I have been an entrepreneur in China, engaging in the online travel agency(OTA) domain for more than two years. We certainly have experienced up-and-downs. To navigate the ever-changing Chinese OTA market, we keep asking ourselves the same set of questions all the time: Who are our customers? Who are our suppliers? Who are our competitors?
Customers
When coming to booking hotels online, Chinese are probably the most old-fashioned and spoiled customers in the world. A typical booking procedure of a Chinese OTA goes as follows: travelers first do some hotel research online regarding their destination and relating hotels, using Baidu.com or Qunar.com, where they discover hotels and corresponding OTAs that are favorable. Then the old-fashion kicks in –They enter their phone number to receive a confirmation text message, or simply pick up their phone and start calling the massive 24-7 call center of the desirable OTA, both without paying any deposit upfront. In a better case, they show up in the hotel lobby on time, check in and pay the hotel when checking out; in a worse case, they simply disappear without notifying the OTA. More than 80% of Chinese OTA customers prefer to pay at hotel front desks as opposed to online payment, in which way they enjoy a high degree of freedom (or free of obligation).
As a result, in the design of any new OTA products, entrepreneurs must take the behavioral and psychological implication induced by the current payment tradition as a key benchmark. We have performed A/B tests intensively to identify how payment systems would affect user’s action and decision. The results showed that the click rate of a booking procedure that requires credit card information was about 80% lower than a procedure that only requires user phone number or simply directs users to a call center. Therefore, efforts to challenge or divert the current norm may encounter a long haul. However, as a double-edged sword, some of the most exciting opportunities may arise if innovations can revolutionize the way Chinese travelers pay.
Big players in Chinese OTA market have already launched products featuring innovations that push customers complete the booking process with some sort of deposit. For example, Ctrip.com (NASDAQ: CTRP), a leading OTA in China, offers a Hotwire.com-type of “opaque” discounted hotel deals. Qunar.com launched a Priceline.com-type of reverse bidding service, named “prisonbreak”. Moreover, several stealth startups also feature last minute hotel booking, utilizing the location-based service on mobile devices, to revolutionize the OTA industry. However, as pointed out earlier, all these innovations require some type of deposit, which may need a shift of user behavior. We expect the tipping point of innovative OTAs in the near future because Chinese OTAs has long been dominated by the same big players. Now it’s time to change.
Suppliers
Suppliers or hotels, in the Chinese OTA market complicates the problem. Generally, Chinese hotels, based on their ownerships, can be roughly categorized in three subsets: State-owned, joint-venture and private. Different characteristics are associated with different types of hotels: State-owned hotels, instead of being driven by profits, normally value political impact more than anything else because they generate most of their revenues from conferences held by government or related parties such as other state-owned enterprises; Joint-ventures are normally owned by a joint venture consisting of state-owned and foreign capital shares, and are run by prominent international hotel franchises, such as Marriott and Starwood; Private hotels usually focus on local market, and are more motivated by innovations to better market themselves.
In the general, due to high demands by the market, hotels in China are in a favorable position. As stats showed in 2011, the occupancy rate of 5-star hotels in Beijing was more than 60%, a rate indicates that they were more than often overbooked, which made them arrogant enough to ignore marketing themselves in an open market. Conversely, 4-star and 3-star hotels in Beijing was occupied 50% and 40% respectively year-round. As inspired by the fact of the non-uniform occupancy rate distribution, many Chinese entrepreneurs focus on building channels to help 3-star and 4-star hotels, utilizing innovative marketing methods such as group-buying, last-minute deals, reverse auction and opaque listing.
Competitors
Several big players, such as Ctrip.com, Qunar.com and Elong.com have been champions and have shaped the Chinese OTA market and its user behavior. However, in the era of SOLOMO, traditional services offered by these big players will be challenged by new business models, and even the smallest innovation could change OTA in China significantly. As a monetization attempt by Sina Weibo ( the largest twitter-similar service in China), a Weibo-based hotel booking service is under construction. Though no details disclosed, a social-networking-based OTA operated by Weibo, with its huge user base (more than 300 million), could challenge the existing big players. It is also noteworthy that OTAs, specialized in a local market, possess exclusive local resources and thus a loyal customer base.
To sum up, the current Chinese OTA market presents great challenges and opportunities for entrepreneurs, and the competition in the era of SOLOMO has just started. Innovations that can truly satisfy the need of Chinese customers and suppliers will win it big time.
The piece was written by Xingyuan Eddie Chen, an alumni of the University of Pennsylvania and can be reached by xingyuan@alumni.upenn.edu