Enter Amazon

By B.R.

AMAZON, it seems, is about to enter the online travel business. Skift reports that the internet retailer is striking deals with hotels around New York, Los Angeles and Seattle, with a view to listing them on the site from January 1st. Presumably, this will be a prelude to a full-scale assault on the market in the near future.

It should probably not be a surprise. Having conquered books and electronics, and eyed up groceries, travel is an obvious next step. The market is huge: last year online travel agents had combined sales of $278 billion, according to Euromonitor.

Amazon must stand a good chance of success. Internet hotel-booking is dominated by two big players, Expedia and Priceline (which owns Booking.com), and one rapidly rising competitor, TripAdvisor. But Amazon will have some inbuilt advantages. The first is its worldwide clout. It is a brand most people are familiar with and is rightly lauded for its customer service. One could well imagine that those who have not yet taken the plunge and booked a hotel online (the majority of travel sales, even in America, Britain and Germany, are still not completed on the internet) will be reassured to do so on Amazon.

The other big advantage could be user reviews. The reason that TripAdvisor is becoming such a threat to the established players is because it has a huge cache of content from ordinary customers. As we reported earlier this year, Tripadvisor is...

...such a good example of a network effect that it is the subject of a Harvard Business School (HBS) case study. The more users post reviews, the more useful the site is to those about to book a holiday. This makes it more important to hotels and travel agents, who offer better deals. This results in more traffic—and more reviews—closing the virtuous circle. Last year TripAdvisor reported revenue of $944.7m. Because users post reviews free of charge, in 2012, Jeffrey Bussgang, an HBS lecturer, calculated that its gross margin was an astounding 98%.

Amazon users are accustomed to leaving feedback (sometimes in funny and inspiring ways, as the 425 reviewers of the Delicious Women's PhD Darling Sexy Costume prove). And while sites firms Expedia and Priceline are desperately trying to encourage more customer content, one could imagine Amazon, with its billions of garrulous consumers, soon providing a deep well of opinion.

According to Skift, Amazon will take a 15% commission from hotels that sign up in the first wave of its project and perhaps 20% after that. Given that not only Amazon but also Priceline and Expedia have a reputation for driving the hardest possible bargain with their suppliers, the increased competition must bode well for consumers. Hoteliers, meanwhile, will have even more incentive to up the standards of their customer care. Rather than offering you next-day shipping, Amazon, it seems, will soon be offering to ship you somewhere.