As the tech eco-system becomes increasingly central to business success, a longstanding question remains. Is it better for hotels to keep their technology in-house or outsource?
While today hospitality owners and investors are seeing a mix of approaches, historically, the global hotel brands were undoubtedly innovators in the field of technology.
In the 1960s, a team of engineers at Holiday Inn introduced Holidex, the first ever electronic hotel reservation system. The system was built in-house out of necessity; although airlines were already using similar systems, they did not meet the exact needs of the hotel industry.
Holidex proved to be an extremely cost-effective investment, serving IHG’s needs for almost 50 years, an astonishingly long lifespan for a piece of technology.
When the time came to finally retire Holidex, IHG created a new cloud-based platform called Concerto in partnership with Amadeus, Europe’s fifth largest R&D investor in software. Since rolling out the new system during the pre-pandemic years, this partnership has continued, its most recent fruits being attribute-based selling.
In 2018, Choice Hotels International recognised the need to replace its 27-year-old global reservation system. Should the franchisor build or buy a new one? There had been examples of travel companies trying the ‘build’ option and ultimately failing, causing financial and reputational damage. Nevertheless, Choice decided to go it alone.
“We succeeded where others failed,” said Sireesha Kunduri, VP of engineering at Choice. “While other companies have purchased third-party software off-the-shelf, we knew the best option for our 7,000 franchised hotels was to use our in-house engineers to design a custom solution. After all, no one knows our business better than us.”
Choice took the in-house route before Covid struck. As redundancies spread throughout the hotel industry, a lot of tech know-how was lost. Would Choice be able to build the same system in-house today? Perhaps not.
The pandemic has resulted in smaller and younger in-house IT executives (or none at all), and front-line teams who are joining the industry for the first time.
Consequently, some old assumptions are disappearing, such as needing to stick with the Opera PMS because it’s the only one staff are familiar with.
“Suddenly you’ve got a new generation running IT and that group is smaller, younger, and they tend to have a heightened sense of urgency,” commented John Burns, president, Hospitality Technology Consulting.
“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.’”
Mollie’s, the UK-based motel concept from Soho House, is one such company. With no CIO or head of technology directly employed by the brand, ongoing tech oversight and maintenance is outsourced to the consultants Alliants. The creation of Mollie’s innovative tech stack was project-managed by Alliants during the pandemic.
“The ROI from having the right technology infrastructure in place is crucial today,” said Heather Byron, VP of services, Alliants. “Businesses must move away from the mindset that sees technology as a series of projects or upgrades. It’s not an end game, it’s a constant evolution, which requires expert oversight. That’s why absolute trust in long-term partnerships is so important.”
What do hotel investors bring to the table? Crossover knowledge and expertise from their investment portfolios. Highgate, for instance, has a technology investment arm. Highgate Technology Ventures (HTV) has made investments in revenue management and distribution; B2B marketplaces and e-commerce; business intelligence and data analytics; alternative accommodations (including short-term rentals); travel consumer financing including (airlines, cruise lines, resorts, and tours); restaurant technology; and marketing solutions (including guest loyalty).
Blackstone, the investment giant with significant hotel assets, invests in fintech, proptech, enterprise and cybersecurity companies and directly employs a team of 50 data scientists. Portfolio companies have access to the Blackstone Data Science Community.
“AI is going to dramatically change the ways we live and work,” said Jon Gray, Blackstone’s president, and COO. “As a firm, we’re devoting enormous resources to capturing this opportunity – both to protect investors’ capital and generate higher returns.” One real estate area of interest for Blackstone is the ever-growing need for data centres.
Today, it is common practice for large hotel brands to sign contracts with dedicated hospitality technology companies for both their short-term and long-term needs. The recent announcement from Hilton and HotelKey is a good example.
At the same time, there is a new generation of hospitality/tech companies who seem determined to keep the Holidex-style in-house tradition alive and build their own proprietary products.
These are venture-capital funded accommodation providers that behave like tech start-ups. They tend to employ their own software developers who sometimes have previous experience with companies like Google and Amazon.
At Limehome, a Munich-based provider and operator of 4,700 apartments in Europe, 40 per cent of employees are software engineers and data scientists. The company decided to build all its own technology. Managing director Josef Vollmayr said: “Not only have we completely digitalised the customer journey, we have also completely automated our location analyses. For this purpose, we have designed a digital tool that evaluates the attractiveness of a location on the basis of defined parameters.”
Rami Zeidan, founder and CEO of Life House, said: “We’ve built nine proprietary products and where we are making bets on integrations, it’s been with industry-agnostic products. I think the best innovation comes outside the [hospitality] industry whether that’s software for HR, finance, or CRM.”