There was a time when Amazon was simply an online book purchasing service, but its expansion and innovation has continued apace, with the development of its hotel service in recent months representing a significant departure from the norm. Attention was first drawn to Amazon’s plans last November, when Skift reported that it was planning to develop new business partnerships with hotels using an innovative business model. The traditional way in which companies like Amazon works for its other products – or how hotel sites like Booking.com operate – is to take a large cut of any bookings made online.
However, Amazon’s new contract has taken a different approach, taking a 15 per cent commission and making payments to the hotel for the pre-booked rooms. It has specifically targeted the segment of the market represented by small, independent hotels rather than the big chains and brands, with the rooms being sold at standard rates, rather than the heavy discounting that has characterised the previous Amazon hotel offerings. By doing so, it is evident that Amazon is seeking to compete with the likes of Booking.com not by trying to match its rivals, but blindsiding them with a set of different offerings. One of the big advantages it may bring is the appeal it has for smaller independent hotels, whose margins are squeezed far less by the new Amazon service than by the model of heavy discounting. Among those happy to jump on board with Amazon was Mike Taylor, the general manager of the Ocean Place Resort & Spa in Long Branch, New Jersey. He reasoned: “They are pretty good at selling other stuff so why not hotels,” although he also noted that while the hotel does not want to be “left behind”, it is not tying itself entirely to the Amazon mast. Instead, Mr Taylor noted, the hotel is also using Expedia and Booking.com. The question many will ask is just how far the new Amazon business model can go.
The chief executive of Expedia Dara Khosrowshahi responded to last November’s news by telling Skift she welcomed the entry of Amazon to the fray, but suggested it has a long way to go. It remains to be seen whether this is simply a new experiment by Amazon, or a business model that will prove a long term success for it and its partner hotels. If it does bear fruit, however, it may have a significantly disruptive impact on the way online hotel bookings are carried out in future.
