Transcript of Travel Industry Panel from “Trust or Consequence: Why Credibility Is the Killer App for Online Travel”

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Presenters:

  • Bill McGee, Consultant to Consumer Reports WebWatch
  • Brian Barth, SideStep
  • Steve Hafner, Kayak.com
  • Shafiq Khan, Senior Vice President of e-Commerce, Marriott Hotels
  • Cheryl Rosner, President, Hotels.com
  • Beatrice Tarka, Chief Executive Officer, Mobissimo
  • Tracey Weber, Senior Vice President of Air, Car & Last Minute Deals, Travelocity
  • Kurt Weinsheimer, Vice President of Hotels, Orbitz

Other Speakers:

  • Beau Brendler, Consumer Reports WebWatch
  • Kevin Kelly, BestFares.com
  • Al Comeaux, Travelocity
  • Brad Elbein, The U.S. Federal Trade Commission
  • Neil Bainton, FareCompare
  • Gavin Stener, Corporate Clipper
  • Greg Jones, Pegasus
  • Mario Santandar, consumer
  • Carol Sottili, The Washington Post Travel Section

Note: This is an edited transcript of the proceedings.

Bill McGee: Good afternoon. For those of you who weren’t here this morning, I’m Bill McGee, I’m a consultant to Consumer Reports WebWatch in the specific area of travel. And we have put together an industry panel that I think the least of our problems will be filling the air time. We’ve got very dynamic speakers here representing several different facets of the online travel industry: Integrated sites, aggregater sites, supplier sites. And what we’ve actually done is, we’ve asked them to just kind of skip over any introductory remarks, because it seems apparent that there’s plenty of hot issues on the table. So I’ll just ask for each panel member to basically just state their name and title and company to introduce themselves.

Brian Barth: Brian Barth, I’m CEO and founder of SideStep.

Steve Hafner: Steve Hafner, I’m the CEO and co-founder of Kayak.com.

Shafiq Khan: Shafiq Khan, I’m the Senior VP of e-Commerce, Marriott [INAUDIBLE].

Cheryl Rosner: Cheryl Rosner, President of Hotels.com.

Beatrice Tarka: Beatrice Tarka, [INAUDIBLE] and CEO of Mobissimo.

Tracey Weber: Tracey Weber, Senior Vice President of Air, Car and Last-Minute Deals for Travelocity.

Kurt Weinsheimer: Kurt Weinsheimer, Vice President of hotels for Orbitz.

Bill McGee: Great. We’re going to have some specific issues that may be of more relevance to some panel members than others. But to start off, what we thought would be a good idea is to have each of you briefly respond in a way to all of the research that we shared this morning.

One of the things that we’ve noted is just how many changes have taken place in the online travel marketplace just in the last four or five years. So the question to each of you is: How are consumers better served by the emergence of online travel commerce than they were through other channels, say, 5-10 years ago?

Brian Barth: I think the thing that we can definitely be sure of is that consumers, I think, are much better off now. They can shop at home. We’ve seen the stats that show that more and more people are looking. And, overall, [INAUDIBLE] with a lot of the trends. So, in fact, I think what we are going to continue to see is a lot of the issues that were worrying to folks and a lot of them right now — I actually think and hope and believe that they’re not really going to be a lot of the big issues that we’re going to be worried about in the future. Because fundamentally, if you don’t serve the consumer well, I think that, as a company and as a service and a site, that you’re just going to have a really tough time running your business.

One of the really key dimensions that we’ve been working on — and we think other people will be doing a lot of work on, too — is really providing a lot more sort of sorting and filtering and finding of information that really empowers the consumer. And that’s a lot of the stuff where, what are you going to show on the display and whatnot. It’s because the consumer doesn’t have any leverage and controls, and when you give them those controls, that a lot of these issues, I think, largely go away.

In fairness, this wasn’t as big an issue, because it wasn’t so long ago that you didn’t actually have that many things you could show. If you only had 10 things you wanted to display, you’d just kind of plop them up there. And then we kind of got to this point where you had sort of a medium number of things to display. Now we’re getting to the place where, literally, we may have thousands, if not tens of thousands, of things we could show and display, and that one of the — To give you a little insight, one of the things we try to do a lot of work on is, we actually went back to a bunch of the academic research and whatnot, and tried to get into a bunch of consumer utility modeling, which is like the whole field of esoteric research and mathematics and stuff. And it turned out to be extraordinarily difficult to model consumer behavior.

We did actually make some good headway on it. But I think actually that what we’re really going to see is that it’s the dynamic displays and controls and finding that is really going to help empower the consumer. That a lot of these issues, I think, we may look back on and see that they’re not such a big deal.

Steve Hafner: I think the biggest thing the Internet has changed is that consumers are a lot more informed today than they were five or six years ago. They have a wealth of information at their fingertips, they can search that information 24/7, and then they can choose where to go and book their purchases. That said, we’ve got a long ways to go.

It’s funny. The three things that we covered today in your presentation earlier, Bill, were comprehensiveness, objectivity and ease of use. Those are still the same pillars that these sites up here are still trying to achieve. So there’s a lot more progress that needs to be made. On comprehensiveness, no single site has the best deals. Consumers have been trained to cross-shop; they’re going to continue to do so. Sites like SideStep and Kayak.com are trying to help that process.

On objectivity, sites that try to sell you something, be they supplier sites like Marriott — Marriott’s trying to sell you a Marriott; Travelocity’s trying to sell you what they have on their store shelves. That calls objectivity into question for consumers, and that leads to cross-shopping as well.

And the last issue is just ease of use. It’s just natural function, as a site develops over time and matures, if you add more features and functionality, bells and whistles, you start listening to the siren’s call of advertising banner ads and pop-ups and stuff like that as you try to hit your numbers. And I think there’s a whole new set of sites. Again, meta search has some. There are other new online agencies that are coming up that are saying: Hey, let’s take a more Google-like approach. Let’s be simpler, let’s streamline the site down, let’s help people get from A to B.

Shafiq Khan: There’s not much that I can add to it, other than the fact that basically this is all about control, and the consumer has a helluva lot more control now than they ever did before. In our case, in fact, we found that on the Internet, at one time, the consumer could get better information on our hotels than they could get any other way. In fact, to some degree that’s the case today, because they can see the hotel. They could not see the hotel through any other channel.

We also found, for instance, in terms of driving directions, our own people at the call centers — and we have 3,400 of them — they could not provide the information to the level of detail and accuracy that you could get on the Web, in terms of driving directions, and so on. And, by and large, it’s control, it’s empowering and, as a result, if you think knowledge is power, the big thing that’s happened is that there’s a shift in the balance of power between the consumer and the seller, and a shift in favor of the buyer. And that shift is going to continue, and I think we have, as Steve said, a long way to go.

There are many things we have to solve for, but at the end of the day we expect that that’s going to continue. This knowledge, this power is going to continue to be favoring the consumer more and more and more. And, in fact, I commend you guys for doing this, and making sure that that knowledge gets to be even more accurate and valid than it has in the past.

Cheryl Rosner: [INAUDIBLE] what the Internet has done, and I remember it very clearly, right when I joined Hotels.com in 1999, Web sites were kind of almost like a cork board that you kind of tacked all your travel sessions up, or a message board that the consumer then looked at and said [INAUDIBLE]. And today, what we’ve done by the evolution that we’ve lived through in the last five to six years has been absolutely, as Shafiq said, the power into the consumer’s hands.

This was, for those of you in the travel industry, for a long time it was, you needed to go to basically some type of intermediary to help you select something, because you just couldn’t get that same type of information at your fingertips, real-time, quickly, when you wanted it, 24/7. And that is the power of the Internet, the power of interactivity.

I think what resonated with me this morning in listening to a lot of feedback is that no Web site can really be a one-size-fits-all for all consumers. What we do and what we bring to the table is [INAUDIBLE] customer segmentation, making sure that while we’re stocking the shelves with our inventory, that’s what we’re doing, is we’re speaking to a very specific customer. So whether it’s a leisure customer or a corporate customer, we — what I think all of us have done in the last couple of years, and specifically this year, is start to become a lot more relevant, and for the consumer, based on what consumers’ needs are. And that allows for just a lot more brands within the online travel universe.

Beatrice Tarka: I would like [INAUDIBLE] maybe a few comments. I might be one of the youngest ones here, but I still remember the times where, we were saying here that the customers only shop online. I do remember customers, including myself, shopping offline, going from one travel agency to the other to find the best price. So the shopping — it’s already in our habits from a very long time ago. What happened is a shift.

At first we were shopping directly at airlines. Then we were using a travel agency, which were an offline travel agency, that were intermediaries. Then the concept of [INAUDIBLE] from the travel agents to online travel agencies. They became the intermediaries. And now we have suddenly a new shift. The so-called today intermediaries are becoming our destination sites, and the intermediaries are the providers of information. Among others, meta-search engines, or the engines themselves.

And what it all means is that we have recognized as the customers and as users that the world is becoming more global. There is more modularization, and there is no single person that can encompass the vast information that is there. No single travel agent, no single travel agency in any single country.

I think that the research that you pointed out earlier today just clearly showed that the travel agency [INAUDIBLE] doesn’t have to have the best prices or the best options and the best connections. And that the things that you get offered in Germany may be very different. The offerings that you will get in the U.S. will be still very different. So the customers are getting right now empowered with information and tools.

It’s not clear how much whistles and bells we need to achieve that information. I think we are still in the series of discovery of what it means to be comprehensive, what it means to have ease of use. Does it mean to have more or less? Until we actually go through this period and adapt, I think the best players in the industry are the ones that are going to be adapting to the changing needs of customers as we go along.

Tracey Weber: Thank you. Definitely great points so far. I think the most exciting thing for me this morning is seeing the evolution of the research that Consumer Reports WebWatch has done. As Bill had said, there has been improvement by many folks in the industry at displaying what’s out there for consumers.

We focus a lot on that, making sure we’re able to display all those options, and it is very empowering to consumers — but oftentimes overwhelming as well. And we’re increasingly trying to think, I think, our industry, about what is value, and not just price. What information is helpful for consumers to make their choices? Obviously they need to know the price, but there are so many other factors that go into that choice, beyond price. Things like whether you have a certain feature on the flight [INAUDIBLE], whether you can pick your [INAUDIBLE] from a nice display and truly understand what you’re going to get when you get there. Which I think leads into — we focused a lot on the basics of this industry so far.

And the next stage for many of us in the industry is going to be focusing beyond the shopping and booking experience. And if you think about the average person’s trip, the booking and shopping experience is a fraction of that experience. The rest of the experience is what happens after you book, until you leave, and then of course what happens on the trip. I think increasingly consumers are going to be looking to us in the industry to make sure that we can help them throughout that entire experience and make sure that they have a great travel experience.

Kurt Weinsheimer: I think that the main thing that I would reiterate is the idea of control. And also the idea of freedom. What I think this does is that travel is very aspirational. They want to travel. What this does is, it allows them to actualize that.

Travel Industry Panel (l to r: Barth, Hafner, Khan, Rosner, Tarka, Weber, Weinsheimer)

Simple example: Thursday, my mom calls: “God, I really want to see that Christo exhibit, and it’s closing on Sunday.” I said “Well, why don’t you go?” She says “Ah, how can I go?” I said, “Just go online, see if you can find a ticket.” She goes online, she finds a ticket, she gets four of her friends to go. These are women that are 63 to — well, they probably wouldn’t want you to know. And they decided, literally, on a Thursday night, that they were going to go. They went for the day. They flew in Sunday morning, they went and saw the exhibit, they had a great lunch, had a wonderful time, came back that night. They’re going to remember that forever. And their attitude is: The Internet let them do that. And that’s a really powerful thing that I know my mom had not been thinking about a couple of years ago. But she’ll definitely be thinking about it again the next time.

Bill McGee: Did you ask your mom what site she used? [laughter]

Kurt Weinsheimer: But of course.

Bill McGee: Based on the discussion this morning, it’s clear that one of the hottest topics we touched on is the issue of bias and potential bias in sites. And we have a good perspective here, because we have several different models, including a supplier model.

And I would put this question to the panel: The point that WebWatch was making is that we’re not here to dictate what business model is best, but it’s all about transparency and disclosure. That if one company has opted for a model that differs from its rivals in that it has preferred agreements, then that’s fine. But that just should be made clear to consumers. So if there is any confusion on the part of what we were advocating, that’s what it is in a nutshell. We’re not here to advocate regulation, as there was, of GDSs. And we’re not here to advocate what business model is best, but just about disclosure.

So having said that, I’d like to throw out, and perhaps Shafiq, you should maybe take this, from a supplier standpoint, the issue of bias or potential bias in sites. From a supplier standpoint, maybe you could offer a perspective that we haven’t had.

Shafiq Khan: Let me very blunt. The scheme is, from the [INAUDIBLE], the game is, really, all about bias. Every business model that I’ve seen really lives off bias, lives off of paid placements, [INAUDIBLE], whatever you might want to call it. But there isn’t a situation that I’ve seen being presented by any third party to Marriott that doesn’t involve bias. So, no question, that is the game.

Now, the consumer’s perspective is that, is that okay? I don’t know. I think it’s only okay for the consumer if the consumer knows that there’s bias. And if the consumer knows that this bias is for X, Y or Z reasons. In which case, the consumer can make a choice.

But, really, the game is about bias, and I think anybody who says it isn’t, I’d like to talk to them, because I’d like to do business with them. More business than we do. In fact, right now, by the way, I do business with at least three of the players here on a daily basis, and potentially others here that we could be doing business with, too. The point is, I haven’t seen a business model that does not include bias — that’s economic bias, in favor of the distributor, not in favor of the supplier, unless we arrange that, which can be done. I don’t see a bias in favor of the consumer.

Bill McGee: Now, having said that, is there anyone from either Hotels.com or Orbitz or Travelocity who would like to speak to that?

Kurt Weinsheimer: Sure. I think there are a couple of things to look at. I think it is important to look at, consider by category. So, for example, in our Air and Car product, there actually is no biases, as you would put it. It’s based on zero stops, it’s based on lowest price. And so it doesn’t matter what the brand is of that airline or what that car company is. At least on Orbitz.

Shafiq Khan: Why are you picking on me, then?

Kurt Weinsheimer: I think it, again, comes down to the category. I think that in the Air world, price is a huge component, and that it really comes down to one-stop, no stops. And that’s why something like the Air Matrix is so powerful. It gives people a snapshot of all the opportunities that are there. They make the call. They look and find what they want, and they book it. And that’s really what gave Orbitz the push that we had from the start.

The same things on the car side. If a car renter does the same thing, and shows all best options based on price that a consumer can get, and they can look and choose and know what brand they want.

I think that when you then look at the decision that’s made from a hotel standpoint, it’s a more complicated purchase. There are three more things that go into play here. In fact, we built a Hotel Matrix, and we just recently launched one called the [INAUDIBLE] Matrix. Because we found in our studies that two base things that people cared about were the location of the property and the quality of the property.

What I mean by the quality is, what am I getting for my dollar? And that’s a tough thing to Matrix. And so even when we do that, we see that location plays a huge role in that. And what we’ve done is, we’ve done exactly what Brian said. We give the consumer as many tools as they could possibly get. As soon as they interact with that Matrix, as soon as they re-sort by price and re-sort by distance and re-sort by anything, it’s by distance. It’s by price. It’s by location. It’s by star rating. And the consumer is in control.

I think that, yes, a default is right. We have to show something. And what do we show? We show those hotels that we think the consumers in that market are going to demand the most. And it’s not necessarily a specific property, but quite often it’s a property category.

That’s something that, also, as a business, yes. Are we going to look at the profitability of the properties and partners that we work with? Sure we are. Because that’s how we make money, that’s how we build a bigger business, and a better business, and that’s how we serve the customer better in the long run. If we just worked on margin, and that’s all we cared about, we wouldn’t be showing the consumer necessarily the right product. And they wouldn’t come back, and we wouldn’t end up making the money.

So it’s very important to, in the end, serve the consumer first. Give them the tools that they need to find the right property, the right price, and the right spot, and then allow them to make that decision.

Tracey Weber: Just to echo a few of Kurt’s words. It is true, we are very much retailers of travel products to consumers. And not that different than the physical world.

On our Air path on Travelocity, we are very upfront in accordance with Consumer WebWatch’s guidelines. We have a consumer information section on the site, where we clearly outline that we don’t accept pay for placement for our product, and we are very clear even beyond price and number of stops what we break ties on. Because that also came up earlier today. So we are trying to provide that kind of clarity as to the business model that we’re offering to consumers.

And, again, in the Air category, that is what they’re looking for, is a lot of choice, and displayed in a way they can easily digest it.

Cheryl Rosner: [INAUDIBLE]. At Hotels.com, we launched the brand three years ago by HRN, which was who we were prior to that. Been around for over a decade now. And one of the things that we did when we launched our consumer brand was we were very focused in putting — to once again echo what Brian said — as many tools out there as we possibly could, into the hands of the consumer [INAUDIBLE] making it really easy to use the Web site. So what you see on the Web site is a transactional type model that — make two clicks and they’re able to make that hotel reservation.

But, beyond that, once you’re into the destination that you’re interested in, at that point — three years ago we launched our flight landmark, which our idea of [INAUDIBLE]. And we sort by price, sort by star rating, sort alphabetically. And what we found is, customers shop in tons of different ways. There’s the rifle-shot guy who just comes walking right into the retail store and knows exactly what he wants to buy, goes there and buys it. And then there’s the meanderers or the browsers, that will sort in 20 different ways before they ultimately make their choice. And that’s what we want to put in the hands of consumers.

What we do have on the Web site, which is “Hotels.com Picks,” are those hotels that are confirmed the most. It’s not about if we get paid more or we get paid less. Here’s what the consumer has shown us over close to 10 years’ worth of data now. And most recently, in our consumer site, what converts, what they view the most, what they view most often, or what converts at the highest level. Because that is what they tell us through their behavior and through their [INAUDIBLE] statements say.

Bill McGee: I just wonder, for those of us who’ve followed travel distribution over the last decade or so, of course, one of the biggest events was what happened on the travel agency side with commissions. John Hawks from the Association of Retail Travel Agents is here. He’ll be on the next panel and can probably speak about that at length. But there was this tremendous cutting of distribution costs because suppliers, particularly airlines, kept saying that their distribution costs were too high, they needed to reduce commissions. At the same time now, we have a new medium, which has much lower costs overall, and yet these same issues of marketing agreements are arising.

So the question from a consumer perspective — aside from the issue of bias, but just from a dollars and cents perspective — is does this now have the potential to continue to drive up costs that eventually are going to have to be passed on to the consumer, when we’re talking about this type of paid placement model?

Shafiq Khan: Should I respond to that?

Bill McGee: Yes, absolutely.

Shafiq Khan: No question in my mind. They’ll be paying for placement, which to some degree they’re doing already. Somebody’s going to have to foot the bills. And at the end of the day, all costs of running a business are passed on to the consumer. So, at the end of the day, you can be sure, if you’re going to stay in business, that cost is going to get passed on to the consumer.

And I will say that a lot of the folks that we had online were sure that we would have much more cost-effective intermediary compensation. That’s actually not being borne out. In fact, from the hotel side I can say that our costs from intermediaries online are higher than they are through official channels. And that’s not where we wanted things to be, and that’s not reflective of the inherent capability of the Internet to cost effectively distribute. So that’s an issue that’s going to get solved.

I’m not too worried about this right now, because I believe that the market will face it over time. I’d rather that it get it sooner rather than later, but at this point I expect to get it fixed. Again, thank you guys for stepping in, and we want to make sure that the consumer’s perspective is respected and brought into play as the capability.

Brian Barth: One of the things I think is important is that, it seems that the travel industry has a habit of loving to find sort of a topic that they get sort of overly focused on for a while, and then sort of change ideas. I actually think that this thing of bias actually, [INAUDIBLE], and I think that maybe this question of timing, whether really the consumers aren’t going to become empowered enough, that’s not going to be a really core piece of what [INAUDIBLE].

I’m interested [INAUDIBLE] comments today, they had to do with a lot of things that, including the people who have said — like, for example, fare jumping: “Big deal,” and, “That’s terrible.” But I think we focus on a lot of things that they know even before they buy. And that although they’re upsetting, that relative to a lot of the things that consumers don’t know until it’s way too late, I mean, these are, to me — thinking if the goal is really having a great consumer experience and have happy people who like to travel and want to travel a lot, that are willing to do it.

It’s a lot of these other downstream things that may ultimately be a more important part of the focus. And so, like, for example, for us, one of the things that we have found over the years is that the industry has very, very bad data on where hotels are located. The property information here is generally very, very bad. [INAUDIBLE] something that, if somebody calls their family often, they think they’re one block from the beach, and they’re not. I’ll tell you, this is a lot bigger deal than clicking on something and, “Oh, no, it told me it was $50 different before I could book it.” This is, you get, you don’t get that much vacation, and you could really feel like this is a mess.

So some of these kinds of things, I think, are — there’s a whole set of problems and dimensions that if we kind of look at the problem more broadly, of making a great consumer experience. Getting them up, getting them going, and getting them traveling, making this a wonderful experience, that are just so important.

So, for example, so for years, we need to work at trying to get the hotel location data to make it more and more accurate, so we really can’t put it not close, but right where the hotel is and spend a huge amount of work. Or to really think into a lot of consumer focus group testing. And the thing that a lot of the industry people perpetually miss and forget is that — I’m sure a lot of people in this room know what a direct flight is. Go consumer test a normal person. They do not know what a direct flight is, and they will be continually disappointed. And so, like, for example, one of the things that we made as part of our mantra, we will not use that language. It’s not in the site. As a matter of fact, when we got started on this a long time ago, it turns out that because the word “direct flight” is so just a part of this industry, it was a huge amount of work even to be able to tell people whether the plane stopped or not. And we ended up having to license a bunch of data and do all this technical work. But this is the stuff that helps consumers have a great experience. And I actually have a lot more faith that we’re going to work out a lot of these.

And all the credible companies, I really don’t believe in anything nasty with people’s data. They got too optimistic or something. I don’t think that consumers are really going to get sort of, you know — there are some problems that not everybody wants to play all the channels and things like this. But I don’t think people long-term are going act as a whole. There’s this whole other set of issues that are incredibly important to making people have just a trip and a great vacation. That’s what this is really all about.

Steve Hafner: [TALKOVER] I think you’re right. It’s all about information for consumers. Clearly you haven’t worked at an online agency, you wouldn’t share that optimism about this place.

But I think for those of you who don’t know the difference between what Brian, myself and Beatrice do, between meta-search and comparison shopping sites and online agencies is, we don’t make money by selling consumers something. What we do is, we help them find the information they want. But we don’t, in general, at least at Kayak.com, we don’t suppress results.

I don’t know how many online agencies have something on the store shelves that they don’t make money selling. We do. We have Marriott on our shelves, and we don’t make any money selling Marriott at the moment.

So I think the first is just the philosophy with which you approach the problem. If the problem is comprehensive and not [INAUDIBLE], well, how can you approach that? If you approach it like a search engine, you say: I want all the data in there at hand. So let’s go pull the information from the online agencies, let’s go pull the information from suppliers who don’t participate in those online agencies, and there are quite a few of them.

And then let’s present that information to the consumer in an objective fashion. Let’s tell them as much information that’s there, from the supplier direct, who’s actually running the hotel or flying the airline, for many third parties like the GORPs and Frommers, from other people like them, other travelers and online reviewers. Show them all that, and then give them choice of where to actually complete the transaction.

So be that supplier-direct, which is a great way to book these days, or at online agencies, which is a great way to book as well, because they’re open 24/7 and they have great customer support, etc. But one of the things, I think you’ve seen the transition now. It’s over-hyped, to be sure. Brian, I agree with that. But it’s going to go — meta-search for comparison shopping for travel is going to go somewhere in the next 12-24 months. Because there’s a compelling need for it among consumers. They want comprehensiveness. They want ease of use, and they want high activity. It’s going to happen, and I think ultimately not only will consumers benefit, but suppliers will benefit, too.

Because I can remember when it was hard to book a ticket on aa.com or book a hotel room on Marriott.com. It’s not hard anymore. Matter of fact, sometimes you get the best deals there. Particularly with folks who have good control over their inventory like Marriott does, and some of the airlines do. You have better functionality. You can upgrade, you can check your seats, you get wireless check-in. You can dodge service fees, which grow by a dollar per ticket per year. And you can get mileage bonuses and loyalty points.

So the one thing that consumers don’t have today is an easy way to go search all the supplier sites directly, or all those online sites directly, so they’re going down this path of cross-shopping multiple sites. That’s going to get fixed in the next few years. And we certainly hope to be part of that mix.

Bill McGee: Steve, you raise an important issue that some people in the audience may not be aware of, and that is the relationship between sites such as Kayak and SideStep and Mobissimo and the suppliers. Because in many cases suppliers don’t want to be in those listings, and the question is really, for all three of you, for Beatrice and for Steve and Brian: Where are you in those discussions, in terms of trying to bring, to broaden the supplier base?

Beatrice Tarka: Maybe I will just take this question as well and come back to the display. I think being committed search engines, we are seeing a lot of different data. I will give just one simple example. We were talking here about the display bias. When we are looking at the data, the same hotel can be rated different star ratings, whether its at Marriott.com, Travelocity or Expedia or Orbitz. So we are talking here about very basic issues. The customer goes to the site, whether it’s just hotels.

Talking about the distance, who is going to ensure the objectivity of the information that is put on the Web site? Is the five miles objective information, or should we actually transfer to certain different technologies? Mobissimo has put a stake into a technology. We will say: We are not going to be judging information whether it’s a two-star hotels or five miles away from the beach. How about we couple with some technologies like satellite imaging, that could actually position the hotel exactly where it is? So you don’t have to break your head if one hotel is trying to bias you because they’re saying, “We are three blocks away from the beach,” and in fact they are pretty much a couple of miles away. Or whether they are really on the beach and you can actually see that.

So in terms of the display, there is a lot of things that are going to be happening in the next couple of months. You have already noticed a lot of technology breakthroughs. You said about the hotel site, you can now picture the hotel. Well, soon you will be able to actually walk through individual systems because of the real technologies that will allow us to play videos. So the experience will be much more comprehensive and enhanced for the customers.

And I think that in terms of the meta-search engines, we don’t have to worry so much about the bias in displays. There are different approaches among us. We have opted for having objective results which are in the middle and have the sponsored links — which is basically what Expedia has as a “Picks” or Travelocity has as “Best Use” or whatever. We are treating it as advertising and we are clearly marking it: This is actually a sponsored link. This has nothing to do with the objective results. because, in a way, it is sort of a marketing product.

To go back to the question that Bill had asked about collaboration with certain sites. I think that all three of us right now have adopted a policy of collaborating with the sites that want to collaborate with us. Some of us came into play earlier on, and sites that pioneered displays. And they had to brace themselves for the roots of suppliers who didn’t know what a meta-search engine is about and now to react to it, to be hostile, to try to turn it away, or adopt it.

Then there is the second generation, which is mostly the generation of Kayak and Mobissimo. We have come into a path where the Internet evolved a little bit, and some suppliers changed their minds. There was a little bit of a shift between intermediaries and the owners of the inventory as well in the recent years. In the past, the owners of the inventories, whether it’s the hotel owners themselves or the airlines themselves, used intermediaries or the third-party — for us we call them intermediaries, so sites like Expedia or Orbitz or Travelocity — to distribute their products. Right now they are actually, because of the decreasing margins, they are fighting to recapture this audience and bring them back directly to their own Web sites and try to distribute in this manner. And it’s not because they want to compete with their channels that they have created. It’s just a question of margins. And the margins are also dictated by the cost of the underlying technology, so GDSs, among others.

So we are seeing a lot of differences between different suppliers. Of course the airlines and the hotel owners now tend to work with the meta-search engines, because we help to bring the traffic directly to their cheapest channel. There is some sort of a controversy with the travel agencies, and I think that all three of them, they have a very different policy. I think that what happens today is that the big online travel agencies, they don’t know exactly how to adopt this new trend, whether to treat us as competitors or whether they should treat us as just yet another channel. We are positioning ourself as a marketing channel. Each of them, for the moment, is on the standby position, “Let’s wait and see what’s going to happen.” [INAUDIBLE] change is going to affect our market share, and thus we will have to react to it? Or are we taking a proactive position?

A company such as Intercontinental Hotels Group or certain airlines are much proactive in this respect. In a way, we did not receive any letters, just to note on our site. Very often it’s a question of collaboration. We talk to the sites and say, “Are you interested in collaborating with us? Of course we would love you to collaborate with us. We would like to get the right to search.” So we decoupled collaboration on the perspective of search from the monetary aspect, which we call the marketing or distribution piece.

We would like to get the customers in our suppliers to partner with us, whatever they want to pay or not at the beginning, because we have a marketing platform that we have developed with them. Sorry for taking so much time.

Bill McGee: Actually, Beatrice, you raised a very good point, by the way, about the issue of hotel star ratings. Because that’s something really confounded us when we looked at a comparative test of sites offering hotel products. Because one of the first things we saw is that the identical properties ranged as much as 2-2.5 stars from one site to another. And obviously, in further research, we found that they used different systems. But, again, just trying to get the nomenclature straight can be very daunting from a consumer perspective.

Tracey Weber: Bill, just a comment on what Beatrice had talked about. I think one of the concerns that we have in the industry right now is that there are two camps of players out there. One that’s focused very much on comparison shopping and price, and the other that’s looking more towards value and more information, star ratings, etc. And obviously there’s some gray area in between those. But I think that’s where we have a lot of concerns.

And, in fact, the data that you presented from the researcher that talked about what has happened to hotels at a macro level, because of the Internet, is precisely the commoditization that the Internet brought on. And I think that’s what we really, as an industry, need to think through. And the kinds of conversations I’m having right now with suppliers are about just that, is: Do we need to take this industry together one step further to commoditize it more? Look at where, look at any financial earnings reports from any of the, particularly the airlines, but even the other products in the industry. It’s a very difficult industry to make money in. It’s a good thing we didn’t shoot down the plane.

But I think that’s where we need to think more as an industry about how, what travel means to consumers. How to price it, how to deal w the transparency, and do we want to take it in a direction that makes it even more about price? Or do we want to focus on things like other information, value, packaging? The travel experience, travel advice, all of those factors, which are really important to consumers.

Bill McGee: You raise a great issue, because one of the challenges that we had when we first started this type of testing was, it was an easy decision for us to say: Well, we’re going to look at airlines. Because there was little argument that that’s the most commoditized aspect of the industry. And it was very simple to say: Well, we can say without question that this site had a better offering than that site.

When we started to go into cars, it got a little bit trickier. Hotels, much trickier. We’ve been struggling with trying to come up with a model for cruises and packages and haven’t really quite mastered that yet.

So I guess the question to put back to the panel is: Is the online travel industry, has it reached kind of a ceiling for now in terms of the capability of really handling, from a customer service standpoint, as Steve mentioned before, much more complicated products? If you talk to most cruise executives, for example, they actually discourage many customers from booking online in some cases. And in others, they would rather they go to a brick-and-mortar agency, or they would rather they use the Internet to look and not to book.

So I put it to the whole panel, if there’s anyone who wants to jump in here, about the next evolution of online travel. Are we getting there?

Shafiq Khan: I’ll give you my perspective. From our perspective, we think that, so far, we’ve been pretty black-and-white about online and offline. By and large, we’ve enabled online, but we haven’t really seamlessly integrated offline into the picture. That’s pretty much the case for the hotels I know. And to some degree even for the airlines.

I think the next stage is going to be much greater integration between online and offline. And in fact, one of the big benefits of online is the ability to search is so much better. But then the ability to transact may be a little bit more difficult to create. Let me give you an example. If you’re booking a trip, you’re going to a resort. You’re booking the room itself. You’re booking golf. You might be booking the spa, you might be booking theater tickets and so on and so forth. Online, it’s at this point very hard to make the transaction happen, but it’s very easy to make the information available.

So our view is that we will try to more and more integrate online with offline. In this particular case, online’s going to do the bulk of the work on the information piece fit. But at the transaction end, it would be part online. The room can be booked online. But perhaps the spa might not be. And so on and so forth. So I think you’re going to see more and more of that overall. And eventually I expect that every transaction we have will have an offline/online component. Be possible both online and offline.

Brian Barth: I think the way we look at it is, consumers are looking for value, not for price. I suspect you could have found, or the sites could have found, a hotel for $29. But there are probably not too many people who actually would want to stay there. The whole point is that what people are really trying to do is to make intelligent, value-based buying decisions. And we believe that good information is the antidote of commoditization. And that the more information you can give people, the better off.

We, for example, have been a participant in the Open Travel Alliance for four or five years now, and one of the things that we talked about at one of the car rental sessions at one point, which is that the only information you’re going to give back to them is that it’s a midsize car at the price, you are commoditizing. And you would have to reach out and tell them, every supplier, any company in business, outside of the travel industry, even, should have a reason why they’re in business. There’s some value that they think they bring in the world, and they should take the opportunity to try to tell that story. When you switch gears, though, and you say: Okay, great, this is our philosophy, this is what we want to do, our experience has been that it’s actually a lot more difficult to implement this than meets the eye.

And so you go to a hotel [INAUDIBLE] somewhere in various places and systems and whatnot, they may have some data. A lot of the time it turns out that it’s a fairly limited set of data that you can get over something like their Adpak link, and it’s actually not a very interesting set of data. And that what we have found is that there has been far more work in trying to help get and collect and present that rich information than it is actually to hook up so that you can constantly look.

And actually, at SideStep, since we’ve been at this for five years, that so much more of the work of our company has been around getting, working with the partners and getting out of funny, weird legacy systems. Some of them don’t even have a network hookup. Getting them onto a mag tape, or whatever it takes. And somehow finding a way to get this presented to consumers so they can make value-based decisions. And this is a hard problem, and hopefully one that we’ll be looking well beyond in the future. But today, this is still a big deal.

Bill McGee: I just wanted to reiterate, as we did this morning, that all of these sessions are meant to be interactive. So if anyone has any questions, please just make your way to either Tracy on this side, or Ariane on this side.

Kevin Kelly: Good afternoon. I’m Kevin Kelly with BestFares.com, and I just want to throw out a sort of three-pronged proposition that bias isn’t necessarily bad. We go to grocery stores and we get biased displays on end caps and product placement. I bought tires the other day, and I don’t know anything about tires, so I have to hope that the bias of the salesman at a dealership that I’ve gone to before was giving me a good deal on my tires.

There’s so much information out there, and the Web gives us so much information that I think what Cheryl said is very important. They have 10 years of research that may cause them to give a biased display. But it’s not necessarily Hotels.com’s bias; it’s the public that has given her the information, because these are the hotels that are converting the most. So she’s giving me information that is biased, but to my benefit, because the general public has gone back to these hotels over and over again and converted that sale. So I’m hoping that she gives me biased information, because there’s just too much out there for me to decide from.

I don’t know how other people feel about that, but the idea that bias is always negative, I don’t buy into. I want the experts, in some cases, to tell me.

Bill McGee: Okay, well, that raises several issues, and I think probably a couple of people want to join in. But, Cheryl, did you want to respond first.

Cheryl Rosner: Yeah, the one thing that I would add — and I was telling somebody about this earlier — I’ve been around long enough, probably the same as some of you guys have been. I’ve made every mistake that you can possibly make, I believe, on our Web site at one point or another.

One of the mistakes I made was selling slotting fees, or slots, and implementing slotting fees, which I thought was a really brilliant idea back in 2000. Because I was going to monetize some of our positions on the first page of our destinations. And that’s the ultimate in bias, and I was going to make the most money off of those slots. And that whole initiative, that took a lot of technology to develop back in those days, lasted for a total of a week. Because I had a whole bunch of hotels that paid me for positions in just about every market. Because, if you remember, also in those days, every hotel walked in and said, “I’d like a position above the fold, please, ma’am.” And what we found was, you can’t negatively bias in that way. The consumer’s just not going to buy a bad deal. And that’s what we kind of, we learned through that.

And that’s what started us. We had started down the path in 1999 with our previous Web site, and through where we are today. In really looking at every single hotel. How many impressions does it get? How well does it convert? How many times does a customer click on it? How many hotels do they click on in the display? How far do they go into the Web site? Are they on dial-up or are they on broadband?

So what we wind up, as Kevin said, is with a biased display, but it’s biased towards the consumer, not necessarily because there’s an override or because we’re getting paid more. And that’s really how it works. Because that’s ultimately how we make the most money, is by ensuring that our customers are converting on the Web site, and not leaving and going and looking for something else. And repeating.

I mean, we have today on the Web, we have, according to ComSquare, the highest conversion of users-to-hotel-bookers on the Web today in the hotel space. And from the standpoint of our repeat factor, we look at our repeat factor on a rolling 12-month basis. So it’s not like people have been with us since 1999. But we have an extremely high repeat factor as well. So it’s customers coming back time and time again, because they’re seeing what they want.

And we’re not — back to what we were talking about with what resonated for me earlier today — it’s not a one-size-fits-all. At Hotels.com, 70% of our customers drive to their hotel. So it’s not, when you develop your Web site and you’re putting out something there for the consumer, it’s not necessarily going to be the same thing on Travelocity. I’m sure you don’t have 70% of your customers that drive. Probably a few more of them fly. So you’re going to be showing something a little bit different to your customer than we will.

That, at the end of the day, I think is what wins the game, is to truly take your retail store, if you will, convert it into a marketing channel, and show the customer what they want. Make it as easy for them to book as possible based on the way they shop versus the way we think they should.

Bill McGee: We have some other thoughts on this, and I think someone in the back has been –

Al Comeaux: My question is different, so let everybody else finish on this particular note.

Bill McGee: Did you want to speak on this issue?

Brad Elbein: Yeah, I did. I’m Brad Elbein from the Federal Trade Commission, and what I say is not official, sanctioned by the FTC. Anything I say that’s outrageous is not sanctioned by the FTC.

I wanted to speak to the bias issue. Because what I heard Cheryl talk about, although you called it bias, it’s not bias; it’s experience. It’s consumer intelligence, it’s customer experience, whatever you want to call it. I don’t think, as a consumer, I object to that. As a consumer, I want to know how have your other customers fared.

But bias is when you tell me that XYZ Hotel is the best hotel for me because they have paid you to say that. That’s bias. That, in my opinion, is a problem for consumers. And that’s — when this gentleman in the audience said “Bias is not an issue,” it depends what your term is. If you’re only telling me information I can use, it’s not bias.

So there’s a question of some of you all provide “expert services.” You’ve ridden the trail in Italy that I want to ride; I want to talk to you. Is it rocky, is it hard? Are there places to drink beer? That’s different than bias. Bias is, you benefit –

[END OF TAPE]

Brad Elbein: But you’re entitled to know.

Bill McGee: Okay, I’m sorry. Shafiq was next.

Shafiq Khan: The first question I have is for Cheryl. How much did you pay the gentleman from BestFares?

Cheryl Rosner: He’s completely unbiased. Kevin Kelly [TALKOVER] bias, though. I think bias is not necessarily monetarily related. Yes, your bias, what you’re telling me based on being compensated to tell me that this hotel is better when it’s not. But if your information is biased because of the experience that you are getting or the feedback from your customers, then that’s a good bias.

Shafiq Khan: I think we’re confusing terms, though. I would go with the comment of the gentleman from the FTC.

Female Speaker: Of course.

Shafiq Khan: Bias is — yeah, but he knows the term “bias” better than any of us do, I’m sure. If you’re talking about a Consumer Reports Best Buy, I completely understand that. That’s a recommendation. It’s not bias. And it’s based on some objective measures, or even subjective measures that are revealed very clearly. Now, the issue is, that there is bias. There is bias, and actually I’m benefiting from that bias, because I’m paying for it. At the end of the day, bias is going to cost consumers, because any costs that I have to incur to create a favorable bias, or to actually negate unfavorable bias, is going to be passed on to the consumer. And I think from the consumer’s perspective, that is the single biggest issue. And I think we’ve got to address it, and we’ve got to accept it, and we’ve got to understand how we’re going to deal with it.

Brian Barth: I’ll just add a really quick comment, which is that it seems like this topic comes up so much at all of these different industry events. And at the risk of sounding kind of stupid, that issue about the saying that Eskimos have I don’t know how many words for “snow” or something. And here we are, and Dallas is a bad place to — maybe they don’t have any words for snow. But we’re just kind of using this term broadly. We always get hung up on it. Maybe one of the things to do is to really try to understand it. If you think about it for a little bit, there’s all kinds of situations that I think you can — it’s unclear even whether they are biased.

Like, for example, if somebody says: I want to fly — I don’t know — from Boston to Miami, and you’re showing flights through L.A., is the bias? I’m not even sure some of the questions you know the answers to. Or one that’s even perhaps, the difference between sort of the searches, the agency model. Let’s suppose, say, JetBlue wants to play in SideStep’s model of a search model, a lead generation model, but they don’t want to play in an agency model. Is that bias? I don’t even know what, in good conscience, I’m not sure. Maybe we do to sort of fine slice the ideas here and build a better vocabulary or language for talking about what this really is all about.

Tracey Weber: Brian, I think you’re right, because it goes back to your direct comment, on direct flights. Because at the end of the day, when we call something — Travelocity does “Deals” or “Expedia Picks,” or “Hotels.com Picks,” or whatever everybody calls them — unless you’re transparent about what that mean, someone will believe it’s a bias. We can say all day long: It’s based on consumer information, which is our customer experience and whatever. But at the end of the day, what we talked about earlier in the research, is there was an assumption that it was bias, because of the language that we use. And I think the point of, and I think it was a point you made earlier today, Bill, which was just to be transparent about what you put out there, will determine whether the customer thinks “That’ll be good for me, because other customers have also purchased it”? Or “That’s a bias that I don’t want to live with.”

Bill McGee: Right. Clearly Southwest [Airlines], for example, has done very well by biasing their Web site towards Southwest products.

Brian Barth: A couple of other comments on bias. I actually tend to think of it as merchandising. I hate to be in the role of defending agencies in some way. But it’s true, you’re actually just merchandising your Web site, and it’s an alchemy of what you can sell. So you don’t have to [INAUDIBLE] on your airline database, and you can’t sell Southwest, so what you can sell, what you want to sell. So you want to sell the stuff you’re getting paid the most for, and then what you think will sell. What will people buy? If they’re going to do a two-star hotel search, you don’t show them the Four Seasons, even though the Four Seasons may pay you the most. So it’s that alchemy of those three elements.

And I think what — going back to what differentiates a search model from an agency model is, again, on the comprehensiveness side, you will show everything you can find. Because you don’t care about selling. You don’t have a point of view, Marriott versus Hilton, American versus JetBlue or Southwest. If you can show it, you show it. And on the sell side, you don’t have a point of view on what they buy; you don’t get paid that way. And on the shopping side, let them shop to their hearts’ content. Because, again, you don’t care if the transaction happens, which is very different from these other Web sites.

What’s empowering about that is, you can give the consumer very rich sorting and navigation tools, so you can actually say, “Play around with different airports and see the impact on fare. Play around with different airlines, different stops, time windows, etc. Spend as much time as you want searching to find what’s right for you.”

Whereas the name of the game with the online agencies is, get you from the front door to the back door of the transaction in as few clicks as possible. So it’s a very different mindset.

And then the last piece that differentiates search from an online agency is the freedom to link to third-party sites. And all they need to see is, frankly, a dead-end. You go there, the information you see is the information they want you to see. If you go to a search engine, we’re brave enough to show links to third-party sites. So if you want to see what the rating is from Marriott.com, we’ll take you to Marriott.com to see what the rating is. Maybe you come back, maybe you don’t. Frankly, that’s the bet we’re making.

Kurt Weinsheimer: I think that we also need to look at this in a little bit more comprehensive manner. When we look at travel and the service that we provide, we’re providing a total travel service. To us, we definitely want the search experience to be as good as it possibly can and as broad as it possibly can. We show 550 airlines and we can get you pretty much from Point A to Point B in hundreds of different ways. So you can look at all the different options that are out there.

Tracey Weber, Travelocity (l) and Kurt Weinsheimer, Orbitz (r) at WebWatch's 2005 Travel Conference

Our job is to try to help to filter through all that information and find the right experience for you. That is a really, really hard thing to do, and it’s something that all these companies have spent tens of hundreds of millions of dollars to make the experience better.

And I think also, one of the advantages that we do have over time is that we also service that customer as they’re going through the travel experience. We’re also serving that customer if they have a problem. We hear back, both from the customer, and we know quite often from the hotel if there was a problem. That information goes back into the system, and therefore the next time we’re better able to serve the consumer. The next person that comes to look for a hotel in Chicago or New York or Boston, we’ve got more data for that customer to benefit from.

And so that circle of the travel experience at Orbitz is critical to our long-term success and the benefit that we’re able to offer. So I think we need to look at the total value that we are providing in the experience standpoint. That’s critical to us, and we think it’s critical to our long-term loyalty.