Open Letter to Steve Hafner, C.E.O. Kayak.com

Hi Steve,

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

You can leave a response, or trackback from your own site.

7 Responses to “Open Letter to Steve Hafner, C.E.O. Kayak.com”

  1. […] the open letter to Kayak CEO Steve Hafner, Harris says: “I see that you’re planning to grow in Europe and yesterday I read about your […]

  2. Jim says:

    Hi Dorian,
    I’ve been in the hotel industry and specifically the wholesale/FIT segment for over 5 years now (obviously not as much experience as you but I feel like I can say I am more than familar with the industry).
    First off I want to say, although I completely disagree with your stance regarding “rate parity” in the hotel industry being price fixing, I admire you for your tenacity and drive to fight for what you believe in. Also I looked over your other blogs and just want to say (incase anyone else reads this) that skoosh is in no way a “scam”. Just because there may be a few reservations issues now and then does not mean there are not also hundreds or maybe thousands of other reservations that go off without a hitch everyday. Look at Toyota, they had all kinds of product malfunctions earlier this year, you don’t see anyone calling them a scam???

    Anyway I just want to put my point out there as a counter argument to the price fixing debate. I think hotels should defiantly have the right to control how their product is sold. Here are two arguments as to why ‘rate parity’ is not price fixing.

    You say (on the BBC interview) that once a wholesale buys a room from a hotel they should have the ability to resell that room at whatever rate they like, I’m paraphrasing of course. Well in all actuality the wholesaler has not bought that room, they’re only distributing that room as a third party. If I go out and BUY 100 pairs of jeans from Levis, then yes I should be able to resell those jeans at whatever price I want; once I bought them they are now my property and can do with them as I please. Hotel rooms are different. The wholesaler is not buying the room and reselling it, they’re only distributing it at the agreed upon rate at terms between the two parties.

    Secondly pricing fixing, I believe, was meant to stop competitors from teaming together to sell their similar products at the same price point; this is not the case here. If the Hilton and the Westin get together and both agree that they will sell their hotel rooms at the same price, over the same dates, in the same city, then yes that is price fixing. But that is not what is happening here. In this case we are talking about the individual “manufactures” setting the price of their own product. For example if AA and Delta were to be the only two airlines flying into Kansas City and they got together and said “lets both sell all fights from NYC into Kansas City for $5,000 round trip and everyone will have to buy them anyway if they want to go there” than that is price fixing. But if Delta says “My flight from NYC to Kansas City is selling for $300 and anyone that wants to sell into that flight on my behalf has to sell it at least at that same price” than that is just good business. Why shouldn’t Delta be able to build loyalty to their customers? And they only way they can do that is to assure them that if they buy from direct they will not find a lower rate somewhere else.

    Like you have said in your other blogs, I also am not a lawyer. This is just how I feel. I hope it all made sense, I’d love to hear you feedback.

  3. Dorian says:

    Thank you for your thoughtful comments. It’s so much easier to discuss these issues when you’re not being attacked. I take on all your points and, frankly, if I hadn’t gotten so deeply involved in all this, that would have been my stance I reckon.

    When people think of price fixing they typically think in terms of exactly the type of scenario you mention above – two direct competitors (secretly) agreeing rates. In legal terms that’s horizontal price fixing and an absolute no-no.

    However, there is a second type of price fixing which operates at the vertical level known as ‘resale price maintenance’ (RPM). In other words, companies at different levels of the supply chain agreeing price and distribution strategies between them. Many competition bureaus around the world have separate departments to investigate either horizontal or vertical arrangements between companies.

    Resale price maintenance is rather more ambiguous in terms of its negative effects than horizontal collusion. Nevertheless, it is highly frowned upon by competition bureaus because it is also deemed inherently anti-competitive. Strangely, a single case (Leegin) in the U.S. a few years back led the U.S. authorities to take a more cautionary approach to intervention at the vertical level and was arguably responsible for the huge resurgence of the practise of RPM. However, certain sectors have realised that now and are looking to have the law redefined.

    So, why is it so bad? Well, in the case of the hotel industry, it means that hotels take back control of their pricing but their distributors lose control, at least initially. It means that companies distributing hotels no longer compete against each other on price. They can increase their market share through more aggressive (and expensive) advertising and marketing but they lose the possibility of increasing sales by cutting into their own margins.

    The uncertainly of not knowing what their competitors were selling at meant that the likes of Expedia and Orbitz would have to keep a keen eye on each other and continually play around with their margins to take business from each other. They also had to keep an eye on small independents like Skoosh which, with lower distribution costs, can nip away at the low hanging fruit. It makes for a highly competitive market place. That’s great for the consumer of course.

    With rate parity, that can’t happen. There’s no competition between distributors on price. You may say that the competition will still exist but at an inter-brand level effected by the hotels themselves. To use your example, Hilton and Westin in Miami will focus on each other’s rates and lower them until they have enough business respectively. Again, good for the consumer. The question is, will the market be as competitive this way as it is with the distributors competing directly against each other?

    I don’t know. No-one does. I do know that there are decades of legislation mediating against this sort of industrial structure so anyone wishing to reverse the accepted norm of commerce should present their case to the competition authorities before proceeding with what could be an industrial disaster. Understandably no-one does that and instead industries get to the point where one or more parties lobby the competition authorities for a review. That’s where we’re up to now of course.

    I am nothing short of intrigued to hear what the hotel industry comes back with as evidence that this new model is economically sound. If it gets through, it will unquestionably send a message out to everyone in business that rate parity is legally accepted and we can expect to see it deployed across many other products and services. We will move towards a sales environment in which most if not all products and services will be the same price irrespective of where you buy them. Can you picture that?

    Beyond that, there’s another significant issue here in that it’s not just the hoteliers calling for rate parity. Indeed, whether or not they want parity is now academic because it is forced on them by their O.T.A. ‘partners’. Choice hotels tried to break out of it last year leading to a month stand-off with Expedia. Choice eventually capitulated. I have plenty of emails from hotel chains telling me that they have no option but to adhere to rate parity for fear of exclusion from O.T.A. websites.

    Note, in that article, Expedia C.E.O. states that it’s not about economics, it’s about guaranteeing the best rate for their customers. But it is very much about economics of course. Rate parity is profoundly an economic issue. It changes everything.

    I’ve heard time and again O.T.A.s arguing that rate parity is optional in the sense that the hotel can decide whether to work with them or not. I find that a specious line of defence. The nature of rate parity means that a hotelier can’t employ it selectively. If they adopt it for one company they have to adopt it for all. They can turn around to Booking.com and tell them to walk but they can’t say that to Booking.com and Expedia and Sabre and Priceline and Orbitz. That would leave them high and dry. Yet all O.T.A.s are demanding rate parity.

    The other online channel hoteliers have at their disposal for shifting excess ‘stock’ is the opaque one. Apart from it’s essential peculiarities (where else in commerce do we buy things without knowing what they are until we’ve paid for them?) it’s also interesting to see who controls this market namely: Expedia (Hotwire), Priceline and Sabre (Travelocity). Whilst there are no actual barriers to entry, it’s such a perverse concept to sell sell something sight unseen with no possible refund, it takes trust in a big established brand to induce a customer to purchase. I wish the best of luck to any start-up which wants to give it a go. Knowing that your competitors control the top and bottom ends of the market (there is, indeed, no middle now) is not likely to attract much in the may of new entrants.

    So, who is really running the show then under rate parity? Have hotels really taken back control of their pricing and distribution? It doesn’t look that way to me. After decades of being bullied by wholesalers and then O.T.A.s it came as no surprise to me that they’d want to have a go at this themselves. The relatively low cost of online distribution must have seemed very appealing and, indeed, hoteliers most likely have increased their direct business that way. I would say, if they could cut out their distribution partners and get all their business direct they should do it. No-one would blame them trying. However, as marketing hotels online is a huge and complex business they still need distribution partners and conventional wisdom says that you should give your distributors the freedom and flexibility to compete against each other on price.

    For all that lengthy diatribe, I remain totally open to a contrary view.

    Cheers,

    Dorian

  4. Dorian, for a few months now I’ve been admiring what must be described as your ebullience in confronting some of the leading issues surrounding the online distribution of hotel stock in today’s marketplace. Any long-standing business partner deserves the courtesy of discourse and explanation as to why things change. Whilst at travelsupermarket, I quickly learnt that when we made changes, when not explained nor debated in advance with our partners, there would inevitably be a breakdown in communication and occasionally resentment. In your scenario above, I raise an eyebrow as it would have been appropriate and reasonable to expect that Kayak would enter into such discourse in advance with you, and I hope that, belatedly, this takes place.

  5. Gianni says:

    Hi Dorian
    I totally support your battle against rate parity:
    What is the sense of a website like trivago or kayak if all the rate will be the same??
    Maybe that an indipendent hotel will have to pay 60% to booking.com or expedia or orbitz??
    That’s not normal at all!
    Go on!

  6. […] 2010 No Comments Kayak appears to have a hole in it. You’d expect me to say that after Skoosh’s rift with the company but even I was amazed to read that Kayak now has a public dispute with one of its key partners, […]

  7. On my first visit to kayak I was victimized bybtheir SMS spam marketing. When ready to book I had the option to click a button for online or a phone number below the button. I clicked the number on my mobipebphone browser. Big mistake. Theautomated attended directed me to hit the star key. It informed me I was being texted. I was subscribed to a $20 service. Since I did not opt in ibdoubt my opt out was heeded.

    Never use kayak

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