Book Direct Is A Lie: Hotel Theory

Disclaimer: The metrics used in this writing do not reflect every hotel and brand. However, most brands have similar agreements with OTAs. Examples are for illustration purposes only. Illustrations are based on the franchise model of hotel ownership and not on independent properties.

We are constantly told to encourage guests to book direct.

It is preached that direct bookings are significantly cheaper for our bottom line, that they increase loyalty to our hotel, and that OTAs are evil.

I agree with everything said above, but not as much as I used to.

Over the years, the gap between the cost of OTA and direct bookings has gotten smaller. We used to pay 20% plus for OTA reservations. Enough was enough, and we all started to fight back, but was it too late?

As OTA's market share soared, the brands played hardball. They got commission reductions, enforced rate parity in their portfolios and even offered guests discounts to book directly. These initiatives were necessary, but the OTA industry had already sprouted some unbeatable giants that consumers relied on.

Time Machine, it’s 2010 and some Rihanna song is the number one hit on the radio. OTA’s are charging your flagged hotel a 21% commission.

Traditional OTA booking at this time with a commissionable rate of 21% at $200.00:

$200.00 x 21% = $42.00

$200.00 - $42.00 = $158.00 Net Revenue

Now let's look at a direct booking at this time:

$200 - 0 = $200.00 Net Revenue

Right now, you're thinking, wow, you must be a rocket scientist with that math! Be patient...

Fast forward to today

OTA Booking, 15%:

$200.00 x 15% =$30.00

$200.00 -$30.00 =$170.00 Net Revenue

Direct Booking:

$200.00 Net Revenue

But wait, what about the 5% member discount offered to book directly online?

$190.00 Net Revenue

But wait, what about the 5% cost of rewards points to get that direct discounted rate?

$180.50 Net Revenue

But wait, what about the 2.5% ish fee charged by brands for direct booking marketing?

$175.75 Net Revenue

So now:

($175.75-$170.00)/175.75=3.4%

Looking at this example, the difference between an OTA reservation and a direct booking is not 15%, but rather 3.4%.

Are there a ton of variables that go into this calculation? 𝐘𝐞𝐬

Are OTAs the root cause of all this direct booking inflation? 𝐃𝐨𝐮𝐛𝐥𝐞 𝐘𝐞𝐬

Is owning the guest journey that comes along with direct bookings valuable?𝐓𝐫𝐢𝐩𝐥𝐞 𝐘𝐞𝐬

But, on a case-by-case basis, an OTA reservation really does not hurt you as much as it once did.

𝐓𝐡𝐞 𝐎𝐯𝐞𝐫𝐚𝐫𝐜𝐡𝐢𝐧𝐠 𝐏𝐨𝐢𝐧𝐭:

OTA's have gotten so powerful that they no longer just cost you money if someone books through them. Their inflationary influences in direct bookings now cost you money wholistically. Leading to a scenario where a reservation between the two platforms is not that differentiated.

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