Great news about direct hotel bookings or simply wishful thinking?

Skift Research came with its much anticipated Hotel Distribution Outlook 2024. In this report, based on the wishes of both branded and independent hoteliers surveyed, Skift Research predicts that by 2030, direct digital channels will have overtaken the OTAs as the dominant distribution channel for hoteliers: $409 billion of hotel gross bookings are expected to come from direct digital channels, compared to just $333 billion from OTAs.

The Skift survey also shows that hoteliers would like to move toward an ideal scenario with the biggest increase in digital direct bookings (from 25% in 2024 to 42%) and the biggest decrease in OTA distribution (ideally from 25% in 2024 to 13%).

All of this is great news, correct? Wrong!

I believe this “ideal scenario” hoteliers would like to move forward to is just wishful thinking. This is particularly valid for independent hotels, who would like more digital direct bookings than the branded chains according to the survey.

Here is why:

1. Systemic Underinvestment in Technology: Normally, hoteliers spend on technology 2.5% - 2.75% of net room revenue, including payroll for IT personnel. Compare this to 15%-17% of revenue for Expedia or Booking.

2. Systemic Underinvestment in Marketing: Hotels spend on marketing less than 2.5% of net room revenue. Compare this to 36% of revenue for Booking and 54% for Expedia.

There have always been intermediaries in hotel distribution. Even in the pre-Internet era, back in 1995, 25% of roomnights were generated by intermediaries vs 75% were direct. In other words, direct vs indirect ratio was 4:1.

Fast forward to today: For many independents direct vs indirect (OTAs, bedbanks and other intermediaries) ratio is negative 1:3 to 1:4 and even 1:5 i.e. only 20% of online bookings are direct. Compare this to major hotel chains’ positive 3:1 to 4:1 ratio. Why do the independents have such an over dependence on the OTAs? Systemic underinvestments in talent, technology and digital marketing are the main reasons.

Why are we even talking about direct bookings? At NextGuest, now part of Cendyn, we tracked the cost of direct online distribution in the course of 20 years across our more than 5,000 plus primarily independent hotel clients. You know what? The average direct booking cost has stayed consistently in the range of 4.25% - 4.5%. Compare this to OTA commissions of 18%-25% plus increased visibility commission add-observations, OTA loyalty member discounts, etc.

Today's hoteliers must create and manage a robust digital presence and engage, acquire, service and retain travel consumers in this mobile-first world. They must invest adequately in technology, marketing and talent to engage, acquire and retain travel consumers throughout the Digital Customer Journey, enable the best user experience, provide the best customer service, thus increasing efficiencies and boosting direct revenue.

Max Starkov
Hospitality & Online Travel Tech Consultant
NYU