An explanation of how hotel price comparison websites work and where the money goes
There are hundreds, even thousands of hotel price comparison sites out there. What makes one better then the others?
In the end it all comes down to how the sites make their money – none of these sites are run for fun – they are all out to make a profit and hence charge some kind of hidden fee. This fee is of course not visible, it is a commission paid by the hotel to the booking website, maybe via an intermediary.
The big players in the market, Expedia, Booking, Venere, Hotels.com etc negiotiate their own deals with individual hotels. This involves sending salespeople round to every single hotel they can find and negotiating deals with hotels one by one. Then the hotel has to integrate their computer systems into the systems of the booking company. It sounds like a lot of hard work and it is. The upside for the booking company is a big margin, in the order of 10-15% depending on the agreement. It is good for the hotels as they need to be on the big sites to get their rooms to be booked. This 15% cut is why they can offer in turn their affiliates a large fee for sending traffic their way. Good for the consumer, probably not.
When you search for a hotel on a site like Venere, you are only being shown the hotels that they have agreements with. Other companies may have agreements with that hotel or not, and similarly with other hotels in the same town.
Some sites like Expedia have special agreements with some hotels where they get special rights on a block of rooms at a special price.
Searching one of these sites by itself is not the way to get the best price. The price each site will offer will depend on the rooms allocated to that site, rooms still available and their agreement with each hotel. To be sure of getting the best price you will need to search each of these booking companies in turn. That will take a while and may not even be easy to compare prices like for like.
So a second tier of sites exist which do all the searching on these sites for you. Entering in the search once will then set off a search on a multitude of these booking sites. This is obviously a better deal for the customer as one search will get to every individual agreement with each hotel in a town.
How do these second tier sites make money? They act as affiliates to the main booking sites, receiving as much as 7.5% of the customer’s booking fee for referring the customer to the booking site. Imagine if you are staying 2 nights in New York, and are paying $400 for the hotel for two nights. As far as you are concerned that is the price. To the booking company they are paying the hotel $350 and pocketing $50 for themselves. If the customer was referred onto them from another site, they pay that site $25 out of their $50. The customer sees none of this. The obvious question is why can’t the middleman be cut out of it, and the customer try and deal directly with the hotel to keep that $50 or some part for the customer? Because the hotel will not offer you that price ! Chances are the person you speak to on the phone will have no authority to go below the price they are told to quote, and even if you were to get through to a manager, it is very unlikely they will be able to match a volume discount negotiated by the big booking companies.
Which hotel comparison site do I recommend? The site which I use is hotelpricebot.com, a well established and well regarded hotel comparison engine. It searches over thirty of the booking sites and returns the results in a clear and speedy manner. The results are easily sorted by price, location and quality, and are linked to google maps and to customer reviews. If some site has to take a cut of my hotel cost, I think they deserve it !
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