(May 17, 2013) Ocean City may soon be campaigning against online booking sites in order to boost room tax revenues and help resort hotels, encouraging vacationers to book their rooms directly through the hotels themselves instead of through agencies.
John Gehrig, owner of local web development business D3 Corp, explained the situation to the city’s Tourism Commission this week regarding the increased market domination of large online travel agencies.
“I’m not saying people shouldn’t utilize these sites, but they should be aware of what’s going on,” Gehrig said.
National-brand online travel agents such as Orbitz, Expedia, Travelocity book rooms under a contract with their respective hotels. The hotels typically offer bookers a volume discount, meaning that the price the agency gives the hotels for these rooms is typically below what would be considered market value. But the price the agency charges the consumer is typically higher, given that the agency’s own fee is included.
The incentive for the hotels themselves is the agency’s ability to reach a deeper and wider market than a hotel – particularly small, independent, establishments – would be able to do itself. Once consistent customers are obtained, it is expected that they will book directly through the hotel itself in the future, a factor that is critical to a resort town that has a large volume of repeat customers.
“Once you acquire the customers, you want those people to book directly with you the next time they come,” Gehrig said.
However, travel sites have made a concerted effort in recent years to counteract this model by purchasing the rights to popular hotel names on major search internet search engines. Most engines, including Google, which makes up the vast majority of the market share, will place one Web site’s results for a certain search word or words above other sites’ results if that site pays money.
Large travel agencies routinely buy the search engine rights to popular hotel names, and even go so far as to create keyword-specific sites that mimic the actual websites of the hotels they have paid to be billed above. This keeps customers coming back to the booking agent, not the hotel itself.
For instance, Gehrig pointed out, the first two results of a search for the Carousel Hotel in Ocean City are not the Carousel’s site itself, but the Carousel-specific addresses of booking agents who have paid for the rights to the term “Carousel Hotel.”
“These two listings are paid listings … they are giving Google money to be listed above the Carousel,” Gehrig said. “They used to highlight the paid listings, but every month the highlight gets a little lighter.”
The price of such rights can be far above what non-chain hotels can pay.
“It’s become an accepted practice,” Gehrig said. “Expedia didn’t use to buy your brand name, but now they do. If your customers are going to pay commission [to the agent] every time they book with you, it’s going to eat away at your bottom line.”
Gehrig also runs a booking agency himself, but said that online monopolization by national brokers was already doing more harm to locally based agents than would be done by encouraging vacationers to bypass sites such as his.
“I’m not picking on online travel agencies, because I am one,” Gehrig said. “But the market is getting strangled due to the technology field.”
Tourism Commission Chair Mary Knight suggested the city incorporate a direct-booking message into its Web site and promotional materials, “to try to educate folks that it’s easier to book direct.”
Further, Maryland has had a difficult relationship with online booking agents regarding their surrendering of state taxes. Maryland levies a six percent sales tax on bookings, and an additional room tax that varies with jurisdiction. In Worcester County, it’s 4.5 percent. But ensuring that national booking agents pay the appropriate amount is difficult.
As far back as 2007, various entities have sued online travel brokers for back taxes and occasionally have won. Worcester County joined an action in 2010, according to city Internal Auditor Susan Childs, and received $100,500 in compensation, of which $80,500 went to the city’s coffers.
The state has continued to submit that online agencies should not pay taxes based off the room price they receive from local hotels, but off the price offered by the agency to the consumer.
“You need to let it be known that you’re looking into this, because your returns will be better if they know that you are,” said Margo Amelia, executive director of the Maryland Office of Tourism.
“I think we are still losing room tax [to the brokers],” city Tourism Director Donna Abbott agreed.