As large as the hotel industry has become and as steady as it has grown over the years, the technology powering it has not kept pace. Innovation has come from companies focusing on the consumer side of travel.
Online travel agencies like Priceline and Expedia have grown to become multi-billion-dollar players dominating the customer shopping experience, and many others have tried following suit, from emerging companies like HotelTonight to retail giantAmazon, which recently launched its own hotel booking portal.
That trend isn’t slowing, but it seems others are beginning to realize there is an incredible opportunity for technology innovation within the industry.
In the past 18 months, billions of dollars have been invested by a wide array of companies targeting many of the different kinds of systems hotels use to run their businesses.
These companies, many just entering the space and others doubling down on it, show that the global hotel business is massive, growing and hungry for better technology.
As of last December, IBISWorld’s Global Hotels & Resorts Global Market Research measured the industry at 709,000 hotels, resorts and casinos worldwide with revenues reaching over $1 trillion. What’s staggering is that those numbers are growing — and at record levels.
In the U.S. for example, revenues increased 10 percent in 2013, another 8.3 percent last year and record revenue growth is forecasted for this year, according to STR Global, a research and analytics firm tracking the industry. STR also counts 3,566 hotel construction projects under contract in the U.S. alone, with another 2,384 in Asia Pacific.
Technology, though, has remained relatively stagnant. The hotel industry has always lagged and suffered from tremendous fragmentation among the various systems needed to run a hotel (property management, central reservation, customer relationship, revenue management and channel management systems).
“Few other industries face a technology environment as large and complex as the one found in the hotel industry,” noted the whitepaper that launched the global trade association Hotel Technology Next Generation back in 2002. Back then, HTNG counted more than 100 different categories of systems commonly used in hotels. Today, it lists just under 50 product categories on its website — a number still larger than you’d find in most of the other leading industries of the economy.
Many hotel brand companies and individual properties live in a world of on-premise client servers and use a multitude of legacy and disparate technology systems. In theory, they work together to facilitate and manage hotel bookings, reservations, on-property management, pricing and customer relationships. In reality, those systems aren’t easily integrated and rarely in sync.
Despite record revenue gains, a lack of technology innovation is partially to blame for sluggish bottom-line growth. As tech advancements have driven change on the consumer side and customer acquisition costs have risen, the general trend over the past two decades has been one of profits shifting from asset owner to distribution channel. A recent study from the Hotel Asset Managers Association revealed that although industry revenue was up 20 percent from 2009 to 2012, commissions had increased 34 percent.
With the trend not slowing, hoteliers are beginning to look for new solutions that can help level the playing field.
Times are changing
Expedia’s recent buying spree (Orbitz and Travelocity) has garnered the most attention, but another wave of acquisitions is just as significant and a sign that Silicon Valley is waking up to the opportunity in hospitality.
Software giant Oracle entered the vertical last June with the acquisition of leading hotel property management system provider MICROS, while SAP purchased Concur in December.
Several financial buyers and institutional investors have made interesting moves into the space as well. Thoma Bravo paid $930 million for BI provider TravelClick and Battery Ventures recently bought central reservation system providers InnLink and Trust International. TCV invested in channel manager SiteMinder last year and TA Associates invested in revenue management BI provider RateGain in January.
Some of the top tech companies already in lodging have also grown through acquisition. Amadeus IT Group expanded its network in the group and event space with the purchase of hotel-focused Newmarket International. Sabre, one of the leading providers of central reservation systems, bought the smaller but similarly focused Genares.
The advances brought on by some of these cloud-based providers have driven not only innovation, but now consolidation. Over the long run, hoteliers will benefit from working with larger global companies instead of numerous smaller ones. This will also drive more integrations, innovation and an appetite for even more sophisticated solutions.
It’s already beginning to happen. Brand companies are openly talking about outsourcing, contrary to the do-it-yourself mentality that has been prevalent for decades. Some are even touting best-in-breed partners as a selling point to potential owners and franchisees.
The hotel industry is finally opening its eyes to the cloud and the benefits of a modern technology stack.