{audio:0:00:00} Maybe to kick off, Javier, if you could open up and share what you are seeing, in the industry today, due to the Covid disruption.

{audio:0:00:12} What we are seeing today is something completely unprecedented. I’ve been in the travel industry since the late 90s, and I’ve never, ever seen anything like this. In our case, I’m currently working as a C-level executive, in a hotel company. We’ve closed down all of our operations, which means 100% of our 120 hotels. This is something unheard of. We are seeing almost all the airlines in the world grounded, which is something, again, unheard of. All the cruise lines completely moored. The travel world has come to a complete standstill. I participate in some of the think tanks that the World Travel and Tourism Council organize and we were discussing these issues for the industry.

{audio:0:01:08} In the short term, we’re looking at losing 75 million jobs in the travel and tourism industry and think about the impact that this will have, in many societies. It is difficult to gauge the economic loss, but some numbers are pointing to over a two trillion figure, which is difficult amount to understand. In countries where tourism and travel plays a substantial role within GDP – think about Greece, Italy, France, Spain or even the US – this is going to make a dent in all of those economies. I used to be vice president of the World Tourism Organization, and I’m still invited to some of their think tanks. The other day, we were looking at some numbers with them and, actually, the volumes of travelers are going to slide back eight years, to the volumes that we had in 2012, roughly. All of this has happened in almost no time.

{audio:0:02:15} It is true that we knew about the virus that had started in China, towards the end of last year, around the Western Christmas period, but it was a bit of a blur and a bit of a China thing. No one was really paying too much attention, until it really hit Italy and then things became serious. Since the end of February, to the second, third week of March, literally in three weeks, we saw over 180 countries in the world, taking extreme measures. The measures were to various degrees, but all of them were extreme, with some of them closing their borders completely.

{audio:0:02:50} People usually reference a crisis such as this, to things such as wars or epidemics, in the past. This is something that is completely unprecedented. We are all in uncharted waters, which makes it especially difficult. I was in a discussion today, with PricewaterhouseCoopers, trying to see if we can put in place a medical passport, for Covid-19, to make that a standard in Europe, for the outgoing and inbound countries. Again, what we are seeing, is something completely new, which is going to require tremendous efforts, to get back on track, but I’m certain that we will get back on track. The problem is, how long will that take?

{audio:0:03:49} What is your outlook on occupancy for the industry, in 2021 or 18 months’ time? Do you think we can get back to 60%, 65% occupancy levels, in 18 months?

{audio:0:04:06} I hope so, but it’s difficult to say. If we look at it from the position of a bottle that is half full or half empty, the approach is the following. Q2 is completely wiped out, so we’ve lost all of the business for Q2. It is true that we were hit by the virus around the start of March and then all of the figures and the occupancy rates, went down the drains, quite quickly. As a company, we are now considering that May is completely lost; we have closed sales and we are not accepting any bookings. Most of the countries – not even hotel chains, I’m talking about countries and home destinations – are operating in the same manner. For June, it remains to be seen. We are revising the policies and the sales activity, on a day by day basis.

{audio:0:05:00} The interesting piece is, when you look to Q3, the numbers are still pretty stable. By stable, I mean, we haven’t seen a massive wash of business going away, just yet. It is true that the wash that we saw in Q2 came in different waves, as the virus hit different countries and moving from the East to the West. But Q3, surprisingly, in our books and in talking with colleagues from all over the world, they are still pretty stable. We have seen some erosion of the occupancy rates, but in our case, we are seeing around 30% occupancy rates, for July and August. This is a relatively good number, because we haven’t lost a lot of the bookings that we already had.

{audio:0:05:53} If you compare that with previous years, it’s a bad number, because we should be at a higher level by now, but if you consider that we are now five, six, seven weeks into the crisis, we haven’t seen a massive erosion just yet. It doesn’t mean that it won’t happen later; it might well do. But it hasn’t yet happened. This gives a ray of hope. If we look at Q4, we’re actually seeing positive pick up. Pick up is when we see new business and the cancellations, net net, there’s a pick up. That’s positive for Q4. We are seeing pretty good numbers for Mexico, we’re seeing numbers come back for the Canary Islands, which is an important destination for Europeans. By that standard, there should be some hope.

{audio:0:06:41} To your question, how long is it going to take, to regain pre-crisis levels? It will probably take 24 months, from the time that the virus is declared as being controlled. Either because there is a vaccine in place or because the authorities decide or announce that things are now under control and the epidemic is controlled. But I think it will take time to recover.

{audio:0:07:10} Another important aspect we need to look at is, how things have changed through time. Take 9/11. 9/11 has a massive impact on travel and tourism and for society, in general. It took a long time to recover from that tragic event. The different terrible attacks that we’ve seen happen, through time, in the last 20 years since then, society and travel, as an industry, has been able to recover faster and faster. It doesn’t mean that events are not tragic. A life is a life and terrorism is always a terrible thing to happen, but if we look at the Paris events, a few years back, which were massive attacks, hundreds of people killed in the streets, we saw Paris come back two, three, four weeks later. We’ve seen the same in Turkey. So terrorism, unfortunately, has become the new normal.

{audio:0:08:02} This is a new event; it’s an epidemic and it’s a virus coming into society. It will take time for people to adapt and to find the new norms and new standards to be followed and observed. But eventually, we will get back to normal life.

{audio:0:08:20} How have you changed your marketing strategy and spend, during this time? Given what you’ve just said about demand, how are you thinking about changing marketing spend?

{audio:0:08:33} In two ways. First of all, we’ve stopped completely, the so-called non-performance marketing. We have a very clear separation between performance and non-performance. The non-performance has been stopped, because we wanted to understand, because we saw that things were deteriorating very fast. We wanted to see where the bottom was. We’re not yet seeing the bottom, but at least, things are starting to calm down a bit, from a medical perspective. We’re going to continue doing campaigns, but we’re changing the tone, the messaging, the copy, even the platforms on which we are communicating. That’s one thing that we’ve changed.

{audio:0:09:15} On the more performance marketing spend, the distribution marketing, if you will, we’ve changed, for example, the CPC models, to pure success-based models. This means that we are not doing any campaigns on Google, for which we pay for a CPC that we then need to track if it becomes a conversion which, eventually, becomes a stay, so we can deduct the ROI from that campaign or that click, specifically, and see how efficient or inefficient it is. We’ve shut that down completely and we have activated risk-free bookings, which means we only pay, not at the time of booking, but post-stay. The different partners with whom we work, metasearches, like Google Hotel Ads or Skyscanner, or even some affiliation platforms, we’re saying, continue selling; we’re happy for you to sell, but we won’t be paying you until the customer has checked out. This puts us in a very comfortable position, because it’s risk free. We don’t want to kill the business that’s coming in, those bookings, as I just mentioned, for Q4. We want to stimulate that demand, as much as we can, but in a logical and smart way.

{audio:0:10:28} So those metasearch engines, such as Google, they’ve been pretty flexible in adapting their model, in that sense?

{audio:0:10:38} They already had these models in place, such as the commission program for Google Hotel Ads; that was launched a few years back. Some of them have adapted quickly, to cater for or bring new solutions to this space. There’s another interesting aspect. I was looking, yesterday, at overall CPC costs and so forth. For our perimeter, meaning the markets in which we operate and advertise and the audience to which we advertise, the CPC costs have plummeted, by over 60%, in the last four weeks, which is logical, because there are less people advertising. This means there is less pressure on the auction and, as a result, that traffic is cheaper, which probably opens an opportunity to generate new bookings. We will probably be doing that in the short term. We have moved to a completely risk-free model, but we might be coming back to the CPC. Even though we know that some of the reservations that are going to be made might be cancelled down the line, because of the volatility is almost 100%, we prefer to stimulate bookings and receive those bookings, in order to keep the wheel turning and hope turning and try to find the new normal, as soon as possible.

{audio:0:11:57} CPMs and CPCs have both been declining but, also, the conversion is still pretty weak, as well, because people are not actually buying, because they are uncertain, but there is that potential to spend on cheaper traffic to, potentially, have that booking?

{audio:0:12:13} There is, overall, much less traffic, which is a problem. The only good side is that the traffic that there is, is slightly cheaper. We are also changing the way we measure success. So from a pure, complete booking, which is the traditional way of really measuring the conversion rate, we are looking, in some cases, at micro-conversions. For example, we are trying to direct as much traffic as we can to our contact centers. We’ve got contact centers in the Americas and in Europe. We are seeing extraordinary results from voice interaction, which is obviously more expensive. But we are also seeing higher ticket prices and better ability to convert. In these times of uncertainty, people want to know things. They ask a lot of questions which maybe could be answered on the web, but if there is a human at the other end of the line, people prefer to interact with a human. We are considering a conversion, a call that has been provoked by an original click and, not necessarily, a conversion with a credit card on the website. We see that as one factor of converting; either we are calling them back or they are calling us at a contact center. We are altering our measures, slightly, to make sure that we capture everything possible, out there.

{audio:0:13:33} How do you think this Covid disruption will change the bargaining power in the travel value chain?

{audio:0:13:44} I’m certain about one thing, which is that intermediaries, in general, and OTAs in particular, are going to gain power. They are going to be on the long side of the stick, to put it in those terms. We’ve seen this over and over again. After 9/11 where OTAs were, at the time, just starting to take off and although Expedia was founded five years before that, it was starting to gain significant share and significant volumes, especially in the US. It really took off after 9/11, because hotels were starving for business. So were airlines; everyone was starving for business. In the different crises that we’ve seen since then, the financial crisis, the different epidemics, like the swine flu and SARS and so forth, in all cases, intermediaries and OTAs, specifically, have been able to gain share. I think that this time round, it will be even more acute, because the crisis is more acute.

{audio:0:14:43} The reason behind that is that the OTAs have the ability to adapt faster. These are technology companies, deploying their resource and their know-how into marketing. They don’t own assets; they just have people and servers, so they can adapt much, much faster to the new normal, versus hotels. Especially in a world where you need to consider that MICE, meetings, incentives, conferencing and exhibitions, are going to disappear completely. For some hotels, MICE, that segment alone might represent 30% to 40%. If you go to Vegas, it’s even higher. You take gambling and MICE and that’s Vegas, basically. With that disappearing completely, I’m certain that MICE is going to disappear, for at least 18 months. Then the FIT, the foreign individual traveler or the groups are going to become particularly relevant. OTAs are already gaining specific weight, within the mix and the ecosystem has gone completely dark and the only lights are the OTAs or the tour operators. As a result, everyone is going to be begging for their business.

{audio:0:15:55} Do you think the OTAs will be able to charge a higher take rate for that, where the hotels are going to be really pushing that business?

{audio:0:16:03} That’s a great question. The short answer is, yes. If you have more power, you should be able to charge more; it’s basic supply and demand. Hotels and airlines are suppliers, in general, fighting against OTAs and there’s a frenemy feeling. I used to work at Expedia and I can remember airline executives saying, you are like a drug dealer. We don’t like you, but we love you. I get your point, because you need me, but you don’t like me, because you don’t want to need be but, again, you need to fill your planes and, as a result, you need to call me. That was an interesting time.

{audio:0:16:45} Now, the same thing is going to happen. Hotels are far behind airlines, in terms of intermediation, for different reasons. But I would say that hotels are 10, 15 years behind. As a result, they are even more dependent than airlines are, for distribution. I don’t want to get into technical aspects, but all of the OTAs in the world always give you increased visibility, MODs, member only discounts, the Genius program, whatever you call it. At the end of the day, it’s the same game. Give me commission and I’ll give you more business, because I’ll give you increased visibility and increased merchandising. That will become particularly acute now. As a result, the effective take rate – which is what really matters, not the contract commission, but the effective one – will go up, for sure.

{audio:0:17:38} Can you just elaborate a bit more about when you mentioned that hotels are 10, 15 years behind the airline industry and what that means, from a value chain and this intermediation perspective?

{audio:0:17:50} This is my personal experience, so I’m not saying this is the truth, but what I’ve seen. I started working at an airline, in the late 90s, which was still owned by the government – Iberia Airlines. Airlines, in many cases, were still owned by governments, in Europe and, in some cases, governments still have a significant stake, like Air France or others. Why do I say this? This is a very 19th or 20th century approach, when governments were holding the key assets of a country.

{audio:0:18:23} Then liberalization came along. Different phases; earlier in the US, later in Europe and the skies were open and something happened. The magic happened. The LCC model, the low-cost carrier model came along. Think about Southwest in the US, think about EasyJet or Ryanair, in Europe. That completely revolutionized the airline space and air travel and travel, in general. Why did that happen? Because they changed the rules of the game, upside down.

{audio:0:18:50} Travel had always been very, very intermediated. You had the travel agencies, the wholesalers, the tour operators. In the airline world, you would have the GDS, the global distribution systems and the travel agencies selling the tickets and airline companies would have a beautiful ticketing office, in the center of the cities, in the most premium locations. Some of them still have them; if you go to London, to the West End, you see some of the Asian carriers, with beautiful offices, in very premium locations. That was because the cost structure allowed that. I remember the days when, for a business class ticket, you would get a 10% commission. That’s unheard of today. That doesn’t happen. You don’t even get 1%.

{audio:0:19:36} Any agent in the world, selling for that airline, if you had the planes and you sold a full ticket, you would get 10%. All of that changed. But the point is, airlines had to reinvent themselves, because the rules of the game changed completely, from distribution to a business model, to fuel costs, to crew costs. As a result, they developed the skills and capacities to sell much more, via the web. Think about EasyJet, when they first flew. They painted the aircraft with the telephone number that you needed to call, to make the booking. That was the only way to book. There was no availability on the GDS or the travel agency. You would have to call that orange-painted number.

{audio:0:20:21} As a result, all of the airlines followed suit. The so-called traditional carriers, the flag carriers or legacy carriers, had to follow that, because the pressure they were getting from the LCCs, from the low-cost carriers, was so extreme, that they had to become low cost themselves, even though they were legacy carriers. As a result, they developed great websites, they developed a very aggressive pricing strategy, which is even more important than having a beautiful website. They were trying to fight Expedia, which had a very beautiful website and a very good brand. American Airlines, it took them a while to develop a website that was as usable, as beautiful, as nice as Expedia, but then they started breaking the price parity agreements and so forth. Everyone now understands that, if you want to get the absolute cheapest fare for an airline, you should go to the airline website. At least, in many countries or in many cases, that is the case.

{audio:0:21:16} Hotels are far behind, in this perspective. Hotels are still heavily intermediated. Many companies, like the one for which I am working now, are still reliant – not dependent, but reliant – on great partnerships with tour operators, OTAs and so on. We haven’t broken the mold like the airlines did, in the past. This is also because the business dynamics are different. It’s the same for pricing, for example. Airlines have been very aggressive in revenue management, for the last 30 years. As a result of all these changes that happened in that ecosystem, they were obliged to charge a different fee or a different fare, for every single seat on the plane and everyone understands that and no one complains. We know that the price is volatile and they are constantly adjusting.

{audio:0:22:02} Hotels are starting to price in the same way, especially city hotels, like London, New York and the Chicagos of the world. But there is still a long way to go. That’s why I was saying we are behind, in many aspects, versus airlines, in the hotel industry.

{audio:0:22:19} What is the barrier to that shift, in hotels owning more of the distribution?

{audio:0:22:27} I’ll try to give you a simple answer. First of all, it’s market dynamics and the acceptance of the demand side. Again, on an airline, everyone understands that they may have paid a different price, if you book very far in advance, with no luggage, non-refundable, etc. and you get a very cheap fare. On the other hand, if you book very last minute, you know you’re going to get grilled and you’re going to have to pay a very high fare. People are not yet thinking in that way, for hotels. That’s one thing.

{audio:0:23:09} The second thing is the inability of the hotels to really move faster. Even though technology has become cheaper and it’s more available. Think about Moore’s law – the double capacity that we get every 18 months, at half the price. That’s a good illustration but also, the democratization of that technology. The booking engines, the algorithms that, in the past, really made the most out of what Expedia or Booking.com had, those are no longer there. Or if they are there, they are smaller than they were in the past. But still hotels are lagging behind, in putting those things to work.

{audio:0:23:52} Then you have the regulatory component. Price parity, which is a big topic in Europe, especially, but not as big in the US. This is still a problem. Actually, even though some governments have legislated for this, many hotels are still not able or willing to break these parity clauses, which are no longer legal, but they still exist. They play a pivotal role, especially when you put the metas, as a light that is really amplifying this message. By this, I mean the different prices that you pay, for the exact same room, for the exact same day, in the exact same hotel. Those are, basically, the reasons behind it, I would say. Also, there’s an interesting component which is, the hotelier’s mind and the uniform system of accounting, which are the general accounting rules, that get used in the Anglo-Saxon world, for hotels accounting – one thing is commission and the other thing is marketing.

{audio:0:24:57} In many cases, when you are doing the budget for the year, you tell the CFO, I’m going to need three million for marketing, this year. Fine; it gets approved and everyone starts burning the budget, throughout the year. If it’s June and you’ve exhausted that three million, you’re going to have a hard time explaining why you need more. In many cases, the hotel chains are considering their website sales as SEM marketing, because there is the marketing man there. That is really a commission, or you should consider it a commission, when you compare it with alternative channels, like Booking and Expedia.

{audio:0:25:36} But the CFO doesn’t ask, at the beginning of the year, how much are you going to spend on Expedia or Booking commissions. You don’t know. You know that the more they sell, the higher the commission is going to be. But no one really cares about that. That’s what I mean about the difference between the marketing cost, versus the distribution cost. That comes, not only from the mind, but also from the way the accounting is built, in many cases. That might seem a simple thing, but it really prevents a lot of direct distribution from really getting up to par. When you think about it, you should be pushing your own sales and your own distribution, first of all, if it’s more profitable, because the GOP (gross operating profit) is going to be higher, at the end of the year. Also, because it gives you a wealth of information that the intermediaries, in general, do not give you.

{audio:0:26:29} There’s an interesting fact that I realized when I started working for hotels, about two years ago, having been on distribution and Google, in the past. The client spends, maybe, 30 minutes, 30 seconds or three hours on the website, when they book their hotel. They complete the transaction, they give their name, their credit card and that’s it. Then that very traveler, in some cases, comes to our property and sometimes stays with us for two weeks; we have a lot of longer stays. The minute that client walks out, we didn’t ever have the email address. Think about it. It’s insane. The email address is probably the most important component from an individual today, a valid email address – more important than a passport, at least for marketing purposes. It’s something that is absolutely core and nuclear, for an OTA. But a hotel doesn’t really pay that much attention. Even though the client has been and has interacted with the hotel manager and we sometimes know our clients by name, and we’ve seen their children grow, because they’ve come every year, but we never took the time to collect those critical pieces of information, like the email address, to talk to them on a one to one basis.

{audio:0:27:51} Again, this is anecdote, but it represents the lack of mentality that hotels and suppliers, in general, have had for many years. We think about the beach, the pool, the beautiful breakfast, the magnificent dinner and the lobster and the view and all of that. We are hotel people. But we don’t really think about marketing or sales. This is the problem. We are shifting now, and many companies are well advanced and others are lagging behind. But it’s just not there; it’s not in our DNA.

{audio:0:28:24} Can we take a step back and can you provide some context to when you joined Google in 2011, in terms of your role, the responsibilities, the situation of the industry?

{audio:0:28:59} I joined Google, in 2011, towards the summer, after eight wonderful and beautiful years at Expedia. I originally joined as head of travel vertical in Spain. Spain is a country where travel and tourism is really important, and we welcome – or we used to welcome – over 80 million clients a year. We will see what this year’s figures are later. As a result, all of the players in the country are relatively advanced, versus other players. The hotels, the airlines, and so forth.

{audio:0:29:34} Travel, as a vertical, for Google, has always been very important, from a revenue perspective. In Spain, being such a touristic country, even more. I used to run a portfolio of about 50 clients; the main airlines, the main hotel companies, the main rental car companies, some apartment and lodging operators, a few destination management companies, and so on. I had a team of about 40 to 50 people, between Dublin and Madrid, because we had a split operation, at the time, and we were selling the full catalogue of Google products, from AdWords to YouTube and all of the services.

{audio:0:30:13} Then I moved onto the top accounts team. I was running the EMEA, the European team; part of the global team that was looking after the bigger accounts, which included Expedia, my former company, Booking.com, of course and a few other global players, like Accor Hotels and a few more. I was part of the team that handled just this handful of accounts. It was a much more white-glove service, from a sales perspective, to a very select and highly important group for the company, because the revenue stream that this handful of accounts brought to the company, was really, really relevant.

{audio:0:30:53} The way we worked with them was very different, because these were global organizations, that we had to service to the different communities they had, in the different regions. Hotels.com, the headquarters was in London, for Expedia, the headquarters was in the US. For Agoda, the headquarters was in APAC, Booking was in the Netherlands. Many of them had multi-brands and different teams and, as a result, they needed to receive much more of a bespoke service.

{audio:0:31:20} After that, I moved onto the travel vertical search and that was the most fun, I would say, of my time at Google. There was a lot going on and those were my two and a half, three years, between 2015 and 2018. Googled had acquired Flightsearch, a few years back, in 2011. Then we were starting to develop the Hotel Ads products, quite significantly. This was a meta product, but then getting deployed, not only in search, but also in other Google properties. During that tenure, I worked very closely with the product and engineering teams that were defining the go-to-market strategy; how are we going to engage with the travel ecosystem? How are we going to price it? What should the product look like? After that, I decided to leave the best company in the world – Google really is an amazing company – because this opportunity came up, to join a hotel company that was, in many cases, in the past, had changed the mindset I was talking about before, and really leading the transformation agenda. Do you want to talk about Google, specifically?

{audio:0:32:37} I’m curious about the fun that you had at Google and rolling out that Hotel Ads product. Maybe, just how you saw Google’s role in the ecosystem evolve, since you were there. How would you explain that, today?

{audio:0:33:03} It’s a great question. There’s a lot of talk and controversy about this in the press, in the industry, in general. Google’s mission is really to organize and make available the information I the world and that’s still current and that’s why the company was founded and that’s what still keeps the company going. If you think about travel, travel is extremely rich, in terms of data and, in many cases, unstructured data. The airline world is probably the most structured, because they have GDS and regulations and the different entities that govern the IATAs of the world. But if you think about hotels, they are structured, but less structured than airlines. If you think about destination services and excursions, that’s really completely unstructured.

{audio:0:33:50} So Google really has a lot to do, in that space, by bringing efficiency and helping suppliers to reach demand better. That is exactly what Google is trying to do – get supply and demand closer, in a more efficient way. Many people say that Google has hidden agendas and they want to control the world. I do not think that that is the case, at all. Google is a great company. They are trying to do good for every industry they operate in. In travel, they are heavily invested, because they can add a lot of value and they’ve been adding a lot of value. If you think about the OTAs, Booking.com was always heavily focused on SEM and understanding Google and working very closely with Google. To a great extent, they built the Booking’s holding empire, based on that. Not only because of that, but that was an important of the recipe, I would say.

{audio:0:34:41} Google is trying to do that. It’s trying to bring supply and demand to be as close and as efficient as possible. I think that’s the agenda. I still work very closely with them, on my current gig.

{audio:0:34:59} What is your view of the opinion that Google is looking to disintermediate the OTAs with this product? How would you respond to that?

{audio:0:35:11} I don’t think Google has a disintermediation agenda. With that said, it is true that Google allows for those suppliers, that wish to go direct, to do so if they wish. Again, Google wants to bring supply and demand as close as possible, but it doesn’t mean that demand has to come through an intermediary. If the user wants to go direct, so be it and Google is not going to prevent that from happening. There is a great analogy with wine. For the last 20 years, I’ve been working in travel and I was part of an intermediator and then part of Google and I’m now part of a supplier, which has given me a good perspective of how things are evolving. I happen to love wine and, the other day, I looked on a website of a winery, here in Spain, which I normally drink. I have always bought it through the retail channel, like the different OTAs for wine that exist, like in every other country. Then I realized that this winery was selling direct, on the website, at a cheaper rate than the electronic distribution. This is starting to happen now, in other areas. They dynamics of consumption are very different, but it’s starting to happen.

{audio:0:36:29} The point is, if Google wants to bring supply and demand as close as possible, if the supply wants to go direct and talk to William Barnes or Javier Delgado, individually and specifically, because these two individuals want to buy directly, from this supplier, be it wine, be it hotels, be it flights, Google is not going to prevent that. If the intermediaries, in between, for travel or for wine, are adding value from a price perspective, from a shopping perspective, from a logistics perspective, from an insurance perspective, then so be it. Actually, what clearly draws the line, is the transaction. Look at how Google Hotel Ads has evolved. Google needs someone to fulfil that transaction, in all cases. If it’s an intermediary, so be it. In many cases, the intermediaries are far ahead of the suppliers, because they have better digital assets, better know-how, better customer service, more payment methods; you name it. If you do a search for ‘hotel New York’ you end up on the map, in Google Maps and you see the Hilton Times Square and all the different properties. When you click, and you get your results, sometimes up to 10 results, you’re going to see Hilton, Booking, Expedia. For those cases, Hilton has decided they want to participate and they want to fight for that click and fight for that demand, versus the intermediaries. Google is saying, I’m bringing everyone to this auction; I’m bringing everyone to this meeting between supply and demand and let the user decide, based on their preference or based on the different proposals that Hilton may have, versus Booking or Expedia. Again, from price, usability, or whatever perspective it is.

{audio:0:38:21} Google does not want to disintermediate. Google is putting a level playing field, for everyone to participate. Actually, if you think about it, in the past, it was impossible for an independent hotel or even a bigger hotel chain, to reach that particular client, so that particular demand. I understand that, sometimes, Booking or Expedia might be concerned about Google’s movements and there’s a whole wave of people, such as the FairSearch movement, that took place a few years back, saying that it was unfair. I think that Google has brought a lot of fairness, because in many industries, think about insurance or banking, they have been heavily intermediated. The internet – not Google – as a global infrastructure, has brought a lot of democracy or revisited the rules of the game and has allowed supply to meet demand, in way it wasn’t possible in the past.

{audio:0:39:21} So I don’t think there is a disintermediation agenda, but it is true that those players, who wish to disintermediate, by choice, they might have a level playing field, or more tools available than they had in the past, because Google is democratizing a lot of the technology. Once again, this is my own, humble opinion. I’m not talking as a former Google executive or as a wholesale executive now.

{audio:0:39:48} What I think is interesting is, Google is bringing the battle to, let’s say, Hotel Ads. It’s democratizing access to demand, effectively, for the supply but it’s bringing the battle to one place, on Hotel Ads. The question then becomes, can the smaller, independent hotel outbid the OTA? What is the dynamics there, that even enables the smaller hotels – forget the Hiltons or the Marriotts – to actually compete on that product?

{audio:0:40:21} The answer is yes. The mom and pop hotel, the William Barnes hostel, can participate in Google Hotel Ads, if they want to. I don’t want to get too technical, but you can participate via an integration partner. Pull up a browser and put in integration partners and you get a list of about 80 different companies, which are not Google companies. These are independent, separate entities, that do a one-to-many integration. They put one pipe with Google and they send the hotel ad and then they resell that to the independents. It’s like an agency.

{audio:0:40:58} Exactly. TravelClick and others. There are a lot of these companies. The independent hotel needs to do a contract with TravelClick, or whoever, in order to get listed. When you’re talking about the auction, can they outbid? It depends on what their pricing and distribution strategy is. They might not necessarily need to outbid, from an auction perspective, because there is a quality score component. I don’t want to turn this into an SEM masterclass, but the quality score is more important than the price you are willing to pay for that CPC. If you have the right strategy, from a pricing and inventory management perspective, meaning that it’s coherent and that you are willing to undercut your intermediators and you are going to keep your last-room availability and you have a good website, or a pretty good website, that converts relatively well and you do your CPC right, you do have a chance to outbid. There are some chains out there and some independents, doing a great job on this and outbidding the bigger boys. It is possible. I’m not saying it’s easy, but it is certainly possible and Google is allowing that to happen or laying the level field and the technical infrastructures that allow that to happen.

{audio:0:42:23} What did you learn from your time managing Booking and Expedia, about why those businesses, more specifically Booking, are so good at converting traffic?

{audio:0:42:38} Both are great companies, but Booking and Expedia are very different companies. Let’s address Booking. First of all, Booking used to be lodging only. At the time, it was a hotels-only website, which makes it much simpler to manage, when you only have one product or category or product, because you can focus and go much deeper. That’s one very important piece. They’ve come very far on the lodging side. I’ve been tracking and on their home page, they put how many options they have. They used to have hotels and it was about 200,000 the first time I saw that figure. Now it’s over 20 million and they call it lodging options. You have igloos, vans, boats, cabins, tree-top houses, you name it. But at the time, it was only hotels. There are, allegedly, in the world, half a million hotels; no one really knows. But allegedly, there are about half a million regulated hotels. These guys went far beyond that, because they’ve been focusing on getting everything that has a bed or anywhere you can sleep. They have an army of people, trawling the world, making sure they contract absolutely the can. That’s very important, because they have direct contracts.

{audio:0:44:01} Then the second pillar of their success is, I would say, measurement. They measure absolutely everything. They have, allegedly, 150 to 280 tests; this is something l read in the press. I’m not disclosing anything private here. They are constantly AB testing, to understand what their user likes most. How do the eyeballs in front of the booking site interact with them? They change, based on that behavior. They do that very well. The website is pretty ugly, in my opinion. But again, that’s just me. It’s one of the best performing, if not the best performing on earth. So it’s not a matter of ugly or beautiful, it’s a matter of performance, when you come down to marketing. But the comments and the way it’s set up and so forth, to me, it’s not beautiful, but it works. They know this, so they are not optimizing for beauty. They are optimizing for ROI and conversion, which is the way to do this, in marketing.

{audio:0:45:09} So a single product shop or a single category shop, very capable team of people, all over the world, constantly sourcing and managing that inventory. Then focusing on measurement and measuring absolutely everything. Also, being quite savvy and quite advanced, from a technology perspective. These guys invest significant amounts of money on product development, on engineering. Look at their figures. Take any of their statements and this is public data, and you see how much money they are putting in. I think that’s the recipe for success that has made Booking what it is today.

{audio:0:45:47} What would you advise young performance marketers today, in approaching SEM, given what you learnt from Booking and your experience with Google and being a hotelier today?

{audio:0:46:01} I’m going to talk about my own experience now. When I was about to join Google, so 2011, I didn’t really know much about SEM. I decided to set up a simple website. I actually called a friend, who owned a restaurant and said, listen, can you give me your credentials for your website. Do you mind if I try and do some AdWords and run campaigns for you? It’s not going to cost you anything. Just let me play around. He said, no problem and I set up a few campaigns, to learn about CPC, what does the console look like, what do you change, how do you choose your concordances for AdWords and so forth. This may sound stupid, but I learnt a lot from that. I burned my fingers, because one weekend, I forget to put a cap on the investment and I burned €600. That was, ouch! You need to be careful that if you are not controlling these things, it can really get out of hand.

{audio:0:47:08} You learn a myriad of things by doing and suffering yourself. Go to Wix, or any available platform, where you can create your own website or take your friend’s website and start doing simple things. Something that is extremely important and that many people are still not clear about is the concept of lifetime value and customer acquisition cost. In my current role, I am chief digital officer, because that’s how I joined the company, but then I was also given the CMO, the chief marketing officer function. I still see many marketing officers that do not really master the simple concept of LTV, lifetime value and customer acquisition cost.

{audio:0:48:01} It is really surprising that this is still the case, today, in 2020. The minute you understand that you have to have a lifetime value that is higher than your CAC, your customer acquisition cost, and you master the levers that will take you there, in understanding what is CPC that will convert. First of all, impression, followed by click, followed by click through rate, followed by conversion, different levels of engagement, load times of the website. When you understand that, holistically, you’re able to have a discussion that is much more relevant for the market today. Why do I say this? Marketing has always been about creativity and media planning. If you think about the last 60, 70 years when marketing really became a discipline. Mad Men, the series, it was about creativity and drinking and having great ideas and the pictures and the models and all of that. That’s still really important, but there’s a whole new discipline that comes on top of that, which is as important, if not more important, which is the science, the mathematics.

{audio:0:49:21} You need to combine the Mad Men with the Math Men. If I was going to start a career in marketing, I would probably complement my studies with statistics or math. Something that will give me knowledge and really power to understand numbers very well, to make me keen on handling numbers and ratios and things like that. Everyone gets allured by the creativity which, again, is really important, don’t get me wrong, or the product design, which is the whole discipline of turning ideas into reality and tangible things. Absolutely great. But the math component and the number crunching and being able to master spreadsheets, is incredibly important. I’m not that great myself, but I’m still amazed to see how many people who are completely ignorant about this concept, on which the industry is now built. There are many other components, but having simple things, like LTV, CAC in your mind, clear and fully understood, will help you a lot, throughout your career. All of this is available on the web. You don’t have to go to expensive universities for this. You just type in ‘LTV formula’ and you’re going to get it. There’s a myriad of places where you can learn about this and you really need to have these concepts extremely well-polished, in your mind, to really succeed.

{audio:0:51:03} Moving on to look at what you’re doing now. I think it’s interesting, as you said, you started in OTAs, moved to Google and now you’re at the supplier side. You’re playing the game of owning distribution or taking back distribution and really owning relationships with the customer. What is the biggest challenge you’re facing, today, doing that?

{audio:0:51:30} I spend most of my time on the organizational piece, many of which derived from the culture of the company. I lead a team of about 2,000 people, who are distributed across different geographies, in over 25 countries. That already brings an important layer of complexity, to any organization. Also, we are a company that has been not very focused on technology, in the past. Today, in 2020, that is a problem.

{audio:0:52:19} So I spend a lot of time enabling people to make decisions, bringing some cultural aspects, bringing some basic concepts, like the ones we talked about, such as cost of distribution. Upon joining, I asked, what is the cost of distribution that we have on the trade, versus direct, and we didn’t have the answer. So I created a whole data office, with over 20 people and some data scientists, who are looking at this specifically. Now we have everything on a dashboard and we see, at the flick of a switch, what it’s costing us to sell to each channel.

{audio:0:52:57} We used to talk about distribution, on and off. Online and offline. This shocked me, when I joined. We shouldn’t be talking about distribution, versus non-distribution, so B2C and B2B. Everyone is digital now. We are digital and every retailer is digital and every tour operator is digital or they have a digital outlet. We shouldn’t be looking at the world from an online versus offline view, because that’s nonsense. This is 18 months ago. I was shocked by this. There are many, many organizations that are in an even worse position, with all due respect. We need to shift and change footing. That’s where I’m spending most of my time.

{audio:0:53:44} I’m now looking at things such as direct, versus non-direct and both are great. We have very strong communication with the trade and we plan to keep those, forging forward together. One of the things that caught my attention was, the famous Thomas Cook, the first tour operator in the world, from the 19th century, over 170 years in the industry and it went down the drain, last September. They were an important partner for us and we feel very sorry for their demise but this proves that we needed to move faster. Our company and many others, are still extremely reliant on distribution and there’s nothing wrong with distribution, as long as it’s good, healthy distribution that will stay alive.

{audio:0:54:31} We live in a world, especially in the hotel industry, where we’re on a constant fight against the clock. Our product is the most perishable inventory that you may have. More than food, even. At midnight, our room is lost and you can’t stock an unsold room night; it’s gone forever. You can’t go back in time and sell it again. This mindset of relying on partners to sell is great and it needs to be controlled and properly managed.

{audio:0:55:03} Coming back to the measurement, that’s an area where I’m spending a lot of time understanding how profitable it is, to sell this room through this channel. Is it possible to sell the same room through another channel or not? Think about Cape Verde, a small archipelago, it’s an African country where we operate a hotel. Would it be possible to sell 100% online for that hotel? Well, certainly not or it would be stupid to try to do so. We have a beautiful property in Catalunya, in the heart of Barcelona. The Apple store is in our hotel, to give you a sense of how central it is. Would it be possible to sell 100% direct, online, in that hotel? Well, maybe yes. Would it be wise to do so? Probably not, because you need to find the right balance. Obviously, an operator that wants to sell Barcelona, you might ask him to sell more of Cape Verde and you need to find the right balance.

{audio:0:55:56} So the point is, you need to look at the world, in terms of who can sell more, measure and understand what the impact is going to be on the GOP and build the teams around that strategy that you want to accomplish. This needs to be in accordance with what the world is asking for, not what your product is like. That’s another aspect that I’m spending a lot of time on – changing the mindset. Our product is beautiful, our product is the best, so the product-based marketing, is one of the fundamental pieces of marketing, but you need to think about the consumer much more. What does this individual want? How are we going to engage with this audience, to give them what they need, instead of convincing them to buy what we have? So a shift in mentality. Those are the things that keep me quite busy, these days.

Google & Travel Value Chain Structure

Former Head of Google Travel Vertical Search

inpractise.com/articles/goog-ota-hotel-disruption-covid

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Javier Delgado Muerza

Former Head of Google Travel Vertical Search

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Google & Travel Value Chain Structure(April 17, 2020)

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