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| Brad Gerstner, CEO at Altimeter Capital |
LOS ANGELES—A roundtable at the Phocuswright Conference discussed how and why OTAs have been impacting the lodging and hospitality industry, Google's potential threat to those platforms and the perception of extremely high private market evaluations.
OTA juggernauts have been impacting the lodging industry in a number of ways. Over the years, they’ve gained market cap from some of the leading hospitality chains in the market. A market factor suddenly impeding their growth potential in the industry is highly unlikely to occur, the experts of the roundtable believe.
"I don't think anything will really derail them," said Mark Mahaney, managing director at RBC. "I think over time, execution risk associated with some of these companies comes down. They prove themselves shift after shift: airband to broadband, desktop to mobile, market after market—a couple of different verticals.”
The reason OTAs are succeeding in the market? “Really good management teams,” which ultimately decreases execution risk for them in the long term.
Even though many believe OTAs “cracked the desktop search code,” they’re still relevant in a post-search world. “In a world that's moving post-search—and search is still important—but in a world of apps, AI, machine learning, you have to have massive amounts of data in order to be relevant,” said Brad Gerstner, CEO at Altimeter Capital. Data limitations will force companies to specialize in their own niches.
On Google being a threat or opportunity, the determining factor could be the search engine’s success with marketing. "As long as Google can essentially show additional gains on the advertising side, they’d rather not go into transaction,” said Ken Sena, senior managing director at Evercore. “They’d love to have Priceline and Expedia continue to organize the supply for them and essentially much of the heavy lifting.”
What Google understands is how consumers search for information on mobile devices. "They want quick answers," said Gerstner. "Google's going to provide them with quick answers in restaurants, quick answers in hotels, and in many other categories.” He criticized some venture capitalists and startup CEOs who’ve been lobbying against Google’s dominance. “These companies would be much better served on spending their innovation around their own bots, their own AI, their own quick answers, than trying to prevent Google from doing the same,” he noted, praising Google’s improvements to its product over the years.
Search as we know it (typing a query into Google) is quickly changing. The concept of predictive search has already germinated, and the end result is quickly approaching. Google already has a massive amount of data available to it. “I shouldn’t have to run a query,” he said. “I should get suggestions from my smart agent. This isn’t Buck Rogers stuff. All the data is there.”
Gerstner believes “Google is way more focused” on predictive search. For example, suggesting the best hotel deals based on user preference by using the data it already has in its databases. “Priceline and Expedia are going to be the two platforms that actually transact,” Gerstner said. “Google's going to send it there, but they're going to do the work on my behalf.”
Choosing between investing in a publicly traded company or travel startup doesn’t have to be challenging when the overall picture comes into play: the category itself. “We're owners of Priceline, Expedia, Airbnb and Hotel Tonight—all fantastic companies, all will do well in the ecosystem,” he said. “When you look at the two major platforms, again, compared to most other peers in the internet space, they're less expensive, growing faster and their incremental profitability is extraordinary.”
Reviewing the differences in public and private market investors, the panel agreed: Private investors look further ahead, focusing on years instead of minutes. "I'm not sure there's this insistence that these private market evaluations sound way too high or irrational," Mahaney said, comparing public and private evaluations of OTAs. "We have huge secular growth in this category. The people who are insistent that the private markets are irrational—I think most of those private market investors probably have seen some numbers come up with their own estimates, and they’re also very long-term investors. They have to be, given the asset class they own.”
"When you see preferred evaluations of Airbnb of $30 billion, that's certainly looking further out than the evaluation that’s implied in the market today for Priceline and Expedia," Gerstner said.
