Thursday, 10 May 2012

Are VisitScotland Continuing to Play Unfairly?

This comment was an excellent contribution written by Terry Jackson to a discussion on New Models for Destination Marketing in the excellent iVisitorGuide managed by Martyn Collins. The article discusses the role of public funding and the need for a change of strategy, the reponse touches on EC Competition law and why Public Sector DMO's had to stop marketing online rooms commercially. It is published here in the light of VisitScotland releasing a new version online booking engine on the revamped public sector extranet in spite of all the guidance stating in doing so they are in non compliance of EU Legislation. 

Contributed By Terry Jackson 10th May 2012 

You've unmasked the masquerade that's been present in the UK for more than a decade, brought to heel now by EU Competition Law that came into force late 2009 with the Lisbon Treaty.

The result has been central government's cut in VisitBritain's funding as part of the spending review - VB was operating at a £0.7m deficit - forcing abandonment of the National Tourism Open Platform together with associated systems that found UK government on the wrong side of the law. It was also a factor in the dismantling of development agencies that were funding local government DMOs using the same systems, which saw them too acting illegally.

The US equivalent of EU Competition Law is the Sherman Antitrust Act that came into effect in 1890. It underpins the American culture of innovation through open market competition and is why we have Apple, Google, TripAdvisor, Facebook, Twitter - I could go on. All these supranationals lie at the very heart of both international and intranational tourism marketing as we know it today. It's the reason why TBIDs in the US are more likely to succeed, whilst any in the UK are unlikely to because the culture's all wrong. Hypothecated taxation is not the issue. It's the ability to use the funding in a commercial environment where all marketing must lead to a sale.

This brings us back to the earlier question: was it poor performance that brought about the demise of the old DMOs? For this we must ignore the 'government marketer' oxymoron and consider who were the beneficiaries. Once this is clear, the question can be answered and the future of DMOs can be better determined. So here we go...

At the turn of the millennium, government-funded DMOs were intended as Destination Management Organisations. What happened next was a game changer. A handful of technology companies that had developed online booking systems, responded to government tenders that were to see their technologies embedded in DMO websites. It saw DMOs morph overnight into Destination Marketing Systems, bringing them into a space occupied by the private sector and finding them in competition with online travel agents (OTAs). Neither the bureaucrats nor the politicians had the wit to understand the economic consequences and legal implications.

Having built their new websites with booking systems in place, it became a political imperative for the DMOs to attract traffic to them and generate booking enquiries for tourism businesses listed on their sites. Using taxpayers' money they competed with the OTAs for popular keyphrases using pay-per-click (PPC), thus driving up the bidding prices that could only be recovered by the OTAs in commission charges to businesses.

With DMOs having none of their own products to sell, the only way booking enquiries could be converted to sales was to refer them direct to businesses listed on their websites or, and here's the rub, to OTAs nominated by the businesses to process the enquiries on their behalf for a commission payable on the booking value.

The twist, however, was that the technology suppliers to the DMOs were also OTAs in their own right, nominated to process the enquiries, and technology suppliers to other nominated OTAs. It takes a moment to realise the full implications. In effect, the technology suppliers had three interwoven income streams. One from the taxpayer for the systems; a second from the businesses for the bookings, and a third from other OTAs using their systems. All in a day's work and we must take our hats off to those who drafted the legal Agreements. But not so smart of the DMOs.
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