I keep thinking back to Greg Marsh’s closing keynote address at the Revenue Strategy Summit this past summer in Washington DC. The founder of OneFineStay said the hotel industry would look fundamentally different in the next two decades:
“Change is coming. I think we’re seeing the beginning of it as we come off the current investment cycle and start to feel these factors really bite. And what will emerge 10, 15, 20 years from now will be a global hospitality industry that has a fundamentally different shape than the one we’ve grown up with. The way people use technology, mobile phones and the way people use marketplaces for accommodation services — it’s not going to go back in the bottle. The genie is out. The hotel industry will not emerge in its current form.”OTAs are adapting faster than brands to a dynamic and digital marketplace, says @ptbosworth Click To Tweet
Marsh said exactly what I’ve been thinking for more than a year. Those same thoughts returned again this past month when I read that Expedia was launching revenue management services. On the surface, it’s not huge news. But the powerful online travel agency is now offering hotels more traditional business-to-business services, much like Priceline has done with BookingSuite. The other half of the duopoly acquired Buuteeq and PriceMatch and now provides digital marketing and revenue management solutions for hotels.
It’s not just that the two massive OTAs are moving beyond marketing and distribution and now providing the kinds of services hotel brand companies have built their businesses on for decades. It’s also changing consumer preferences, a dynamic and digital marketplace and a lack of technological innovation from the companies that need it most.
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Global hotel brands ripe for disruption
The hotel industry isn’t going away, but like Marsh, I think we’re in the midst of a sea change. Right now, it’s mostly the smaller, less sophisticated independents already relying on Priceline.com for distribution that are signing on for the additional services. But it’s not inconceivable to think that growth for the OTAs might move upstream and their new B2B offerings could become more enticing to owners who have traditionally gone the way of a franchise.
In Clayton Christensen’s 1997 book, “The Innovator’s Dilemma,” he described the challenge incumbent brands face from typically down-market competitors:
“Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream.”
Does what is happening in the hotel industry meet Christensen’s definition of disruption? I’m not sure, but I think the incumbents are facing an uphill battle with what technology giants Expedia and Priceline are doing, especially when it’s combined with a growing segment of consumers who no longer need or want to trust a brand. They’d rather explore markets and accommodations that are uniquely local, and they can (and do) research and validate their options online through social media and review sites.
It’s why Airbnb, HomeAway and OneFineStay have grown so quickly, and why the boutique and lifestyle segments of the hotel industry have flourished in recent years.
For the major hotel companies, the question becomes why would the customer, hotel owner or developer choose them. If consumers want something different and can find it on their own, why would a hotel owner pay franchise fees when they could potentially spend less, partnering with OTAs and other innovative technology companies for distribution and the key services they need, and increase their reach to consumers and maximize their return?
Incumbents begin to respond
Of course, the brand companies realize this and are adapting. It’s why Accor bought OneFineStay and why they are also now selling rooms for non-Accor hotels on their website, almost like an OTA. It’s why nearly every major company has launched a soft brand, or multiple ones, and why other lifestyle brands focused on the local experience are thriving.
It’s also why Marriott bought Starwood and why many of the other hotel powers are looking to expand through mergers and acquisitions in an effort to match scale (Expedia and Priceline) with scale — for not only distribution, but also marketing and technology spend. And why we are beginning to see some of the incumbent brands moving away from building their own systems, instead moving to the cloud and partnering with companies whose only focus is technology.
Innovation isn’t easy, but it’s reassuring to see the industry’s biggest players beginning to move in new directions. All of these efforts are aimed at one thing: providing customers, franchisees and owners more value. If they can’t, other companies, like Expedia and Priceline, have proven adept at taking advantage of the hotel industry’s shortcomings.
The hospitality industry is a fabric of our society and isn’t going away. It will continue to expand as it has for decades, but the hotels we’ve become accustomed to thanks to Kemmons Wilson and Bill Marriott may not look the same 20 years from now. Or at least the signs — or flags — on those hotels may not look the same.
We’re in the midst of fundamental change. In two decades, we may not have the same handful of global hotel companies control the hundred or so brands that make up the majority of the industry. We may not have that many brands.
The genie really is out of the bottle. The companies that recognize this will adapt and innovate.
- Don’t Leave Innovation To The Intermediaries
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Latest posts by Patrick Bosworth, co-founder and CEO (see all)
- How Hotels Should Respond to Airbnb’s Growing Ambitions - December 23, 2016
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Tags: Accor, Airbnb, Bill Marriott, BookingSuite, brands vs. OTAs, Buuteeq, Clayton Christensen, Duetto, expedia, future of hospitality, future of hotel industry, Greg Marsh, HomeAway, hospitality sea change, hotel brand innovation, hotel innovation, Kemmons Wilson, Marriott International, Onefinestay, online travel agencies, OTAs, Patrick Bosworth, Priceline, Priceline.com, PriceMatch, revenue strategy summit, Starwood Hotels & Resorts Worldwide, The Innovator’s Dilemma