AmazonTravelSpace

Last week, Skift broke news that internet giant Amazon plans on entering the hotel-booking arena in 2015.  While most experts in the industry have mixed feelings on what effect this will have on the travel space, there are definite pros and cons for travelers, hotels, and OTA’s/Metasearch engines.

Major Announcement
The news rolled out on November 20 that Amazon.com is poised to launch its own travel service, featuring booking at independent hotels and resorts near major cities.  The initial rollout of Amazon Travel, according to Skift, would feature a curated selection of hotels within a few hours’ drive from New York, Los Angeles, and Seattle.

Amazon hopes to compete with The Priceline Group and Expedia by charging a 15% commission rate for prepaid bookings.  Similar to the ResortsandLodges.com RALBook model, properties would load their room types, availability, pricing information, and photos into an Amazon extranet and would pay commission for the bookings, ultimately making Amazon the merchant of record for all transactions.

Why Travel?  Why Now?
Does this mean that Amazon eventually hopes to upend the existing power relationships between Booking.com, Expedia, and hotels around the world?  That MAY be a long term goal, but right now it appears that the company, renowned for low-balling the competition and offering pricing that undermines their margins while running in the red, is simply trying to find additional revenue streams.

Ken Sena, head of Internet equity research at Evercore ISI, says Amazong “is a little bit late” in moving into travel, but it could still signal a trend that would be negative to the online travel agencies.

“Amazon alone is not necessarily a threat,” Sena says, but hoteliers may find that they would have more choices of viable distribution partners with “Google getting smarter,” TripAdvisor getting more aggressive in hotel metasearch and connecting more properties, and Facebook honing its advertising technology.

Should OTA’s Be Worried?
Let’s be clear:  In an age when transaction fees and marketing costs are rising faster than REVPAR (Revenue per Available Room), properties are looking for places to cut costs.  No one wants to spend extra money to fill their open rooms, and Amazon is offering the opportunity to save at least 10% (there could be some negotiating involved between Amazon and individual properties) for every reservation.

“A new entrant like Amazon might appear to add to the problem (of higher transaction fees and marketing costs), but actually hoteliers would prefer to have a healthier mix of distribution options in order to have more bargaining power and ultimately lower rather than high and rising channel costs,” said Max Raynor, senior VP of product engineering and GM of reservation solutions for Hudson Crossing.

In addition to potentially driving down distribution costs, Amazon is already at an advantage of having an active user base.  Amazon has at least 20 million members in Amazon Prime, which already offers all sorts of special deals from free shipping to streaming video, and can use Prime’s closed-group nature to offer special hotel deals that undercut pricing offered by OTA’s.  This allows Amazon to avoid the current system that bars hotels from giving specific online travel agencies special rates.

To read more about Amazon’s travel announcement, follow the links below:

Exclusive:  Amazon to Get Into Hotel Booking with Launch of Travel Site
Amazon Travel’s Real Challenge to Leading Booking Sites

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