Mastering The Internet

Ten years ago, when only about 15 million people had any experience using the Internet, Holiday Inn was among the first hotel brands to launch Web sites with reservation capabilities. "Ten years later, our Web sites have grown to more than a US$1 billion business," says Eric Pearson, senior

vice president, e-commerce, InterContinental Hotels Group (IHG). And "growth potential still remains for 5 to 10 years," says his colleague Del Ross, vice president, global e-commerce, IHG. Overall, online bookings are expected to grow at about four times the rate of the total travel market through 2007, according to travel research firm PhoCusWright Inc. While online travel sales continue to rise in the United States, the strongest growth in the years ahead will come from Europe and Asia, where Internet shopping is blossoming. According to PhoCusWright, European consumers boosted the leisure/unmanaged business travel online marketplace to €28.6 billion in 2005, up 49% from 2004. And in China, hotel reservations are the major driver of the online travel business, accounting for 65% market share, according to Analysys International's China Online Travel Services Market Quarterly Tracker Q4 2005. Plus, Analysys says China's online travel market will develop at an annual growth rate of 82% until 2009.

With so much potential still out there, it is key for hoteliers to understand how online customers behave and what such customers are seeking so that they can increase their engagement with these customers and ultimately win more business through a more cost-effective channel. This process has already begun, as evidenced by people more frequently booking hotel stays through supplier direct Web sites rather than intermediaries. "Traffic data for February [indicate] that travel suppliers continue to capture increasing user attention," writes Merrill Lynch analyst Justin Post in a research note. "[In 2006,] we estimate that supplier direct bookings growth will exceed online agency growth at 23% and 16%, respectively," he adds in another. Hoteliers have drawn in these customers by improving the functionality and user experience of their sites, but to keep them, they will need to continue to do so, as third-party sites attempt to differentiate through added features and new functionality.

First and foremost, however, hoteliers must continue to attract potential customers to their sites. Simply having a great site is not enough—you've got to be found, says Sudheer Raghavan, president of the Americas, Millennium Hotels & Resorts. And in that department, search still rules.

Search: Alive And Well

The number of online searches in the United States alone soared from more than 3.3 billion in December 2004 to nearly 5.1 billion in December 2005, a 55% jump year over year, according to data from Nielsen/NetRatings. And Merrill Lynch's Post predicts that search-related travel bookings will double again this year. The good thing is that this is not taking most hoteliers by surprise—61% of tourism and hospitality professionals (including CEOs, CFOs, CIOs, directors, managers and vice presidents) surveyed last fall by PhoCusWright and New York University's Tisch Center for Hospitality, Tourism, and Sports Management said search engine optimization was important to their organization. But "Any good search engine strategy is two-pronged—paid and organic," says IHG's Ross. "Paid search can be extremely cost-effective, but it also can be extremely expensive in terms of cost of sales. You must have good metrics to analyze your spend. For organic, you must optimize for [different] types of search. There are lots of ways people search for hotels." Karmela Gaffney, e-commerce director, Best Western International, agrees. "I think you need a delicate balance between having your site optimized, so you can pull up organically, but in order to play in a fast way, there is also pay-per-click and keywords," she says. "In order to be relevant in customers' minds, [you must be in both organic and paid search]. If you are not there, you are not even part of the thought process."

In terms of paid search, "The winning strategy for keyword marketing is to back into the cost," Ross says. "You have to start off with what you want people to do on your Web site when they get there, and what [that] outcome is worth. If your goal is a reservation, and you know what reservation is worth, then you can figure out what you can afford to pay by backing in with the conversion rate on the Web site, and the click through rate on the search engine—that gives you what you can afford to pay per click. It's pretty much a math exercise. Then you just have to look and see what are searches people are performing."

Sounds simple enough, but sometimes the cost per click can be deceiving. "A search term may be very costly from a cost-per-click standpoint, but is actually very affordable from a cost-per-sale perspective," Ross says. He gives the example of 'Las Vegas hotels.' That would normally be an expensive search term, "but if your hotel has Barbara Streisand performing, the conversion rate may skyrocket, so that increases your buying power for the keyword, making the cost of the sale more reasonable. Cost per click is not the main factor, it's cost per sale or per transaction," Ross says. Rom Hendler, vice president of strategic marketing at the Venetian Resort Hotel Casino, takes a similar approach. "We spend based on cost per acquisition... not cost per click," he says.

David Doucette, Internet strategy manager, Fairmont Hotels and Resorts, says that company has become a lot more aggressive in both the paid search and search engine optimization arenas, and has "seen substantial growth in our numbers on those fronts." For search engine optimization, the key is staying on top of it, because search is an ever-changing landscape thanks to engines frequently updating their algorithms to improve the relevance of results. "We go through a quarterly refresh process—looking at code, making changes and updates—because we know engines are doing deep crawls on a regular basis looking for new content and new tagging," Doucette says. "But we're not just making changes for the sake of making changes. We want to ensure that whatever we're putting in there, we have content to support it—content that matches what the user is looking for. Providing a good user experience is the ultimate goal. But getting the customer there is a huge priority."

Gaffney agrees. "We are re-optimizing all of our marketing pages, and also taking it a layer further, creating some destination pages as well as optimizing and rewriting our property pages," she says. "You have to be on engines to get the customer to click to get on [your] site. But once there, if the customer does not have a positive experience, you won't have a booking."

Web Sites 2.0

To ensure that customers have the most satisfying online experience possible, hoteliers have been revamping their Web sites and adding features at a rapid pace. "I think suppliers in the travel space have learned a lot about how to better serve customers online," Ross says. "[They] all started investing in usability and the functionality that consumers need or want." Best Western, for example, redesigned its site to offer a more contemporary look and interactive style, focusing more on Gen X and less on baby boomers. In terms of functionality, the organization reduced the booking process from eight steps to four, and added customized navigational tools and search criteria that make trip planning easier. "If you are traveling with your family and you want a hotel with a free breakfast and a pool, you can search solely by those features," Gaffney says.

Fairmont, meanwhile, is in the midst of improving the infrastructure that supports its Web site—adding new servers, nodes and processors—and changing out its content management platform, Doucette says. In addition to migrating more than 5,000 pages of content, that will include various enhancements to make online services more robust. "It will give us more functionality," he says. One example comes with group or corporate business. The new content management system will allow individual Fairmont properties to build customized landing pages on Fairmont.com for conferences booked online. Previously this had to be done by Doucette's team at the corporate office, and thus had a longer turnaround time.

The Venetian also is re-doing its Web site. "In order to increase conversion, you need to give the information people want," Hendler says. He notes that the Venetian's booking engine was confusing, and while the site was getting a lot of traffic, it was seeing little conversion. So a revamp was in order. "The goal is for people to be able to do everything over the site that they can do over the phone," he says.

Other efforts include making the site more interactive along with globalization and language translation plans.

Key Trends

While hoteliers have regained control of the Web with improved strategy and better sites, customers remain fickle—if you don't keep giving them what they want, they'll go find it elsewhere. On that note, consider the following travel technology trends that PhoCusWright analysts see as being important in 2006: social technologies and user-generated content, rich media, and RSS.

User-Generated Content

The rise of online travel communities and user-generated content has been front and center of late. The best example is Web sites like TripAdvisor or IgoUgo, where users can post reviews and photos of hotels. According to data recently released by comScore Media Metrix, TripAdvisor has become the third-most-visited travel site in the world. Why? For people planning travel, the ability to tap the experiences of a large network of people is invaluable. Monitoring these sites is important from a customer-service standpoint, but hoteliers may need to take it a step further and consider incorporating user-generated content and social technologies into their online strategies.

"If you look at TripAdvisor, it's just amazing what they've done," Gaffney says. "That is something customers would like to have—postings of comments from guests at different properties. But given the nature of our organization, it could be difficult." Gaffney notes that hoteliers would have to offer authentic feedback, which opens the door to negative comments. And that drives the question of how much negative feedback you want on your site. "Eventually we may be able to get there, but right now it's sort of wait and see," she says. "The third-party sites have nothing to lose—if they get negative feedback on certain properties, they have hundreds of others, and they are not accountable for the properties."

For now, Best Western plans to make its site more interactive by adding a pets page, where guests can share pet photos, along with a new feature for summer where guests can share vacation stories and photos. "That way guests can have an element that 'I own the site or have a stake in it,' without going as far as user reviews," Gaffney says. "We are trying to make that connection, especially with the Gen X segment."

Other hoteliers have taken the strategy of simply being where the potential guests are. "On the online community side, we definitely see a lot of activity and we put quite a bit of importance on it," Doucette says. "We are doing advertising on those sites. On TripAdvisor, Fairmont.com is a clickable link—we want to ensure that when [potential guests] are looking they have the ability to click over."

Rich Media

According to Nielsen/NetRatings, nearly 70% of all U.S. Internet users now connect via broadband. With broadband on the rise, rich media has the potential to be a powerful tool for hoteliers to use to counter commoditization and differentiate their product. "Four and a half years ago when I joined IHG, we did testing for uplift for adding video and virtual tours [to Web sites]. It didn't help—it made things worse because of the bandwith issue," Ross notes. "We did the same test last year and it was very beneficial to overall conversion and revenue per sale. So now we're pursuing it for all hotels where it makes sense." Best Western went a step further, adding five 360-degree virtual tours for all 2,400 of its North American properties. Why? "Aside from the booking process and the rates, this was most important [to customers]," Gaffney says. "It is among the main factors [customers use in selecting a hotel]—location, price and photos or tours."

Virtual tours are a start, but hoteliers need to ensure that such tours are high-quality and feature-filled, as "the novelty of mediocre rich media has worn off," according to PhoCusWright analysts. But even more than that, hoteliers should look beyond the obvious and consider incorporating rich media such as interactive maps into their Web sites, for example. Such maps can present well-organized information about a location, such as recommended walking tours or where to find restaurants, and "will increasingly become a staple of the trip-planning process," PhoCusWright analysts note. "As maps become even more data rich and GPS-enabled mobile devices become the standard, mapping technology will be a goldmine of opportunity in the travel space—before, during and after the trip." Some Internet marketing firms, like Washington-based TIG Global, are already offering to set up interactive mapping applications for their hotel clients. "Mapping is one feature clients are asking us for," says Kim Breisacher, director of client services.

Real Simple Syndication

RSS is an up-and-coming channel in both consumer use and online marketing. "RSS will continue to spread across the industry and gain traction as more consumers become aware of its potential," PhoCusWright analysts believe. Why? "RSS reduces the need for users to search multiple Web sites and will make it easier for travelers to pull only the information that interests them."

Some in the travel space, such as Lastminute.com, already have introduced RSS feeds, detailing each day's best hotel discounts, for example. The closest thing that any hotelier seems to be doing is IHG offering guests the opportunity to subscribe to a feed from its Priority Club blog, which is updated every week or so with deals and offers. But with the understanding and uptake of RSS growing among consumers, expect hoteliers to start to embrace this technology in the future. "I wouldn't say we're at a stage now where many hoteliers have an RSS feed in their annual marketing budget," says Alicia Whalen, CEO and e-strategist, A Couple Of Chicks Marketing, Canada, "but in the next year, more and more will, [though] maybe under the guise of a content-managed page."

RSS feeds can also help keep your Web content fresh and that "allows you to own the real estate at top of search engines," Whalen says.

The Bottom Line

"The brands are spending their dollars the way they need to spend their dollars," Whalen says, but "I don't know that the knowledge that the brands have has filtered down to the individually owned hotels." Research shows that she is dead on. In a TIG Global/HSMAI/NYU study, the average hotel budget for online marketing was a meager US$50,000 per year, with the most frequently mentioned amounts being US$25,000 to US$35,000 per year (see chart). And one-fourth of responding hotels claimed their online marketing budget was "too small to note." "I don't think we're there yet in terms of a full understanding of what it means to do online marketing and what it means to shift budget accordingly," Whalen says. She recommends "at a minimum, 40% of [a property's] overall budget should be put toward [online] initiatives—everything from search engine optimization to updated content to updated imagery. I'm not talking strictly placing of ads, pay-per-click campaigns or banner ads." Forty percent is a reachable goal, Whalen believes, despite her opinion that in reality, most hotels are probably spending only about 10% of their marketing budget online. With the right guidance, whether from the affiliated brand or a consultant, "it's money well spent, and the ROI will be much greater," she says.

The good news is that property-level people are starting to recognize that they need to spend more on Internet marketing, and say they are planning to do so. "Given the rapid growth of revenue that is generated via the Internet, we have reallocated close to 50% of our small local ad budget away from traditional sources (radio/TV/print) and into focused Internet advertising," says Darryl McGarity, director of sales & marketing, Renaissance Tampa Hotel International Plaza. Fairmont's Doucette also notes that there is less reluctance to spend on online initiatives from that company's individual properties. "The conversations 2-3 years ago were a lot more challenging than they are today," he says.

As for which initiatives to spend on, there continue to be more and more choices for how you dole out your online advertising/marketing dollars, but the pay for performance model is here to stay. Through analytics, you can measure revenue generated from all initiatives. "The formula for managing paid search spending applies to every type of Internet advertising and perhaps to the offline world as well," Ross says. "Back into what you are able to spend. It's a linear curve." Then you should spend on anything that meets ROI, he says. "Banner advertising can work. There are [also] some good sponsored content or affiliate marketing opportunities depending on ROI." Adds Whalen, "Analytics are a really important component to anybody's strategy so they can understand the ROI of initiatives online and off. It's hard to understand where to focus your attention and money if you don't have an accurate read on what's really driving sales."

Direct comments to: derek.gale@reedbusiness.com