The Hotel Software Darwinism: How to choose the right hotel booking engine for your hotel
70 YEARS OF BOOKING ENGINES
With over 70 years of age, Electromechanical Reservisor, developed by American Airlines and IBM respective CEOs, is unanimously recognized as the ancestor of modern booking engines. Its complexity, however, made it almost impossible for AA staff to use it so, a few years later, the airline launched an easier and less intimidating version named SABRE. During the 60’s Delta and United created their own reservation systems as well, but it wasn’t until the 80’s that these systems evolved, with the introduction of global distribution system (a.k.a. GDS). Being able to buy and sell tickets from multiple airlines (opposite to previous systems) GDS was a real revolution and it is still a predominant part of today’s distribution mix for both airline and hospitality industries. The problem with GDS, however, is that travelers have to rely completely on travel agencies. But in the late 90’s, almost overnight, the web transformed the industry dramatically: following the example of newborn e-commerce websites such as e-Bay, Amazon and advertising platforms such as DoubleClick (all launched in 1995), several software companies started focusing on developing similar tools for hospitality. The Internet reshaped the online buying habits of all web users and, consequently, travelers. Until then, hotel websites were little more than online static brochures, but after the e-commerce revolution, having a booking system was not just a fancy innovation, but a way not to be cannibalized by other distributors. Travel-wise, Booking.com led the way in the early ’00s, changing the industry forever and sped the e-commerce adoption in hotels up. Unlike e-Bay, Amazon, Booking.com and (most) branded hotel chains, independent hotels mainly rely on third-party e-commerce software to sell their rooms online. Even though some properties tried to create their own proprietary booking engines, the development and maintenance costs involved are usually prohibitive and deliver poor results.
FROM THE GARAGE TO THE GRAVE
When we started writing this article we were curious to know how many booking engines there are out there, but we soon realized that finding an answer to this question was virtually impossible. Sure, the big players are pretty much always the same, but what about the small, local, developed-in-garage software? During the mid ’00s booking engine development was a pretty florid (though still naïve) market, so hundreds of Mickey-Mouse-companies popped out like mushrooms providing their home-made solutions. In their defense, back in those days it was hard for software companies to understand what competition was doing. Nowadays you can go online and find a lot of precious information about your competitive set, but in the mid-90’s / early ’00s small software houses only compared themselves with a limited group of other local companies, creating a fragmented, oversaturated and unprofessional market. Even worse: without a proper aggregator, hotels had access to a very limited number of companies as well, mainly located in their same geographical areas. The Internet dramatically expanded the market and today hoteliers can make choices based on objective data, not only based on the proximity of the provider. That being said, there is still a dangerously high number of hotels working with buggy, unstable and vulnerable solutions to this day. But will they survive?
AN OVER-SATURATED MARKET?
According to the Oxford University anthropologist Robin Dunbar, specialized in social networks, any group larger than 150 starts straining the cognitive capacity of our brains. The same can be said for choosing the right software. Too many choices mean no choice, especially when there is no aggregator. Craig Dixon, Co-Founder of Zumata Technologies, stated that there could be over one million hotel booking engines around the world and companies selling cheap products can be very persuasive, especially to small properties. RateGain, FastBooking, Vertical Booking, Simple Booking, iHotelier, Synxis, SiteMinder, ROIBack, AvailPro, BookAssist and DerbySoft are just the top of the reservation systems iceberg, populated by thousands of underdog software. Over time, booking engines started to expand their reach offering native CRSs, channel managers and countless tools and widgets to facilitate the user’s purchasing experience. The technology behind reservation systems reinvented itself, from being a mere point of sale at the end of the booking funnel to a central part of the booking experience. Dynamic contents, tailored-made offers and AI-powered triggers are now at the core of the reservation system technology. Just like websites are no longer static brochures in HTML, booking engines turned into more than just a secure page where users put their credit card numbers. Dynamic landing pages, for example, are more and more used to give visitors a really customized experience, in order to show the most relevant offers based on what they searched. Stress or urgency marketing messages, like “only one room left” or “rooms selling fast” are another strategy that more booking engines started to integrate, mimicking OTA’s approach. Same goes for price-comparison tools, chatbots, facilitated payment solutions, reviews widgets and so on, on a never-ending quest for the travel industry’s Holy Grail: increasing hotels revenue. But this local fragmentation and the lack of standard comparative metrics in the booking engine’s business made it possible for any company to promote itself as the reservation system with the best market conversion. When we discuss conversion, countless factors come to play: ADR, rate parity, inventory strategy, etc. Two hotels with exactly the same booking engine configuration can have completely different conversion rates. Sure, frictionless navigation, low page load time, two-way-certified connection with other tools and metasearch, security and mobile-first design are important features to increase conversion, but the main question is “what is a conversion”? Even though we usually tend to consider a conversion simply the ratio between the website sessions and the finalized transactions on the booking engine, the answer can be way more puzzling.
THE CONVERSION JIGSAW
The formula that we normally apply to calculate conversion is taking the number of transactions and dividing them by the number of website sessions. This system, though, has its own weaknesses: for example, it does not take into consideration the reservations started on the website and then finalized somewhere else. What if a user begins his booking journey on the booking engine and then reserve over the phone? Who is responsible for that conversion? The booking engine or the receptionist who took the call? Several companies tried to fill this gap by sending automatic follow-up messages to web users inquiries so that hotels can track conversion rate from emails as well (CRSs). Some properties even assign a conversion value to phone calls, text messages or Facebook requests but, in general, hotels tend to calculate conversion solely based on finalized purchases on the booking engine, so choosing the right one is a crucial part of any strategy. But is there a real relationship between the choice of a booking engine and conversion? According to a recent study* the average hotel website conversion rate is 2.2%. Similar results (2%) have been published in another report**. But when we discuss conversion, there are too many variables that come to play. As a general rule, for example, as star rating increases, conversion rate decreases. In fact, less expensive rooms tend to be bought more compulsively than expensive ones. Luxury travelers requests are more specific, complicated and the booking journey is way longer than backpackers’ one. But star rating is only one variable, with others being location, type of property, reputation, available room inventory, rate parity and so on. And one of the most important variables is, of course, the technology the hotel is using, because if the reservation system is just one piece of the jigsaw, it is, indeed, a very important one.
Expedia carries out over 1.000 A/B tests per year to optimize its booking process and offer a seamless online experience, but what about booking engines? When it comes to conversion, customer-centric features such as marketing and sales automation should be the priority, but is this the case with reservation systems? To understand how booking engines position themselves on the market, we ran an empirical experiment. The methodology can be a little unorthodox, but the results are still very interesting: we downloaded content from over 100 vendors websites and uploaded on a text analyzer software. We were expecting keywords like guest or experience to be a prominent part of the communication, but the main sales pitch gravitates mainly around concepts like direct booking and conversion. The word guests, for example, recurred only 0,8% of the times, making it hard to believe that hotel booking engines are really custom-oriented. Even worse, the communication on the majority of these websites is identical. We copy/pasted the descriptions and the main features of each software, delete the vendor names and tried to guess the booking engine name. You know what? We failed over 90% of the times. So, in this landscape of thousands of vendors with almost identical communication strategy, what should hotels look for when choosing the right tool? In 2015, Travel Tripper’s President, Gautam Lulla, stated that, at present, booking engines are “disjointed and cumbersome systems”, unable to “compete with more advanced technologies”. Luckily things started to change and today’s more advanced reservation systems can provide advanced features to increase conversion.
COMMISSION OR FLAT FEE?
Price is another essential aspect to analyze when choosing a hotel booking engine and, even in this case, hotel software share pretty much two price models: flat fees or commissions on the finalized purchases. As a general rule, properties with smaller room inventory and low ADR should opt for commission-based pricing (usually varying from 2% to 8%), while bigger hotels, chains or luxury properties can benefit from flat fee systems. We suggest using a simple formula in order to choose which way to go:
Revenue generated on the website in one year
If the total is lower than the yearly fee, then it’s probably safer to choose the commission model. If the total is higher than the flat fee, you may want to pay a fixed rate, even though it can seem more expensive at first sight. Of course, if the direct revenue increases, the commission model can become counterproductive, so this is a decision to take only after analyzing all variables.
Another aspect you don’t want to overlook is the third-party integrations offered by the booking engine. Smaller companies usually have problems connecting with channel managers, PMSs and metasearch, because they require a minimum volume in order to open their APIs, a volume that often is not matched by small players. Easier access to distribution is one of the hottest topics in the Industry and some suggests that blockchain technology (the one behind cryptocurrencies like Bitcoins) could fix this problem once for all, but the technology is at its infancy stage, so make sure that you do not end up with a reservation system that cannot interact with your other tools.
As you can see, the number of variables when it comes to choosing a booking engine is ridiculously high. tooly.tips main goal is to facilitate this choice, by aggregating results, features and reviews. Even though we are a relatively young company, we strongly believe that getting hotels and vendors together on a neutral, super partes marketplace could help create a more transparent, professional and less location-based market. Because, at the end of the day, only the best hotel software will survive.