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Insight Comment |
In 1965 Holiday Inn pioneered the world’s first ever hotel reservations system. Holiday Inns across the US were equipped with a Holidex booth in the back office. When reservations arrived from other hotels or the call center, the machine printed them out in a dot matrix onto sheets of perforated paper. The paper was then cut into smaller index cards and filed under the arrival date.
The Holidex reservations system was the most advanced technology the industry had ever seen. Remarkably, Holiday Inn and its parent company IHG used the Holidex system - over various upgrades and modifications - for the next 47 years, an extraordinarily long lifespan for a piece of technology. In another example, prior to rolling out its choiceEDGE system in 2018, Choice Hotels had used the same reservations system for 27 years.
“When we invest in technology, we tend to wring every bit of value out of it we can. In other words, we hold onto it until it falls over and dies,” said John Burns, president, Hospitality Technology Consulting.
“Our accounting people would say that’s a good idea. Our operations people would say it’s questionable because at some point, especially with the speed of innovation in technology, these systems become outdated.”
When the time finally came, IHG reportedly spent more than $120m on replacing Holidex.
Up until the late 1990s, global hotel companies both operated and owned their hotels. Then, institutional investors such as REITs, pensions and insurance companies started to take a greater interest in buying hotel assets, as did high net worth individuals.
By selling off their property, the global hotel brands pursued an asset-light business model that has reduced risk and allowed rapid growth. Could the same principle apply to tech investments? Was anyone interested in buying the second-hand Holidex? No.
Like property, technology requires constant care and attention, but does not retain value in the same way.
“There is very little residual value in tech systems, unlike a hotel or apartment that builds in value. [IT systems] are like cars. They decrease and are amortised. In the end, they’re worth nothing,” said Burns.
Therefore, Accor, Hyatt and Radisson are among the hotel brands that have tried to make money from their investments in technology.
Outsourcing IT
In 2015, Accor opened up its distribution platform to independent hotels to use in a similar way as appearing on Booking.com or Expedia. The venture failed to attract enough independent hotels and Accor abandoned the project after two years saying it was not prepared to match the huge marketing budgets of the OTAs to publicize the service.
Burns offered a reason for the low take-up: “There are some inherent issues and concerns. Basically you run into some caution as a result of the potential for information sharing with your competitors. Hoteliers are happy to have Oracle host their information in a remote PMS or CRS but hesitant to have another hotel company do it for them.”
So, hotel brands have been very good at sweating their IT assets but not so good at generating ancillary revenue from them.
Two major developments have transformed the hotel tech scene in recent years. First, the rise of software-as-a-service and remote cloud technology. This means hotels no longer have to spend vast sums on IT hardware.
Only a decade ago, an asset-light approach to hotel tech would not have been possible because IT systems had to be physically installed at the hotel and were run from servers. Now, instead, hoteliers have become much more confident about outsourcing and using remote technology.
“A cloud-based PMS is doable, so is POS and PDX. So many systems that had to be on property and for which there was no alternative and for which there was always a major capital cost; these have transitioned now to be available as very attractive cloud-based SaaS formats,” said Burns, adding the same is true of corporate functions such as ERP, central res, accounting and HR systems.
Hoteliers pay for SaaS on a guest per day, room per day, or room per month basis, reducing the need for capital investment to a minimum.
The second major development to affect hotel tech is the pandemic and, more specifically, its impact on hotel IT employees and executives. Hotel brands have had to cut staffing levels across the board and that includes IT departments.
On average, it is understood that 40 percent of hotel IT personnel have been laid off. Those remaining can’t do everything they used to do, so they have no choice but to outsource. There is also a new, much younger cohort of IT leaders.
“Suddenly you’ve got a new structure, a new generation running IT and that group is smaller, younger, and they tend to have a heightened sense of urgency,” commented Burns.
“Their attitude is: ‘I can’t build it but I have to have it. Let’s look around for the best-in-breed and get it underway right now.’”
What Next?
A new generation of tech firms - names like Mews, Apaleo, Atomize, Pace - are getting close scrutiny from hoteliers for offering the very latest innovative, user-friendly and agile solutions.
Apaleo has developed an API-first platform that pulls away entirely from idea that hotels must use property management systems or any kind of ‘system’ per se.
Apaleo’s founder and CEO Ulrich Pillau said: “The monolithic PMS world is over. We have tons of PMSs out there. Neither cloud nor legacy PMSs have resolved the problems of this industry. It’s actually the opposite. They are the biggest problem of the industry.”
It would be easy to dismiss Pillau’s comments as one vendor rubbishing the competition if it wasn’t for the fact that Pillau himself was instrumental in developing the very PMSs that he now believes are obsolete. (He was part of the team that developed Fidelio, the first PC-based PMS in the 1990s and Hetras, the first cloud-based PMS in 2011).
In any case, Apaleo is not in competition with PMS providers because it is providing a platform, not a PMS. “We make hotel technology as easy as using your iphone. We provide the platform which is very scalable. Any hotelier can select and put their own tech stack together, and any app provider or software company can go onto the platform,” explained Pillau.
Apaleo’s business is growing rapidly, but the main obstacle is that many hoteliers are still used to the old world of hotel technology, of big projects, upfront fees, integration costs and long timescales.
“Obviously the overall expectation is how complicated hotel tech is and how closed PMSs and other systems are, so that’s the main challenge to overcome and make people aware that today it is much easier and faster and it’s totally different,” said Pillau.
Increasingly, hoteliers today can pursue an asset-light approach to IT and the days of investing in expensive hardware systems are a thing of the past.
But, unlike property, sooner or later, technology becomes obsolete. How many of us use a Blackberry, Nokia or Motorola phone these days? There was a time, not very long ago, when these brands were ubiquitous.
Compared with consumer goods, however, hotel tech has historically demonstrated much greater longevity. Is there any guarantee that the new generation of hotel tech vendors will have the same staying power as Holidex?
“No there isn’t,” answered Burns, “But that’s balanced by the fact that we’re not making that Holidex-style investment anymore. So we can move and leap to the next generation when it emerges. Agility is one of the key characteristics hoteliers are looking for in our new vendors.”