Disintermediation

The portals of online aggregators have been a bane of the industry particularly in the not so economicially robust years that followed 9/11. Most hotel operators were (and are) loath to give up inventory at a discount to the pricelines and expedias of the world if they can help it which explains the movement away from them initiated by the major hotel companies by assuring consumers of the best price (best rate guarantee) on their website. The phenomenon, known as disintermediation or quite simply getting rid of the middle person, is a natural outcome of hoteliers losing control of their room supply.

ut others, such as local governments have viewed internet suppliers with a somewhat baleful eye and as a source of revenue. Cities from Philadelphia to Los Angeles have filed suit against online travel websites such as Orbitz, Expedia and Travelocity saying that they do not pay their full share of hotel occupancy tax as the aggregators generally pay on the discounted rate they obtain from hotels and not the retail rate paid by the consumer to the online agencies. Yesterday, New York Governor Elliot Spitzer lined up the aggregators in his cross hairs as part of his state budget. While the matter remains unresolved in several jurisdictions, the fact that New York State joins the fray should make it interesting. So far, the online travel industry has represented that the difference between the rates they pay to hotel companies and what they charge the consumer represents a “service fee” and that they do not sell hotel rooms. Curiously, they do not separate the rate they pay hotels from the “service fee” ostensibly because that would inform their competitors of their procurement success or lack of. They also claim, disingenuously, that they provide access to consumers who otherwise may not have know of these hotels – obviously Google would dispute that. In the end, this can only benefit the consumer as disintermediators or middle-persons usually an inefficient link in a supply chain.

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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.

2 thoughts on “Disintermediation”

  1. That’s a good point, but although google could help users find all the hotels just as well as a priceline, it would be much more time consuming. If disintermediators are going to be removed from the supply chain, it would have to be replaced by an industry website similar to opentable.com that does not offer discounts or take any money but simply provides direction quickly and efficiently.

  2. Thanks for your comment. I agree an industry website would be helpful. A point to note is that, although not large, Open Table does take a small fee from restaurants for providing reservations.

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