Shifting of Distribution Costs: from GDS fees to CPC
Internet is actually perceived as an economic and liberator distribution channel regarding to GDS. However, the cyclic effects of the travel industry are returning to the fore and the web is contributing to the installation of new monopoles.
We are passing from a situation where GDS were the unique access point to offers to a situation where the web is becoming this new unique access point.
Here is a short historical recap that would help you to better perceive the cyclic aspect and the stake of the current situation.
The GDS era
From the 80s until the beginning of the 2000s, the GDS have been revolutionizing touristic products distribution and so they have acquired a certain monopole.
The web, an alternative channel for non-adapted products
However, for diverse reasons (too complex, offer too scattered, not enough return on investments…), GDS have stayed hardly adapted to the distribution of some products as hotels or holidays packages.
When the Internet has been mature enough, several web portals have been enabling to industrialise the hotel distribution. They have solved content issues (images, rooms specificities, geolocation…) and have facilitated independent hotels and small chains distribution. A bit later, Internet has also helped the emergence of dynamic packaging through tools like multi-TO platforms and dynamic packaging engines.
The age of direct distribution
More than creating alternative channels to GDS, Internet has enabled all the players of the travel industry to reach directly the final customer (the traveller). This has strongly impacted the business models in the industry and has created situations of coopetition.
Firstly in the US, then in Europe, this encouraged airlines to adopt the zero commission model. Moreover, some airlines are progressively trying to favour the content on their direct distribution channels over the GDS in order to conduce travellers and travel agents to book directly on their site and save up GDS fees (around $10 per booking).
The new unique access point
From a standardized and centralised offer (by GDS) we are passing to an environment based on a multitude of web sites with an offer more and more fragmented and harder to compare.
So, to answer travellers’ needs, new players emerged. They have specialised in the re-globalisation of this scattered offer and are based on business models more economic than GDS.
In hospitality industry, players like Expedia, Booking.com or HRS are now the new central points to access the hotels’ offers. And in the airline industry, meta-searchers could potentially become the unique players able to compare unbundled airlines fares and ancillary products. At a global level Google is this new central point with more than 90% of people that start browsing from it in the UK, in France, in Germany or in Spain.
The birth of new monopoles
That’s how, slowly, new monopoles are taking hold.
Some web portals in the hotel industry have now enough weight to impose their rules: rate parity or commissions up to 30%… Or in general, Google is becoming the new unique access point to the offers of all travel industry players (from producers to distributors and through editorial and comparison web sites). As a consequence, a place on the first page of Google’s results is really strategic and the CPC costs are soaring:
‘’book hotel’’ 3,61€, ‘’car rental’’ 4,39€, “holiday rentals” 2,10€, “hotel cheap “ 3,30€, “last minute flights “ 2,54€ or ‘’Expedia’’ 5,05€, “priceline’’ 4,47€
(Adwords, estimations based on a budget of 10 000€ in February 2011)
Knowing that Internet users visit more than 10 sites before choosing… we can easily understand why online marketing costs are blithely overtaking the GDS fees.
And beyond sufficiency, since Google bought ITA Software, it could potentially bring search that perform better than GDS (see also T. O’Neil-Dunne’s article: Full content vs full capability)
And so on, we are back in a situation where one player is dominating and could impose standards and its own vision. So, are we back to our departure point? Of course not!
The travel industry has always been cyclic. Each cycle brings innovations: Internet was perceived as the evil by travel agents; today it is Google that is pointed out by pure players (see: Fair Search) par les acteurs nés du web. Passing from one monopole to another is normal and just confirms the dynamism of the industry.