"The introduction of toll-free telephone service in the 1960s was the last great technology innovation to greatly affect the economics of hotel booking -- and that is nothing compared with the mighty punch of the Internet," Mr. Ader observes.

"Five years ago, there were very few options for Internet direct hotel booking. Today, there are half a dozen strong players - and more on the way. We expect rapid growth to continue ahead, presenting challenges and opportunities to travelers, lodging companies - and investors alike," Mr. Ader says.

Consumers

Web sites offering hotel reservations are some of the most heavily marketed and visited on the Internet, according to Bear Stearns. In 1998, there were approximately 150 million visits to such sites, with that number expected to more than triple by 2002.

"Internet hotel reservations appeal to leisure travelers for the same reasons a visit to the local travel agent historically did," Mr. Ader says. "It's equal parts shopping, bargain-hunting and escape."

Meanwhile, the sites' immediacy, desktop access and promise of competitive pricing lures business travelers frustrated by marathon phone calls with corporate travel agents - and hotel rates at the high end of the scale, Bear Stearns reports.

"In the longest-term view, Internet booking of hotel sites is part of the technology boom that will richly enhance the quality of the travel experience in the new millennium," Mr. Ader says. "In the next century, we can expect not just Internet booking, but wireless booking, higher-speed aircraft, dramatically more tech-savvy hotels, `virtual vacations' and space tourism," he adds.

U.S. Lodging Companies

U.S. lodging companies have a less successful relationship with hotel booking sites, Ader reports, and their proprietary sites lag other types of direct-book travel sites in visitation, popularity and success in e-branding.

"Today, approximately 22 percent of all U.S. hotels can be booked via the web," Mr. Ader says. "Lodging companies are under-utilizing web booking, failing to reap the maximum benefit that can come from this newest means of raising the number of room nights sold," he says.

Companies must examine new financial models for web-based booking that incorporate their need to sell accommodations at average daily room rates that rise at least at the rate of inflation or higher and consumers' desire for an on-line auction market for goods and services purchased via the Internet, Ader says. Ader suggests that competing hotel companies may find it useful to cooperate in an on-line auction market of hotel rooms that offers a portion of all accommodations at below "rack" or full rates.

"On-line hotel-room auction clubs for consumers are an option worth exploring," he adds. "A co-branded, jointly owned and operated fee-for-membership on-line Hotel Room Exchange that offers a vast auction market covering hundreds of thousands of rooms worldwide and offering sweepstakes, incentives and rewards may be a good formula," Ader says.

But for now, proprietary hotel company web sites for booking rooms are not popular or compelling. "Of five travel sites nominated for this year's Webby Awards, not one was owned by a public or private hotel company," Ader says.

Investors

Given the promising revenue growth for web-based hotel reservations, will sites offering hotel accommodations one day offer eye-popping investment opportunities akin to on-line retailers and auctioneers such as amazon.com and E-bay.

"The highly fragmented Internet hotel booking sector must undergo great consolidation -- and considerable brand maturation -- in order for there ever to be a viable IPO market for hotel reservation systems," Mr. Ader says. To achieve meaningful scale, existing operators of hotel booking, airline booking and car rental sites would likely have to be aggregated under a strong brand name consumers recognize, he adds.

"But U.S. hotel companies are as well positioned as anyone to begin consolidating Internet hotel reservation systems," Ader notes. "Wall Street's salutary `dot.com' effect that welcomes Internet retailers warmly is available to the party that can unite the diverse brands and systems of hotel reservation sites."

Bear, Stearns Co. Inc., a leading worldwide investment banking and securities trading and brokerage firm, is a major subsidiary of The Bear Stearns Companies Inc. (NYSE: BSC). With approximately $18.4 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales and trading, private client services, derivatives, asset management, correspondent clearing, securities lending and custody services. Headquartered in New York City, the company has approximately 9,400 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Los Angeles and San Francisco; and an international presence in Beijing, Buenos Aires, Dublin, Hong Kong, London, Lugano, Sao Paulo, Shanghai, Singapore and Tokyo. For additional information about Bear Stearns, please visit our website at http:/www.bearstearns.com.