Hospitality Financial Leadership – Why Technology Has the Hotel Business Bootstrapped

Bootstrapping is a statistical metric that uses random sample replacements. That definition is not for me, so bootstrapping also has a broader slang meaning that most people get.

It means you are stuck or at least unable to take big strides to alleviate or remove the problem that is literally at your feet.

In the hotel world it is the operational technology stack that has us all bootstrapped. That is what this piece is all about. How we find ourselves in this predicament and how we might be able to literally run away from it.

To understand and begin to solve this problem we need to look at our structure. In the broad hospitality landscape, we have different stakeholders that all have different resources, divergent business models and dissimilar customers.

With all these unique aspects one commonality exists when it comes to technology. That is, not one of these stakeholders wants to or can easily invest and develop the kind of broad hotel “operating technology solutions” that we all know we need. Why? You are probably asking. The answer why is the classic business response – who will pay for it?

Let’s examine this stakeholder situation further to better understand. We will look at each large hospitality player and assess their interest and willingness to invest in technology.

Brands

Today brands do not own very many hotels, they sold them all years ago and they now manage these major assets for an ever-divergent ownership base. So, investing in technology at the hotel level is a non-starter because the brand would need to convince this broad spectrum of owners to pay for it and that is very challenging, if not completely impossible.

This has been tried in the past with little success. Too many industry-technology options, too few owner capital dollars, non-existent brand capital investment in hotel operations technology, and no industry consensus on a real solid platform.

Next, there are the Franchisors

Franchisors do not sell or provide technology beyond reservations, loyalty and marketing, and these are all brand-centric products. The franchisor’s business model is developed around fees based on revenues and reservations as well as marketing programs. They do not mandate or require any specific named operational technologies to their franchises because they cannot.

The franchisees will not line up and pay for these operating technology platforms for three reasons:

• One, they are expensive and the owner of the hotel is not interested in a long-term payback that technology requires.
• Two, the franchisor does not need the same operating technology in each hotel to be successful, they make their money on the hotel’s top-line revenues, not the profit.
• Three, hotel franchises already must pay monthly fees in the mid-teens as a percentage of total room revenues just to keep the name on the door and are not willing en masse to be further encumbered.

Last player is the Owner

Ownership in hotels is very broad-based. You could even say it is opaque. There are some large institutional owners, there are REITS, there are individual owners and there are just about any combination or permutation of any business entity that might call a hotel part of their company.

This is really the 100,000-pound gorilla in the room. Ownership dips its quill in branded hotels as well and together with franchised hotels.

An owner has a profound interest in the performance of their assets. However, they do not have the collective horsepower to get together and come up with an operating technology platform that would equal wanting to make a further investment on any meaningful scale.

In the end the big players in our industry: Marriott, Hilton, Intercon, Wyndham, Choice, Accor, Hyatt, etc., do not own the assets. They manage or franchise them. These management and franchising models are asset-light and almost asset non-existent. Until this reality changes, we will not see owners meaningfully invest beyond the traditional PIP when it comes to operating technologies.

What is needed in hospitality is the one-stop shop and platform that takes care of everything and that will not happen anytime soon because today no one wants to pay for it.

What, pray tell, is the solution?

To find that we must go back to the beginning. The only way out is the big players getting together and phasing in a technology fee that owners will have to pay.

If the big players get together and seed this development and get the technology right, then I believe over a 10- to 20-year window our industry can adopt technology in a meaningful way and change the way we operate the hotels we do not own.

Owners and franchisors have the tools in their agreements to do this. It is called the standard and it has been used to introduce and get owners to pay for other things in the past.

Until the vision is clearly understood, and the commitment is made, we will never get the owners on board. I believe if we can work among ourselves, we can save our industry.

Build it and they will come. That’s what I say.

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