The End of the Merchant Model as We Know It | By Max Starkov and Jason Price

Hospitality Net: "Over the last 4 years many hoteliers have been struggling to decrease their dependence on the online merchants and to develop direct online distribution strategies of their own. Hoteliers are also trying to find answers to several critical questions: does the cost of doing business with online merchants outweigh the cost of not doing business with them? What will be those crucial developments in the online hospitality marketplace over the next five years and what can hoteliers do to prepare for and take advantage of them now?..

Prime comments:
"The proverbial “pendulum” has shifted back in favor of hoteliers.

In the near future major brands and smart hoteliers will start introducing restrictions on how net wholesale rates can be marketed on the Internet by the third parties, which will gradually lead to a requirement that net rates should be bundled with other services and cannot be exposed “naked” on the Web...

Forrester predicts that dynamic packaging sales will quadruple between 2004 and 2009. 68% of online travelers would consider purchasing a dynamic package (PhoCusWright Survey). All major online intermediaries have embraced the dynamic packaging model. Expedia, Travelocity and Orbitz report their dynamic packaging modules are the fastest growing segment of their overall bookings...

Hospitality eBusiness Strategies firmly believes that the following crucial developments in the hospitality industry over the next five years will benefit hoteliers and other travel suppliers and help lessen their dependence on the online intermediaries and transform the merchant model as we know it...

Conclusions:

Over the next 5 years the merchant model as we know it will disappear. It will be transformed into a “Commission Override” convergence model. Travel agency commissions will shrink from the current 10% level to 8% then 5%, in the end becoming a flat fee of $5-$10. Online merchant operators will start earning volume discounts above current agency commission levels but at a fraction of today’s levels.

Online intermediaries will further embrace the dynamic packaging model thus turning themselves into typical online wholesale packagers/tour operators, and start offering new advertising programs such as enhanced listings and positioning, PPC and display advertising."