Q45: What Does a Google Travel Super-App Mean For Its OTA Partners?

December 4th, 2018

Google is bulldozing its way into online travel territory. What can we expect from the OTAs in 2019?
— Luke Bujarski

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- What Does a Google Travel Super-App Mean For Its OTA Partners?

The Google Question

The Google question has loomed over the online travel industry for many, many years but 2019 could be the year we see the true face and shape of this Google/OTA relationship start to really come into view. This analysis limits the discussion to Google’s positioning relative to Expedia Group and Booking Holdings, specifically.

Core questions addressed

- Is Google a direct competitor to the online travel agencies?
- Is Google uniquely positioned to deliver better value for the consumer?
- Are the OTAs in a position to create new value for their supplier partners?
- Can the OTAs remain relevant consumer brands longer term?
- How will the relationship between Google and the OTAs develop over time?

Google Super-app?

The company is leaning and eclipsing its ad competitors e.g. Facebook and Yelp, but also its biggest advertising partners, namely Booking Holdings and Expedia Group on things like speed of search results, mobile experience, and personalization. The search giant now has critical mass with consumers as a travel booking tool, and increasingly with hotel and air suppliers looking for more cost-effective marketing and distribution channels.

This puts the company in direct competition with the OTAs. The hotel search and booking feature has recently gotten much better, with new filters and more hotel partners signing on for Book on Google. Google Flights continues to gain favor with the consumer, and now the company is moving into bookable, in-destination activities with its Reserve with Google integration.

The Google Ecosystem

The big advantage is Google’s user volume across the entire app ecosystem e.g. YouTube, Google Maps, Gmail, Calendar, Google Pay, and Google Assistant. The average consumer might spend more time on Google products on a given day, than he or she does on Booking.com or Expedia.com in an entire year. The massive amounts of data that Google has on its user base lends to its ability to serve up relevant ads, but also relevant products and services.

Google The Distribution Channel?

Google has emphatically stated that it has no intention of becoming an OTA. But what does that mean exactly? At it’s core, Google is an advertising platform. 2017 ad revenue accounted for 85% of total Alphabet consolidated revenue. Google started with Adwords and sponsored links on side bars and one or two top links. Sponsored links now own much more of the first page, depending on the search terms.


It has also gone further to deliver category-specific search results e.g. hotel and flight availability. Google Hotel Ads is predominantly a cost-per-click (CPC) “metasearch” channel, similar to TripAdvisor or Trivago, where advertisers – hotels brands and the OTAs - pay to have traffic routed to their digital properties, where they convert the visitor on a purchase.

Book on Google (for hotels) also offers a viable cost-per-acquisition (CPA) model, which effectively transforms Google into a distribution channel. Travel shoppers can book a hotel without leaving the Google site.

Here we should ask, what is the difference between a distributor and an advertising channel? Distributors take a product or service and acquire the customer on the supplier’s behalf, for a fee.

Digital advertising channels direct awareness and traffic to suppliers. Google does both but increasingly, it carries the user all the way through the travel customer journey, from discovery and eventually through the booking with the Book on Google feature.

Here we should ask, what is the difference between a distributor and an advertising channel? Distributors take a product or service and acquire the customer on the supplier’s behalf.

Therefore, Google is now effectively a distribution channel for travel businesses, not unlike the OTAs.

Monetizing Book On Google

We assume that Google believes that it can greatly expand Book on Google. It can do this by offering a better, cheaper product (to the shopper and hotelier) to a wider share of the market.

Lessons from TripAdvisor’s attempt at Instant Booking which launched in 2014, which promised: Arguably, it faded because TripAdvisor was hard-pressed to monetize at a higher rate on the auction, and to sell its hotel shopper traffic to its two dominant ad partners - Expedia and Booking Holdings.

This pushed Trip to ratchet down Instant Booking It pushed for the smaller chains and independent properties to adopt Instant Book. Arguably, the critical mass was not there.

Does Google have the critical mass to pick up where Kayak and TripAdvisor left off with facilitated bookings?

Question: Does Google have the critical mass to pick up where Kayak and TripAdvisor left off with facilitated bookings? Does the Google app ecosystem have unique elements that can sway consumers to prefer the Book on Google experience over booking direct? How about deeper integration with Google Pay or Google Assistant?

Cheaper, more customer data

Google can take Book on Google mainstream by winning over both the hotelier and the consumer. In theory, hoteliers win because Book on Google (CPA) can be a cheaper option than competing with the OTAs on clicks. With CPA, hotels only pay for confirmed bookings, and not clicks. We estimate anywhere between 10 and 15 percent commission.

Hotels also get the customer data. Hotels struggle with the OTAs because the OTAs usually withhold customer data e.g. emails from the hotel, particularly from the big chains that can in turn use it for direct marketing. Google doesn’t mind sharing data with hotels, or at least has the confidence to know that customers will keep coming back to search for hotels on Google.

Google can eventually win over the consumer by ensuring better search results, and through better, more seamless integration into the rest of the Google ecosystem i.e. through Google Pay and Voice Assistant.

Google doesn’t mind sharing data with hotels, or at least has the confidence to know that customers will keep coming back to search for hotels on Google.

Does Google have the critical mass with the consumer to move the entire hotel industry away from click auctions? The economic benefit for Google is as follows: Instead of a 20 percent premium from a handful of customers - i.e. the OTAs, better to collect 15 percent from the larger market (figures are estimates).

Total Cost

Another difference between Google’s model is that it does not handle customer support. This is still handled by the supplier or intermediary. The OTAs still need to cover those costs. In a Book on Google world, the hotels deal with customer service. Herein lays some value-add that the OTAs can offer to their supplier partners. For the hotels, paying less with Google on distribution might mean paying more on customer care.

Implications for the OTAs

Google poses a significant threat to the OTAs, as more customers search and book on Google. The following points summarize potential areas of focus, as the OTAs look to differentiate themselves from Google and the rest of the market including each other.

Focus on value for suppliers

Staying ahead of the hotel groups and airlines on technology will remain a central focus for the OTAs.

As intermediaries, maintaining mutually beneficial relationships with their supplier partners is clearly critical. The OTAs also compete against the hotel chains and airlines, as the two sides wrestle for favorable terms on commissions. The supply side has become better at direct marketing and overall digital capability. Google’s growing popularity with the consumer also gives suppliers leverage.

The OTAs can either use their customer base to negotiate favorable commissions on bookings, or focus on delivering unique value for the supplier. One example is voice technology. Expedia recently launched Expedia Actions with Google Assistant. These big-ticket technology items, where independent and smaller hotel chains don’t have the resources to go at it alone, is one sweet spot for the OTAs.

Pivot to brand marketing

More OTA spend on brand marketing is clearly the direction. That is a given. Relying less on Google for traffic, and instead building the relationship directly with the consumer. For example, Expedia sponsors Good Morning America (a popular morning show in the United States). Expect more of these types of initiatives i.e. partnerships and alignments with popular, non-travel consumer brands. Also expect more digital content in the way of video, event sponsorships, and general shift toward off-line marketing.

One consideration here on the product side. The OTAs have increasingly pushed to unify their brand portfolios. Both Expedia and Booking Holdings have gone down the road of a one-stop-shop experience incorporating the various product categories into the main mother brands. Booking.com how has flights pushed from Kayak. Expedia has vacation rentals pulled from HomeAway.

Question: How will a bigger push on brand impact these product decision? With the OTAs continue with a unified brand approach or will they lean on improving niche brands that resonate with key demographics and consumer segments? Much of this will directly hinge on what they feel is the right approach to compete against Google. Google is clearly becoming the one-stop-shop for travel.

Pushing on performance

Going forward, OTAs will squeeze further margins and efficiencies out of their existing business. One of the more interesting things to come out of Booking Holdings’ most recent quarterly report was the staggering growth in its merchant bookings, which produce higher commissions and improves cash flow. For the consumer that basically translates into payment commitment up front instead of the pay-at-the-hotel experience that they’ve grown accustomed to under the agency model.

Heavier focus on business travel

We could see Booking and Expedia turn increasingly towards business and corporate travel management solutions. Egencia, Expedia’s business travel solutions arm had a fairly flat third quarter. However, the segment has heated up with a heavy focus on SMEs (small-to-medium enterprises).

Google has yet to penetrate this market. Arguably, Google’s sweet spots are price-sensitive, DIY leisure travelers and un-managed business travelers. For the OTAs, this could mean deeper relationships or renegotiated terms with the big travel management companies, a harder push on B2B marketing, an acquisition of a TravelPerk or other player by Booking.

Google’s sweet spots are price-sensitive, DIY leisure travelers and un-managed business travelers.

New supply

OTAs growth story has been about aggregating as much supply as possible. They are in the long tail now with hotels, at least in the U.S. and Europe. The bigger push will come in short-term rentals and with bookable activities. These segments are not as lucrative as hotels, however. More partner management and higher costs on customer and host support.

Things to look for in 2019

Expect downward pressure on hotel commissions with headwinds on the consumer side as a result of Google’s push and other channels including Airbnb entering the hotels space. Expect heavier OTA focus on supplier solutions and services. These will be the big-ticket items like voice and AI. The OTAs also compete directly with the big hotel and air supplier groups. They will need to assert their position in the value chain. Better tech will help. The U.S. market will be heavily contested, as Booking.com looks to push its way in with renewed focus on brand and away from performance marketing. Expect acquisitions in B2B and B2C. Here we’re looking at assets that will allow the OTAs to control more supply, especially in short-term rentals and activities, as hotel inventory hits the long tail in the U.S. and Europe. Expect more spend on brand marketing away from performance marketing. Google remains a critical customer acquisition channel so don’t expect the OTAs to shut that funnel out completely. Expect to see sloshing around of ad & marketing budget between Google, Facebook, and offline, but also other apps (beyond Google Hotel Ads) within the Google ecosystem, namely YouTube for video content aimed strengthening brand. Expect heavy focus on Asia with partnership announcements and seeded investments.

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