Does hotels lose money when customers use Hotels.com and similar websites?

Hotels don't lose money. They just make less money than if you book directly with them, since all agents charge commissions. As to why hotels use OTAs, volume. Customers want choices, and any OTA has a large inventory, not limited to one hotel. This gives customers choice, and the ease of searching means customers prefer OTA (or meta search sites like Kayak).

Yes, these Web sites charge hotels a commission. If you are paying $90/night to a hotel booked directly, they'll get $90, but they might get only $81 (10% less) if you booked that same room through a Web site. Sometimes online booking agencies will have a cheaper rate -- that really depends on the site and the hotel.

Just to clear up some of the answers so far. The online travel agencies (OTAs) charge a commission for every booking through their web site, and commissions can vary typically 15-25%. There are basically two types of channels, where you can go to their web site (OTA) and search after inputting dates and city, and it shows a list of hotels with their rates and room styles available. These rates that are shown up front are required by the hotel chains to have rate parity. This means that the hotel chain and the OTA cannot offer a different "best rate" to the public. And believe me, everyone on both sides watches this very closely and the hotel's general manager will get notices when there is a discrepancy. Some hotel chains will even fine the hotel if they catch you offering lower rates to a OTA then the hotel brand. Of course there are also a variety of rate plans that offer discounts but you have to qualify for those discounts, such as AARP, CAA or AAA, NASCAR, Costco, and the list goes on and on, but you have to be able to prove you are eligible. The Best Rate (used to be called RACK) is the best available rate to the public that has no strings attached and everyone (hotel chain and OTA's) must match on these rates. Now, there are also OTA's that have blind pricing, such as Hotwire and Priceline. These are web sites where you tell them what city and hotel rating and bid a price that you want to pay. Then the OTA searches to see if they have a hotel that will accept that price, they come back and tell you if you have a match and then after they take your money they tell you where you just booked a room. These of course can vary widely on rates depending on how much business the hotel wants at such low rates. Like others have said, $30 is better than nothing for a room, and yes, what you bid is not what the hotel is getting, the OTA is taking a big cut too. They can get around the rate parity issue because the rates are not made public until after they have taken your money. Keep in mind also that you cannot cancel or change your reservation too. For many that are very flexible and don't care, this is a good option. Personally, I would never use them and discourage others as I know many a hotel that sells the rooms to these websites you have no choice in where they are located, how many beds or whether they are smoking or non-smoking. All they guarantee is that the room will sleep 2 people. You can make all the requests you want, but the rooms that sell the cheapest are going to be the least desirable in a hotel. Sorry for the long answer, but in a nutshell, hotels will make the most with bookings directly to the hotel (not to the chain either because they get a cut too). Plus, who is better to give you all the information about their hotel, their amenities, what is going on in their city, fun things to do, and see than to call the hotel directly and talk personally with the staff at the hotel. I could go on and on about this subject but I'm sure I've bored you to death already. Thanks

Companies like http://booking.comDotcom will charge 15% for a booking to the hotel, invoiced quarterly AND guarantee lowest rate. The hotel is then blocked from offering a better deal, or they lose their opportunity to be on the site! That's power (or abuse of it).

A hotel makes the most money on bookings that are made direct, i.e., no middlemen.  Historically, Online Travel Agencies were a platform that hotels used to monetize their unsold inventory. Over the years, as OTAs have grown in popularity, they now account for roughly 25% of a hotel's business.  For smaller hotels, the number can be as high as 80%+. Different OTAs charge different commission rates.  Our research shows the OTAs that charge the highest commission rates (about 25%) are growing the fastest.  We assume this is because of their ability to spend more on advertising. As OTAs spend more on advertising, customers gain more affinity to them, and hotels grow more dependent on them. When it comes to lowering rates, OTAs are good at convincing hotels that they will get more bookings if they lower their rates.  However, research has shown this is bad.  For hotels, demand is generally price inelastic. This means that dropping your rate only gives the appearance of more business.  What actually happens is share shifting -- business that would have gone to your competitor comes to you -- or business that you would have gotten next month comes in this month -- and the net result is you just push your rate lower dramatically, hurting your profit over time.  Increases in occupancy will catch up with you later, when you have lower occupancy. The truth is hotel profitability, around the world, is falling.  The math is simple.  Hotel occupancy and rates around the world are pretty stable for the past few years, and even falling in many markets.  However, OTA revenue and profit is growing exponentially.  OTAs hurt a hotel's bottom line. So why do they continue using OTAs?  The answer is because they've become dependent on them and there's no alternative. That being said, the world is changing and there's a lot of new technology in development.  At Journeyful, we're working on stuff and there are lots of other companies doing the same.  We expect to situation to start improving in the next few years as hotels become more sophisticated and stop OTA from playing the games that divert a hotel's direct customers to their websites.

Losing money and 'don't make as much' are two completely different things. Hotels pay commission to 3rd party sites, they do not pay commissions when customers book directly. Hotels use 3rd party sites because these sites generate lots of visitors + their competitors use them and thus (in theory) produce customers that would not have otherwise found said hotel.

I must disagree with Mr Cole regarding "$30 is better than nothing...".  This is not true.  There is a point where the hotel will lose money if the room is discounted too much; paying for housekeeping alone will prohibit heavy discounting of a room.    There are exceptions.  There are cash cow hotels (usually motels) with no familiar brand and privately owned and paid for.  Those types of hotels typically do not maintain their properties like a brand would (either select service or full service) so there is almost all profit in selling a room even at a lower price.  Often the owners are the housekeepers, as well.   It is a misconception that hotels would prefer all rooms occupied.  If the rate is not high enough to make a profit, the hotel would be better off not renting the room.   Also, the rate a hotel charges is almost always different than the rate you will pay through a third party.  There is no incentive to customer or partner (Priceline, etc.) if they paid the same as someone who books directly with the hotel.  Not all hotels accept Priceline customers and most have limits on the number of third party OTA rooms available.  This is to insure profitability to the hotel (if all rooms were Priceline rooms, the hotel would not make money).

Usually OTAs collects 15% from standalone rates and 25% from package rates. It totally depends on the contract between the two parties