Thursday, 9 June 2016

Digital Keys - a new weapon in the fight for hotel bookings?

As the hospitality industry knows, Online Travel Agencies (OTA) (such as Expedia and booking.com) bring additional bookings to hotels, but while doing so, the hotel pays a commission(between 10-30%) that it could otherwise have avoided via a direct booking on its brand website. This well documented war between the hotels and the OTA's has been ongoing since the birth of the Internet - e.g see this Tnooz article here 

Could digital keys be the new weapon a hotel can use to fight back against the OTA's?

Lets break it down in simple maths - lets say you own/manage an independent hotel of 100 rooms and you're nightly tariff is $100 a night. So every time that someone books a room at your hotel lets say at Expedia.com, you have to pay a commission of 30% to Expedia so of that $100 a night tariff, you have to give $30 to Expedia, and pocket the $70 yourself.

As the owner/manager of the hotel you have to use that $70 to pay for cleaning staff, towels and sheets to be washed, little soaps and shampoos, plus electricity, wif-fi, and other running costs for the hotel and so on and so forth. On average it costs around $50 a night for the cleaning costs (including wages of housekeepers), so that doesn't leave much left for profits for your independent hotel of 100 rooms at $100 a night right?

Now lets say on an average night you get 75% of your bookings from the OTA's, and you have an occupancy rate of 75% too (that is three quarters of the rooms in your hotel fill up on average a night and three quarters of the bookings come from OTA's). So in one night you have to pay $30 for 56 rooms to the OTA's (0.75 x 75) which is 56.25 rooms a night booked at OTA's x $30 commission = $1687. So just for one night to run your hotel you've had to pay $1687 to OTA's, that you could've saved if only the guest had booked on your website.

As the hotel owner you could have used this $1687 to cover the costs of offering free wi-fi for the year for the entire hotel (perhaps you are now charging for this service); you could have used this money to re-tile the bathroom in one of the rooms (perhaps the tiles are getting old and mouldy); you could have used this money to paint two new rooms (perhaps the rooms in your hotel are growing old, and needs a new paint job); you could have used this fee to pay a concierge staff for four weeks to improve the service to guests at your hotel. I think you get the picture; the costs small to medium sized hotels are paying the OTA's could be used for capital improvements or adding services to the hotel to improve the guests stay. Also if you the hotel owner/manager were saving this sort of cost on a daily basis, you might even be able to reduce the nightly tariff in the long run too. Over a year your saving would be around $615,755.

You're local politician would surely get excited by you the hotel owner with all this new money that you could spend in your local economy, creating more jobs and growth. Heck, you could even use this money every year to build a new hotel every year too. Now there is jobs and growth.

Who will win the battle? The OTA's or the hotels?


Now here is where it gets interesting - as of today, Expedia had a valuation of $16.25 billion and yearly revenue of $9.35 billion. Priceline which owns OTA's such as booking.com and Kayak has a valuation of $66.5 billion, and annual revenue of $9.5 billion. And what is their contribution to your local economy? Zero?

Sure you might say, well Expedia and booking.com and the other OTA's offer cheaper room rates, and a bigger range, its easier to book with them, and that's why you book there. The reason why the OTA's can offer the cheaper rooms rates is usually because the hotel are desperate to fill their rooms and get the occupancy rates up, so they've sold their rooms to the OTA's in advance for cheap rates, so they can in turn offer a cheaper rate to you the guest. As you can see its a bit self perpetuating here. Sometimes if you get in direct contact with the hotel they should be able to match the advertised rate at the OTA's if you book with them, because they know they will say 10-30% on the booking from not having to pay the OTA. But of course this is not always this case.

But think about this - change happens with you the guest - the next time you travel and complain that the hotel rooms are too expensive, or that they don't have free wi-fi, or the rooms are dirty, or there is mold in the bathroom, or this is the hotel from hell, and we should send in Gordon Ramsay to make his next TV show here, remember if you have booked at the OTA, then you should take some responsibility for these complaints.

Now imagine if there was a way where you didn't have to make the booking at the OTA, but you could still get cheap rooms, and the booking process was even simpler than the OTA, and if you knew that the hotel was getting the full amount of the money you paid (sure, the hotel is not a charity and we are not trying to appeal to your heart strings here, but atleast you might feel better that the hotel should be more motivated to make your stay better, as you've given them more money - hey they might even give you a free drink at the bar, or a bottle of wine if they knew you were a regular customer and you booked with them, and not the OTA).

Now imagine also if you didn't have to queue to check-in, or spend a few minutes at the desk signing forms and waiting for the receptionist to check you in, and you could check-in on your phone by hitting a couple of buttons on an app in seconds. Now imagine that you could use your smartphone, a code, or a NFC token such as a ring, or band, or BYO card to open your door, so that you will never be locked out of your room by a failing keycard? Imagine that you can sleep safely in the room knowing that there are no copies of metal keys out there, where anyone could let themselves in at anytime and steal your stuff in your room or attack you? Imagine if the range of hotels available to stay in were more prevalent as they had 'virtual 24 hour reception desks open', which means you could check-in at night or early morning on your phone if you had flights at this time?

Would you be interested if this product existed? Well it does exist and its called Digital Keys. If you are a hotel or guest interested in learning more about the values and benefits of digital keys please email us at steve@digitalkeys.co


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