that it takes away pricing power on compression nights. So, that would be if you had SXSW in Austin, TX for example, historically maybe you could have raised your room rate by 30%, now you can only raise it by 10%. But, we also have to consider that Airbnb’s supply is flexible, meaning that people put their capacity on when rates are the highest and I personally am of the belief that Hilton and Marriott and their owners’ balance sheets are built for a recession. When we go into a recession, the Airbnb owners, many of them have extended themselves into having multiple properties and when they find that they can only rent that home for 30 bucks and it’s either $100 or 5 of their own hard labor hours to clean it, you’re going to see a lot of that capacity come off the market and I think it’s going to be the same balance sheet lesson that a lot of individual homeowners learned in the 2008 recession.”
(on loyalty discounts from hotel chains)
“I think it’s working, I think it’s a big deal…Expedia may be able to offer you a free flight or free whatever, what they can’t offer you is 9am check-in, 4pm check-out, free breakfast, unlimited free cocktails, any sort of amenity that any one of these hotel owners or operators can offer to their customers.”
Lloyd Walmsley, Managing Director, UBS
(on OTAs pulling back on meta)
“Priceline has been the most vocal about pulling back and they had spent a lot of money on trivago over the last 2 years and I think trivago was pushing pretty hard and you have a new management team come in and decide to take the strategy a little more aggressively. They had been funding a competitor in search channel so I think it makes eminent sense to try to reset that auction. Priceline has spent some money in TV historically but booking.com’s brand in all of our survey work has still lagged that of peers, so I think it makes sense to be building a brand…I think Google is going to continue to move further and further into the travel vertical and that poses obvious risks if you don’t have a strong brand.”
(on TV spending)
“[TV spending] makes the online spend more efficient. So, Google obviously has a quality score and the higher your click-through rate is the less you pay for ads. Kayak, when they were public, gave us enough disclosure as part of the IPO process that we could see when they started ramping their TV spend, in the first two years after they ramped their TV spend, the cost that they had to pay for their digitally acquired clicks was cut in half. I wouldn’t expect the same magnitude for a brand as big as booking.com but there are secondary benefits to being on TV.”
Eric Sheridan, Managing Director, UBS
(on loyalty discounts from hotel chains)
“Phocuswright put up a lot of their own data saying that loyalty rewards don’t actually drive as much velocity of shopping in travel. We’ve done consumer intention surveys that say similar things. The business market seems like it’s much more driven by loyalty rewards than the consumer marketplace…I would expect over time that the OTAs and maybe Airbnb explore loyalty and rewards.”
(on Amazon, Facebook, Google getting into travel)
“Amazon’s tried a couple times at this more in beta mode and never really gotten much further than that…I think that the inventory is so fragmented on a global scale that in order to achieve scale, I think it would take quite a long time to achieve the scale benefits that Expedia and Priceline have on the inventory side. We’ve always been fairly dismissive of the concept that Google will become an OTA. Google wants more of their partners’ marketing budgets by delivering more qualified leads and delivering more CPCs from it. So, from our view, Google’s always wanted to own more top-funnel than the actual bottom part of the funnel.”
Joint Interview with Expedia guys (Phocuswright Europe, 5/22/17), Phocuswright Conference
Cyril Ranque, President, Lodging Partner Services, Expedia Inc., Expedia
(on providing technology for hotels and being a “platform company”)
“The idea is pretty simple. We’ve proven that we can take the platform from our brand and power other brands very effectively in the OTA space and now the idea is to take the same platform and leverage it for hotel partners and allow them to access all the benefits of that technology…and the thinking is if we are improving the customer experience regardless of where the customer wants to book, be it on Expedia or hotels.com or on brand.com…that translates into more disposable income spent on travel. It should be good for the industry and if we power all these parts of the ecosystem, we’ll get a share of the revenue…hotels have needs for pricing, they need data to price correctly. We provide them access with competitive data, market demand, etc. so they can do their pricing, it can be a chain or individual hotel, we can provide data that a small hotel would not have access to to optimize their pricing.
Then, after they’ve done their pricing, they need to attract consumers to their website…we launched a product that allows them to spend their marketing to attract consumers from Expedia and hotels.com directly to their website, which was unthinkable a few years ago…and then the next step is powering their website to make it more effective and increase their conversion. We’re doing this with Marriott on vacations and Vacations by Marriott has grown tremendously…then after that you get to the guest experience, we’ve invested in a company called Alice in which we have a minority share which optimizes hotel operations. We also allow hotels to sign up more loyalty members…we did a test with Red Lion. Then we provide real time feedback to increase the customer satisfaction by treating problems that arise on property before customers write a review later on.”
Booking.com Executive Interview – Phocuswright India 2017 (3/13/17), Phocuswright Conference
Oliver Hua, Managing Director, APAC, Booking.com
“Three years ago we had less than 3,000 hotel partners in India. Now, today we have over 20,000. And the number of room nights per partner remains roughly steady…it’s pretty significant but we’re still in early stages of growth. We’re seeing high double-digit growth for multiple years now and we expect that to continue.
Our strategy in China is two-fold. We develop our own business, China is a major source market for us. The majority of APAC destinations – Japan, Korea, Thailand – are quite dependent on Chinese inbound. We have nearly a thousand people working in our call center in Shanghai. Then the second prong of our strategy is the partnership we have with Ctrip that evolved from a commercial partnership where they were a distribution partner for us into an equity partnership in which we invested pretty heavily into the company in 2014 and 2015…Ctrip has been leading industry consolidation in China, they’ve been rolling out new product and services…and the fact that they’re gaining share in the market is helping us as well because through them we just get a larger audience for our inventory. Our relationship with agoda, our sister company, is very similar to how we work with Ctrip in China. They are two separate brands that operate completely independently of each other.”
(on the long tail of properties)
“In Japan, it’s a well known fact that we have a situation where the market is essentially undersupplied from a traditional hotel accommodation perspective, and then you have a lot of long-tail properties that’s unoccupied because of the shrinking population. The demographic change and migration to large cities…you have a lot of apartments, short-term rentals that’s available for rent and that’s a market we’re definitely very much committed to. We actually have plenty of that type of inventory that’s available on our site for instant booking and immediate confirmation. That’s how we differentiate from other offerings. When you come to booking.com and you book a long-tail property, the customer experience is exactly the same as booking a traditional global chain hotel.”
a16z Podcast (10/28/17; B2B2C Business Models — Trick or Treat?)
“One of the biggest mistakes I see is ‘listen, we’re working with system integrators, we’re working with MSPs [managed service providers] because they somehow think that’s going to give them reach to a bunch of customers, basically it never pans out…in mature markets it sometimes pans out, but in pre-chasm markets, I don’t think it ever does. [Pre-chasm meaning] there’s no market category, there’s no budget, the customer isn’t educated about what you’re doing. And the reason it doesn’t work out is because…a lot of the enterprise actually purchases from a reseller, not from the vendor directly…and the thing is [resellers] don’t have the salesforce to carry pre-chasm products. They’re good at distributing things where there’s a known budget, but if you’re doing something fundamentally new, there’s no way that a VAR can pitch, educate the customer, and so forth, so normally you have to create a pull-based market before you can actually engage partners.
In the enterprise, the two ends are the vendor, which creates the technology, and the customer, which consumes the technology. In a direct sales model, the vendor creates a sales team and the sales team shows up to the customer and manages that customer. So, let’s say you create a widget in a mature market, so the customer doesn’t have to be educated. And you’re able to get a general partner to sell it. One of the big problems is you don’t have a relationship with the customer. So much of enterprise dynamics come from renewals, expansions, and upsells. Often hyperlinearity in growth comes from expansions, so you actually have to have a relationship with the customer in order to do that. And so going that route is fraught with peril for startups. You are not the one that is actually bringing the product to the end customer…you don’t know what they want, you don’t know what they need, and you won’t have the leverage point to expand that sale […]
The biggest jump in operational complexity a start-up will ever do is when it goes from one product to two products. So, if you do introduce a second product, if you can align it with the same constituency, the same buyer, that’s the best…a natural response of start-ups of not having product/market fit is building another product, which I think is probably the worst thing you can do.
Over time, R&D pencils out as almost a fixed cost or super sublinear but sales scales linearly with people on the ground, so if you hire more sales people, they’re very expensive but to get more dollars you need more sales people. So, there’s this dream that you can have somebody else bare that cost for you…the problem is that the channel doesn’t have the salesforce to push what you’re doing…the lifecycle that normally works is the startup tries that, figures out that it doesn’t work, but maintains relationships with these channel providers. Start-up then builds a direct salesforce and creates awareness in the market and starts to sell it. Once you’ve started to sell it, you’ve actually created now a market and the market isn’t a product market but a market of services around your product. So I sell something to the enterprise just to do a proof-of-product, requires some implementation, and often companies will pay for that, and then after you’ve sold it, that requires professional services along with it. Once you’ve sold enough gear, those markets arise and now you have something you can incent a channel partner with….so now you actually have a market to incent them to invest in training, to get a relationship with the customer, etc.
It’s incumbent on the startup to create the market and once you’ve created the market, you have sufficient leverage to turn on the channel.”
“The other challenge with B2B2C is that if your C at the end is coming from the B in the model, then the two business models endanger one another. There’s a company called Yodlee, it’s been around for around 20 years, it’s a key part of the ecosystem for every fintech company that gets data from banks. So if you ever go to E-Trade and it says ‘log into your Bank of America account to wire funds’, that’s going through Yodlee. It turns out they get all of that information in aggregate and they have a different business model which is they sell anonymized aggregated information that they’re collecting from everybody, all the businesses they are working with Yodlee. If they do that too aggressively, it puts them at odds with their core, main business…you can go from being a symbiote [with your middle B] to a parasite or even an antagonist if you start doing things that are competitive with what they’re doing or hurt their primary business model.”
(when B2B2C works)
“I think Rakuten is a good example of this because if you are a bread merchant and there’s another meat merchant you can work with and you realize the meat merchant sells more meat and the bread merchant sells more bread if there’s one communal shopping mall for them all to work with, they don’t want the consumer to sign up directly, they want the consumer to sign up in that shopping mall. That’s highly symbiotic…there it’s Rakuten getting the end consumer, but those two intermediate merchants have an incentive for Rakuten to own that consumer because it makes the whole thing work.”
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