The hotel industry has long retained the unfortunate stigma of an innovation laggard. Hotels today face a massive technology deficit caused in large part by the bloated and fragmented systems required to stay competitive in today’s hotel market.
A 2017 Gartner study shows just how underinvested enterprise hospitality is today. According to the study, enterprise hospitality spends on average 3.5 percent of revenue on IT versus 7.9 percent for financial services, 6.1 percent for the public sector, and 5.9 percent for high tech. The reality of today’s market is that hotels are competing for market share and revenue with high-tech companies like Airbnb and Booking Holdings (formerly The Priceline Group). Booking Holdings spent 12.6 percent on R&D in 2016—nearly four times what the hotel industry spent on technology in the same year—and was sophisticated, targeted, and efficient with that spend. This underinvestment has left the industry vulnerable to competitive pressures.
In a 2017 Lodging Technology Study, 53 percent of hoteliers cited outdated technology architecture and the effort required to integrate systems as the top pain point holding back investments in new technology. Integration has long been a heated topic, but businesses in the space are gaining real momentum in 2018.
Gartner’s study paints a picture of historical underinvestment but also massive opportunity in the hospitality industry, which is projected to be the fastest growing enterprise IT sector between 2018 and 2021 with a compound annual growth rate (CAGR) of 4.1 percent. In the past 12 months, companies have shifted their focus to interoperability of systems. Companies have built out internal teams focused solely on managing and developing integrations, while others have worked together to list thousands of integrations publicly for hoteliers to be able to easily search and discover new tools that work seamlessly with their existing systems.
Overcoming the Barrier of Integration Fees
Technology creators today pay massive integration fees to connect with existing systems—an expense that many companies can’t afford. The ones that can afford to pay integration costs often wait months to connect systems. By diverting integration fees and the resources required to execute those integrations away from areas of innovation, hotels limit efficiency, competitiveness, and profitability. But, most importantly, it stifles innovation in an increasingly competitive and technology-driven world.
Integration fees mean a lower return on investment and, therefore, hotels make fewer investments altogether. This also means that to try a new product, hoteliers are often required to make upfront investments before even knowing whether they like a given product. For example, imagine what would happen if a business had to pay $5,000 upfront before trying Dropbox or MailChimp, and then wait weeks or even months before that trial begins.
Even beyond the exorbitant costs, without the flexibility to try new products, it’s incredibly difficult for hoteliers to experiment and try new things to improve their businesses over time. The ability to quickly identify and experiment with top technology partners is the only way to stay competitive, and demanding openness and low-cost integrations from property management systems (PMS) is critical.
Interconnectivity Creates Solutions
Take the problem of upselling rooms, for example. Traveler demand for lower-priced rooms is higher than traveler demand for premium rooms. That means that when a traveler books a lower priced room, hotels often offer them the option to upgrade to a premium room. If the guest chooses to upgrade, the hotel receives incremental revenue and profit from that guest, then opens the lower-priced room for a new prospective guest to book.
However, every minute that a guest’s upgrade request goes unapproved at the front desk, hoteliers lose prospective guests to their competitive set because those rooms appear to be unavailable. Meanwhile, the hotel is charging artificially low rates to guests who can still book—the faster a lower-priced room gets taken, the more a hotel can increase the rate on the next room sold.
Amsterdam-based merchandising and upselling platform Oaky is working to address this problem. The platform markets room upgrades and ancillary products to guests after booking. Hotels using Oaky, on average, see a 10 percent upgrade conversion before arrival, generating around $20 per inbound booker in incremental revenue for the four-star segment, not including the revenue from re-sold rooms.
Here’s how it works without two-way interconnectivity—a guest books a room, which is filed in the PMS. Oaky is notified of the booking via a one-way connection with the PMS and sends a pre-stay email to the guest including special offers (e.g., a room upgrade). The hotel must then manually approve the request and adjust the reservation in the PMS.
However, a two-way connection allows the property to automatically approve requests in real time, modify the reservation, and quickly move guests into premium rooms. That interconnectivity also removes the manual labor at the front desk that is required to approve requests, freeing up more time for staff to focus on the thing that differentiates their property most—the guest experience.
When these two-way connections have massive fees associated, many hoteliers who are focused on ROI will opt out. This hurts innovation, efficiency, and ultimately industry profitability as a whole.
Choosing Technology Vendors with Open Architectures
Hoteliers who choose vendors with open architectures benefit from increased buying power, including improved customer service from partners and lower operating costs. Independent hotels, in particular, could benefit from partnering with vendors who have partner systems built on open APIs or who work with third parties to help build custom integrations at a fraction of the cost.
Before working with a technology provider, make sure to properly vet them by reading authentic client reviews and carefully examining their two-way connections.
How are integrations and APIs changing the hospitality industry? Seven tech executives explain here.
About the Author
Jordan Hollander is the co-founder of hoteltechreport.com.