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Who will win the bright future of AI in hospitality?

Posted By Nick Vivion, Wednesday, January 9, 2019

There’s a high-stakes game afoot in the hospitality industry. From robots to software, vendors, brands, and platforms are all vying for a piece of the data-drenched future of artificial intelligence in hospitality.


Thanks to plummeting costs of data storage and processing, it's now possible to both capture and process large amounts of data at a reasonable cost. Nearly every hotel uses data to make decisions, streamline operations, and improve performance.  The growing importance of data puts pressure on hotel brands to optimize performance better than their competitors.


In order to achieve peak performance, hotels have a few options. They can turn to vendors for off-the-shelf software, outsource innovation to third-party booking channels, and/or invest in bespoke solutions. As technology reaches across all parts of hotel operations, most choose a blend of these approaches when building a tech stack.


So, as the tapestry of hospitality technology weaves wider, who wins the future? Is it the vendors that become the inseparable backbone of hotels? Or the third-party platforms that invest much of their commission income into innovation? Is it the major hotel brands that can afford to build technology as a competitive moat? Or perhaps it's the independents who aren’t beholden to parent brand’s technology prescriptions? Let's explore.


Vendors


Choosing a vendor is akin to a marriage -- an intertwining of fortunes that’s difficult to unravel should things go sour. This is especially true of mission-critical systems like the PMS and CRS. Once implemented, it can be a nightmare to switch vendors.


This means that vendors are in a strong position to own the future of AI in hospitality. These are the systems that sit at the center of the hotel operation, pulling in disparate data sources into one centralized channel. The access to data places power in the hands of those who control the mechanisms for making sense of that data.


Why they win: Given the stickiness of these deep integrations, vendors are well-positioned. If hotels rely too heavily on vendors, with no internal capabilities, vendors could take advantage of this dependence. Vendors also have data from across customers that can be anonymized to uncover behaviors that individual brands or other platforms might not be able to.


Platforms


The major OTAs, as well as alternative accommodations platforms like Airbnb and metasearch players like Google, position themselves as innovation leaders in hospitality. The standard brand position from most of these players is that hoteliers pay commissions to fund innovations that increase bookings. The alignment incentives are there: platforms make money when a customer books a room. The greater the value of the booking, the higher the commission.


The narrative of innovation is powerful. Many consumers actually start their searches on OTA and metasearch platforms; most believe that these channels provide the best deals, per the AHLA:


“An overwhelming majority (79 percent) of consumers believe these “digital middlemen” will yield better deals – a belief fueled by misleading marketing practices such as extreme discount pricing that is not based on an actual room rate set by the hotel.”

The verbiage from the AHLA shows how contentious the battle for the guest can be. Many hotel brands were at a data disadvantage, as the platforms took advantage of their massive data sets to improve conversions, optimize marketing, and incentivize end-to-end travel bookings.

 

Graphic from Expedia's 2018 Generations on the Move research.


Many OTAs are even bridging the gap between channel and vendor, offering software services that reflect a desire to be both a booking engine and technology partner for hotels. Expedia’s “tech platform for hotels” is perhaps the most direct example of how booking platforms are positioning themselves for the future.


Why they win: Platforms have far more data on consumer browsing and booking patterns than any one vendor or hotel brand. The valuable insights within this data can be leveraged to convert lookers-to-bookers more effectively than other channels. The focus on conversion delivers guests to hotels, and the data on both consumer behavior and marketing optimization keep consumers coming back. And a “one-stop travel shop” has great appeal with many travelers.


The majors


The guest experience is in the hands of the hoteliers. When it comes to affecting how a guest flows through a property, and which technology a guest interfaces with, the hotelier controls all of the levers.


There are fruitful opportunities to use sensors and algorithms to optimize hotel operations, understand the dynamics of a guest’s stay, and to experiment with emerging technologies (like robots). By customizing existing solutions, such as IBM Watson for Hospitality, major hotel brands leverage sophisticated knowledge into customized solutions without ceding complete control to an external vendor.


The majors also have a huge loyalty advantage: keeping guests within its closed ecosystem lowers customer acquisition costs and furthers guest relationships.


Why they win: Hotels have something vendors and platforms don’t have: control over the actual guest experience. Technology investments can be far more integrated into the hotel, meaning that hotels have a chance to complete circumvent vendors and platforms. It would be costly, but major hotels could focus on direct booking, building proprietary technologies, and using loyalty incentives to keep guests in a closed loop. Then the data is all theirs, as is the ownership of the future.


The independents


Last -- but definitely not least -- are the independent hotels. These brands, which range from smaller budget operations to single property luxury boutique hotels, do not come with larger tech budgets or the support of a global organization.


What they do have is a focus on the guest experience that benefits from being far closer to the guest. Smaller properties can deploy new technologies more quickly, so independents have a speed advantage when it comes to experimenting with new technologies. If done at a rapid pace, independents might learn faster than the majors when it comes to if new technologies belong in their hotel, and how best to implement them.


Why they win: Cover your ears, technologists: Technology might not be the right answer for all problems. The independents might actually win the future by focusing less on artificial intelligence and data, and more on direct experience with guests.


It’s all about the blend


The truth of travel is that everyone needs one another. The blend is the answer. A smart GM approaches distribution and guest experience technologies with a cohesive mindset that mixes and matches the best solutions for a given property. Continuously tinkering with the blend is really the way to win the future of data-driven artificial intelligence in travel.

Influence your own opinions on who will win the future of hospitality technology at our upcoming conference in Los Angeles. Register here!


Tags:  AI  emerging tech 

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