What the recent travel tech deals mean for the hotel industry

Expedia’s $1.3 billion acquisition of Orbitz has drawn plenty of headlines in the mainstream media, but there have been several other acquisitions that have flown under the radar.

NB: This is an analysis by Patrick Bosworth, CEO and a co-founder of Duetto.

Some of these could be more significant for the hospitality industry.

Yes, Expedia getting bigger and swallowing Orbitz and Travelocity will have repercussions. Hoteliers will lose even more negotiating power as the online travel agency duopoly gets stronger and the alternatives diminish.

But the billions spent in acquisitions by companies such as Oracle (MICROS), SAP (Concur), Priceline (Buuteeq and Hotel Ninjas), Amadeus (Newmarket International), Sabre (Genares), Thoma Bravo (TravelClick), Battery Ventures (InnLink and Trust International) also have my attention.

Those purchases, along with TCV’s $30-million investment in SiteMinder last year and TA Associates investment in RateGain this year, signal a recognition that the global hospitality industry is huge, growing and hungry for better technology.

The different kinds of buyers entering this space are truly remarkable. Global tech giants such as Oracle and SAP see an opportunity in a new vertical, while Priceline shifts its focus a little and moves into the B2B software space.

Financial buyers and institutional investors like Thoma Bravo, Battery Ventures, TCV and TA Associates are outbidding each other for healthy and growing companies and not identifying the turnaround situations often found in their portfolios.

Trade buyers like Sabre and Amadeus are getting a wake-up call.

But this is positive for hoteliers. Hospitality has always lagged in technology and suffered from tremendous fragmentation among the different systems needed to run a hotel (property management, central reservation, customer relationship, revenue management and channel management).

These new cloud-based companies are driving innovation and now consolidation as they are being acquired. Hoteliers will benefit from working with fewer and larger companies providing the bulk of technology and there should be more opportunities for integration of systems.

The resources behind these large companies will improve the quality of technology and the ability for hoteliers to serve global customers. With better backing, smaller companies will be able to grow and scale their innovations much faster.

This is a necessary and critical step in the maturation of the industry. A modern technology stack will better serve the growing needs of hoteliers, who are realizing their legacy and on-premise systems aren’t effective in a complex distribution world dominated by tech-focused companies such as Google and Expedia.

While these investments will provide hoteliers with better tools, there could be some short-term disruption along the way. Smaller vendors could be shuttered, products replaced and in general hoteliers could have less leverage with the global companies than they currently have with local and regional players.

Costs may increase as the bigger players narrow the field, but so should the innovation, integration and efficiency of their products.

Savvy hoteliers follow these developments; they look at the ecosystems their vendors exist in and where these vendors fit strategically  in the marketplace. Hoteliers must consider how successful, scalable and strong a potential new partner will be. There are hundreds of options out there. The best companies will grow, some will get bought, others will stall and fade away.

There could be consequences to choosing a regional provider or one with poor technology and bad business practices. If a company is taking shortcuts by screen scraping, mimicking keystrokes in other applications or not being adequately staffed, the system and its services may be unreliable and the company might not be around in two years.

It may be more expensive to work with a company doing it the right way, but taking the cheap and easy option may cost you more in the long run.

NB: This is an analysis by Patrick Bosworth, CEO and a co-founder of Duetto. It features as part of Tnooz’s sponsored content initiative.

duetto 400wNB2: Image by Shutterstock

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Viewpoints

About the Writer :: Viewpoints

A founding principle of tnooz was a diversity of viewpoints from across the spectrum. Viewpoints are articles by guest contributors from around the travel and hospitality industries. The views expressed are the views and opinions of the author and do not reflect or represent the views of his employer, tnooz, its writers, or partners.

 

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  1. Horatiu

    I don’t want to be misunderstood. I’m not defending the aggressive M&A policies, but in the case of hotel distribution (and online business in general) it’s a fact. Have a look on this beautiful graphic (http://techcrunch.com/2014/02/25/the-age-of-acquisitions/ )and you’ll see what I mean. The hotel industry has missed the opportunity to stay fragmented, we are today in a situation of duopoly and the Big Players have no hesitation when it’s about swallowing any new, innovative start-up. If I was a start-up founder I would rather aim to a fast development and a profitable sale of my start-up, than dreaming to become another Mark Zuckerberg.

     
  2. niranjan gupta

    Big companies swallowing small companies is not a solution as this will only stonewall newgen solutions offered by new and innovative startups. What is in hotels’ interest is the systems used by hotels should allow integration with the new offerings rather than alienate them from the eco system. The kind of fees large PMS players demand from other tech partners is the case in point. It is next to impossible to penetrate the barricade they have created to enter the industry.

     
    • Patrick Bosworth

      Niranjan, thanks for the comment. I agree that the interface process and expenses from large established vendors is generally far too onerous and I believe it harms new entrants as well as the incumbents. The advent and adoption of the HTNG standards has helped but much more progress is needed. Our industry must embrace open, self-service APIs, which is now only the case with a handful of companies. I believe the largest technology companies in our industry are missing a huge opportunities to become true platforms rather than just applications and it would solidify their central role in the ecosystem. Again, my hope (although there’s no guarantee) is that many large companies will be taking this approach in the near future to everyone’s benefit.

      New solutions will have more access to capital if the healthy M&A environment continues, which I predict it will, so I do not share your view that it is a bad thing for innovative startups. In the end, if you prove customer traction, I have found PMSs, CRSs and others open to integrating and they can be great partners to fuel growth.

       
  3. Len Cordiner

    I agree Patrick. This space is certainly exploding now. However what we see are really two parallel markets, with the latter the one to watch.

    The first (established) market is the 3 star and above one which has been around for many years and dominated by the likes of Sabre, Trust, Micros, TravelClick, Pegasus etc. These companies provide sophisticated (and expensive) CRS/ Distribution/CRM solutions, well suited to larger hotels and chains having their own online marketing and IT departments etc. There’s been a trend to moving to lower cost cloud based services, however for the most part these companies are still servicing the larger properties.

    The other newer, and much larger market, is the long tail one (i.e. the 3 star and below one), all the way down to B&Bs, apartments etc. These small operators have had little available to them in the way of professional online marketing and booking tools till recently. The tools available for the top end of the market were way too expensive / complex for their needs and didn’t cover all their needs. Small operators mostly don’t have online marketing or IT staff on their team so their preference is for a simple integrated solution (e.g. simple front desk, responsive website, booking engine, and channel manager). The solution needs to be low cost, intuitive to use, and they want local support. For many of the SaaS providers to the 3 star and above market, the move to tackle the long tail market will require both investing in a new low cost cloud based system built specifically for this market, as well as a new sales and support strategy. In short its another business entirely. Some are starting to recognise this (e.g. The Battery acquisition of Innlink and Fastbooking which will complement the Trust products), and it will be interesting to see how this plays out.

    The really big news for us however was the entry of Priceline to this market with their acquisition of Buuteeq (now operating under the Booking Suite brand in the Booking.com stable). Booking.com has been incredibly successful penetrating this long tail market with their OTA offering and have clearly seen the benefits of owning the back end systems all these small properties sit on. With their new service offering they also have the chance down the road to start to integrate value added offerings in the hotel checkout or front desk like rentals cars, restaurant bookings, tours and activities, airport transfers etc. It’s a big play and they are moving at speed now to roll out the new service leveraging the Booking.com office network.

    As we are in the Booking Suite firing line, it will be an interesting time for us over the next couple of years. Inevitably as you mention Patrick there will be a lot of consolidation going on as larger operators get acquired and small ones get squeezed out.

     
  4. wayne w. beaubien

    We offer a unique opportunity for hotels to make money from the current guest spend (leisure & group) but they aren’t spending it with the hotel but they could easily achieve that with our destin platform. We would like to partner with duetto!

     
  5. Horatiu

    And maybe Patrick is dreaming about the moment when one big player will bid a good price to swallow Duetto (think about ezRMS, IDeaS, Optims and alike).

     
 
 

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