Rumors that Amazon might finally be weighing in on the travel industry in a serious way shouldn’t be at all surprising.
In some respects, Amazon is simply following in the footsteps of fellow web giant Google which, in 2010, couldn’t sit on the sidelines any longer and wanted more control over the ecosystem.
And, lest we forget, the rise of Alibaba in the east has put even ecommerce juggernauts like Amazon on high alert that where there is bounty, there should be some action.
Late last week, a report from Skift suggested that Amazon intends to add more hotel inventory to its repertoire of products sold online.
The report claimed that the Seattle-based superstore plans to launch its own travel service, featuring booking at independent hotels and resorts near major cities.
But there could be a lot more to it than just satisfying Americans.
Tnooz has since confirmed that one internet booking engine in Western Europe has also been contacted by Amazon, which wanted connectivity for adding European hotel inventory.
Also, in London, Amazon created and filled a national UK account manager position for travel four months ago. It has hired for supporting positions in Britain this year. (But there hasn’t been similar hiring in Germany, France, or Italy.)
That Amazon would be looking to source more hotels internationally may surprise some industry observers.
The company’s effort to scale up hotel inventory is being run out of the Local division of the company–a 200-person operation that offers a variety of time-sensitive product deals, according to several sources.
The operation’s chief, Mark Earner, spoke briefly with Tnooz at the Phocuswright Conference this year. But the recently promoted Earner didn’t disclose the company’s plans.
Amazon representatives, such as Local travel business development chief Patty Hagar, have appeared at travel industry trade shows for years.
Amazon’s press office declined to comment to Tnooz on any of the reports or speculation.
Groupon Getaways clone?
With Amazon not talking, we are all left to guess what path it may take.
The least risky and most immediate path–and the route that would be most consistent with the company’s past behavior–would be for Amazon to make a copycat move of the hotel flash deals that have been so successful for Groupon in its Getaways vertical.
After all, Amazon Local was a clone of Groupon, which remains the most successful of the flash deals websites and apps.
Logically, now that Groupon’s fastest growing category is hotels, as Tnooz reported last week, it makes sense that Amazon would be willing to throw more resources behind offering similar deals.
The current openings for eight hotel-sourcing representatives in a few US metro areas could simply be explained as a way to add inventory for new, more prominently marketed hotel offerings in redesigned Local websites, newsletters, and apps.
Expanding an existing business?
Let’s not forget another element.
For more than a few years Amazon has been selling hotels. Today you can find selected hotels on its Local section, under National Deals.
Users who have signed up for Local Deals emails in the US or the UK usually see a handful of hotel offers that are relevant for overnight getaways within a short driving distance.
Some of the voucher-based deals are sourced for Amazon by online travel companies like BookIt.
The mobile experience (using the Amazon Local app) is abysmal if a user wants to find a regional hotel. One has to filter on “Entertainment & Travel” and then search the filtered list for “hotels” to get a list–a list that still has several options that aren’t hotel stays.
Perhaps a redesigned app and newsletter experience that calls out–or separately highlights hotel deals–is in the works. In November, rival Groupon launched a standalone Getaways app for its flash deals.
You say “curated”, I say “half-hearted”
One intriguing aspect of the report is that Amazon would use positive ratings on user-review website TripAdvisor as a criteria for inclusion. That would differ from Amazon’s approaches to every other product vertical, which is “more is more” and “mass market is best.”
The model would instead imitate TripAdvisor’s flash-sale brand Jetsetter, which positions its inventory as “curated.”
Some people have interpreted this news–along with Amazon’s supposed focus on independents and small properties–as a plan to stay limited to “upscale” properties. The theory is that this inventory has less competition, as online travel agencies haven’t already carved up.
Yet one industry analyst points out anonymously that 4-star-plus properties are what Leading Hotels, Preferred Hotels, Virtuoso, AmEx, and FHR cover. So it is not virgin territory.
Commission model
In the meantime, it’s fun to speculate about the business-side considerations.
Tnooz spoke with a half-dozen travel industry analysts outside of our Node contributor network to get a sampling of opinion about what Amazon’s intentions might be. Some spoke off-the-record.
Tom Botts, chief customer officer and EVP at Denihan Hospitality Group, which owns 15 boutique hotels,
“15%, if that’s the fee and model they start at for pre-paid bookings, is hardly a commission war. It is public knowledge that booking.com has started at that same rate for years.
And with exactly zero market share to date I doubt their cross-town rivals in Bellevue are exactly quaking in their beds. Er, boots.”
Guilain Denisselle, a French hotel distribution expert who writes for Tendance Hotellerie, says:
“15% is in line with “cheap” channels: HRS, Hotel.info, Hostelworld, Venere, Hostelsclub, Tobook, etc… If Amazon is catching credit card fees, it is definitely very cheap.”
Commenting on a rumored 15% commission/agent model, another analyst noted off-the-record:
“Yes, 15% is more appealing than the effectively higher online travel agency fees. But the question is what is the marketing muscle behind it? Nationwide ad campaigns?”
Flo Lugli of the hotel consultancy Navesink Advisory Group, says:
“I think it’s a bit early to assume that Amazon getting into travel will start a ‘commission war’.
For several years now, I have had discussions with others in the industry about the potential impact *IF* Amazon decided to get into the space aggressively, given their large customer base and eyeballs, not to mention the information they have on consumers.
While initial thoughts might be around a 15% commission, (which by the way most hotels–including branded hotels–would willingly participate in, especially as it’s Amazon), the risk is that Amazon would leverage their ability to reach targeted consumers and put a higher margin on that, or God forbid, become an affiliate of a large, established OTA.
Of course, if they do decide to keep the margins/commissions down, they have the opportunity to disrupt the OTA space should hotels decide to selectively work with fewer players.
Perhaps keeping margins down would enable they to optimize sales of other related items that could be cross sold to travelers (luggage, books, cameras, etc.). That would be good for hotel owners, whose cost of guest acquisition are rising faster than their revenues are growing.”
Prime opportunity
The possibility of offering members of Amazon’s subscription program Prime exclusive benefits at hotels was surprisingly not raised in the online discussion about last week’s report.
Notes Lugli:
“Offering perks to Prime members, such as special offers, travel rebates (a la other travel clubs), or ancillaries, upgrades and other amenities they might be able to negotiate based upon the sheer size of this base of customers (based upon an earlier acknowledgement by Amazon, Prime members number about 20 million, and other research indicates they spend double non-Prime members). It’d be a built-in loyalty program.”
Extranets versus direct connects
Is it true independents would accept a clunky extranet from Amazon much more readily than a branded property would? Denisselle says:
“Having the clunky extranet versus a “beautiful” extranet is not the matter anymore.
But lots of independent properties have started using channel managers. A challenge for Amazon is to interface with as many channel managers as fast as possible, especially in key markets: Paris, London, Barcelona, Rome, etc…”
Botts says:
“I’m not even sure I would call an extranet “technology.” How very quaint. 90s era technology from the company that brought us the kindle and “you might also like?”
To suggest that independent hoteliers would accept a system that requires extensive manual labor, causes rate parity issues and limits our ability to revenue manage in real time all for a 15% commission is lame at best and insulting at worst.
That said, it is a beta and I’m sure they will work on sucking less quickly.”
Lugli says:
“Regarding “clunky” extranets, I don’t believe this would be Amazon’s longer-term way of operating, but certainly it would work in the short term as they learn in the space, and start to establish direct relationships with these hotels.
Longer-term I would expect they’d look at a more automated approach, either through multiple direct connects (where it made sense) and/or working with some leading channel managers.”
Long-term intent
Today, the travel.amazon.com URL redirects to the main Amazon page. Same for hotels.amazon.com and rentalcar.amazon.com. (Meanwhile alternative URLs like “car.amazon.com and “train.amazon.com” and news.amazon.com” fail, or go to blank pages.)
Perhaps the travel-themed domain names will bring real content someday.
Lugli notes:
“There are different ways Amazon can play this vertical: overtly, through a travel marketplace, or more “under the covers” by mining the information they have on consumers and then providing specific offers that are more likely to appeal to them.
For example, offering family focused vacations to consumers who buy children’s books, toys, and other related items.
As far as ability to scale, just look at what Booking.com has been able to do with little to none direct connects or chain deals. Of course, playing in the US market does present different challenges than the markets where Booking.com played when it began.
Given Alibaba’s entry into the US travel market, I think Amazon needs to figure out how it will play sooner rather than later, or it may very well cede the space to this new entrant.
At the end of the day, it will be all about execution, how quickly they can scale to meet consumer’s demands, and how they are able to leverage the information they already have on consumers to personalize the offering and maximize the cross-sell opportunities.”
Botts adds:
“The ability to show hotels “that I might also like” is interesting – obviously people visit Amazon a lot more often and buy a lot more stuff than any of the OTAs.
It remains to be seen if my purchases of pool cleaning supplies, a waffle iron and an Alan wrench will predict that I will like The James more than a Thompson. I would of course but…”
Cindy Estis Green, CEO of DC-based hotel distribution consultancy Kalibri Labs, says:
I don’t have any inside track on Amazon but I am not surprised. I was waiting for them to enter the fray. I am not in a position to say whether it will be good or not for independents.
In general, I would say the more new entrants the better. And the lower the commission, the better.
But it’s not clear how well Amazon customers will react to travel opportunities or if Prime customers will be good prospects for every hotel.
Will be nice to have a new channel for hotels to try out and I assume some hotels will find it a good alternative to some existing channels.
But no way of knowing the types of hotels that will benefit and those that won’t and what type of business can be sourced through it.