The Digital Marketing Arbitrage in Today’s World
It was just a few years ago that The Internet used to be called the Information Superhighway, and for a good reason. There’s so much information circulating over the Internet today at incredible speeds that it’s impossible for any human to keep up with it. The greatest challenge for marketers today is capturing people’s attention even if it’s just for five seconds!
The primary players like Google, Facebook, Amazon, Apple, Netflix and others have become the toll roads on that highway. You pay them to be able to include and promote your content on the highway system that they control and dominate.
But just as the above primary players dominate the playing field, there’s even a larger number of secondary players that use the primary players for their own benefit. For example, Open Table is a SaaS product. Their main business model is based on charging restaurants a fixed (subscription) monthly fee to use their software. But what few people know is that Open Table also charges the same restaurant $1 dollar for every seat they book for them. So, for example, a table for four, brings Open Table additional $4 in revenue. What Open Table realized is that THEY can get those same leads through Google for 50 cents. In other words, they leverage a primary player’s (Google) own platform for their own benefit as a secondary player.
In reality, this type of arbitrage is no different than when a few Radio Networks dominated the airwaves last century; or when TV Networks took over after that to equally dominate the broadcast spectrum. Neither Radio Networks nor TV Networks ‘owned’ the airwaves or broadcast spectrum. They simply become the primary players who figured out how to leverage people’s attention (and consequently, advertisers dollars) for their own benefit.
The growth of Metasearch providers in the travel industry is another good example of secondary players leveraging the power of primary players. In fact, Metasearch is changing how guests book hotel rooms today. Not only did Google decide several years ago to join the Metasearch game that used to be limited to a few players (TripAdvisior, Trivago, Kayak, etc.) but it also took very little time for Google to completely dominate it. And, what happens when a primary player dominates the playing field? That other secondary players like TripAdvisor, Trivago and Kayak decide that, if they can’t beat Google at their own game, might as well join them. And that’s exactly what’s been happening lately.
Both Google and the above mentioned Metasearch providers have figured out that when the former includes, as an example, TripAdvisor’s search results and reviews, they both end up winning at the end of the day. Again, when travel metasearch engines such us TripAdvisor, Kayak and Trivago advertise in Google Hotel Ads, they are playing an arbitrage game in the quest for a positive return on investment. For example, Google might charge TripAdvisor $1.52 when a user clicks on a TripAdvisor link for a Phoenix hotel. If it turns into an instant booking on TripAdvisor, then the company might collect a 5 percent commission from a hotel. However, in the more common situation, if the user navigates from Google Hotel Ads to TripAdvisor and then clicks on an Expedia link there, TripAdvisor might collect $2.12 from Expedia for the referral.
That’s a positive return of 60 cents compared with the $1.52 that TripAdvisor paid Google for the link placement.
In the end, whether a guest books directly through Google Hotel Ads or through another metasearch engine, as long as the result is a conversion, every party is happy. Asked about the user-experience issue when metasearch sites advertise in other metasearch sites such as Google Hotel Ads, Kayak co-founder and CEO Steve Hafner said: “All roads lead to Rome (which is a hotel booking). Hopefully, some consumers will prefer going directly to Kayak for their next trip. But others prefer a more meandering route.”
But from Google’s ever-evolving travel ecosystem to increasingly sophisticated bidding on the part of OTAs, and now the metasearch on metasearch marketing game, there’s a lot going on that makes it hard for hotels to keep up.
On the other hand, while hotels may not be able to match the level of dominance of the Googles and Facebooks of the world, they can however outsmart these giants by using their own customer data the right way, the intelligent way. Rather than increasing budgets and entering an ever-increasing bidding war, a smarter approach to counteract meta is using their own first party data, social signals, cross platform targeting, guest behavioral data and booking data to attract the same guests. With proper execution, they could be bidding successfully on the right traffic for their business and winning direct bookings as a result.
By the same token, It’s okay if in some instances a hotel has to pay Google a $3 or $4 CPC in order to outbid other competitors and get a guest to book direct. Because they will OWN that guest after that, and the lifetime value of that guest (first party) data is the premium that they’re actually paying for. The type of first party data that would allow the same hotel to market that same guests (and other potential guests that match their profile) via email marketing, customer match campaigns, paid social custom audiences, look-alike audiences and more.
The guest stay should never be the end of the conversion journey. Rather, it should be considered the beginning of a long term relationship that will entice that same guest to come back again several times in the future, become an ‘ambassador’ for the property, recommend it to her friends, add influential posts on her own social media accounts, and leave a positive review on third party travel related websites. That’s the real long term value of your investment and that’s the way it should always be.
Thank you for reading. Until next time, this is Manuel Gil del Real (MGR)