Room Key: A winner or a fool’s errand?

Late last week saw the launch (in beta form) of the latest salvo by hotel majors in the war against the high cost of distribution in the internet age.  MSNBC reported that "six major hotel companies formed a new online booking service, Room Key, as a way to reduce commission costs paid to online travel agencies (OTAs) like Expedia and Travelocity, whose hotel room sales continue to climb."

The new front is being led by an unlikely coalition comprised of Choice Hotels, Hilton Hotels, Hyatt, IHG, Marriott  and franchise king, Wyndham Hotels.  The website will list all the hotels in the groups' worldwide stable. Prospective clients can search for hotels by destination and will be connected directly to the proprietary  website to make a booking and will be able to snag the lowest available rate on the website while also collecting frequent stay points; something that has been proscribed for a while by hotel majors for clients coming through OTAs.

Room Key expects to offer reviews a la Tripadvisor soon and the six founding companies hope to persuade some noteworthy hospitality giants such as Accor, Starwood and Fourseasons to join them before long. Adding more heavyweights may help, at least initially, but is it likely to endure?

A cursory review of attempts in other industries would suggest otherwise. Morphing into a version, particularly a limited one, of the adversary posing an existential threat is an unlikley means of survival.  Votaries of this strategy in businesses such as the record label industry have found that it did not nothing to stave off their demise.  While the hospitality industry is one that can never disappear it's unclear the industry's profitablity can be larded back up in this manner.

For starters, the venture assumes that the constituents of the group will be unaffected by the fact that many potential customers are likely to be brand agnostic and that it won't result in gains for some at the cost of others. It is also likely that the proprietary websites of brands will see some erosion in traffic. Another element that potentially limits the new venture is that unlike the OTAs Room Key wont offer the full panoply of travel products such as airlines and car rentals.

Having control over one's distribution channel has long been a holy grail for the industry well before the advent of the internet. But digressing  into an area where the industry has heretofore come up empty in terms of innovation is only going to divert from from the industry's core focus, that of being a reputed hostelry estabilshment. It is not accidental the three decades old adage of needing to sticking to one's knitting put forth by management guru, Tom Peters, continues to hold true.

The solution for the industry's distribution travails lies in, among other things, the promotion of more competition amongst OTAs. It is unclear how that could be stimulated but if nothing else the passage of time and the arrival of new technology will bring in more competitors.  Only then will the disproportionately large commissions gouged by the OTAs begin to whittle down to more "acceptable" levels enable a better modus vivendi for the hotel industry.

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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

One thought on “Room Key: A winner or a fool’s errand?”

  1. The hotel industry for decades no has singularly failed to protect itself against the forces of OTA’s &c which have simply walked all over it. I laud the coalition and wish it every success. who am i to argues with the likes of Hilton and Marriott, I think this could become a game changer

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