This is why Booking.com’s agency model has an edge over other OTAs
Jun 12, 2017, 08:13 IST
Travel eco system in India has reached a point where start ups dealing in packaged trips, hotel and flight bookings are reaching the breakeven of investments quite fast. Thanks to the disposable income of the Indian middle class, people here are more serious about travelling than ever before. Earlier people traveling for weekend getaway had months of planning to be done. Cut to 2010, OTA (Online Travel Agents) have changed the game overnight. There are plenty of packages on offer along with ‘discounts’, which makes it more lucrative for the middle class Indians to travel more frequently.
That’s where the success story of OTAs like Booking.com and MakeMyTrip lies. With 277 million internet users, India has surpassed USA to achieve the second position in internet penetration just after China. If surveys are to be believed, India’s travel market growth will surpass its GDP growth by 2020, which is already at 10.2% compared to 6.1% GDP of the first quarter this year.
ALSO READ: Travelers from Tier 2 and Tier 3 cities are more outbound! Here’s how they travel
Agency Model VS Merchant Model
While most OTAs follow merchant model of business, it is agency model that has gotten the global success. Before going any further, let’s break the concepts for you. In Merchant model, the contract is between the hotel and OTA, where the latter sells rooms at a lower price than standard. The aim is to get bulk bookings and there is no standardization of guest profiles. This gives the OTAs a large room for profit of almost 20-30%. The agency model, on the other hand is far different. Here, the bookings are made on per room basis. The hotel owner gets to decide the final price and shares the commission with OTA only after the guests have checked out. While there isn’t much bargaining involved or the offers cannot be punched with others, this model is transparent. At a price sensitive market like India, discounts do work. But when there is value added, it makes a huge difference.
ALSO READ: Meet this Gujarati street food seller, who just introduced Jio like schemes of unlimited paanipuris
Why hotels prefer agency model?
The agency model of Booking.com is one of the cost-effective ways for hotel and accommodation partners to grow their business and their brand globally. The accommodation partners only pay commission to Booking.com once the guests have stayed, paid and checked out of the hotel. They pay once Booking.com has generated actual business for them. In addition, the agency model enables accommodations to maintain complete control over their businesses as there is no cost to list the properties. The properties have the freedom to decide their own rates and decide the type of rooms that can be made available to customers.
ALSO READ: Here’s why this is the worst time to be in the business of hospitality in India
When the option of agency model wasn’t there, hotels were bound to go for the merchant model to sell more rooms. But once they got the taste of Booking.com’s agency model, hotels now know how to sell rooms without a major chunk of commission.
How Booking has an edge over Merchant-model enabled OTAs?
Booking.com’s biggest challenger Expedia has acquired Italy-based Venere, which uses an agency model. Even if that doesn’t hint to Expedia’s preference for agency model, it seriously poses a question on if that’s the future. But one definitely can’t stop asking, how one makes profit with paltry 12-15% of commission from hotels!
ALSO READ: Travelers from Tier 2 and Tier 3 cities are more outbound! Here’s how they travel
According to Vikas Bhola, Regional Manager of Indian subcontinent for Booking.com, focusing on standalone hotels, Booking.com has the best-in-class availability of hotels, that too in the tertiary global market. The breadth of supply of the OTA, powered by ample money poured into Search Engine Marketing has helped Booking.com convert more customers on its landing page. And believe it or not, Booking.com is believed to be one of Google’s largest advertisers.
ALSO READ: Here’s why this is the worst time to be in the business of hospitality in India
Level playing of technology along with understanding the area-wise travelers have helped Booking.com scale up its empire even with low commissions.
(The writer was at Amsterdam on invitation of Booking.com)
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That’s where the success story of OTAs like Booking.com and MakeMyTrip lies. With 277 million internet users, India has surpassed USA to achieve the second position in internet penetration just after China. If surveys are to be believed, India’s travel market growth will surpass its GDP growth by 2020, which is already at 10.2% compared to 6.1% GDP of the first quarter this year.
ALSO READ: Travelers from Tier 2 and Tier 3 cities are more outbound! Here’s how they travel
Agency Model VS Merchant Model
While most OTAs follow merchant model of business, it is agency model that has gotten the global success. Before going any further, let’s break the concepts for you. In Merchant model, the contract is between the hotel and OTA, where the latter sells rooms at a lower price than standard. The aim is to get bulk bookings and there is no standardization of guest profiles. This gives the OTAs a large room for profit of almost 20-30%. The agency model, on the other hand is far different. Here, the bookings are made on per room basis. The hotel owner gets to decide the final price and shares the commission with OTA only after the guests have checked out. While there isn’t much bargaining involved or the offers cannot be punched with others, this model is transparent. At a price sensitive market like India, discounts do work. But when there is value added, it makes a huge difference.
ALSO READ: Meet this Gujarati street food seller, who just introduced Jio like schemes of unlimited paanipuris
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The agency model of Booking.com is one of the cost-effective ways for hotel and accommodation partners to grow their business and their brand globally. The accommodation partners only pay commission to Booking.com once the guests have stayed, paid and checked out of the hotel. They pay once Booking.com has generated actual business for them. In addition, the agency model enables accommodations to maintain complete control over their businesses as there is no cost to list the properties. The properties have the freedom to decide their own rates and decide the type of rooms that can be made available to customers.
ALSO READ: Here’s why this is the worst time to be in the business of hospitality in India
When the option of agency model wasn’t there, hotels were bound to go for the merchant model to sell more rooms. But once they got the taste of Booking.com’s agency model, hotels now know how to sell rooms without a major chunk of commission.
How Booking has an edge over Merchant-model enabled OTAs?
Booking.com’s biggest challenger Expedia has acquired Italy-based Venere, which uses an agency model. Even if that doesn’t hint to Expedia’s preference for agency model, it seriously poses a question on if that’s the future. But one definitely can’t stop asking, how one makes profit with paltry 12-15% of commission from hotels!
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ALSO READ: Travelers from Tier 2 and Tier 3 cities are more outbound! Here’s how they travel
According to Vikas Bhola, Regional Manager of Indian subcontinent for Booking.com, focusing on standalone hotels, Booking.com has the best-in-class availability of hotels, that too in the tertiary global market. The breadth of supply of the OTA, powered by ample money poured into Search Engine Marketing has helped Booking.com convert more customers on its landing page. And believe it or not, Booking.com is believed to be one of Google’s largest advertisers.
ALSO READ: Here’s why this is the worst time to be in the business of hospitality in India
Level playing of technology along with understanding the area-wise travelers have helped Booking.com scale up its empire even with low commissions.
(The writer was at Amsterdam on invitation of Booking.com)
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