Hilton is going to invest $175 million in its website. I’m not even sure how it’s possible to spend that much on their interactive offering, but they see it as an important past of their strategy to combat the major travel websites which incur much higher distribution costs.

Sites like Expedia, Orbitz, and Travelocity have in some cases negotiated 30% discounts on room rates which they then take as profit when selling the rooms to customers. They also take money from customers immediately in the form of prepayment, while only paying the hotel when the stay is completed, earning a return on the float in the process.

Hilton’s chief executive claims these sites are gouging customers

Expedia, he said, was “bad, but not in a Biblical sense. They just charge too much. A 30 per cent [mark-up] is too expensive.”

But if that were true, why doesn’t Hilton offer customers a better price than Expedia et al? Instead they offer compensation when, after a serious of onerous conditions, a customer can prove that the Hilton rate wasn’t at least the same.

While equivalent or better rates may be available at a hotel’s website, this hasn’t been the case frequently enough to mitigate the advantages of a major booking site — which offers multiple brands rather than just one, better functionality, the convenience of one stop shopping for air and car as well as hotel, and a reliable booking engine.

That said, informed consumers are better consumers. While not surprising, it will probably be news to many that major online travel sites sort results based on paid placements by the hotels.

Search engines tried this for awhile, and in many cases their credibility and popularity suffered. It remains to be seen how well this practice will withstand scrutiny.