Online travel agencies have spent more than a decade bidding to become the travel agents of the future. In the process of aggregating millions of transactions every day, they've grown into multinational corporations that take in billions of dollars in revenue each year and set the pace for Internet bookings, new online marketing tools, rich inventory content and innovative online services for travelers.
But just as the growing strength of the OTAs has often portended gloom and doom for brick-and-mortar agencies, giving rise to speculation that OTAs would kill off traditional travel agents, the profitable walk in the park for these online behemoths could be turning into a walk in the dark, insiders say.
Increasingly the online giants seem to be looking over their shoulders as if they were being pursued, and not by each other. In many cases, the footsteps these companies are hearing are coming from airline and hotel company Web sites as well as from the small but growing business of metasearch providers such as Kayak-Sidestep and Mobissimo.
Each of these growing sources of competition is making the OTAs take a harder look at their transaction-based business models and consider potential revenue streams they have been missing, or ignoring, for a long time. Chief among these is advertising, though it is an opportunity that entails shifting their business models from pure retail to a mix of retail and media.
While actual transactions remain strong today, the big four -- Expedia, Orbitz, Travelocity and, to a lesser degree, Priceline -- are probing the idea of pegging their future growth on becoming media companies, sellers of advertising and marketing opportunities to travel partners and even to nontravel-related businesses.
Suppliers, especially airlines and hotels, make no secret of the fact that they are making an ever bigger push to persuade consumers to come directly to their own sites, not to OTA intermediaries. For some, it's a matter of cutting out the cost of the middle man.
And as metasearch firms offer consumers a peek at best available air fares from hundreds of sites instantaneously -- services that metasearch firms claim are objective searches not influenced by deals with suppliers -- they are moving highly motivated, ready-to-buy consumers to supplier Web sites in ever greater numbers. That, industry observers say, is pushing the online travel giants to find things to sell besides low prices.
In addition, airline seats and hotel inventory have become tighter, reducing capacity and setting the stage for higher room rates and fewer incentives to offer discounted fares. Those inventory changes have left suppliers looking for ways to stop sharing a significant piece of the distribution pie with online travel agencies, or at least to find less expensive ways to do so.
Across the online travel spectrum, among both online players and financial observers who track them, there is a growing feeling that these ominous footfalls may bring more than uneasiness. They may change the OTA landscape itself.
Falling segment fees -- booking fees like those abandoned recently by Priceline -- are also driving change, said Bob Offutt, an industry analyst with PhoCusWright.
"The airlines are somewhat concerned about the power of metasearch," Offutt said. "They are being careful about how they are opening their kimono to them. I think they are afraid the metasearch players will develop so much power as a new intermediary that they will command fees that will exceed the segment fees of the GDSs."
The suppliers' thinking, he said, is that if booking fees go to zero, the OTAs will have to become media companies, but "the truth is somewhere in between."
The supplier Web sites of airlines, hotels and car rental agencies are clearly gaining prominence among travel shoppers, especially as the metasearch firms grow in both revenues and reputation. The metasearch business model, directing travelers to supplier sites on a pay-per-click basis, seems to be flourishing.
Online travel agencies generally deny that they see the metasearch firms as the wolf at the door, but there is little argument that they are investing resources in new revenue streams. Expedia acknowledges that it is hiring more sales representatives for media and marketing work, and they, like their competitors, are pushing sales of pay-for-placement search models and pay-per-click links that in some cases direct potential travelers away from their Web sites.
Continued strong earnings
The future for the OTAs looks generally rosy, at least from the perspective of investors who pore over the financial reports of the big three publicly traded OTAs: Expedia, Priceline and Orbitz. (Travelocity, now a part of Sabre Holdings, ceased to trade publicly after Sabre was taken private.) While Orbitz has seen some financial struggles of late, Expedia and Priceline have continued to post enviable earnings.
But the future is never easy to read, and that may be especially true at a time like the present, when, as noted late last year by Forrester Research airline and technology analyst Henry Harteveldt, growth in online bookings across the travel spectrum is falling.
Cree Lawson, founder and CEO of Travel Ad Network, a New York-based company that provides online advertising services to travel companies on the 50 or so Web sites it represents, said that the rise of the media model among OTAs might herald some fundamental changes in their perceptions of themselves.
"It seems like the OTAs are only beginning to realize that their sites see conversion of just 3% of the people who visit them," Lawson said. "So the other 97% become a viable medium to sell media to. They are trying to milk the most revenue they can out of the 3%, but the rest are a massive media opportunity for them."
Lawson, who is known in the online community as someone well wired into trends in the advertising market, someone to whom analysts turn for insights, said he had watched the gathering interest in online advertising and marketing opportunities by OTAs and other travel providers grow rapidly in the past couple of years.
"We have seen so many companies with decreasing margins just put banner ads on their sites and try to use them as a Band-Aid on the balance sheet," he said. "That is something any e-commerce-oriented company can do. But to truly embrace advertising revenue would be a fundamental shift, I think, in the business model for these OTAs."
B2C to B2B
At its most basic, Lawson said, the shift means changing the company's orientation from business-to-consumer to business-to-business.
"That is not an easy transition for an organization," he said. "They would have to think of their company as an audience, not as a cash register, and that is also a fundamental shift. If they just put banner ads on Web sites, without any further thought of what they are stepping into, they are going to look like elephants in tutus."
Whether the move toward a media model is a trend, a goal or just a revenue enhancement hasn't shaken out yet in the online travel market, but there is no denying that internal discussions over the tens of millions of visitors to the major OTAs are not new. Expedia, Orbitz, Priceline and Travelocity have all shown inclinations of late to turn window shoppers into windows of opportunity.
"Travelocity has taken to referring to itself as a media company," Lawson said.
Greg Saks, director of the travel practice at Compete, a firm that analyzes and advises on Web services, said that even nontravel advertising was being pushed inside the executive suites.
"Someone within these companies will always be throwing out the hypothesis that there are millions of people coming to their sites, and these leisure travelers with disposable income and luxury interests are a very attractive market to have," Saks said. "So you have that voice saying, 'Let's monetize this and sell it to someone.' My thought is that the more you put up messaging for any kind of product that is not actually sold on your site, the more you are hurting the effectiveness and usability of that site. You're just directing people away."
Part of his concern lies in the trend toward nontravel advertising on OTA sites for everything from credit cards to products completely unrelated to travel, such as DirecTV or Monster.com, the job search site. Even sites not yet selling such advertising have created spots on their Web sites now for what used to be called "house ads" to promote themselves. And these spots, of course, can be quickly converted to advertising spaces for others.
"Whether it make sense for the OTAs to try to monetize this traffic and sell to other categories," Saks said, "is, I think, the start of a slippery slope."