Online Travel: The Race Is On!

Executives at Cendant, the travel and real estate giant, were sick of handing over part of their profits to online travel bookers. So they tried last spring to persuade the operators of the largest hotel in Cendant's Ramada franchise, the 1,015-room New Yorker in Manhattan, to avoid business from online agents like Expedia, Hotels.com, Travelocity and Orbitz, which take a cut for every room they fill. "We had to tell them no," recalls Tom McCaffrey, director of marketing at the New Yorker. "These sites fill 200 rooms a night for us, more than Ramada's website and toll-free phone line together."

It wasn't the first time that Cendant brass had been rebuffed by one of their own. Tom Kunz ran a San Diego office of another Cendant franchise, Century 21, before his promotion to CEO of the real estate firm, and while he was a broker he rejected company appeals to spurn online referrals. Why? Sharing listings with the likes of Lending Tree. com generated enough leads to offset the pain of having to share commissions.

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If you thought the dotcom era was over, take a look at what a couple of Wall Street's savviest dealmakers are up to. For Cendant, the online onslaught was beginning to feel like water torture as cyberbookers chipped away at its core business: playing middleman between customers and the company's many franchisees. So last month CEO Henry Silverman, a veteran wheeler-dealer, moved to protect his turf by agreeing to buy Orbitz for $1.25 billion. The acquisition catapults Silverman to the top tier of online travel. His biggest rival there is another celebrity CEO, Barry Diller — the onetime Hollywood mogul who created the Fox network — whose IAC/InterActiveCorp owns Expedia, Hotels.com and Hotwire. That these inventive personalities are now jockeying over the online travel business is no coincidence. A true coming of age is under way for Web-based services as bookings migrate online and competitors scurry to capture a piece of the pie.

And guess what: consumers should be big winners. Only a few online agents will thrive, and to stay in the game they will need to woo travelers with a wide range of offerings. Silverman, through a spokesman, and Diller protest any suggestion that the two are butting heads. They are friends who lunch together, and there's room for both, they say. Making the point, Diller notes that last month their companies inked a deal in which IAC's Hotels.com and Expedia will prominently display on their websites Cendant hotels, which include Days Inn, Travelodge and Howard Johnson. "While we compete with Cendant, we also partner with them," Diller says. "It's entirely normal. Sorry, no drama."

Not yet anyway. But Diller's firm owns LendingTree, which is wedging into the residential real estate market dominated by Century 21, Coldwell Banker and ERA, all Cendant brands. LendingTree is a fledgling player, generating $160 million in revenue last year compared with Cendant's $6.7 billion from real estate businesses. But that could become a battlefront down the road. Already, 70% of home buyers begin their search online. This year, for the first time, online listings will generate more home-buyer leads than classifieds.

Even after the Orbitz purchase, Cendant is largely a bricks-and-mortar company. The $18 billion behemoth owns Avis and Budget in addition to its real estate and hotel brands, markets time-share properties and organizes information for travel agents, and has a corporate-relocation operation. Prior to the Orbitz deal, it had only a laggard online travel presence with CheapTickets.com and Lodging.com. Its main business by far is collecting franchise fees. Pre-Orbitz, online travel produced less than $200 million in revenue, or 2% of Cendant's $10 billion travel segment. Last week Cendant said it would divest its mortgage and fleet-leasing businesses, effectively giving the company an even greater focus on franchising.