Tuesday, 4 August 2015

Our story of building digital check-in part 2

In last weeks blog we listed all the things the hotels didn't originally like about our digital check-in product. In this weeks post we're going to discuss in detail what we did to address these things. Here is the list again of the things the hotel didn't like about our digital check-in product when we first took it to market in 2011 (from last weeks blog post);
  1. The hotels did not like the design on the smartlocks we were interfacing too.
  2. The hotels did not like our business model
  3. The hotels did not like the idea of their guests opening doors with only a time-sensitive code on a numberpad on a lock.
  4. The hotels did not like the idea of only having an app to self check-in, they wanted the guest to self check-in on their website too just like with the airlines.
  5. The hotels wanted the guest to check-in from an Online Travel Agency too such as Expedia, as well as on their smartphone, and as well as on their hotel website.
  6. The hotels did not want to use our ID verification and sign in system on the app, even though this was legal in most countries
  7. The hotels did not want the guests to choose their own rooms
  8. The hotels did not want to learn any new software to operate the system
  9. The hotels did not want to change any of their current practices in how they manage their properties
  10. The hotels wanted to continue to offer keycards and metal keys as an option for guests to check-in
We'll begin with point number one - the hotels did not like the design on the smartlocks we were interfacing too. So what did we do to address this?

The first thing we did was look around for other smart locks on the market that we could interface to. We soon found another smart lock which we thought had a better design than the original one we were offering. So we approached the manufacturer of this new lock, and with their support we built the interfaces to it. This product was also around half of the price of the original lock we had built our interfaces too. The new lock manufacturer even agreed that they would sell the lock product to us wholesale, so that we could mark up the lock to the retail price and package it up with our digital check-in system, and sell the entire package to the hotels. 

This new wholesale agreement we negotiated also helped address problem number 2 that the hotels didn't like, and that was our 'business model'. We had originally proposed to the hotels that we would take a small commission of each digital check-in on a guests smartphone. Although we thought we were doing the hotels a massive favor here by only charging a small commission, even a tenth of the price they were paying to Online Travel Agencies(OTA), they still didn't like this. 

The idea was simple and the theory seemed logical to us - if we could pull the guests away from making a booking at the OTA (such as Expedia or booking.com who charge between 10-30% commission to the hotels to only take bookings), and if the guest could instead use our smartphone app (in the hotels branding) to make the booking (in addition to offering the check-in service), and if we only charged the hotels 1-3%, then we thought that was a win-win for everyone. 

We knew that there was a war going on between the hotels and the OTA's, and we thought our smartphone digital check-in product could help give the hotels an upper hand in that war. But we soon learnt that although the hotels don't like the OTA's and paying the exorbitant commissions, they could not survive without them. We showed to the hotels all the surveys we had found from large travel groups that proved that guests wanted to smartphone check-in, and that they should convert from making the booking at the OTA too our/their smartphone app, but they still weren't convinced. 

The hotels also knew that the guests wanted to smartphone self check-in too (they told us that guests were often asking for it directly at front desks), but they also knew that getting the guests to change their behavior overnight was not as simple as it sounds. The hotels also knew that it would be an expensive exercise in publicity to promote their/our app so the guests would use it instead of the OTA. If you could imagine the scenario where someone has always made their bookings for hotels at say Expedia for oversea's trips, how would they know that one small to medium hotel on the other side of the world had a smartphone app to make the booking/check-in?

We also learned the hard way that although this cheap commission business model seemed great in theory, our software wasn't perfect yet. In addition the commission model was not easy to enforce as a small start-up. The theory with the commission model was that using our software we could track the guests using our system to self check-in, so we could invoice the hotel at the end of the month and demand our commission payment. 

In early 2012 (following on from all our successes we had in 2011 which we discussed in the last post) we made our first sale to a group who set up a new small hotel of 32 rooms in Sydney, Australia. At the end of the month, we sent our invoices to the group that owned the property, but they simply refused to pay us. When we forced the payment issue, the group that owned the hotel argued that they were taking most of their bookings from OTA's and other ways (such as Airbnb and on the phone) and they were then manually entering the booking into our system, so according to the contract we had signed, they shouldn't then pay us commission on these bookings as technically these bookings didn't come directly through a smartphone or web check-in by the guest, and instead the booking was coming from them. Unfortunately we couldn't find a way with the current set up of the software to divide up direct bookings from the guest against bookings made by the hotel managers (taken from OTA's, phone bookings, and Airbnb), and so we didn't get paid our commissions - well we convinced them to pay just a few. 

So if we were going to stick with this business model of a small commission charged to the hotel, we had to go back to the drawing board, and set up the software so that there was a clear line between direct guest bookings/check-ins, and bookings made by hotel management (where-ever they are in the world). Or we would have to change our business model and/or set up new legal agreements. 

On a positive note the self check-in system in the Sydney hotel worked well - it didn't break down, and the hotel group was able to successfully manage the property without staffing an onsite reception desk. There were no complaints from guests. We even built some more features during this project including a guest self log-in to function to extend the room they were currently in themselves (if it had not already been booked) and make a payment and receive a new digital key (in the form of another time-sensitive access code) which was automatically emailed/texted to them.

But we also learned through this Australian hotel project that although the hotel managers wanted the system to be automatic, they still had to devote their time and hassle to take a booking they received from OTA's, phone bookings and Airbnb and physically enter it into our system so that the guests could get the digital key to their rooms and go straight to their rooms.

So we quickly realised before we attempted to sell a completely automated self check-in system we would have to build the interfaces to the OTA's to enable what we promised. Although we had originally built the product as an alternative to the OTA's systems, we realised now that we also couldn't offer our product without them as a part of our system.

So we approached a few Online Travel Agencies and asked if we could interface to their booking engines, but none of them replied. We then learned that instead of wasting our time trying to convince the OTA's to let us interface to their systems, we could instead build the interfaces to them via this product called a Channel Manager. In short our system needs the guests email address, their mobile phone number, their booking dates, their requested room type and exact room, and confirmation that they have paid, so that our system could automatically generate them a digital key for the requested room for the duration of the booking and get it to them via their phone. 

A channel manager makes for better hotel management.

A channel manager is a piece of software that hotel managers use to interface to the OTA's to better manage their properties in real time. Here is how it works for a hotel without a channel manager - the hotel may have their rooms advertised on lets say 15 different OTA's. If a booking occurs at one of these OTA's, then the hotel staff have to then take the guests details/booking dates, usually from an email from the OTA, and enter it into their separate reservation system (which can be another piece of software, or sometime even just a lined pad with days blocked out). Then the manager would have to log in to the OTA portal and change the status of that room from 'available' on the dates advertised to now being 'sold/or take that advertisement for their room down'. If the hotel didn't log in immediately to the OTA's portal and change the availability status of the advertised room (lets say that someone walked in to check-in at their desk at this time), then they could take a double booking by not updating the room status at the OTA. 

And if a hotel has a double booking, and if all their other rooms are full, they have to by law make arrangements for that guest to check-in at another hotel (and cop the expense and arrangement hassles if the room is more expensive). You can imagine how much of a nightmare this could be, especially during busy times such as school holidays, and especially if this same room and same time was advertised at 15 other OTA's. In the space of 15 minutes(whilst they are checking in the guest at the front desk) the hotel could have taken 15 double bookings for the same room from 15 other OTA's. So by hotels having a channel manager, the problem just discussed above can be avoided. The channel manager can communicate with the OTA and update the room status immediately and automatically.  And by us interfacing to the channel manager, we could also extract the data we needed to automatically get the guest their time-sensitive digital key.

So you can begin to see how by addressing problem's number one and two on our list of what hotels don't like, and by actually trialing our system in real life we were able to modify our system and business model to make it better. But there was still a long way to go, as we quickly found out that hotels did not want a smart lock that had a numberpad. So we had to build our own smart lock without a numberpad that worked with our system. We'll tell you more about that in next weeks post.

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