In early 2010, executives from Hilton, Hyatt, InterContinental, Marriott, Wyndham, and Choice Hotels huddled in a backroom and hammered out an agreement to launch a co-owned technology brand. The executive teams were fed up with the outrageous rates the Online Travel Agents (OTAs) were charging to refer customers. After all, how difficult could it be to launch a website?
The hotel executives were likely encouraged by the major United States airlines, which had already successfully battled the online travel agencies by creating Orbitz. In 1999, the five airlines had collectively invested $145 million to get a fledgling technology brand off the ground. When Orbitz launched in June of 2001, it was an instant success. This new, airline-owned metasearch brand was the biggest eCommerce launch in United States history.
Encouraged by the airlines’ success, the hotel executives decided they would do everything in their power to guarantee a similar success. They pooled resources for the joint venture and provided a large budget that would allow them to hire an experienced leadership team, attract top-tier talent, and fund an early, key acquisition.
Armed with financial backing, the new metasearch engine decided to hire John Davis III who is best known for co-founding 1-800-Flowers. However, perhaps more importantly, he is the founder of the first hotel distribution switch technology company (Pegasus). With Davis’ unique experience of owning an OTA-like brand (1-800-Flowers) and the added benefit of understanding property distribution better than anyone in the world, Room Key was set to disrupt the OTA market once and for all.
With Davis leading an experienced eCommerce leadership team, Room Key intimately understood the customer acquisition piece of the puzzle. The problem was much more complicated than simply building a best-in-class technological solution and website. Instead, the primary problem centered around a need to produce large traffic volume and conversion volumes from day one. They were up against some of the most skilled, well-funded web-brands in the world. Two years after the initial agreement, Room Key opened for business in January of 2012.
In an effort to compete with household name OTAs, Davis brokered an interesting agreement between Room Key partner hotels. When a potential guest was browsing a hotel’s web property (i.e. Hilton.com), the hotel website would redirect their potential customer to RoomKey.com potentially losing a sale. The hotels were so united and dedicated to preventing OTAs like Expedia from producing bookings they decided to give their own customers to the competition.
In addition, each of the hotels would include links (many are still active today) from their websites to RoomKey.com. The utopian traffic-sharing strategy worked fairly well and Room Key was producing millions of monthly visitors a few short months after they launched.
In March of 2014, the Room Key CEO told tnooz that the brand had grown to a team of 35 employees and that the brand had 14 million unique visitors to its website. However, in the same interview, Davis mentioned that the brand had significant road bumps ahead. Even with tens of millions of free (donated) website visitors, Room Key was still struggling to become ROI positive.
The negative ROI was only one of many problems Room Key was facing. Before long, changes in technology and a shift towards mobile Internet usage threatened the primary traffic-garnering strategy. With popup blockers becoming the norm and an inability to display ads to users with mobile devices, the struggling brand began a downward spiral.
Several months later, Davis vacated his position as CEO. As a seasoned veteran in hospitality and distribution, he understood better than anyone that the challenges were insurmountable. The uphill battle of getting direct competition to work together, ad blockers reducing the amount of free traffic, mobile technology making the popunders obsolete, coupled with the loss of Davis were more than Room Key could overcome.
The diminishing importance and failure of Room Key has been mentioned by multiple hotel executives. Speaking about the importance of Room Key as part of a distribution strategy David Kong, the CEO of Best Western Hotel Group, told Skift the following:
It’s a very small fraction of our business, nowhere close to what the initial estimates were. In that regard, it’s a bit disappointing. It was created by all the major brands in the industry. You’d think we would know how to do it and do it well, but it hasn’t panned out that way.
Was Kong overexaggerating the failure of Room Key? The annual U.S. Securities & Exchange Commission (SEC) filings back his statement up. Each of these publicly traded hotel brands are required to file an annual report that details major marketing strategies and brand-building initiatives. Room Key drives so little revenue and brand awareness you cannot find one mention of Room Key in any of the reports.
As the vacation rental industry matures, we should realize that studying the failures of a directly parallel industry is a profitable endeavor.
Here are five interesting takeaways from the hotel industry’s failure with Room Key:
#BookDirect Is Not New Or Easy
When hotel executives met together almost a decade ago, becoming independent of Booking, Expedia, and the other OTAs was their primary goal. Even with solidarity, deep pockets, great technology, and an experienced team, Room Key ultimately was a disappointing venture. Even today, RoomKey.com website visitors can easily read about the advantages of booking direct.
In a fragmented industry like hotels or vacation rentals, the challenges of creating a website to directly compete with OTAs on their turf are humongous. To attempt to create a listing site from scratch, is to decide to battle the OTA head-on where they are strongest. Typically, a property manager will have the best results when competing on the basis of local expertise and experience.
Self-Centric Motivation Typically Results In Failure
When hotel executives decided to launch RoomKey.com, what was the primary purpose? Was it to provide potential guests with a superior booking experience and better vacations? Was it to excel at customer experience in a way that an OTA simply could not? The goal was much simpler and more self-centric – the hotels wanted to save some coin and avoid commissions.
Not unlike the vacation rental industry, market fragmentation was a major obstacle to overcome. Expedia had double the rooms in many markets compared to Room Key. Since the customer was already familiar with Expedia, inventory count was much higher, the booking experience on Expedia was far superior, and the change cost was not perceived to be warranted, the customers never made the switch to Room Key.
When a new player enters a fully-developed business niche, they must have a compelling reason to attract customers. The bar has never been higher for a brand new search engine, social media channel, or OTA. These are mature technology businesses with dedicated customers. Simply wanting these customers for selfish reasons is not good enough.
The story of Room Key’s failure should drive home the point that we must take care of customers first and ourselves last. How can we provide customers with a 100 times better experience than they are currently receiving? That, not saving commissions, should be our goal.
Putting Competition Before Self = Tough
From the beginning, Room Key’s success depended on the hotel executives presenting a unified front to battle the OTAs at all costs. Room Key required the hotel brands to link from their website to Room Key where the direct competition was promoted. In addition, they were also expected to present potential guests with an advertisement promoting the direct competition.
The same hotels that had their website visitors siphoned off to Room Key were expected to pay a commission to the cooperative when a reservation was produced. The combination of sending loyal customers to Room Key AND paying a commission when they converted left a bitter taste and caused hoteliers to accuse of double-dipping.
In the event the group of hotels had pooled budget and banded together, there would have continued to be cartel-economic issues and FTC considerations to battle. Working together with competition to overthrow another business is an extremely difficult undertaking.
Customer Acquisition (Not Building The Website) Is The Issue
Sure, building a beautiful, mobile-friendly website with best-in-class technology is expensive. Very expensive (more on this later). However, that is the relatively easy part. Even though Room Key was relatively well-funded and rapidly grew to 70,000 properties, this brand has minimal traffic compared to an OTA.
Consider the following recent statistics from industry-leading competitive analysis tool SimilarWeb regarding visit volume to each brand:
- Booking: 502.18 Million Monthly Visitors
- Expedia: 70.14M Million Monthly Visitors
- Room Key: 0.4 Million Monthly Visitors
When you consider that there are over eight-million hotel rooms at 70,000 properties, the anemic results should not come as a surprise. The top two OTAs combined obliterate Room Key’s 400 thousand website visitors with nearly 600 million visitors each month. How can the OTAs afford this kind of traffic? The bookings from the eight million hotel rooms.
Unfortunately, the story in the vacation rental industry is quite similar. The abysmal traffic numbers local listing sites typically produce equates to minimal/no impact. In fact, I have had several conversations with property managers who have properties listed on local listing sites and have not seen a single booking.
The cost of developing a brand that can compete with a leading OTA is significant. This is definitely not a case of “If you build it, they will come.” Don’t be fooled into thinking simply launching a localized version of a listing site will be enough. What is the plan to get to 100,000 unique visitors per month? Without that plan in place, you will fail.
Prior to listing your properties on a local listing site or hiring a company to develop a local listing site for your local organization, you should do a simple quality-check on an existing listing site that company has created. Take the web address and enter it into SimilarWeb, AHREFS, & SEMRUSH to see the monthly visit volume that website is producing for those property managers. This simple exercise can save you tens-of-thousands of dollars.
Collective Budget Is Small Compared To OTA
RoomKey.com was directly competing with online giants like Booking and Expedia. According to Phocuswire, Booking and Expedia collectively spent an astounding 10.6 Billion dollars on online ads. If you compare the collective ad budgets of the top six hotel brands compared to the top OTA, the percentage is small. Since the hotels had proven ad campaigns, the risk of reallocating those funds to the cooperative Room Key site was too great. Even though the hotels were fighting against OTAs spending billions on annual marketing, the hotel brands failed to allocate considerable resources to promoting Room Key.
The issue with localized listing site promoting vacation rentals is similar. The risk is too great to reallocate the advertisement funds into a joint-effort that might not pay off. Since this is the case, the local property managers may invest in building a site (similar to the hotel executives) without fully committing. Even as they fund the side-project, the properties continue to produce revenue for the very OTAs they are fighting. Unfortunately, this is out of necessity due to the fragmentation of the industry.
Technology Is Difficult
Why would advocates for the #BookDirect movement launch a website with anything less than best-in-class technology on a local listing site? Simply put, great technology is expensive! The large listing sites have whole technology departments that have been tasked with complicated software integrations and ensuring a great experience for the end-user.
Today, most locally-owned listing sites don’t have the budget or knowledge to accomplish the relatively basic task of an availability check. End-users on these sites routinely find the perfect vacation property only to find it is already booked. After a few negative experiences like this, is it really that surprising that the customer prefers the OTA experience? The majority of local listing sites are actually a great advertising tool for the OTAs.
Meanwhile, the OTAs aren’t worried about implementing simplistic date and availability checks – they had that figured out a decade ago. Instead, they are focused on using cutting edge AI and Machine Learning to build customer experiences that are so technically complex, and expensive to build/operate, newer startups may never be able to catch up.
So do we throw in the towel and give up? Is this a hopeless battle? Absolutely not!
Hilton Hotels did not give up on creating #BookDirect bookings and building a sustainable brand. Instead, they focused efforts on building their own core brands and developing a customer-centric loyalty program. During a recent interview, Hilton’s CEO told Skift that he felt the Direct Booking Campaigns were leading to better customer experiences and additional revenue. Rather than continuing to fight the OTAs on their own turf, Hilton refocused their own core strengths including loyalty programs and hospitality.
What does this look like for property managers? Understanding where your strengths lie is absolutely critical. This is not a scenario where a few property managers can band together and build a new listing site that books better than VRBO or Airbnb. While we may want that to happen, it simply won’t.
However, it is possible to build a sustainable and #BookDirect brand in the same way Hilton has. To accomplish this, our focus should not be on dethroning an OTA that we dislike. Rather, our focus should be on helping our customers.
The Zero to One Million workshop I recently led shows property managers how to build up large web presence using content marketing (something big brands typically suck at). Also, what if we decided to compete on experience instead of price?
As we grow our brands, we will inevitably find ourselves challenged and up against the wall. By rising above those challenges and solving truly difficult problems, the byproduct will be an exceptional brand that changes the landscape of the vacation rental industry.
Go and do great things!