HBR.

ORG DECEMBER 2015

REPRINT R1512X

t
os
rP
HBR CASE STUDY

Challenge the yo
op
Middlemen?
tC

A hotelier considers backing an industry

response to online travel agencies.
by Chekitan S. Dev and Peter O’Connor
No
Do

This document is authorized for educator review use only by RANIA EL HADDAD, Lebanese American University - Beirut until Apr 2019. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 EXPERIENCE FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG

t
os
Case Study
investors. The venture had four
equity partners—all major U.S. hotel
brands—and was looking for more.

Challenge the

rP
Signing on would mean taking an
€8 million stake. But Lotta wasn’t yet
ready to gamble a significant portion
of her marketing budget on it.

Middlemen?
Onstage, Dan spoke with
authority. “On hotel websites, 95% of
people abandon their shopping carts,”
he said. “We help shield against

yo
some of those abandonments.”
He demonstrated how
A hotelier considers backing an industry HotelShield worked.
When a user closed
response to online travel agencies.
out of a hotel website
by Chekitan S. Dev and Peter O’Connor without booking a room,
a HotelShield ad would
pop up under the window,
op
offering alternative prices
and locations within the same or a

L
partner brand. Clicking on the ad
otta Tindal, the chief marketing learn more about HotelShield, a would send the user to the website
officer for the Dutch hospital- new venture designed to help of whichever hotel he or she chose or
ity group Ervaring Hotels & hotels increase direct bookings and to HotelShield’s website, where the
Chekitan S. Dev
tC

Resorts, hadn’t wanted to come to reduce their dependence on online is an associate user could find additional options
this afternoon’s presentation, but travel agencies such as Expedia and professor of and compare prices. And although
Gerard Bakker, Ervaring’s CFO, had Priceline. The OTAs facilitated a strategic HotelShield took a cut of the revenue
marketing
twisted her arm. significant number of reservations, and brand generated, its fees were substantially
“These things are nothing more but they took a substantial cut of the management lower than what the OTAs charged,
than glorified sales pitches,” she revenue they generated. at Cornell because it didn’t have to spend much
University’s
whispered to him. Lotta, who’d joined Ervaring School of Hotel on marketing. It relied instead on the
“Stop acting like a teenager,” from Marriott two years before, Administration. pop-under ads to drive traffic to its
No

Gerard said jokingly. “I’m trying to was the first to admit that her new Peter O’Connor own and partners’ websites.
is a professor
pay attention.” He nodded toward company, with 12 brands operating of information “Our business model puts
the front of the room, where Dan 5,000 hotels, mainly in Europe, systems at the power back in your hands: It
Carlson, the CEO of HotelShield, needed help. One fifth of its bookings ESSEC Business restores your direct relationship
School in Paris.
stood at a podium, his PowerPoint were currently going through a third- with customers and allows you to
clicker at the ready. party intermediary, which was quite market your properties as unique
“Besides, Curt said we should expensive. Although this wasn’t out destinations—not commodities—
check it out,” he added. of the ordinary for European again. Online travel agencies cost
Ervaring’s CEO, Curt hoteliers, Ervaring needed to this business close to $3 billion each
Do

Schmitt, had suggested that reduce its cost per booking year. They generate even more of
Lotta and Gerard use part of to improve its your bookings and charge even
their time at the ITB Berlin bottom line. higher fees here in Europe than they
international travel HotelShield do in the U.S. I want to stop that. And
trade show—an annual wasn’t courting I know you do too. Think of us as
ROMUALDO FAURA

gathering for world leaders customers at a partisan intermediary. We have

of travel, tourism, and the trade show; created a third way between your
hospitality businesses—to it was courting brand sites and the OTAs.”

COPYRIGHT © 2015 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. December 2015 Harvard Business Review 2
This document is authorized for educator review use only by RANIA EL HADDAD, Lebanese American University - Beirut until Apr 2019. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 EXPERIENCE

t
Case Study

os
Teaching Notes
When the lights in the room Chekitan Dev teaches the case on which this one is based You heard what Dan said. HotelShield
in his Brand Management course. Peter O’Connor teaches it
came up, Gerard turned to Lotta. is going to be charging only 10%.
in his Hotel Online Distribution course.
“You know I like anything that That’s less than half what we pay
WHAT DREW YOU TO THIS STORY?

rP
will pressure OTAs to lower their some OTAs, and we get to keep the
fees,” he said. Online travel agents have become “frenemy number relationship with the customer.
“But is HotelShield really the
one” to hotel brands worldwide. They do help fill I wasn’t wowed by the current traffic
vacant rooms. But they can seriously erode margins.
answer to all our problems?” she numbers, but I understand it’s just
asked. “Are you willing to bet HOW DO YOUR STUDENTS RESPOND TO IT? getting started—”
€8 million on it?” Some are inclined to simply run the numbers; they Suddenly appearing behind him,
“I have Carly running the ROI— don’t see the strategic value in signing up with a new Dan said, “And we haven’t heavily
both short-term and long-term,” he distribution channel. Others see an opportunity to invested in marketing yet, because

yo
replied, referring to Carly Janssen, diversify the channel portfolio and negotiate better we’re waiting to secure all our equity
his finance director. “But I have to terms with OTAs. partners first.”
say that I find it intriguing. You know He grinned and shook hands with
Hilton and Starwood are two of the
WHAT LESSONS DOES THE CASE OFFER? both of them, saying, “I was so happy
One is that companies need to keep a careful eye
initial partners.” to see that you two made it to the
on their distribution-channel portfolios, noting each
“That doesn’t mean we have to presentation. I’ve exchanged a few
partner’s volume, margins, and negotiating power and
follow,” Lotta said. “I’m having also customer preferences, competitor strategies, e‑mails with Curt, and I was sorry he
flashbacks to RoomLocator.” couldn’t come to Berlin.”
op
and market forces. Another is that stakeholders
At Marriott, Lotta had been part in an organization (marketing, finance) often have Before they could respond, Dan
of the team that voted to make an competing priorities, and leaders need to find a turned to Lotta. “I know you and
investment in a young start-up strategy that works for the company as a whole. your American colleagues were
with a similar value proposition—to traumatized by the RoomLocator
undercut OTAs and help hospitality experience,” he said, “but this is
groups increase direct bookings. But across from the Haus des Rundfunks. going to be different…”
tC

within two years the whole venture HotelShield was sponsoring the “It’s as if you read her mind,”
had gone south, and Marriott, along event, and Lotta wasn’t one to pass Gerard said. Lotta was impressed
Tell us what you’d
with the four other partners, was up a free glass of wine. The room that Dan had done his homework.
do in this situation.
out a lot of money. Go to HBR.org. was full of other industry executives Dan continued, “RoomLocator
“This seems different. It also who’d attended the presentation, simply couldn’t compete back in 1999,
has big brands behind it, but the and Lotta and Gerard could see Dan when investors were dumping silly
business model makes more sense to making the rounds, shaking hands money into the likes of Travelocity
me. We’re not losing our customers and handing out cards. and Expedia. Plus those OTAs were
No

to a third party. This third party is “HotelShield seems a just babies, and we had no idea how
just helping us move some of the lot like an OTA in sheep’s real a threat they would become.
traffic to direct sales.” clothing to me,” Lotta said, Fifteen years later we’re on a more
Lotta smiled at Gerard. In her turning to Gerard. level playing field, and we have much
short time at Ervaring, she’d come to “I don’t know,” he better analytics on what customers
rely on him for help with investment replied. “It doesn’t seem as want. Our website is uncluttered and
decisions. He was a no-nonsense bad to me. This feels more easy to use and represents savings for
numbers guy, not a risk taker. “You like an additional distribution consumers. Did you see the piece in
really fell for the hype, didn’t you?” channel. I don’t buy Dan’s line USA Today?”
Do

she teased. that all we have to do is ‘sit Curt had sent around the article.
Still, she thought, maybe back and count the money,’ A reporter had tested HotelShield
HotelShield is worth a second look. but this does sound like a friendlier against OTAs over several weeks
intermediary.” and found in every case that he
Different from “Besides,” he continued, “what would have saved money by using
the Last Debacle don’t we like about third-party it. Lotta understood the promise:
Lotta and Gerard walked down intermediaries? High fees and Customers could get the same
the street to a reception at a bar disconnection from our customers. rates they would on Priceline or

3 Harvard Business Review December 2015

This document is authorized for educator review use only by RANIA EL HADDAD, Lebanese American University - Beirut until Apr 2019. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG

t
os
Expedia—or even lower ones—plus crowded around Carly’s talking about a huge loss over
all the benefits of direct booking, laptop looking at the analysis the next three years,” she said,
such as flexible room choices, loyalty she’d done of a potential pointing to her laptop screen.

rP
program points, the ability to make HotelShield investment. “This isn’t about a
custom amenity requests, and no “The company has a solid business monetary return, at least not
cancellation fees. model, no question, but we’d lose right now,” Gerard insisted. “This
“A very nice press hit,” Lotta said. money as a partner,” Carly said. “You is about trying to shake up the
“But do you really think you can beat can see that if you go three years industry. Everyone in e‑commerce
the OTAs at their own game? How out, the NPV is still negative on our wants a piece of the $1.3 trillion
long will it take you to get those investment. Even when I do the travel industry. With Amazon and
traffic numbers up?” sensitivity analysis and change the Google moving in and threatening

yo
“It’s a crowded market, for sure. underlying assumptions, I don’t see to intercept our customers between
And it’s getting even more competi- any scenario in which this would searching and booking, we’ve got to
tive with Expedia buying up Orbitz work for us.” do something soon if we’re going to
and Travelocity. But we’ve had great Lotta’s assistant brought in lunch, stay in the game. Given that Hilton
success so far. In the first six months and the three of them paused for a and Starwood are becoming partners
we had 4 million unique visitors, moment to unwrap their sandwiches. with HotelShield, we ought to be
and we’re now reaching 14 million Lotta wasn’t surprised by Carly’s taking this very seriously.”
travelers a month. As I said, we numbers. The OTAs had a pretty “But maybe that’s the point,”
op
haven’t done a ton of marketing strong grip on consumers, and it Carly replied. “We’re not a Hilton or
because we’re still lining up partners. seemed unlikely that a company a Starwood. So let the U.S. players
I’ve already told Curt that we’re with pop-under ads would suddenly make this investment and see what
willing to consider an exclusive deal change that. happens. We don’t have to take
in Europe. You’d be the first here on “So it’s a no,” she said. the risk, and we can still enjoy the
the Continent, and you could be the “I know this is going to sound benefits later—when HotelShield
tC

only one. But that offer won’t strange coming from wants us as a customer rather than
stand for long. We’ve got in- me,” Gerard said, “but a partner, or when it forces the OTAs
terest from InterContinental even if the short-term and to lower their fees.”
HBR’s fictionalized
and Steigenberger as well. It midterm numbers don’t case studies Lotta could see why Carly was
would be a shame if you all look good, I’m not present problems Gerard’s right-hand woman. She had
faced by leaders
missed the boat on this.” sure we should let this a good head on her shoulders. “I like
in real companies
“Well, you know we opportunity pass us by. We and offer solutions that idea,” she chimed in, fully aware
don’t make the final may not see an immediate return, from experts. This that she was flip-flopping.
No

one is based on
call, so we’ll have to be in touch,” but if HotelShield gets even a piece of “Sitting back and waiting
the HBS Case
Lotta said, steering Gerard away. market share over the next few years, Study “Accor: isn’t going to work if we want to
As they exited the bar, Gerard the OTAs will have to pay attention.” Strengthening the see changes in Europe,” Gerard
Brand with Digital
reminded her that Curt had put “As you know,” he explained, “it’s countered. “HotelShield needs a
Marketing,” by Jill
the ball in her court. He was relying essentially a two-player OTA market Avery, Chekitan partner here, and we’re the biggest
on her to make a suggestion to right now, and Expedia and Priceline S. Dev, and Peter brand. I know you’re gun-shy, Lotta,
O’Connor.
the board. have more negotiating leverage than but you can’t let your experience
“I know,” Lotta said. “I just wanted they’ve ever had before. Maybe we with RoomLocator color everything
Dan to back off. He was getting on can’t free ourselves completely of that comes after. There needs to be
Do

my nerves. Even worse, he was online travel agencies, but if they pressure from all over.”
persuading me that this might be were to lower their fees by even a
a good idea.” few percentage points, it would have Long-Term Return
a huge impact on our bottom line— Lotta had made it through security
Negative NPV perhaps not today, but certainly over at Schiphol and was waiting in line
Later that week, back at Ervaring’s the long run.” to board her flight to London for
Amsterdam headquarters, Lotta, Carly looked up midbite with a day of meetings. She checked her
Gerard, and Carly Janssen were a stunned expression. “We’re still iPhone before getting to her seat

December 2015 Harvard Business Review 4

This document is authorized for educator review use only by RANIA EL HADDAD, Lebanese American University - Beirut until Apr 2019. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 EXPERIENCE

t
os
and saw an e‑mail from Curt that
read: “Have you made a decision
about HotelShield?”

rP
She knew he wasn’t expecting
an immediate reply, so she decided
to think it over during the plane
ride and e‑mail him from her taxi
into London.
Nine thousand meters up, she
reminded herself of all the reasons
this investment wasn’t worth a

yo
significant portion of her budget.
HotelShield was unproven in the
marketplace. The business model
was sound, but could they be sure
that consumers, especially European
travelers, would take to the pop-
under ads? Could the venture convert
enough shoppers to make this a
op
viable channel for Ervaring and
scare the online travel agencies into
lowering their fees?
But as she reflected, she could
hear Gerard’s voice admonishing
her for letting the RoomLocator
tC

debacle color her judgment. She

didn’t want that experience to
prevent Ervaring from shaking up
the industry and taking some profits
back from the OTAs. If it didn’t invest,
one of the British or German brands
probably would, perhaps as an
exclusive partner, and then Ervaring
No

might be left in the dust.

She looked out the window and
wondered, Is this venture too big a
risk? Or is it an opportunity we can’t
pass up?
HBR Reprint R1512K

Q
Reprint Case only R1512X
Reprint Commentary only R1512Z
Do

Should Ervaring
invest in HotelShield?

5 Harvard Business Review December 2015

This document is authorized for educator review use only by RANIA EL HADDAD, Lebanese American University - Beirut until Apr 2019. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860