The Kayak vs Bing Difference 1 - The Customers Are Different
While both OTAs and Meta-search are about linking bookers with suppliers, they do it by focusing on different customers. The OTA (the retailer) owes their livelihood to the punter, to the customer. The person they get their money from is the consumer making a booking. The meta-search company owes its livelihood to the advertiser, to the supplier. They get their money from the click buyers, suppliers and media companies that buy the eyeballs looking for travel. I concede that there is cross over as many OTAs have large media/partner marketing businesses. But this does not change the dynamics of this difference. If you believe that to "follow the money" reveals the truth then the difference in where the money comes from for each business and therefore who the customer is for each business is significant.
Difference 2 - The Marketing Levers Are Different
Both businesses are websites, both participate in organic and paid search, each operates off-line brand campaigns and online affiliate networks but there is a critical part of the marketing funnel (assuming we still believe there is a marketing funnel) that is very different between the two models. The front end of the funnel for both are similar but it is in the management of repeat customers and customer loyalty (the back of the funnel) that the two businesses are very different. OTAs build loyalty through deal hunting, sales, customer service, customer contact and building unique product. Put another way, by looking to own the entire customer experience of booking travel. Associating themselves in the mind of the consumer as the whole travel experience and only person that can be trusted. Since meta-search companies are not the ultimate destination, they need to build retention through convincing consumers that only meta-search can provide the best price. A one dimensional way of retaining customers that can be very powerful if you get it right but hard to execute on. OTAs focus on owning the customer to bring return visits, whereas meta-search focuses on a (hopefully) repeatable series of "wow, check out that price" moments.
Difference 3 - the size of the prize
With OTAs and meta-search being in different businesses (retail vs media) they are actually competing in markets that are very different in dynamics and most important in size. Let me use the US market as an example of this.
PhoCusWright estimate the size of the US online leisure/unmanaged travel travel market for 2008 was around US$95 billion in their latest US Online Travel Overview Update. This is the market that the OTAs are fighting for against other OTAs and supplier direct.
The Internet Advertising Board (along with Pricewaterhouse Coopers) issue every year an Internet Advertising Revenue report. In their March 2009 report (PDF copy here) they cited the 2008 online advertising spend in the US as US$23.4 billion. On page 12 of the report (again PDF here) they say Leisure Travel as a category was responsible for 6% of the spend - or US$1.4 billion. That is the meta-search battle zone.
There is no clearer indication of the difference between two businesses than evidence that they are chasing different pots of money. The OTAs are fighting with suppliers and each other for a $95 billion dollar market. The meta-search companies are fighting with Google, the portals and other meta-search groups for a $1.4billion dollar market.
To be fair, the IAB report does not fully track affiliate commissions and CPA deals. They track three classifications - Search, Display and Classifieds. Within that they are tracking cost per click inside Search and lead generation payments. But in all likelihood they are understating the size of the market for meta-search. However, even if you double or triple the leisure online travel market measurement it is still only a fraction of the size of the market for sales of online travel. Which make sense. The advertising market for an industry has to be smaller than the industry itself.
I don't raise any this to say that retail is better than media. If I did I would have to find a way to combat the argument that media should have a much higher gross and net margin than retail. Instead I raise these to highlight that the CEOs of meta-search companies and OTAs are looking at very different things when they are planning and executing in terms of customers, marketing channels and the markets they are chasing. If you agree they are looking at different things then you agree they are very different businesses.
Though different business, the interdependence is clear. Good meta-search has the power to shift share away between the OTAs and to supplier direct. Similarly the OTAs have the power of offering discounts and sales to direct customers that meta-search cannot match.
It is a great battle to watch (and be a part of). But in watching (and joining) this battle we need to know the differences if we want to set the right tactics and strategies. What to do you think? Between OTAs and meta-search which one is Rocky and which one Hulk Hogan?
Hat tip and thanks to Steven Gong from Wego.com (funnily enough a meta-search company) for answering my tweet for online advertising market size with a link to the IAB report.
