Blockchain: An OTA Killer or Flash in the Pan?

June 26th, 2018 Kent Howard Hospitality Trends, Latest News

With 300 hotels, TUI Group is one of the biggest supporters of blockchain in the hotel industry and reportedly thinks it will significantly boost profits. It uses the technology to manage the distribution of its inventory and is even working with IBM to build a public blockchain for hotel distribution. TUI joins Winding Tree – a Swiss company that claims to be working on “the future of travel” – in its goal to create a decentralized distribution platform that removes commissions by eliminating online travel agencies (OTAs).

What is blockchain? Will it benefit independent hoteliers and will TUI Group’s significant investment in the technology doom OTAs?

De-mystifying blockchain

The best way to understand blockchain is to consider how closely it relates to Wikipedia’s design –  bar one fundamental difference. Wikipedia is a public source of information to which anyone can contribute. New entries can be created, and existing records updated with the most recent version (known as the “master copy”) displayed to anyone who happens to be browsing the site.

Blockchain works according to a very similar principle. Think of it as a ledger of transactions that can be programmed to record anything of value (Bitcoin is the most prominent example); just like Wikipedia, anyone can contribute, but unlike Wikipedia, it is decentralized.

In blockchain, records can be updated independently with the most popular record becoming the “official” record. There is no master copy, and no need for a single party to manage the data due to the high-end encryption keys every contributor uses. In the world of hotels, blockchain is a compelling place in which to store and distribute both inventory and rates without the need for third-party travel agencies.

Is it an OTA killer?

Advocates of blockchain will claim it offers hotels more efficient management of payments, the ability to authenticate travelers and a better way to distribute loyalty programs, but how big a threat does this pose for OTAs? In truth, most blockchain benefits are currently assumed, because the technology is yet to be put to significant use, but it’s the promise of no (or low) commissions and the absence of gatekeepers that will undoubtedly pique the interest of hoteliers.

Despite this, it’s unlikely the end is nigh for OTAs. They continue to be significant players in the hotel sector, and the billions they spend on their own technology and advertising ensures they can effectively attract and convert guests for hotel partners.

Blockchain, by comparison, is unproven and simply can’t yet offer hotels the same depth of PMS and revenue management integration. While it’s unlikely to replace OTAs any time soon, the ethos behind blockchain, however, may spark some healthy debate about hotel distribution and centralization.

It’s still about advertising

Just like any business, a hotel must advertise to attract customers, and OTAs have long been a great marketing channel for that purpose. The OTA partners you use at your hotel help you fill quiet periods and introduce new guests, whom you can tempt to book directly for their return visit. The use of blockchain requires a fundamental change in guest mindset and, just like any new form of technology, it’s likely OTAs will approach it with caution – particularly in today’s security-conscious digital economy.

It’s important to keep in mind that guests don’t consider commission costs or the intricacies of inventory distribution when they book; they just want to find the best option for their budget and requirements.

For blockchain to prove a significant threat to the future of OTAs, the basic principles of advertising must support its impressive technical underpinnings and decentralized structure; hotels must view it as a viable route to market; and guests must trust it.

The future: lower acquisition costs and greater control?

The hotel industry probably isn’t ready for widespread blockchain technology at the moment, but that doesn’t mean its influence won’t begin to increase. Any unintended consequences or moves by OTAs to counter the blockchain model will make for some fascinating industry debate.