There’s been a tremendous amount of misreporting. Orbitz is not charging users of Apple computers more money for the same hotel than they charge PC users. Their data tells them that Mac users tend to stay in more expensive properties, so when choosing which hotels to highlight they recommend more expensive properties.
In other words, they’re trying their best to guess at what their customers will most want.
Now, Orbitz receives an average of 20% – 30% commissions on the hotel nights that it sells. The more expensive the room, the more money they make, but that is not the motivation here.
If Orbitz sells a room they earn a commission, if they do not sell a room, they earn no commission. Travel websites make money by coming up with what their customers want, otherwise those customers move on to the next website.
Travel is one of the most competitive industries there is. Prices are totally transparent. You can check a hotel price on its own website, or on another online travel site. It’s very difficult to squeeze more money out of a customer for the same product that your competitors are selling as well. Or else you will very quickly lose business.
Opaque travel is a different story. When you don’t know the price and can’t really comparison shop easily, it’s possible to charge some customers more than others for the same thing. Hotwire was known for charging Internet Explorer users more than Firefox users. Presumably they thought that people using the Firefox web browser were savvier, so they could charge Internet Explorer users $2 – $5 more for the same thing. (See here and here for more discussion of Hotwire’s differential pricing based on web browser.)
But for hotels with published prices, more or less the same everywhere you look? Kayak and other aggregators show travel options and take you to the least expensive site. Some aggregators will also give you the option to search several online travel sites at once in addition to searching on their own aggregation sites. Low price wins.
A customer can open two browser windows and search for the same trip simultaneously. A price-conscious consumer won’t be ‘fooled’ by being presenting with more expensive hotel rooms.
And Orbitz even gives the user total control over how rooms are listed, they ‘default’ to offering “Best Values” which is surely a subjective term but are the hotels they ‘recommend.’ One way they could show hotels is based on their own margin, maybe a $100 hotel room that pays them a 30% commission. Another is to guess at what room you will actually want, showing you a $120 room that pays only a 20% commission. In this example Orbitz would make more money selling the cheaper room if they knew you were going to buy a room from them no matter what. But they don’t. They only make money when they satisfy you. So they have to figure out what you’re most likely to buy, to improve their conversion of searches to bookings. Orbitz succeeds when it satisfies what its customers are looking for.
Travel agents used to book even the simplest airline trip, but most of that business has migrated online. There’s no more money to be made in simple domestic coach bookings, it’s become a volume business, and consumers lost the hand holding that came from the individual attention of a travel agent.
In some ways we’re coming full circle. The online travel agencies are competing for business by becoming more personalized, Hipmunk offers nice tools to allow people to figure out what flights they want, to sift through the huge amount of choice, one of their metrics is ‘pain’ which they think their customers are trying to avoid. Here, Orbitz is trying to figure out how to serve the agent function and guide customers towards what’s most likely to appeal to them.
Ultimately choice of computer may or may not prove a good guide Surely there are frugal mac owners (even if they’re buying a more expensive computer), as well as PC owners looking for a more luxurious experience. For now they’re working with mass demographic data.
I imagine that agencies will eventually do a better job of mining their own customer data and personalizing further. Perhaps you go to Tucson every week and when you do you rent a car. If they notice you’re going to Tucson but have no rental car, they can remind you. At some point one could even imagine that they know your preferences well enough that they just go ahead and make the booking for you and text you when you land (at least this works until all rental cars go prepaid, but for now just go with it).
Personalization is good for the consumer. It brings back what was lost in the transition away from brick and mortar travel agencies for all but the most specialized, high end travel. And it’s been done in a leveraged, low-cost, technology-focused way.
For now, Orbitz probably has it wrong in terms of what their customers will want. But they probably have it less wrong than they did before, and they’ll have it less wrong still 6, 12, and 18 months from now.
The value-add — not so much to me, or even most readers of this blog, but to the hundreds of millions of travelers not reading this site — is in guiding people through the travel process so that they get what they’re after. And Orbitz tailoring the order of their search results based on computer (while still giving customers total control to re-order those results) is doing precisely that.