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Problematizing the Growth of Online Travel Agencies: Solutions for Local Tourism Organizations and Free Walking Tour Companies

What are OTAs? 

OTAs – a common acronym for Online Travel Agencies – are online marketplaces or directories of tours and experiences. These marketplaces or directories serve as a “one stop shop” oriented toward tourists who are either planning their next vacation or are already traveling. OTAs provide travelers an easy way to find endless tour and experiential opportunities available on the global market and which can be booked through a single website. The directories typically include options for a wide range of budgets and interests and appear not only as a useful tool for all travelers but beneficial for both users as well as the tourism companies and organizations listed on the site. Travelers may book tours and receive confirmation through the OTAs and can often leave reviews following their tour experiences. Some of the most well-known OTAs include TripAdvisor/Viator, GetYourGuide, or Freetour.com (for free walking tours). In the hospitality industry, the most recognizable OTA is Booking.com.

Why are OTAs Popular? 

OTAs have become increasingly popular because they appear to minimize the time, effort, and thought travelers require to plan their trips. Rather than seeking out local tour operators at each of the destinations on their itinerary, travelers can simplify their search by visiting a single OTA. Because of the growing dependence upon OTAs for travel planning and bookings and their multinational nature, they dominate online searches. Appearing at the top of the search results, they are a convenient solution to what can seem an overwhelming task – planning the perfect vacation or travel experience. Once on an OTA, prospective travelers and guests can search their destination and choose the highest ranking tour or experience at a destination and hit “book” and receive an immediate automated confirmation -  all without interacting directly with the local tour provider!  

Problematizing OTAs 

While OTAs may provide convenience, travelers are beginning to step back and question the ethics of booking their travel through such websites. Travelers are becoming more savvy, realizing that OTAs do not directly provide the tours and experiences being booked. So HOW precisely do these OTAs, which seem to be popping up at an alarming rate, function? How do OTAs impact the local, independent tourist company that the OTA claims to represent? What is the relationship between an OTA and the local business (as well as the community in which the business resides)? 

Users of OTAs are often unaware of how OTAs engage with the local businesses that are listed on their directories. Local tourism businesses and organizations are charged high commission rates in return for being listed on the OTA. OTAs focus on the efficacy of their website with the aim of increasing online engagement. They do not organize or spend their capital on the activities listed, but instead, focus on SEO, “Search Engine Optimization.” SEO is pursued in a single-minded effort to appear first on Google searches and funneling money into marketing for the purpose of getting every possible click. Yes, even your click contributes to the OTA’s dominance within the tourism industry! OTAs then offer their online market shares, previously belonging to independent, local companies through more organic processes, to those organizations that have paid to list their activities or services on the OTA website. The cost of this “privilege” is typically substantial and can come in the form of exceedingly high commissions. The larger the OTA’s online presence, the larger the commission to which local tour agencies and companies are forced to submit.

And here is the vicious circle: the more that local companies pay the OTAs, the bigger the OTA's budget for advertisement. This means that OTAs become even more visible online, making it easier to find the OTAs through standard online searches. The local agencies, organizations, and companies who rely upon organic traffic cannot compete with an OTA’s online marketing budget. So, by collaborating with OTAs, local companies are gradually weakening their position on the international tourism market while the position of OTAs are being strengthened. 

Despite knowing this, many small, local businesses are forced to either do business with OTAs or be forced out of the market. When speaking to owners and managers of local tourism companies, the following is frequently heard: “if not me, then my competitors will work for them.” This “rat race” has a negative impact on competition amongst local companies which, in effort to take the top position on OTA websites (a seemingly necessary evil to keep competitive), hand over even greater fees and commissions that ultimately takes away from and limits the potential advantages businesses have to their local economy. In some cases, tourism may be one of few economic possibilities for small communities which are reliant upon the infusion of tourism dollars. The drive for visibility on OTAs creates unnecessary and very damaging local competition and further reduces the income received at the community level. Many times OTA commissions are 25-30% of the selling price of tours and experiences. These commission rates either add to the price of the goods and services being offered, or more frequently, cut the profit margins of small local businesses. In either case, the OTA benefits while the traveler or local business is taken advantage of or hurt. 

Small companies are put in the position of having to conform to OTA business practices despite being opposed to what OTAs represent. Most founders of small business enterprises (and their employees) feel compelled to support local initiatives in order to contribute to and improve the local economy while providing quality services which educate, spread awareness amongst, and engage a global audience. The surge of OTAs and their increasing use by travelers forces local industry and its representatives away from these essential principles. 

OTAs and their Impact on the Free Walking Tour Movement

What is a “Free Walking Tour” and how do “Free Tour” guides earn their living?

The “Free Tours,” “Free Walking Tours,” or “pay-what-you-want tours” is a relatively recent phenomenon in the travel world often linked to the concept of the sharing economy. Such tours have no fixed price and the guests decide what the tour or experience is worth at its conclusion. Sometimes this “worth” is based upon what the traveler’s budget allows, thereby making the free tour experience an inclusive one that enables all travelers to participate regardless of financial resources. The payment for the service is highly appreciated but not compulsory. In the majority of the free tour business models, the guide pays the local company organizing the tour a fixed, per person charge to help cover operational costs and contribute to the company’s growth. The balance of the amount received (guest “tips” minus the commission to the company and any national taxes) constitutes the guide’s earnings. 

Usually this guarantees that Free Tour guides will do their best to give a compelling, top-quality tour (otherwise they do not earn their salaries!) - which is reflected in the excellent reviews the Free Walking Tour companies have on review sites. 

This system has enabled Free Walking Tours to operate at a high standard while also remaining low-cost. The presence of the Free Tour is possible because the tour organizers generally have a lower business overhead. 

Negative changes in the free tour market

Just a couple of years ago, a Free Tour company could operate successfully with just a few resources and requirements, including a single excellent guide or, for a larger operation, a few skilled guides. Free Tour organizations would prepare informative and riveting tours and invest some money in a functional website and an efficient booking system; the main focus was delivering top-notch experience in effort to receive 5-star google or TripAdvisor reviews. Travelers could then just  type “Free Walking Tour + City” or “Free Tour + City” into a Google search and their website would pop up with a corresponding quality rating. The only significant cost was optional advertisement and management expenses. 

In recent years, however, OTAs started to encroach on the Free Tour world. OTAs first offered free listings with a promise of bringing more guests to the tours and then, after building their market position, requesting higher and higher fees for their services.

At present, commissioned-based OTAs have become predominant in this niche of tourism with many international companies charging ruthlessly high costs for a so-called opportunity for Free Tour companies to receive bookings. This system is extremely detrimental when one considers that most local companies charge commissions to the Free Tour guides as part of their business model and the additional OTA fees basically force them to double these commissions. It is well known within the industry that the leading OTA directories charge 2 Euros or more per individual booking, which in many cases is HIGHER than the original tour guide commission in a local company. It is notable that even though OTAs may function in Euros (for example), countries represented by Free Tours may have a much weaker currency and receive pay lower than their counterparts in more affluent countries; this can lead to lower tips based on the assumptions of guests rather than the quality of the experience. As a result the OTA can impact local businesses to varying degrees depending upon their location, often further disenfranchising companies that are already marginalized on the global market. What is more, the OTAs charge their commission whether or not the Free Tour participants pay the guide at the conclusion on the tour. Remember Free Tours do not have a set price and tipping is not compulsory! For many tour guides, this situation presents a breaking point for earning a living wage. This imposition makes it exceptionally difficult for guides to keep the enthusiasm which has become a distinctive characteristic of Free Walking Tour guides.

How can you support local communities and guides and travel ethically and sustainably while ensuring a quality tour during your travels?

Non-profit organizations (NPOs) are trying to address the problem of the OTA as well as other challenges that local, community-based tourism businesses, companies, and organizations currently face. If you do not support the monopolies OTAs increasingly hold within the online market, take the time to seek out such NPOs and engage with local businesses directly when planning or booking upcoming travel. The Free Tour Community (www.freetourcommunity.com) is a notable example of one such NPO. It is an ambitious cooperative educating travelers through awareness-building while also offering ethical, economical, and local options for traveling. The Free Tour Community aims to connect travelers with local companies, thereby bypassing the OTAs which local companies simply do not need. Although the Free Tour Community is self-organized and relatively young (founded in March 2020), membership encompasses 85 cities in 43 different countries around the world. All of the associated companies operate on a local basis within their own countries and meet the high quality as well as ethical standards of operation. 

The Free Tour Community prioritizes and supports local businesses. This means that our community members offer exceptional contacts in each of their local communities, through which they help to provide travelers an immersive, local experience during their visit. This stands in stark contrast, for example, to being hustled into an international franchise (i.e. Starbucks, McDonalds) where the tourism company receives a commission. By sharing our local knowledge, we ensure the traveler’s freedom to experience authentic locations and support local business, which can lead to a memorable and even life changing international journey. 

The Free Tour Community also strongly encourages independent travelers to undertake their own travel research, after which an informed and confident choice can be made to book directly with a local tourism company. Reliable sources of information and recommendations can be found through Google and Yelp. Even TripAdvisor can be a useful resource if you are able and willing to find the hidden company rankings while also keeping in mind that TripAdvisor is one of the most well-known OTAs that is invested in selling travelers tours and experiences through its website. In your online research, consider ignoring the top Google “sponsored results” which often reflect the marketing and promotional budget of tour providers rather than their quality. Hence, the sponsored and top results on Google searches are usually OTAs; when reviewing search results, look for independently owned tourism businesses and companies.

Many consumers are already aware of the challenges local businesses face in competition and intentionally “shop local.” This is no different for the savvy, informed travelers who are adept at using the tools available – especially online – to help push back against international monopolies and OTAs which problematically dominate the tourism industry. It is possible to read customer reviews on OTA sites, but search online and book with local companies directly. Doing so circumvents any fees that the local guides and companies might have to pay for bookings and will exclusively support local business.

Why should one take the time to support local companies working within the tourism industry? 

If you are relatively proficient, it will only take an extra 2-3 minutes to identify a company’s website and book directly with them. In supporting local, community-based businesses, you enable a sustainable tourism which allow independently run companies to employ guides and compensate them with a living wage and benefits. Small, independent companies are more likely rooted in their communities and can provide quality, immersive travel experiences that will stay with you long after you have returned home. To these organizations and guides, you are much more than a number and a ticket - you are a valued guest that will be remembered and become part of their story. Without the continued support of small business endeavors and specifically those that operate Free Tours,  the model of  “pay what you want” will dwindle as tourism dollars become increasingly siphoned off from local communities by international OTAs.

The Free Tour Community enables the members, a global network of local partners, to concentrate on what we do best: providing guests an exceptional local tour experience without the worry of succumbing to online monopolies and snowballing commission rates. The Free Tour Community empowers local companies and creates a platform on which we are able to push back against online giants through ethical and proactive means. We support small businesses and offer our guests the assurance of having quality services around the globe. Your support of the Free Tour Community will help facilitate a necessary change in the way we explore our world through tourism, fostering sustainable travel that encourages travel destinations that are welcoming and diverse, one click at a time.  

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