Has online killed the intermediaries?

23 November 2011
By Ralph Adam
lit-up motel sign

Who needs expert help nowadays? According to Professor David Nicholas of University College London, we increasingly go to the Web for answers, rather than using specialists.

“I make all my holiday bookings online,” he says. The reason? A process called ‘disintermediation’, whereby people do things for themselves, instead of relying on others. The assumption is that customers can connect to, and order directly from, the primary source of a product or service, without going through a middleman, thus eliminating the need for traditional distribution channels with their inevitable costs and delays. Disintermediation seems to work for some businesses, but would not be appropriate for those, such as engineering, where professionals are needed for clear explanations and advice. Imagine depending on online guidance, however good, for building and connecting a wind turbine!

But is DIY more appropriate for service industries? Hotel bookings are a case in point. In theory, it is easy to do it yourself. The sale of hotel rooms over the Internet has become a huge business, dominated by four global distribution companies selling rooms on commission. But there are commercial, technical and political reasons that may lead to your being caught out.

In the 1990s, airline reservations were largely controlled by the operators of a few massive airline-owned databases. Not only were pricing decisions based on yield and quota-management, but users’ lack of online skills was taken advantage of to boost competition. Timings and screen displays were doctored (‘padding’ screens with extra information, for instance, to push details of competing flights onto later, less-often checked, pages). Eventually EU and US regulators clamped down on the airlines, forcing them to sell off their database arms.

These same companies have moved to hotel reservations and associated services. Now, having booked a room online, you can leave a comment on your stay with an ‘independent’ opinion site owned by the very company through which you booked!

Online prices can be kept artificially high due to the ‘Internet myth’ – the idea that Web deals are invariably cheap. The fact that a service is online does not mean that it is being sold direct to the consumer – all sorts of intermediaries hide on the Web. The ‘fat four’ collude through ‘rate parity’: agreeing on pre-set prices. Hotels must guarantee them a percentage of rooms, especially during peak periods, pay high commission rates and risk being blocked from websites (and search engines) if they contravene these rules (many hotels cannot be found on the Web because they don’t accept such terms).

The distributors are, once more, being pursued. In France, one has just been fined €430,000 for fraud, false information on room availability, fictitious ‘super-promotions’, using hotels’ names without permission and more; while, in Britain, the Office of Fair Trading has launched a formal investigation into alleged price-fixing in the online sale of hotel rooms. In the US, the distributors are being sued for misleading consumers over ‘taxes and fees’ which never reach the authorities.

The old adage ‘buyer beware’ still applies. And, maybe, your local travel agent is useful after all!

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