This is our Deep Dive Into Local from July 23rd, 2018. In our Deep Dive series, we take a closer look at one thing in local that caught our attention and deserves a longer discussion.
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Mike: Hi welcome to our Deep Dive in Local. This week we have Carrie Hill, who is a regular, as well as Tim Capper, who runs an agency in Northamptonshire, England which is north of London where normally it rains, but like everybody the world right now, they are experiencing a heat wave. Welcome, Tim. So, Tim recently wrote an article on how Google basically exploits the hotel industry. Although I would say that there's enough exploitation to go around in the hotel industry.
But maybe, we can just...before we get going into the details of the current rally way, we can just talk about, historically, the evolution of hotels in Google. as I recall, the hotel knowledge panel was the first place that Google really monetized and this was back in 2010 and 2011. It was the first sign, , the crossing of the rubicon is where it became clear that we were going to start seeing monetization in hotel results.
At that time, I remember doing a screenshot comparison and everything above the fold was a paid ad essentially. And then, from there, it , Google has developed a number of products maybe like Hotel Finder, it's gotten into more serious booking tools on their site, they bought several products. Maybe you could, bring us up from where I was in terms of them rolling out the booking today.
Tim: You've got all the travel guides, you've got the planning guides, you've got the things-to-do guides. Interestingly, they've even phased out actually articles on these things-to-do guides and that they're all just using the actual visitor data to that, to create these guides, to planning trips. Yeah, they're just completely pushing us all out.
Mike: Yeah. So, not only is the knowledge panel for hotels, , the first one to be monetized, we're now seeing have more, but it's also, as you point out, really the gold standard for what Google calls "immersive search" where they bring people into the knowledge panel and then give them touring options and planning options and information about things to do. In fact, I think I saw at Serge Olokov's blog last week, several articles about new features where they're bringing location data directly into the hotel knowledge panel, and it's the poster child for immersive search.
You can get going in a hotel search or, perhaps, a location search for tourism and never leave Google. Gather all your information, all your trip planning information, and then, hopefully, close the deal on Google.
Carrie: Well, and I think it was one of their first forays into experimentation around that because I think they bought the Zagat Guide years ago and then started importing that data. And then, all of a sudden, hotels and bed and breakfasts and anything to do with tourism went from 5 stars to 10 stars and everybody was "What the heck is this mess?" And they flipped it back and...
Mike: Thirty stars. It was...
Carrie: Thirty stars. I mean, it was Zaget measurement system
Mike: It was 30-point system. Right.
Carrie: Yeah, it went to the Zagat measurement system and back and forth. And I think that was one of their first, really big experiments into trying to acquire and integrate into what they're doing and they've made as mess.
Mike: Right. An interesting outcome of that was the guy has become an automated bot that generates snippets with some human input, right Tim, of snippets of descriptions about hotels which are very hard to change and that show up on the knowledge panel. And then, on the other side where there was all this battle about reviews and not reviews, Google is now...has brought in reviews from third parties as well as segmented understanding of hotels using third Trust Pilot. Is it Trust Pilot?
Mike: TrustYou reviews showing granular details about hotels in a Zagat-like way but using third-party data to do that.
Tim: Yeah. And TrustYou, it's the third party data that's, trust you, when they first started rolling that out, was a real mess because their algos seemed to work only in English. So, if you were, for example, a Portuguese hotel and all your guests reviewed you in Portuguese, then you wouldn't have the word "room" for them to pick up or, "large bright room" or "airy room." And then, all of a sudden, your TrustYou section of your knowledge panel had your rooms down at one star out of five. Because...
Carrie: Because it didn't recognize any of the attributes.
Tim: Yeah. Yeah. Yeah.
Mike: And has that been fixed?
Tim: It seems to be getting better. But TrustYou, I still don't like because you literally have to sign up to verify that it's your property before you can actually start dealing with issues with reviews that they have pulled off other circle verified reviews.
Mike: So, that brings us to the current data. So, we look at Google hotels, heavily monetized, heavily into immersive search where they don't want the user to leave, heavily involved with user-generated content, both first party content from Google as well as third-party content from virtually every site in the universe, as well segmented understanding of the hotel using third-party data and some interpretation of that data. And that brings us today into your article, maybe you could tell us the title so I don't get it wrong.
Tim: The title was "How Google Exploits the Hospitality Industry for Profit."
Mike: When you say "the hospitality industry," you mean hotels themselves, you're not referring to OTAs? Online Travel Agencies?
Tim: No, because Google works indirectly with OTAs.
Mike: Or directly. I mean, as you pointed out in our pre-talk, OTAs are one of the largest advertisers on Google?
Tim: I think they're the fourth largest advertiser, as a sector.
Mike: And what is your estimate? How much do you think they spend with Google?
Tim: Well, according to their spend for 2016, they was spending $7 billion at the time.
Mike: So, Google has a lot of incentive to maintain that relationship, which is an interesting view of why Google hasn't taken this vertical, hasn't decided to disintermediate this vertical themselves like they have in the local service ads, because their relationship with their OTAs... In fact, this relationship with the OTA is at the core of one of the problems that hotels have, right? In terms of Google.
Carrie: Well, that chart in your article was really eye-opening to me, Tim, because it showed what features in a knowledge panel regular businesses have and which ones the hotels have. So, they can't do posts, they can't write their own business descriptions, so they can't even sneak any verbiage in there that says, "Book direct and save" or something like that. I mean, Google has suppressed any influence over a call to action for the user. And, I mean, that seems so shady to me. I know that they're not for profit company and they can do what they want with what they have, for sure, but it just seems like this injustice for these poor hotels.
I mean, I grew up in the bed and breakfast industry, we marketed bed and breakfast at the first agency I worked at, and then we moved into vacation rentals and we've never been heavily into hotels. So, OTAs weren't a real big on our radar thing. But bed and breakfast and vacation rentals still have some control over...bed and breakfasts, less, but vacation rentals definitely get posts, they can write their own business description, they have all this control. But they use booking engines as well that work with Google, so, are we waiting...? Is it just a matter of time before vacation rentals get screwed too?
Tim: Well, bringing in vacation rentals and vacation rental properties into maps. So, it's a logical conclusion if even a vacation rental list themselves in an OTA. The minute you list yourself in an OTA site, you're fair game.
Mike: I was under the impression, though, if you're, in fact, in the current guidelines, vacation rentals are prohibited from...temporary vacation rentals, are prohibited from claiming a listing at Google.
Tim: They are?
Mike: So, it's okay to be brought in through booking.com and have a listing at Google but it's against the rules to verify it?
Carrie: The business can have a listing.
Mike: They can have their home office.
Mike: But we're seeing now, in maps, specific...
Carrie: Individuals, really.
Mike: Vacation rentals are now showing up in maps that are being brought in because of the Hotel Finder now doing vacation rentals. They're coming in from vacation rental sites like VRBO and booking.com, right?
Tim: Yeah. They haven't changed the guidelines, the GMB guidelines, so, technically, those shouldn't be there, but they are pulling them into the hotel finder, so we've all seen that. Where they're specifically getting them from, I couldn't say if they were scraping an OTA or the minute it was added to an OTA do then Google pulled that from their API. I'm unsure, at the minute, where they're getting that from but I have a theory.
Carrie: Yeah. The history in vacation rentals is... So HomeAway owns a booking engine for vacation rentals and they keep tending more...pushing that more and more and more to be like OTA, hotels.com, and they encourage people to do one night and two night rentals because it used to be, historically, seven nights minimum, they wanted longer stays.
And I think that, HomeAway is a big influencer in that space and so I think that they might be moving more towards trying to get people to do the hotel model same as Airbnb, less nights. And so it's indirectly feeding them into the hotel model and I think they're going to be sorry they did that, in the long run.
Tim: I think so. Because the thing is, with OTAs, there are the winners and the losers. And the winners are your large change, your Marriotts, your Hyatts, your Holiday Inns, because you have 10,000 beds across your particular state or country, and then you go to your OTA and say, "Right. This is the commission we are going to negotiate."
Carrie: That pool.
Tim: Yeah. And the OTA block books or essentially reserves those at their own cost anyway. Whereas, five years ago, small bed and breakfasts, 10 rooms, even small hotels, were offered an option of the price point that they felt that they could afford on their room. And you could select a price point and, of course, that price point that you picked reflected in their internal algo on where you were placed within, for a hotel or bed and breakfast search.
Now, they have gotten so large, there is zero negotiation on OTAs now. It's, for example, booking.com, it's 15% straight up, "We will take 15%." They used to be the margin of negotiation, that's all gone for the small properties now. It's, "That's our commission, take it or leave it."
Carrie: Well, and there was a point in time too when the OTAs were positioned really strongly organically and then Google came in and said, "This isn't really fair for, location-specific hotel searches," and demoted them a little bit. But now we've seen them come way back up there again.
Tim: It's all back. And you know what that was, that was...well, in my mind, that was, "Well, listen. We spent $7 billion with you last year, we don't like this."
Carrie: Yeah, I think they have a lot of pull.
Mike: Although, showing up on the booking button in the knowledge panel is a very prominent presence and there they compete. Now, on the booking button, is that a pay per click bidding order or...?
Tim: So, the way those work is you have a separate ad...it's the Google hotel ads, which is a AdWords interface, which actually, they've just... Last week, ironically, they announced that they are merging Google Hotel ads into the traditional AdWords interface so you could manage your standard AdWords as well as your hotel ads together. But no, the hotel ads in the booking button are based on a percentage you are willing to pay per commission on that room. So, it's like the LSA, where the service, the service area of business says, "I'm prepared to pay X amount at a base rate for a lead," and this is, "I'm prepared to pay X amount of commission for that booking," so...
Mike: So, the reason that... I mean, so large companies like the Marriotts can do that with their own internal IT, but a small company, really, is at the mercy of the OTAs and if they don't want to give the money up to the OTAs, what choice do they have?
Tim: None, really. So, it's going to be exceptionally difficult. There's only one large brand that I know of in the UK that has actually ditched all the OTAs and the only booking option available on their knowledge panel, and that's Premier Inn. They are huge... I don't actually know how many properties they have, but they are literally all over the country. It's one of these, I would call it budget, but they have very, very comfortable budget properties and they've gone with ditching all the OTAs, and they just manage their own booking button with a percentage that...obviously, a commission they'd feel...
Mike: I see. So, they are big enough to use Google's API directly, their ad API directly.
Mike: But if you're smaller than that and you don't have your own API, what are your choices?
Tim: There are third parties. So, there's a selection of third parties which you would integrate your booking system with or use their booking system. And then, via them, you get access to the hotel ads console and then you can adjust your percentage per either rooms... So, if they're a double room, you can adjust them by double room suites, single beds, and you can adjust the prices via that.
Mike: But you still, then, automatically end up in the OTAs or you have a choice of ending up in the OTAs?
Tim: No, you have a choice. If you don't want to appear, you can remove yourself from OTAs.
Mike: I see. But the OTAs deliver a lot of traffic though, is that...?
Tim: Yeah, massive amounts. But if you remove yourself from the OTA, from all the OTAs, and you don't integrate yourself with, a third party booking platform, then your knowledge panel is essentially blank. It will still say, "Book now," and when somebody goes to book, it'll say, rather sneakily, "These dates are not available." And you can change your dates and things like this... It's because the Google's API is going, "I can't find anything." Rather than say, "Contact the hotel directly," or something like that, they just say, "Your choice of dates are not available."
Carrie: Removing yourself from the APIs and from the OTAs, does it give you...does it then, flip a switch and turn on extra features in the knowledge panel or you're just, you're still captive to whatever features are available to hotels? And I know a few small, local hotels that don't want to play the game, have tried to just buy ads for their terms. But then, they're bidding against the OTAs in their area and they'll just bid the bids up until the small guy can't afford it anymore.
Tim: Yeah. Your branded terms are [inaudible] because, obviously, if it's a popular area, all your other OTAs are bidding on those terms. So your branded terms, your traditional, $2 a click or whatever the case may be, that can get pretty expensive especially if you're in a large, or at least, on the outskirts of a large city. In that instance, your Google Hotel would be better because you could select the amount of commission you are prepared to pay Google per click. But if you're not matching the OTAs, then you might not appear within the first few OTAs that the knowledge panel shows. And unless the user actually wishes to view more, they will see the listing from the hotel itself.
Mike: So, from an analytics perspective, if somebody goes to the knowledge panel and books, say on booking.com to the knowledge panel, is that transparent to the recipient hotel that this transaction originated on the knowledge panel or does it look like it's just coming from booking.com? In other words, I'm trying to figure out what percentage Google really delivers versus what percentage the OTAs really deliver. Really deliver. And when I say "really deliver," I don't mean coming through Google to the OTA to the booking, I'm saying, if it comes through Google, then I consider Google's delivering it versus coming through some other way.
Tim: Yeah. I've tried to mess with tracking, I've tried literally everything. It just appears as it's coming from the OTA itself, you don't have that initial where they came into the OTA.
Carrie: You can't put UTMs on anything to track it through or any special link because they rewrite all the links anyway.
Tim: We've actually...with one of our resorts who are very open to allowing you to change and to try a lot of different things, and I've used three or four of their third-party providers who I've always said, "Can we track, the initial click?" And a lot of them have gone, "Yes, we can." And then, we've messed around with tracking codes and all sorts of things and we've never been able to actually find that first call.
Mike: So, it's conceivable that 90% of these booking, OTA leads are actually coming from Google.
Tim: Quite possibly. Yeah.
Mike: And it's not even possible to ferret that out. It'd be interesting to do it. I mean, obviously, experimenting with your business is risky, but it would be interesting to see if you were able to make the switch from the booking engines to Google's hotel API, in one fell swoop, whether you saw an aggregate loss of bookings.
Tim: When Premier Inn removed all the OTAs about two years ago, when they removed all the OTAs and only integrated themselves so they're only booking that you can do and that they said the bookings went up.
Carrie: Think about it. When you go to an OTA, though, it's like the ultimate indecision paralysis because you get on hotels.com and there's ads in the side bar for other properties. And, I mean, the ability to find something else there is immense.
Mike: It makes sense to me that a consumer's ready to make a decision at Google, they make the decision, they click on booking.com who has every motivation to take them someplace else that's more profitable or something. So, yeah. I agree. So, you're saying that in the one test you've seen, that when somebody switched away from the OTAs and went directly to Google, they actually had higher online bookings.
Tim: Yes. Yeah. They said their bookings increased by 60%.
Mike: Wow. So, this speaks to the need for some intermediary to disintermediate booking.coms and help all these small and medium-size hotels just do the Google thing, right? I mean...
Carrie: Yeah, absolutely.
Mike: So, Google is attempting to disintermediate but just, , slowly.
Tim: Yeah. Yeah.
Carrie: Under the radar a little bit.
Tim: It gets so difficult for a lot of these businesses. Each of these booking systems have their own dashboard which you have to then go in and select, if you've got any special offers running, if you... And it's often the case where you may have agreed to a special offer and not realized the commission basis et cetera on any of these on a particular deal then next minute you're getting tons of these bookings coming in and you're wondering, "Well, how the heck, I mean, I'm literally giving this bedroom away for half price."
Carrie: Yeah. There's no profit in it, all of a sudden.
Tim: Because, all of sudden, everybody is seeing in the actual knowledge panel, it says, you get those things saying, "Deal" when it's a special deal and they've got the price marked through and all of a sudden, it's ridiculously cheap. I get a lot of hotels going, "Oh, my..." and, they phone out of desperation because they've seen I've written something and I'm "Well, you need to get a hold of them first," and they don't realize that you've even got a dashboard.
When someone leaves the company and doesn't hand over the dashboard, back your own dashboard on your own bookings, it can be a bit of a minefield.
Carrie: Well, and some of the booking engines, say, "Oh, we'll handle all that for you," because then, they can set those commissions in there and they don't converse with us, especially the smaller hotels that don't have a dedicated marketing person to watch those things. And I think they take great advantage in those cases.
Tim: I've actually, not just in the last few days, Marriott, I see, work... but this is the difference, Marriott's obviously very big where they can negotiate commissions, unlike a small operator. But I've noticed, in the last few days, Marriott is doing very well in the sense of using the hotel ads to actually beat out the OTAs on price. So, all the OTAs are listing, let's say, $124. All of them are listing $124 as the real price and Marriott's saying, "If you book direct with us, it's, $119."
Carrie: So, they have enough pull to get their hotel ad to the top where they can say "Book direct and save" or something in their little...
Tim: Yes. So, they've set their price but, of course, they've increased what they're prepared to pay for a click over the OTAs.
Mike: All right. So, we're down to two minutes. I'm going to give you each one minute to, , summarize, , what you think. Like in your case, Carrie, how bed and breakfasts might deal with this, and your case, Tim, how hotels might deal with it. Why don't you go first, Carrie?
Carrie: So, I think bed and breakfasts are going to continue to get edged out and they're being forced to get involved with booking engines that are more and more in bed with the OTAs. And what we're going to see, as consumers, is rising prices to cover the cost of having to compete in this OTA limited knowledge panel marketplace, and that's going to hurt our bottom line. Of course, the OTAs aren't going to absorb...the bed and breakfasts can't absorb, they don't have that big of a profit margin, and of course, Google's not going to absorb. So, it's getting passed on to the consumer absolutely, 100%.
And I think, unfortunately, bed and breakfasts, because they're getting lumped in that category with hotels, they can't do a lot to fight it. And there's not a lot of big network bed and breakfasts like a Marriott or whatever in the hotel space that can band together and compete. It would be interesting to see what the Pi organization has to say about it when they have their next meeting, which I believe is in the fall. We'll see what happens there but it's definitely an issue for them.
Mike: So, Tim, maybe you could just summarize your thoughts on both the exploitation and how hotels might deal with this reality.
Tim: Yeah. It's probably going to increase as Google, expands the knowledge panel. Hotels is their testing ground for a lot of things. But they do need to give a little bit, they really do need to give a bit. When they brought out, "Oh, you can watch the World Cup here," as an attribute, they have got so fixated on not even presenting anything to our hotels, they didn't even roll that attribute out for hotels, it was only for restaurants and bars.
Mike: Which is where they're a little weaker actually in the competitive scheme of things, right, vis-a-vis Yelp and TripAdvisor whereas, in hotels, they're in more of a control position.
Tim: Yeah. I would, if you're a hotel with a fair, a fair few rooms but you're still independent small business, I would actually get some...invest with some time and training for someone to manage and to really get your head around managing the actual bookings and the OTAs. And use the knowledge panel because there is a little bit of leverage if you understand the OTA's commission processes as well as using a third party to start leveraging it and actually slightly even the playing field where you could increase your direct bookings.
Mike: Great. Well, with that, I just want to thank you both for joining us for this deep dive and we'll see everybody next week. Thanks again, Tim and Carrie.
Tim: My pleasure.