The hotel industry is full of opportunities to leverage innovative new technologies. Jordan Hollander is the cofounder of Hotel Tech Report, and in this interview we talk about the unique operating structure of hotels and the challenges that presents to innovation. We discuss how one hotel in particular is navigating those challenges and doing some very novel things, and we get into dozens of solutions smart hotels are using to make their teams more effective and improve the guest experience.
Manifold: ￼So Jordan, why don't we start your background and how you came to start Hotel Tech Report.
Jordan:￼ My background was in investment management where I was a stock analyst focusing on consumer and technology stocks. I got a little exposure to the travel and tech side of things, investing in companies like TripAdvisor and some media technology companies along the way. After that, I went to work in private equity where I took my deal analysis and due diligence skill set and was investing in boutique hotels, and I eventually went to work on the global partnership team at Starwood.
At that time my cofounder working on a digital concierge business, and ended up getting into an accelerator with Pritzker Group Venture Capital and asked me for some help. So I joined him, not really thinking I would do that full time, but saw some of the pain points in the hotel technology industry. I saw how difficult it was to scale technology into hotels. And as a result of that, how much of a negative perception hotels had when it came to innovation and adopting technology. And so we were working on this digital concierge business and saw some really kind of troubling dynamics in the hotel industry, where you have this imbalance of information.
There was a huge fragmentation in terms of the number of vendors that were out there. And it was really hard to break through and get any market share for innovative companies looking to start up. And we thought there was a huge opportunity to not just scale a single technology into hotels, but figure out how to make the whole market more efficient.
Since we started we have about 400 hotel technology companies using our platform, and we've got about 65,000 hoteliers around the world using our site to research different solutions. And we're really just kind of scratching the surface of what it means to bring transparency and education into the hotel world.
Manifold: I would imagine Starwood and maybe some of the larger hotel groups struggle with the same kinds of innovation challenges any enterprise organization struggles with. But are there specific challenges or problems you've seen specific to hospitality?
Jordan: Absolutely. The first thing is you have a huge fixed asset. So it's really hard to change the operations of a hotel just by the sheer amount of investment that goes into creating the product. It's not easy to iterate like software is.
The second is that hotels are really complex operations. If you want to try new things, you need to educate a huge staff that is constantly stretched thin, so it's really hard to change. Also, this stretched workforce is relatively transient and there's high turnover, so if you try a new system with one employee, that employee's likely gone within a matter of six to eight months, and you need to train a new employee on a new software. And so there's this real unwillingness to try new things.
Probably the biggest challenge is that this industry structure is very different from most. Starwood Hotels, Marriott, Hilton–– these guys most for the most part don't actually own their properties anymore.
The way the industry is structured is you have a high net worth individual or a real estate investment trust that owns the hotel. You have a management company put in place to manage the operations, do all the hiring. And then you have a brand who creates brand standards implemented by the management company at scale.
So you have this really diffuse organizational structure. When you're looking to innovate, it's really hard to figure out who to work with. Do I go to the management company who's actually involved in the day-to-day? Do I go to a high net worth individual who probably knows nothing about technology and doesn't care about my pitch because their Core Business is something completely different from hotels? Do I go to the brand and try and get brand approval at a global level, but then I still have to sell into each individual hotel within that brand? So it's really like a kind of strange industry structure that's created a tough dynamic to navigate.
Manifold: ￼Have you seen any examples of organizations that have figured out ways to move more quickly, or who have developed a reputation for being particularly innovative and have overcome some of those challenges?
Jordan: ￼Yeah, absolutely. The first one that comes to mind is a company called Highgate Hotels out of New York.Highgate in the early 2000s and late 1990s found that the software vendors that were out there were not really serving their needs or moving quickly enough for them. So they actually started creating proprietary software products internally spinning them out to sell to other hotels.
There's a tool called Travel Tripper that was founded within Highgate that does digital marketing services. They have a central reservation system, which is basically like the central record for all the hotel's data. And they have a booking engine which is basically like when you book on the hotel's website. And now they've created Highgate Ventures where they'll invest in technology businesses that are moving the needle forward.
Highgate has been known to move really quickly. They do that by making investments so that they have skin in the game and they really incentivize their teams to onboard new products and fail fast like Silicon Valley.
Manifold: What are some of the other trends you're seeing that are the biggest pain points that hotels are running into again and again?
Jordan: Hotels are generally a few years behind other industry verticals. One of the big trends is the shift to the cloud. We're still there. Under 5%, from the numbers that I've seen, of hotels are using cloud-based property management systems. Most of them are still using server-based systems. So the shift to the cloud has created 750-800 property management systems.
Another would be digitization of operations. Many hotels are still running their operations off of pen and paper log books. There have been tons of companies popping up that are basically purpose-built task management and team messaging software that help hotels manage their process across shifts, track maintenance requests and understand the lifetime different furniture and fixtures within the hotel.
Only about 7% of hotels today use Revenue management software. So basically running elasticity curves on different booking channels to determine the right price to the right perspective guest at the right time. But there's a huge trend towards using uh, external and internal data sources to make better pricing recommendations.
And then along the lines of shifting into the cloud, a lot of systems in the hotel are still very fragmented and they actually don't communicate with each other. So there's been a huge trend towards open APIs where vendors start by building integrations with partners. And most vendors are moving towards a world where they have open, well-documented APIs. And so you're seeing a lot of huge movement towards like an open and integrated world where these systems can connect with each other.
So it's really just around digitization, shifting to the cloud and then integrating all those products so that you have a really streamlined workflow at the hotel.
Manifold: Has there been an equivalent of a Salesforce or an SAP or something like that where they sort of got a toehold in the market with one primary product, and then pursue a platform strategy?
Jordan: ￼Probably the third company that you were going to mention was Oracle. Oracle has the leading market share in Property Management Systems. Much more focused on the Enterprise side of things, but they've built out modules that will manage other aspects of the hotel through an acquisition of a company called Micros. So they have a huge market share.
Then the two giants in the space are Sabre and Amadeus which are really moving to build what they call their Hospitality Cloud Solutions. Amadeus has acquired a series of companies that do different things throughout the hotel. They now have their own property management system. They have a partnership with Salesforce to develop vertical sales software.
So you do see an element of that in the market. But with the the kind of interoperability of these systems, I see that coming to an end. Hotels are often paying exorbitant fees for things that should be much cheaper. Things that should be evolving much faster.So there's been a huge movement towards smaller companies like ALICE out of New York that just raised $30 million to build operation software. There's a company called Mews Systems out of Prague that's doing an incredible job completely reinventing the property management system, and building their own partner marketplace that connects with their open API.
Manifold: Have you seen any investments around leveraging IoT and big data? For example, It seems like if you could track my movement for example through the hotel through connected devices and leverage that to personalize an experience or improve an offering. Anything you're seeing in that space?
Jordan: It's still early. The real challenge when you start talking about connected devices is that it takes material investments on the part of owners to upgrade their existing portfolio of hotels.
A lot of the innovation around IoT (and in general actually) comes from the gaming market. It's extremely lucrative. If I could track someone's movement through a hotel, what would I really do with that? But if I can track someone's movement through a casino, I could make them targeted offers to play certain slot machines. Or give them freebies and things like that. And so there's a lot more opportunity and monetary value in gaming. So the Innovations usually start with gaming and then trickle down to the rest of the hotel world.
Manifold: What about wearables? Like "Hey we know so-and-so is going to be down for their car in 10 minutes. Valet, can we go ahead and get them?" Anything like that?
Jordan:￼ There's been there's been a few early innovations in wearables, but they've been on the staff side of the business. Historically staff have walked around with walkie-talkies, and that leads to a lot of things slipping between the cracks. That company ALICE I mentioned now has a smartwatch application, so staff can see requests, track whether they've completed them or assign them to a team member.
On the customer side, you'll sometimes see press releases where they put beacons in a hotel in a test market. But it usually doesn't go anywhere. But in terms of really getting traction - again, if you're Marriott and you want to have beacons in your hotels, you need to either take that out of your revenue, or convince owners they need to invest in it and prove a real ROI.
Manifold: ￼You talked about CRM a little bit. How advanced are they in terms of personalization and creating omnichannel experience - you know, taking my website activity and translating that to my experience on property, or vice versa?
Jordan: Absolutely. There's a whole category of companies called direct booking platforms. There's a company called Triptease that has done an incredible job. I think they have somewhere around 30,000 hotels globally.
If I get a booking through booking.com, I'm going to pay 20% commission to them as an independent hotelier. And if I get through my website, I pay nothing. So how do I get people to book through my website more frequently?
The initial product was just a popup on the hotel website that would compare the hotel's website with booking.com. So they could advertise that they were going to get a better experience if they booked direct. That evolved into more customer relationship management and analytics, and referral links to figure out to send personalized messages. And now they're adding live chat so they can communicate directly on site. And if you stitch that in with your property systems you can see a lot of information about the guest when they get there.
The other aspect that's been really interesting is verticalized CRM for hotels. I think it was Excel and KKR that invested a significant growth round in a company called Cendyn out of Florida that does CRM. And it started out really just looking at recency, frequency, monetary value and trying to send email campaigns to guests at the right time.
There's a company called Revinate out of San Francisco that started out as reputation management software. And so they started out helping hotels manage TripAdvisor and Metasearch reviews and all that at scale. Now they have the guest data and now they're starting to connect that into a CRM product. So you can use data and insights from reviews online to determine what your email marketing strategy is going to be.
Manifold: ￼It seems like the Expedias and TripAdvisors of the world would change how loyalty works, making people less brand-loyal. Is that accurate?
Jordan: It's definitely one of the biggest worries brands have. When you dis-intermediate on the booking experience and you really commoditize the offerings, my options are I choose a brand that I know, or maybe I have a travel agent recommend it. But if not, I don't know what I'm getting when I get there and I don't want to risk that on my vacation.
What those sites have done is brought transparency. So instead of saying brand or I don't know what the heck I'm going to get, its what's the price? What's the quality? So I think it definitely decreases brand value.
In tandem with that you have an explosion of Brands. Marriott today, with the Starwood acquisition, has something like 35 or 40 brands. In the early 2000s you started to see these Hotel companies sell off their assets to have more capital-efficient operations and businesses with higher return on equity for their investors.
By offloading all the assets on their balance sheet, they were just taking in management fees and really looked like service businesses that were highly scalable. So what happened was a "flag race". The development teams from all these different companies were going out and trying to put their flags and brand these properties everywhere. What's the real cost to Starwood to add a new St. Regis into the portfolio? It's nothing. It's all incremental.
They're going to go put up the St. Regis flag, give them the brand standards, plug them into the distribution network. When you go out into Atlanta and you sell an owner to put a Marriott flag on it, and you want to pitch another owner down the street that they should become a Marriott, you can't do that because of your brand standards. You can't have two Marriott's within a three-block radius.￼￼
So you create a new brand so that you can increase your market share. So they've created all these Brands so that they can go out and cross-sell two different owners in the same market.
￼Now what's happening is the brand proposition changes for not just the customer but for the owners of the real estate. You might try to sell me a Sheraton flag instead of Marriott. But you're plugging me into the same distribution channel. Who's to say that you're that you're not going to cannibalize my business when Marriott becomes a more profitable channel for you?
Both on the consumer side, the disintermediation has diluted brand value, and on the owner side, you have to pay these exorbitant brand fees. What do you really get for that? That's the real question that a lot of these brands are struggling with.
But these are all kind of relatively new problems. The change in business model for the Marriott's and Hiltons of the world has enabled them to have really immense growth even in the presence of an Airbnb and the Expedia's. So fortunately everybody's winning right now and travel's moving up. But it's a real question those guys are going to have to address eventually.
Manifold: What do you think is most exciting from an innovation perspective in the space?
Jordan: I think it's really about a unified experience. So, figuring out how do you deliver the conveniences in the consumer world into the hotel? For example, bring your own device into the hotel room for your entertainment system. Instead of paying 20 bucks for a pay-per-view movie, just login with your Netflix.
I also think guest messaging and customer experience. There's a company out of LA called Whistle the does an incredible job just making it so that guests never have to call and go on wait to get with room service or to book a spa appointment or to get with the front desk.
And then on the consumer side a lot of the innovation comes in from luxury and from gaming and then trickles down. Some luxury properties we're seeing are working with technology to create innovative experiences. Obviously design is a huge part of the value proposition of a hotel, especially in the age of Instagram. And we're seeing some really high-end properties start experimenting with digital art. Taking really high-end fine art and animating it to create a really immersive experience.
What these guys at Wrapped are doing is creating ultra-high res art. And they're using the same technology that Game of Thrones is using to create the dragons and CGI and they're starting to animate art to create a really big wow factor when you get into a hotel.
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