STR's Mark Lomanno, left to right, STR's Steve Hood, Tourism Economics' Adam Sacks, The Estis Group's Cindy Estis Green, Expedia's Nick Graham, and Choice's Bill Carlson.

Mark Lomanno joked, somewhat seriously, that online travel agencies contributed 10% of the hotel industry’s business, but led to 80% of the discussion. Lomanno, STR’s chief strategy officer, was moderating a general session at the Hotel Data Conference in Nashville earlier this month when “pre-final” results were unveiled from a distribution channel analysis by STR and the AH&LA.

That 80% number may grow after what Adam Sacks said. The founder and managing director of Tourism Economics told the audience that using the pre-final numbers from the study, his company extrapolated that OTAs cost the hotel industry a whopping $2.5 billion last year. The number assumes all the rooms sold by OTAs would have been booked instead by cheaper brand.com sites or directly through the property, and it does not take into account the costs associated with those booking channels. It’s an eye-opening number, but one that raises as many questions as it answers.

Inside the numbers
The study by STR and the AH&LA included information from 24,500 properties, 95 chains and 25 other companies. It divided the different channels into five categories: brand.com, CRS/voice, GDS/travel agents, property direct/other and OTAs.

Steve Hood from STR told attendees the study found OTAs accounted for 9.8% of the rooms booked last year in the U.S., well behind property direct (51.6%) brand.com (17%) and CRS/voice (13.7). GDS accounted for 7.9% of the rooms booked. The revenue share was slightly different, as you’d expect: property direct accounted for 45.6% of revenue, brand.com 19.4%, CRS/voice 17.4%, GDS 10.4% and OTAs 7.3%.

OTAs were further broken down into three categories: merchant (like Expedia and Travelocity that exclude commissions), retail (like Bookings.com that include commissions) and opaque (like Priceline and Hotwire that are done through a blind bidding method). Of OTAs’ 9.8% share of demand, merchant sites accounted for 6.4% and opaque 2.3%. And it stands to reason, the costlier (to hotels) opaque channels provided even less of a contribution to revenue (1.3%).

Sacks took the analysis a little further: Tourism Economics found OTAs’ share of revenue has grown from 1.34% in 2001 to 7.3% today. Over that decade, OTAs have increased demand by slightly more than 1%, he added. But through a regression analysis, his company found that for every 10% the OTAs grow in market share, the hotel industry would lose 4.4% in revenue. Those numbers could partially explain the declines in rate the industry saw during the downturn, although more analysis and explanation of this study will hopefully come when it’s published by HSMAI in September.

Outside the numbers
Beyond the startling $2.5 billion revelation, panelists debated and discussed proper distribution channel management.

“Optimal channel mix requires analysis of demand and competitive analyses of the market situation,” said Cindy Estis Green, managing director of The Estis Group. “Channel mix must be a blend.”

Expedia's Nick Graham was the "resident punching bag" during this panel discussing the impact of OTAs.

The OTAs’ lone voice on the panel, Nick Graham of Expedia — the “resident punching bag,” he joked — stressed there was not one right way to manage the different OTA channels. He also said even if customers didn’t book through OTAs, they were using them to shop before returning to brand.com sites to buy.

“The price of poker has gone up,” explained Bill Carlson, senior vice president of performance analytics for Choice Hotels, about the added costs of the newer distribution channels. “Whether it’s Google or OTAs or any of the others, the consumer is touching all these different points and those (websites) all want to monetize that.”

Carlson said loyalty programs were critical to combat the more costly OTA channels. “Own that guest,” he said. “Treat them differently at the property level where the OTAs can’t touch them.”

It helped reinforce a comment from an audience member, who said lead generation was another benefit of rooms booked through OTAs. “They may bring the customer to my hotel, but they’ll be mine next time.”

Even the costliest OTA channel has a place, said Sacks. “But care must be taken with opaque channels. It must be done tactically.”

Because, as Estis Green said, there is a different between driving revenue and profit. Rooms can be sold cheaply though sites like Priceline, but will they add to more than just the top line?

“Hoteliers need to drive profit,” she said.