The challenge of answering to six of the largest hotel brand companies who are also his biggest clients doesn’t faze John F. Davis III, the CEO of new hotel search engine Room Key. In fact, he says, it’s much easier than when he started THISCO (The Hotel Industry Switch Company now known as Pegasus Solutions) in 1989 with 16 hotel company board members.

On Wednesday, the best-kept secret for the past 18 months went public with the launch of Roomkey.com, a bold venture developed by Choice Hotels International, Hilton Worldwide, Hyatt Hotels, InterContinental Hotels Group, Marriott International and Wyndham Hotel Group.

What issue could be big enough to unite the fierce rivals and now equal partners and owners in Room Key? Online travel agencies, of course.

“Consumers weren’t getting the type of product they deserved to book a hotel room,” Davis explains. “It’s a personal purchase; you’re spending a night with these companies. What could we do to make consumers happier? And on the other side, was there some way we could influence the market to reduce the cost and improve the margin for [hotel] owners?”

The answer debuted Wednesday with a beta version of Roomkey.com, a hotel search engine powered by Hotelicopter, a technology platform purchased in a quiet asset deal last year. The website allows consumers to easily search, shop and then book hotels directly with the properties and brands offered by the six founding companies, and now Best Western, the first commercial partner that was announced Thursday. Roomkey.com will focus on U.S. travelers initially, followed by expansion to English-speaking regions outside the U.S.

“The fact is customers like to shop,” says Steve Sickel, IHG’s senior vice president, distribution and relationship marketing. “They go to four or five sites before booking, but at the same time, customers tell us they like the confidence of booking with the brand website. This is about providing customers choices and delivering a great user experience without the clutter you might see in a third-party distributor.”

The site offers travelers access to approximately 27,000 hotels in an easy-to-view and use format, comparing properties and prices from the now seven major competitors and all their brands. One click on a hotel gets more property information like a room description, images, amenities and a map (from Google), while the “book” button directs customers to the brand site with the previously inputted property and date choices already there.

Booking Direct
The other motivation for hotel companies is to drive bookings to a less-expensive direct channel rather than costlier OTAs like Expedia, Travelocity and Priceline. Brand.com bookings also give consumers the chance to earn loyalty points and allow hotels to handle guests and any customer-service issues from the moment they book.

A recent report from TravelClick showed brand.com bookings grew 6.1% last quarter (to 25% of all transient booked rooms), while OTAs accounted for 12%. Preliminary data from a distribution channel analysis by STR and the AH&LA last year found the OTA portion to be at 10% in 2010. Though, Adam Saks, the managing director of Tourism Economics, extrapolated from the study that OTA bookings cost the hotel industry $2.5 billion.

“Ideally I’d get 100% direct bookings,” admits Flo Lugli, Wyndham Hotel Group’s EVP of marketing, “but that’s not realistic. We’re up front with OTAs and have strong and good relationships, but it’s important to us to get the most profitable mix for our hotels … Room Key provides a better value for our owners and we can drive more business direct.”

Like with many third-party distributors, Room Key charges hotels commissions for the reservations the site delivers. Davis says the fees are negotiable based on various factors, including the size of the hotels or chain. He won’t detail exact rates, but “it’s safe to say our commission point is well below the normal market price for other online services.” Sickel and Lugli concur, calling the fees “very competitive.”

The six founding partners all get the lowest commission rates for their owners, says Chuck Sullivan, Hilton Worldwide’s SVP of global online services. Davis says the equal investments from each were “significant enough the CEOs were involved and signed off.” New members, like Best Western, can sign on as commercial partners, or others could buy in as equal partners for the same deal. “We’re open either way,” Davis says. “To buy in as a shareholder is a significant investment, so it gets down to what the return on investment is. It might make sense for larger companies.”

Most of the partners have an opt-out arrangement for their owners, who are automatically enrolled in Room Key. Best Western, with its unique membership model, is the opposite with an opt-in approach, says Dorothy Dowling, the company’s SVP of marketing. Members must choose to enroll, but Dowling says the model is very attractive and the vast majority will participate. Beyond that, hotel owners or revenue managers need not do anything. “This is just another storefront,” Sickel says. “That’s the beauty, it’s just another distribution channel. They do absolutely nothing else and hopefully count the money.”

7 and Counting
Although they weren’t announced with the initial six, Dowling says Best Western has been working with Davis for months. Best Western’s membership structure didn’t allow it to invest as a founding partner. One of the obvious companies not included in the launch was Starwood Hotels & Resorts. A statement provided by a corporate spokesperson said:

“While we typically do not comment on potential investments, we can confirm that Starwood has not made an equity investment in [Room Key]. We made this decision carefully, after six months of due diligence. Looking ahead, we will assess the potential benefits of this new distribution channel for our hotels.”

Davis says Starwood was part of early discussions, but the company opted to take a “wait and see approach.” He hopes to speak with them again soon, admitting that Room Key needs more inventory. “Twenty-three thousand (now 27,000 with Best Western) was a great start, but it doesn’t give us all the coverage. We need more participation and we are actively going after it.”

The debut Wednesday comes three months ahead of the commercial launch in March, primarily to give Davis a chance to build the database with more properties. He expects to have 80,000 by year’s end. A quick and unscientific hotel search comparison of Manhattan returns 524 hotels from Expedia and 40 from Room Key. For a small city like Cleveland, the difference is 26 to 19. Room Key provides only 29 offerings in Las Vegas.

More offerings “would make it better,” Sickel says, “but I don’t think success is dependent on it. More choice increases the value proposition for customers.”

Davis also hopes to add smaller portfolios and independent properties. The challenge, he says, is building an interface between Room Key and those properties since the current model directs consumers to brand.com sites for booking.

Roomkey.com will also be adding reviews through existing websites – the “usual suspects” like Trip Advisor, Davis says. Now that the secret is out, he and his staff of 22 are working on adding hotels and other enhancements to the site. “It’s difficult to negotiate without disclosing who you are,” he says of the secrecy of the past 18 months. Most of the employees are based in Dallas with Davis, while the technology team works out of Charlottesville, VA where Hotelicopter’s offices still are.

Reaching Consumers
Even with all the offerings – inventory, reviews, a robust and functional website – Room Key will only go as far as consumers take it. “We’re going to be very aggressive and creative,” Davis says of the marketing approach. “These companies didn’t write billion-dollar checks so we’re not spending big on TV campaigns. But we do have six of the biggest hotel companies as owners and we can leverage their marketing expertise.”

Wyndham’s Lugli says Roomkey.com will be pushed to consumers searching, but not booking, on each of the six partners’ brand.com sites. Each partner will direct an equal proportion of traffic exiting their websites to Room Key. “We’ll actually redirect them to Room Key with a warm handoff, like ‘Sorry you couldn’t find what you wanted here, but here is something else,’” she explains. “It enables Room Key to get a large amount of traffic pretty quickly without making a significant investment in marketing.”

Robert McDowell, Choice’s SVP of global distribution, says the perk for franchisees is some customers searching other partner sites will be redirected to Room Key and find Choice properties. He was in Phoenix Thursday presenting details of Room Key to the Choice Hotels Owners Council, and he says the response was overwhelmingly positive.

Could a Room Key link or logo be positioned on the partner brand.com sites? Davis doesn’t dismiss the idea, and surprisingly neither does IHG’s Sickel. “Ultimately Room Key is for people who like to shop, for those who haven’t made a brand choice,” he says. “But you never say never.”

Sickel describes the venture by competitors who battle daily from street corner to global headquarters as a “very mature approach. It shows IHG’s confidence in our brands. We’re confident we have strong hotels that can sit alongside competitors’. We want the customer to have control and be able to make an informed choice.”

Working Together
Davis’ experience of getting competing hotel companies to work together in this manner is exactly why the original partners approached him a little more than a year ago. “I’m not exactly sure how he does it,” says Hilton’s Sullivan. “He gets some very fierce competitors into a room for this task and we get along pretty well, recognizing when as soon as we leave the room we’re going to all work voraciously to take business from each other.”

Davis says he’s very aware of the U.S. laws on antitrust and the partners are all very careful to stay on subject and legal counsel is present at all board meetings.

While Davis led THISCO, just before it became Pegasus Systems, he launched TravelWeb in 1994, one of the first online hotel booking sites that is now part of Priceline. “There has been tremendous growth in third-party channels and OTAs, because they offered something that wasn’t available elsewhere and they did a really good job of that,” Sullivan says of the evolution since then. “This new venture changes the landscape pretty significantly and will do so by providing consumers with a value proposition unavailable anywhere else.”

Related Stories
OTAs Driving Hotels’ Costs, Business, Conversation
The Truth About the Billboard Effect of OTAs
The Online Travel Agency Conundrum