CPC or CPO in Travel Search Engines
It’s no big secret that Travel Search Engines like kayak, dohop, sidestep (now also kayak…), mobissimo, skyscanner, farechase, farecast, momondo, et al, all want to get paid from the airlines and OTAs in their search results.
The overall prediction is that the willingness to pay for TSE traffic seen from Online Travel Agencies in later years, will be matched by airlines in the near future, as airlines continue to come to terms with, and start executing on, their own Supplier Direct strategies.
But how will these guys pay?
For now, we’ll set aside the notion of radically new or innovative payment setups, as well as the unsuitable common ones like fixed fees (…although that might actually work) and CPM.
This leaves us with Cost Per Click, or Cost Per Order.
So far, the general stance, more or less, from the TSEs have been to try to be strict about CPC, and OTAs (and airlines) have been trying to get CPO deals.
Both sides can argue their case.
- TSEs claim to be information providers to users, and as such they should present unbiased results, and should have no particular stake in the sales that may or may not occur from the traffic they generate. They can also argue that their compensation shouldn’t hinge on the OTA/airline’s ability to actually make their visitors book and pay.
- OTAs/Airlines claim they can not defend paying the CPC rates TSEs want them to pay, without knowing what results they’ll get. With a CPO setup, the risk of participation is substantially reduced.
Or is it? I believe there are strong arguments supporting the CPC model also from the point of view of an OTA/airline:
- With a CPC deal you need a high conversion rate for the traffic to be profitable. This means your prices shown need to be attractive, and you may have to apply specific yield management for TSE traffic. Trying to be attractive to customers, generally is a good idea.
- With a CPO deal, however, you know you need higher profit margins to cover the commissions you’ll need to pay to the TSE. This goes against the idea of a TSE, where - no matter what anyone tries to tell you - price is king.
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- High margins = unattractive fares = negative branding
- Low margins = attractive fares = higher conversion rate = branding through sales
- Allowing a TSE to query your site costs you. It generally costs more if you’re an OTA than if you’re an airline, but there are some examples of airlines with ridiculous costs per search. OTAs having too crappy look-to-book rates in a GDS might even get shut down by airlines - which generally is not a good thing…
- If you’re an OTA - and aren’t able to convert the TSE traffic to sales, instead of going to CPO, you might use this as an alarm that your site isn’t up to the task. Perhaps you don’t assist your visitors in completing the transaction, or your site is slow or designed by drunken monkeys. Regardless of which, TSEs are pretty good for benchmarking.
- Finally, with CPC, you don’t need to disclose to the TSE how well you are actually performing.
Tags: cost per click, cost per order, cpc, cpo, meta, meta search, TSE