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Why an Intermediary is More than Just a Switch

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October 01, 2010
Tim Unwin

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Hotels need distribution channels—a simple and seemingly obvious statement that encompasses one of the most important aspects of selling and merchandising a hotel’s products. There is no doubt about the importance of electronic channels. Data from The Pegasus View shows that in the first half of 2010 the volume of reservations from Internet channels grew by 10 percent over the previous year. GDS reservation volume grew by over 15 percent in the same period, and the value of those reservations (as measured by the associated revenue) was up by 20 percent. Managing electronic channels effectively has never been so important.

Looked at from the perspective of the distribution channels, there’s a wealth of descriptive content, images and real-time availability information available. The challenge for the distributors is to get hold of the information when they need it, quickly and efficiently. As the rapid pace of technology evolution and adoption continues around the world, consumers expect access to comprehensive information from every entry point, whether that is browsing an online travel agency (OTA) Website, using a mobile application or through social media.

On the supplier side of the picture, hotels must be able to consistently merchandise and distribute their products through the widest community of channels, while at the same time retaining control and minimizing the impact on their technology infrastructure and resources.

When hotels and GDSs began their first electronic conversations more than 20 years ago, it quickly became obvious that effort was being wasted in replicating the same connections between suppliers and distributors multiple times over. Intermediaries were established with the objective of improving efficiency and adding value. Soon the first switch was created to provide an electronic linkage point between hotels and distribution channels.

Fast forward to 2010, and many of the same challenges exist, although the scale is expanded exponentially. Improvements in technology and the widespread adoption of an open, standards-based approach have changed the landscape. Consumers are more directly involved in the process of shopping and booking travel than ever before. In the next 20 years the role of the intermediary will be even more crucial in facilitating the distribution process and adding value.The key areas to consider in assessing the value of an intermediary for distribution are:

  1. Does the intermediary actively facilitate multiple distribution business models supported through a variety of channel types?
  2. Is the overall cost of operation lower with the intermediary in the picture than without?
  3. Will the technology provide the right combination of speed, flexibility and future-proofing built around industry standards?

It’s tempting to assume that in a highly connected world, you need only deploy a few connections using XML then sit back and watch the transactions flow. It is rarely that straightforward. The demands of Internet shopping can create millions of transactions. Those “easily deployed” XML connections start to look expensive and difficult to support when the system on the receiving end cannot cope with the workload.

The question of multiple business models is also relevant to this discussion. There are push models, pull models, extranets and a variety of variations on each theme. The basic requirement for a supplier is to support them all, providing fast access to descriptive content and real-time rate and availability information using whichever model the distributor requires. This means working closely with the distributors to understand their needs, and bringing hotels and distributors together (both individually and collectively) to work through challenges and increase the overall level of understanding in a complex, multi-layered marketplace.

Input from the participants in the distribution chain has another significant value—it helps to ensure intermediary solutions are planned and developed with the needs of direct customers and the wider industry at the forefront. An effective intermediary is looking three to five years ahead, reading trends and developing solutions that will lead and innovate rather than follow and copy.

For many hotels it is becoming obvious that they need distribution channels, and also that the distributors need them to be in control of their own environment. The market will naturally move toward the solutions which offer the most compelling combination of scope, flexibility and cost-effectiveness.

At a technical level, the future lies in processing fewer transactions containing more information. In this future, operational costs are reduced by having a smaller number of highly efficient connections to key channels. For consumers, the advantages of having access to new and innovative services for shopping and booking travel will drive even greater adoption and, of course, lead to more business for hotels.

An intermediary that adds value to the distribution equation is an essential strategic partner for hotels.

©2010 Hospitality Upgrade
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