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Amazon’s Secret Hotel Strategy

The worst-kept secret in travel is out: Amazon is planning to sell hotel rooms.

Amazon’s Secret Hotel Strategy
[Photo: Flickr user Eric Prunier]

In case you missed the news, Amazon is expanding its online travel business in a big way. As this article is being written, Amazon’s sales representatives have begun aggressively contacting hotels across the United States to offer rooms via Amazon. The Seattle-based e-commerce giant is one of the only companies with the clout to quickly enter into the crowded, crowded online travel industry… and in the process, help transform their Groupon-like Amazon Local division into a major e-commerce player.

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Starting around the new year, Amazon will begin offering rooms at what travel-industry site Skift is calling “a curated selection of hotels” within driving distance of New York, Los Angeles, and Seattle. Sales teams for Amazon Local have been approaching hotels in these markets and reportedly offering lower commission rates for hotels that sign up now rather than down the road. Amazon currently offers an extremely limited hotel booking service consisting of discounted stays similar to other discount travel offerings by Groupon and LivingSocial.

Andrew Vaterlaus-Staby, an analyst for consulting firm PSFK, told Fast Company that “Shoppers rely on Amazon to deliver a seamless end-to-end experience for making purchases online and now for entertainment. Particularly with hotel booking where customers are concerned about always getting the lowest price or ‘missing out’ on a better deal, the wholesale buying power of Amazon could help guarantee consistent access to regular rates without the consumer worrying about how or when they are booking.”

“Hotels (where all the profit currently lives for online travel) in particular still has comparatively limited online penetration. Alibaba has entered the travel space, so Amazon has some pressure to not fall behind and risk not being a player in the segment,” added travel industry consultant Robert Cole. Cole also noted that Amazon’s deep reservoirs of business intelligence when it comes to individual shoppers’ preferences could give them an advantage ahead of competitors.

Amazon’s decision to route travel purchases through Amazon Local also signals a little bit about the company’s strategy for 2015. Amazon Local was founded in 2011, and since then has served as a deals aggregator and as an informal liaison for Amazon to build links with local businesses in strategic markets. But after the great deals rush of 2011 and the rise and fall of omnipresent online couponing, Amazon Local seemed to occupy an unsure place in Jeff Bezos’s ecosystem. This seems to be changing.

Over the weekend, Amazon quietly put the finishing touches on a restaurant delivery service designed to compete with Seamless/GrubHub and Eat24. The delivery service, currently only available in Seattle, is also built on top of Amazon Local’s infrastructure. One of the things Amazon is leveraging is a local business portal originally developed for their deals service which allows individual businesses to quickly run promotions through them. Now, it seems, the same backend is being converted toward more purposes than simply offering loss-leading discounts for local stores, restaurants, and services.

All this means that Amazon faces an outside chance–but a decent chance–of cracking the travel market. Well-established firms such as TripAdvisor, Expedia, Kayak, and Priceline currently dominate the field, and Amazon has opted to build its own travel product organically rather than acquiring a potential competitor. The real question for now is if customers will see it as an appealing proposition… and if it will give Amazon inroads to sell airline tickets and rental cars sooner rather than later.

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Update: Added quote from Robert Cole and corrected broken link since initial publication.