For everyone else I’ll make plain my starting point. I consider myself an evolutionary economist. To put that in perspective, I have a ‘c’ grade at economics A-level. It was a double lesson before lunch and I spent my time drawing my lunch rather than listening to Dr. Wigley and the specifics of micro-economic theory. I remember a couple of useful things such as the latin term ‘ceteris paribus’ – all other things being equal.

After I left school and distanced myself from the stultifying boredom of the classroom, I taught myself evolution and almost everything else I’ve understood subsequently fits into that. The free market, for example. Make everything possible and see how it develops. Any restrictions you impose will constrain growth.

And that’s my principle argument against price parity. It’s an artificial construct. We don’t have anywhere in nature where all things are equal by diktat.

Some proponents of price parity argue that it’s a natural evolution. They never quite spell it out but I infer from that they mean under perfect competition there will be a tendency towards equal pricing. If Asda sees that Tesco is selling Sunpat Crunchy Peanut Butter for for £1.49 and they know Stan from Peckam Rye is aware of that then, ceteris paribus, Asda will price at £1.48. I like nice simple arguments and that’s nice and simple.

My arguments against that idea are 3-fold, namely:

1. Perfect competition doesn’t exist

I fully accept that 20 years ago it was merely a textbook construct and that the internet has changed that. It is theoretically possible, now or in the near future, for companies to know their competitors prices and to price accordingly.

But that’s a very long way from perfect competition. The competitor’s cost structure is also a component. Even that might be public knowledge at some point in the distant future (I’m all for that) but then there’s personal choice. Consumer behavior. Stan cares more about the natural affinity he has with Tesco by virtue of the fact that his surname is Tasco than the 1 pence he’d save as Asda. It turns out that factor alone is worth up to 7% on every purchase. Who’d have thought it?!

2. We’ve tried it.

We used to have perfect competition in a sense. Back in the 80s it didn’t matter which bookshop you went to in the U.K. because they all sold the same books at the same price. In the 90s the competition authorities thought that was a rather daft idea and abolished it. Now you can even buy 3 books for the price of 2. It’s gone crazy.

We also tried it in Soviet Russia. Big Time. We simplified everything to just one store. None of this looney price comparison nonsense. The consumer bought what they could at a price they could afford and the seller sold at a price it could afford. It was grey but perfect.

3. Let it be.

If there really is a natural tendency towards price parity then let it happen. You don’t need to contract it and enforce it.

I can well believe it will happen but I have no idea what it will look like except that it’s very unlikely to be a static because nature doesn’t do static. Maybe there will involve two very closely contested companies. Maybe twenty or two hundred. Or maybe there will be a dynamic equilibrium, like the tides and the seashore, with gentle price swings one way or another or massive price swings like our own economies.

The point is, I don’t know. It’s entirely possible that I slept through that lesson in which case I do apologise, Mr. Wigley, it’s just when I’m hungry my mind goes to jelly. If anyone else was listening that day or, indeed, you’ve heard anything to the contrary since then, please speak now.

That just leaves me to thank God for Evolution. I want you to know that I’m with You every step of the way. Ceteris Paribus.

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I promise you I’ll change the record soon. I think that everything useful that can be said about rate parity has been said already and it’s now time to let the competition bureaus decide its fate.

I’m only adding this post as a bookmark to look back on when everything is resolved as a reminder of just how insane this whole business got.

The attachment is a PDF of a power-point presentation given by some industry consultant (also a business graduate and surfer but certainly not a ‘dude’) at a conference last year. I found it on Google.

Wilhelm has a real good time

If there’s anything more tedious than consultants it’s power-point presentations but fortunately we don’t have to listen to this one and it’s quite fun adding your own voice-over. The presenter has also aided us by casting me as Stan from Southpark (mysteriously, he’s characterised his clients as the hapless Kenny who gets gratuitously killed at the end of every episode) along with other colourful annotations and typos.

It’s far too long – these things always are – so skip to page 33 where Wilhelm asks the now catatonic audience whether or not it’s okay to fix prices. I know we know the answer to that already but maybe Willie skipped that lesson in his degree.

If you haven’t got time to read it, here’s the spoiler: rate parity assists hotels raise GOP by 4%.

So, there you have it – if you’re anxious about your falling GOP levels you now know how to fix them. You simply flout competition law and fix prices between you. I’ve just saved you 4 years in business school plus an hour of intense boredom. I should have been a consultant.

Dorian

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That certainly got the attention of the press but riled some people in the hotel industry and sparked some direct personal confrontations. An industry ‘expert’ Tweeted me (directly, not publicly) to say: feel sorry for you that you have to bother the whole world with your companies challenges… never seen such a paranoid person in my life…

You could argue that his inclusion of so many full stops was rather decadent in the world of the micro blog but it did make it all the more engaging I felt. It also made me wonder what he would have written if he’d had more than 140 characters in his arsenal. Perhaps he would have taken me out with some well aimed bullet points.

In the meantime I’ve been getting a lot of support for my paranoid campaign. The Telegraph picked up on the fact that the Office of Fair Trading had raised the stakes to an ‘administrative priority’ (those are stark words in official circles) and sent a top journalist, Holly Watt, to interview me.

I looked Holly up before she visited and saw that she’s a rising star in the world of journalism not least of all because of her involvement in the expose of the MPs’ expense claims. So I knew the Telegraph saw something big in this story.

Holly was hungover on the day yet surprisingly sharp and she finished most of my sentences for me. I liked that. I can’t exactly remember what we discussed but I sent her a barrage of emails following up on the meeting asking her to pitch the story as a changing competition law per se or something equally esoteric. She ignored me I’m pleased to say.

That story does exist but it’s best kept to the Global Competition Review or some such nerdy publication (I hope that didn’t cost me my free subscription!) and Holly went instead with the consumer angle. Again, I can’t remember the details but it was front page news with the headline ‘Hotels face enquiry in price-fixing scandal’. By the time I’d bought my copy at 7am there were already more than 180 irate comments on the Telegraph’s website opening up the discussion which is as much as I could have ever hoped for. I don’t know how these things work but I hope Holly gets a bonus for her efforts. Or at least some Aspirin.

The Daily Mail also picked up on the story from the Telegraph and it went from there across the Web. It mutated somewhat and the story became that three hotel chains in particular were being investigated by the O.F.T. That was sloppy journalism but it did reveal some interesting sentiments from the chains themselves. Most notable was Radisson Edwardian which put out the following public statement:

“We are not involved in any collusion with any organization to set a price on room rates for any of our hotels and go to great lengths to ensure that there consistency across all booking channels for our clients.”

How they didn’t realise that they’d just spelt out the dictionary definition of anti-competitive behaviour I do not know. But they’re not alone and there exists a strident defence of rate parity in some quarters. And not just from nitwits I must say. Some people have forwarded reasonably erudite if flawed arguments.

Oh, and the BBC came for a television interview. It turns out their producers can’t get enough of my pensive look. I confess I’ve been practising it more or less daily since I was last on the telly and I think I’ve pretty much nailed it. I got the chance to show it off with Brighton’s seafront and the old pier as my backdrop. And I tucked my shirt in this time. Mum would have been proud.

Media-wise the story seems to have taken on a life of its own and I no longer have to contact the press. If I’d been really savvy I would have arranged a fly on the wall documentary of the whole thing. You’d have got to see Gina wading through her fifth bowl of chocolate covered Cheerios at her desk and the Mark’s failed attempts to grow the office Bonsai. It’s really that exciting at Skoosh HQ. Next time.

The case goes on.

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It’s about talking with people, not down to them.

The internet, specifically the ecommerce side of it, has been around for 15 years or so now. It’s as exciting as Hell and yet strangely stagnant. We were promised a revolution when we moved across to Web 2.0 but that didn’t happen and for good reason I believe. The clue was in the name. Web 2.0 was a marketing term and as long as we think in terms of marketing we’re stuck in Web 1.0.

For those of you not in marketing, Web 2.0 is this. It is the transition by ecommerce sites – online shops – from talking at you to talking with you. Decades of advertising on top of centuries of education have made us comfortable with being told what to do. ‘Click here’, ‘Eat This’. It’s a veritable Alice in Wonderland just without the magic.

The magic does exist online though. Social networking sites have it, even patriarchal corporations like Facebook. Here you can see photos of your friend’s very ill thought out fancy dress costume they wore at a party you didn’t manage to get to. And you can tell other people about it. As people, rather than consumers, that’s what we like to do.

Facebook is different of course. There are no customers. Ditto Twitter. It’s just us talking to us. To translate that sort of communication to commercial websites we need to make a big shift in our thinking away from what can we tell our customers and towards what we can chat to our friends about. In other words businesses need to start thinking like friends rather than marketing execs. They need to start socialising.

‘Like’ on Facebook was very clever in that sense. At a glance it could be an instruction but it’s ambiguous and is more likely, in connection to a social networking site, to be a question to yourself – ‘Do I like this’? whereas the language of ecommerce is still typically full of instructions. ‘Book now’!’.

Expedia (I’m not picking on a competitor – their site is more influential than Skoosh) has a spider trail leading to their Las Vegas Deals section as follows:

Expedia.com > Deals and Offers > Six Deals we Love > Las Vegas

Okay, it’s no hard sell and with ‘Love’ they’ve certainly bought into the language of the age of sharing. But it’s still coming from them. It starts with ‘Expedia.com’, not even just ‘Expedia’. It’s their store. ‘Deals and Offers’ is fair enough if a bit dull and prosaic (I’m not having a go at them, their site is important in this industry, did I mention that before?). The questionable bit is ‘six deals we love’. Again, as if you weren’t quite sure, you’re back in their store. Someone working at Expedia has found me six deals I’m going to love. I don’t think so. I wasn’t even planning to go to Vegas.

This looks very different when it comes from a friend. Someone whose values I share is inviting me to stay in a villa in Portugal. Interesting – what a great place to catch up and I haven’t been to Portugal for years. Count me in.

Expedia isn’t your friend (I’m not saying anything) so how are they going to sell you a villa in Portugal in anything like the same way? Well, what they’ll do is start thinking like your friend. Your friend hasn’t recommended anything to you this time but you can them. So, on Expedia, you put together 6 great looking deals and post them on your Facebook page: ‘6 deals I love’. It doesn’t even have to be so gushing, the point is that your friends (let’s say mine) are going to say ‘Blimey, Dorian’s bothered putting together 6 amazing travel deals, I’ve got to see this’. They then click through to Expedia and see ‘6 deals chosen by Dorian’. Five friends ‘Like’ the pastel yellow house overlooking Lake Como. That’s where I’ll be staying.

This sort of thing isn’t offered by the commercial Goliaths. The big companies in the travel industry have lacked innovation and there’s precious little brand engagement to be seen. Sure, Expedia has a huge market but it is supported by immense advertising. I don’t think I’ve ever heard any one say I only go to Expedia. But why not? They sell everything and they guarantee the best prices. In reality, there’s no point to going price comparison sites to get to Expedia but people still do because Expedia doesn’t let you talk. Less so Ebookers, Opodo and Travelocity. They’re all about talking at you.

The reality behind Web 2.0 is that people engage in sites not necessarily because they identify with the companies behind them but because when they’re on there they can do the things they want to do and one thing they always like doing – one this we always like doing – is talking to each other. If you give them the opportunity to talk about your online store with their friends they will.

Better, Pete?

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Happy New Year. No doubt you’ve come up with another blinder. Sorry, probably not a great word to choose but you know what I mean.

First, just to say I think everything you’ve done to date has been great. I know a lot of people get upset by famine, disease, wisdom teeth and whathaveyou but I think I understand your logic behind that (thanks for my Geography degree by the way – really useful!).

Listen, I know you’re busy so I’ll cut to the chase. With the greatest respect it has occurred to me that perhaps we don’t need January any more. Maybe up North and perhaps in the Southern hemisphere (good work there too – love the mangos!) but, in Southern England, I’m wondering if we could have 2 Mays or 2 Julys instead. I think it would mean a lot more happy people, better energy and karma and so on, to share around.

It’s only an idea and please believe me I’m not questioning your Divine Logic. If it’s necessary to keep things as they are that’s fine. If not, give me the nod (or similar) and I’ll set the wheels in motion.

If there’s anything I can do in return, just let me know. I promise I’ll return that library book first thing on Monday, I won’t read the Daily Mail and I’ll continue to buy the Big Issue.

Once again, thanks for everything.

Cheers,

Dorian

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So, we were discussing where to go next with our plans for the hotel industry. Looking back, we’ve made good progress. We started low-key, just filching a few chocolate croissants in our serviettes at breakfast. Then we had a bit of a fumble with the chamber-maids in the laundry room which was fun if a bit gratuitous (not you Olga, you’re special!). And then we implemented rate parity to completely pervert the market and take away pricing and distribution potential from the hotels. What next?

A few Bourbons later and we got it. Wait until the economic downturn leaves a few chains limping behind the rest of the herd and then pounce on them. Maybe start with a couple of fawns and then work over the extended family.

In this week’s New York Times, in an article entitled ‘After a Rough Night, Hotel Investors Are Waking Up’, we see that ‘Blackstone teamed up with two other private equity players in May to acquire the Extended Stay hotel chain out of bankruptcy court’. Tasty and a good side-dish for the company’s earlier acquisition of Hilton. And the outlook is equally good. It seems there is no shortage of chains weighed down by heavy debt.

Commenting for the New York Times, Ted Mandigo, a hospitality consultant, says many targets look ripe. “It’s a matter of getting in there early and trying to beat the bidding war,” he says.

If the going remains good we might just have enough hotels in each city to enable us to set the prices ourselves. The Holy Grail is coming our way.

It seems that the plan is coming together nicely. All we need to do now is keep out of the sights of the competition-bureau gamekeepers and that pesky self-righteous evangelist over in England. Maybe we should duck back into the laundry room. Olga, where are you sweetheart?

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After my slight debacle in Budapest recently when two fine ladies relieved me of near enough £700 the night before I spoke at the Hotrec conference (I’ll save that for the book), I took a rather more cautious approach in Amsterdam and left the party early (thank you again, Pieter). I was fully expecting an intense grilling from the opposition in the Lion’s Den. It didn’t happen.

On the contrary, the audience response to my telling them rate parity is tantamount to price fixing appeared to be very measured.

The event was a great insight for me into the role of the revenue manager. I thought these guys made sure that coins and notes were kept separate and closely guarded the swear-box. Far from it. It turns out that revenue management is nothing short of a science.

I’ve been to arcane conferences before on such topics as vertical restraints in competition law and neurolinguistic programming but never have I felt so out of my depth. It was largely incomprehensible to me. There were more three-letter-abbreviations (they call them TLA’s) than I could decipher in a life-time. I’ve got a better grasp on morse-code.

On that basis, I imagined that the feedback to my talk on rate parity / price fixing would be couched in detailed mathematical analysis but it wasn’t. It turns out these same revenue gurus are also online shoppers and that the part of my talk which engaged them was the fact that rate parity makes for a really dull shopping experience. It practically kills it.

We all love shopping for a bargain – it’s at the very core of commerce – and if you take that away all you have left is loads of big brands spending vast amounts of money trying to draw you away from their competitors generic offering to their own.

So the talk was well received. Meanwhile, I was disappointed that my arch-rivals Booking.com weren’t there. It is their home town after all and I thought it would be fun to catch up with them for a beer and a schmoek. Perhaps they were too busy nicking lunch money off the local school kids (that’s a joke of course! – Dutch kids have their lunches paid for by the state).

I thought the event was a qualified success overall. I didn’t get side-tracked by beautiful faux-tourists offering to show me their city in return for my salary, I responsibly left the party at the right time and I didn’t get mauled in the den.

Result!

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Until recently Kayak was the model travel comparison site. As far as I could see, all the other underlings modelled themselves on Kayak. It has a broad range of suppliers and excellent functionality only challenged by SideStep which it went on to buy.

So, what on earth is going on with the price comparison site? No sooner than it announces a proposed IPO then we find that Orbitz is calling for arbitration over Kayak’s failure to properly document payments owed to the company.

Even if that wasn’t acceptable under usual business terms what makes it particularly strange is that Kayak’s founders and management team are closely connected to Orbitz. Indeed, Kayak’s CEO was a co-founder of Orbitz and Orbitz accounted for 18.8% of total revenues for the nine months ended September 30, 2010.

Now Kayak is wrangling both with its own commercial partners and pushing for an investigation into Google’s I.T.A. acquisition which it clearly feels is a tangible threat to its business further down the line.

Whilst it makes sense for Kayak to get out of the water before it hits the rapids (please excuse the extended and obvious metaphor) this is clearly not the right time. The smart money must be on its smaller competitors Trivago, Momondo and Hotelscombined.

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Now that you have formally disconnected us from your price comparison site I’d like to discuss with you some issues relating to our past cooperation.

As you’re most likely aware, we’ve been working with Kayak for 5 years now. I realise Skoosh is not your largest client but at something like $1m advertising spend on your site per year, we’re perhaps one of the larger independent companies on there.

The business from Kayak was good for us which of course it means that it was good for a lot of Kayak visitors. Thousands of them have booked hotels on Skoosh via Kayak every month for years. Obviously, that’s because we had the best prices on there on those occasions. Indeed, there are endless posts online from customers sharing details of the amazing price they found on Skoosh via Kayak.

I’m not going to pretend this commercial separation came as a complete surprise to me. We’ve had plenty of correspondence over the years from your staff telling us that Kayak is a puppet of Orbitz and that to succeed on Kayak we’d have to ‘play the Orbitz game’. I guess we never quite knew what that meant but we knew our days on there were numbered. For all that, I still don’t understand why cutting off an independent company is a good commercial decision for you.

I see that you’re planning to grow in Europe and yesterday I read about your forthcoming I.P.O. I realise your future doesn’t depend on Skoosh but I don’t see how you can compete effectively as a price comparison site when you only have a handful of companies listed on your site and they’re all enforcing price parity. What’s the point of a price comparison site if all the suppliers are offering the same rate?

There’s no urgency but I would ask you to reconsider your position in light of the above or at least explain in more detail your reasons for wanting to cut ties with Skoosh. We’ve had no replies to our calls and emails since you notified us of the termination.

I look forward to hearing from you.

Cheers,

Dorian Harris
Director

p.s. In the interests of transparency I have enclosed a copy of this letter on my blog

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Greetings from Brighton, England.

I took a concern to the U.S.D.O.J. earlier this year relating to resale price maintenance and various other vertical agreements which plague the hotel industry. It won’t surprise you to hear that I was all but brushed off with a defence linked to the Leegin ruling.

I had no legal or economic background to speak of but even at the time I couldn’t understand how a case of such apparent minor significance (Leegin) could preclude a review of the hotel industry, especially with all the supporting evidence I offered. I made a few further attempts to persuade the department that the hotel industry merits individual investigation but left the matter when the O.F.T. here in the U.K. took the case on.

It was therefore with great interest that I read yesterday in the Wall Street Journal about the Federal Trade Commission taking a renewed interest in the Leegin Case.

On the same day, the Dallas Morning News wrote up the first analysis of the vertical arrangements in the hotel industry. Without going into too much detail at this stage, the concern within the hotel industry is that both hotel chains and online travel agents (Expedia, Sabre and others) contractually oblige their distributors and suppliers respectively to observe rate parity. In other words all distributors of hotel accommodation must now sell rooms at exactly the same rate.

Skoosh doesn’t even have a direct contract with hotels and we’re still forced to obey rate parity. If we don’t the hotels go to our suppliers and demand that they cut us off. Our New York based wholesale supplier, AlliedTpro, has entirely cut supply to us leaving us with the parting words:

‘Trust me I would welcome the additional business but cannot risk our contracts with Hilton’

Sean

I couldn’t convince the U.S.D.O.J. that this practice is significant enough to make some sort of investigation but early comments beneath the article in the Dallas paper show that the American consumers are concerned about the situation as well they may be. Although rate parity is beginning to flood Europe it is already firmly entrenched in the U.S. hotel market.

I don’t know if it makes sense for the U.S. to investigate this possible contravention of competition law separately or in conjunction with the O.F.T. Either way, I want to bring it to your attention now that I understand you’re looking into the practice of resale price maintenance again.

Should you required further detailed information I’d be happy to assist, although of course the O.F.T. has all the relevant documentation on the matter.

Yours sincerely,

Dorian Harris
Director

p.s. In the interests of transparency I have posted a copy of this email on my blog.

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