Google checks into the hotel business
The company is directly competing with its own advertisers by offering user reviews, virtual tours and room bookings.
Google is adding more photos and reviews to its hotel listings, so they increasingly resemble those of travel search sites such as Priceline Group (PCLN), Expedia (EXPE) and TripAdvisor (TRIP). And it is more aggressively promoting its "hotel-price ads" that post room rates directly as travel-search sites do.
The idea is to encourage travelers to plan more of their trips directly on Google. In the process Google gets them closer to making a booking, which experts expect will make referrals more valuable, prompting travel agencies and hotel operators to pay more for clicks on Google ads over time. It also encourages more hotel operators to place ads on Google directly, bypassing online travel agencies that charge commissions of up to 25 percent.
In its latest move related to hotels, Google on Monday struck a licensing deal that will give it access to technology from hotel-booking software startup Room 77 while adding engineers to Google's hotel-search team.
The potential market is large. In the U.S. alone, travel and tourism spending totaled $450 billion last year, and is expected to grow 3.5 percent this year, according to the World Travel & Tourism Council.
But the move is risky: Online travel agencies are among Google's biggest advertisers. Priceline Group will spend more than $1.5 billion in 2014 on Google advertising and Expedia could spend another $1 billion, mainly to attract hotel bookings, estimates RBC Capital Markets analyst Mark Mahaney. Those two alone could account for nearly 5 percent of Google's ad revenue this year, Mahaney estimates, even though the company has over a million advertising customers.
A spokeswoman for TripAdvisor says the company welcomes competition. An Expedia spokesman pointed to comments made by an Expedia executive in February that the two companies "can coexist harmoniously for a very long time." Priceline declined to comment.
Google has been expanding ties with some big hotel groups. Hilton Worldwide Holdings (HLT) says 78 of its properties now offer "virtual tours" on Google's site. Geraldine Calpin, Hilton's global head of digital, said more Web visitors book rooms after viewing those tours. Carlson Rezidor Hotel Group, owner of the Radisson brand, also uses the virtual tours, and plans to use Google's Wallet payment service for online payments to connect to its loyalty program.
The tech company also has stepped up efforts to recruit independent hotels to bid on the hotel-price ads. In early March, Google showed its new search results to dozens of technology companies that work with boutique hotel chains at a first-of-its-kind meeting in Berlin, according to three people who attended the meeting.
The hotel-price ads on Google are "a game changer," said Erik Muñoz, an executive director at hotel-booking software company SiteMinder. He said Google's new ads allow hotels to compete with online travel agencies for a direct booking, potentially driving down their costs.
Google wants lots of hotels listing their rooms so that users have "lots of options," said David Pavelko, Google's director of travel partnerships.
This also reduces Google's dependence on two giant travel advertisers.
Some hotel operators are wary of sharing too much information with Google, fearing the company will become a powerful intermediary between them and their customers.
Intercontinental Hotels Group (IHG) isn't participating in Google's program for the virtual tours, even as it buys Google advertising. An IHG executive says the company likes to reserve such content for its own site to encourage travelers to book directly, which saves the company money.
"Any time you're dealing with Google it pays to be careful and know what its long-term strategy is," says Tom Botts, chief customer officer at Denihan Hospitality Group, which is testing the virtual tour at its Miami property.
The relationship between Google and online travel agencies can be even more tense. They fear Google's moves to establish direct relationships with hotels, said one executive of Orbitz Worldwide (OWW). Expedia and TripAdvisor are members of FairSearch.org, an advocacy group that highlights what it sees as Google's anticompetitive practice of promoting its own services in search results. Even so, they remain big spenders on Google advertising because of the valuable leads.
Google has been slow to remake travel search results after buying flight search engine ITA Software in 2011. But there is more money at stake in hotel advertising, because there is more competition for travelers: A city served by a half-dozen airlines may have dozens of hotels.
Google's stepped up efforts around hotel search put it on a collision course with TripAdvisor, which like Google links out to other sites where customers actually book lodging. But even those other sites, which include Priceline's Booking.com and Expedia's Hotels.com, may be increasingly sidelined as Google moves to establish more direct relationships with hotels themselves.
The aggressiveness in hotel search is part of a broader push to provide more information on Google's own pages, beyond links to other sites. That is particularly important as more users search on smartphones, with their smaller screens and limited bandwidth. The hotel strategy is similar to Google's "product listing ads" for online shoppers that include prices and images.
A recent desktop search for "New York Hilton Midtown" reveals Google's new approach. To the right of Google's traditional links, a box featured hundreds of customer reviews, a "see inside" button that offers a virtual tour, and a spot for searchers to enter desired check-in and checkout dates. Similar results appear for the same search on Google Maps and increasingly on smartphones.
Once travelers enter the dates, Google's new hotel-price ads appear. Industry executives expect hotels and travel agencies to compete for these ads, and to pay more than for traditional Google ads since they will know more about a traveler's plans.
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