In 2001 a tiny travel site was founded. Outwardly its aims appeared altruistic enough, especially for travelers - and even helpful to hoteliers: it would enable travelers to read opinions of fellow-travelers' experiences in hotels and, crucially, help them choose the right hotel.
It was what happened next that made all the difference: TripAdvisor realised that if it teamed up with online travel agencies (OTAs) like Booking.com it could earn money, lots of money.
The OTA business model
Is so simple it's untrue: use your muscle to make sure travelers book indirectly through you. Start off free, then gently ramp the commission/pay per click you charge.
Next time you find yourself sitting down with friends just drop this bombshell into the conversation:
"Did you realise that booking a hotel room online can cost up to 28% more?"
...and see how they react.
That's the commission the hotel will be paying on your behalf to the OTA. A £100 room - £72 for the hotel - £28 to the OTA.
But it did not start out that way - first they gave hotels the bookings for free, then they introduced a small commission. The hotels welcomed the service, after all, it saved them having to market themselves and it exposed them to a world-wide audience. It was only when the hotels were well-and-truly hooked that rates rose to where they are today.
So, you may well be asking yourself, what has this got to do with my business?
Well, by now we all know that if someone somewhere on the web is making a killing (and the OTAs are making a killing) then that business model won't take long to be replicated. You won't need to look hard to find an equivalent to TripAdvisor or Booking.com in other sectors.
Here are just some examples:
Small businesses of all kinds
There is another way!
You don't have to be passive. If you decide to give your potential customers what they are being offered by these sites - independently verified reviews - you won't end up handing over the bulk of your profits to middlemen.