The complex and costly web of hotel IT investment

hotel tech card reader
Businesswomen paying contactless with credit card at the hotel reception. (Getty Images)

The pandemic has shone a light on the importance of technology in our daily lives, having accelerated emerging trends, allowing us to work from home, stay safe, connected and entertained in ways that would have been hard to imagine even 20 years ago.

At the same time, the drastic losses in hotel revenues and the need to adapt to the post-Covid world mean that hotel owners have needed to take a long-hard look at how they do things. Cost controls and the very best deployment of technology are high up the list. 

Yet the complex nature of hotel ownership structures and multiple relationships between brands, operators and owners can lead to inefficiencies and overspending.

In the early days of connectivity, some hotel owners put in domestic-grade WiFi which failed within weeks, so all of the brands have since chosen their own certified-internet service providers in order to maintain standards. 

For owners and operators with multiple brands in their portfolio, however, this creates additional complexity and prevents them achieving economies of scale by having the same single provider across all their hotels.

Individual purchasing decisions made by each hotel in a group can also mean owners are spending too much.

“IT has often been one of those overheads that are ignored to a certain extent, or brushed under the carpet by operators,” said Kevin Edwards, director global business development at Alliants. 

“I performed a review of 17 hotels in the Middle East on behalf of the owner, all run by international brands, and just through standard procurement processes there was over $1.3 million in annual savings. And that wasn’t doing anything fundamentally different. This was basics which hadn’t been addressed. Because they were all managed in isolation, there was no helicopter view of their overall costs. This was basic housekeeping that had gone by-the-by.”

When times are good, hotels are focused on growth and service delivery. Busy managers may tend to push creeping cost increases into to the background. 

Search For Efficiencies

The pandemic, however, has provided an opportunity for owners to stop, take stock, and look at how to achieve greater efficiencies.

Sagi Saltoun, CEO and founder of Cardonet, recommended a number of areas that may have been overlooked for years if not decades: multiple internet service providers within the same hotel that could be consolidated down to a single provider; the removal of the in-room telephone system; the number of electronic payment machines rented; and switching admin telephone lines to SIP or VoIP.
 
When hotels change hands, a different risk for the new owners might be a history of under-investment in IT. An investor looking at buying a group of hotels needs to know what level of tech debt they are buying into, but it may be hard to get an accurate record of the investments that have (or have not) been made in IT.

The previous owner may, understandably, have chosen not to spend on major tech investments. A decent WiFi infrastructure has a lifecycle of around 4 and a half years. How long will it be before the new owner is liable for a costly upgrade? Buying into brands with mandated but outdated legacy systems could prove expensive too, with greater difficulties and costs involved in achieving the desired integrations with the property management system. 

According to Edwards, when it comes to making “tactical and generally capex heavy decisions about IT infrastructure” there is a communication disconnect because the only real contact that hotel owners have is with the local IT managers, while it is the brand’s senior leadership that is responsible for the brand’s reservations system, loyalty programme and overall IT strategy.

“There’s a real stakeholder management issue in the global chains which needs to be addressed,” he said. “Owners are increasingly frustrated with the lack of visibility and clarity when they receive their annual requirement for capital investments into the hotel.”

Who Really Pays?

Nearly all IT functions are paid for and managed by the operator (either directly or as part of the franchise agreement) and reported on the hotel’s P&L. It is hotel owners, however, who directly cover the costs of on-site hardware.

This wasn’t always the case. Up until around 2012, some internet service providers invested in hardware at hotels in return for a share of the revenue made from charging guests for WiFi. Today, of course, it is almost unheard of for hotels to charge guests for WiFi usage.

Vibhu Gaind is chief information officer at RBH Hospitality Management, a UK company with several brands in its portfolio of 45 hotels.  He stressed the importance of clear communication with his owners (who include high net worth individuals, families and private equity funds) when preparing them to invest in IT hardware.

“We always make sure that we communicate early on. You have to storyboard the journey and merit it against what the guest expectations are. We start by going to our owners with a three-year capex plan saying, guys, we expect you to invest X in year one, X in year two etc... It’s the same journey as you would have with any other plant equipment in the hotel. It’s equal to updating your boilers or hot water systems. It has to be treated as a bare, basic essential utility,” he said. 
Edwards, on the other hand, argued that the division of responsibility for IT costs should change. “Everyone seems to think that owners have bottomless pockets just to pay for things,” he said.

“Maybe what needs to happen is that the operators take a greater degree of management responsibility of IT and actually everything is delivered as a service and the onus is back on the operator to really make the right investment decisions on behalf of the owner. Yes, owners will see an in increase in the monthly management fee, but actually IT costs versus profitability and the incentive of the operators would be refocused,” said Edwards.

So technology costs continue to be a controversial subject for many hotel owners, but rather than just being seen as a cost, the most intelligent deployment of tech should result in operational savings too, argued Gaind.

“We are always in the market, benchmarking our value. While the tech stack is ever growing in the world we are in, we are able to leverage tech to reduce costs as well, and make sure that there is always a ROI for each and every investment plan,” he said.