By Ian Graham, Arthur Andersen, London 

The dawning of the new millennium has seen the very foundations of the hospitality and travel industries shift as major global businesses begin to adopt eBusiness strategies in both business-to-customer (B2C) and business-to-business (B2B) spaces. But are powerful, networked technologies simply an “add on” to the core business of mainstream companies? Or are we witnessing deep changes in the way hospitality and travel businesses organize themselves? We believe the latter is the case as companies redesign their businesses. 

Hotel and travel companies have traditionally viewed technology as an enabler. Large-scale technology implementations have generally been part of efforts to design more robust business processes to reduce costs, improve quality and speed time to market. Once the opportunities are identified, teams assess the role that information technology might play in the implementation. 

In contrast, Internet technologies are more than enablers in the new economy. They are the drivers of entirely new business models. The successful companies of the 20th century are beginning to understand that the marketplace of the 21st century requires them to acquire and retain a critical mass of valued customers, and they are developing new competencies to deliver new sources of value to these customers. The foundation of success increasingly is the ability to create new business models that leverage Internet technologies to deliver unique value to customers. With these trends as a backdrop, this article explores the key drivers of change that will influence the way hotel companies and their intermediaries use technology tools to reinvent themselves in the years ahead. 

B2C: Drivers of change 

Diverse factors are driving the successful 20th century businesses in hospitality and travel to reinvent themselves for the 21st century using eBusiness. But the drivers of change differ in Business to Consumer (B2C) and Business-to-Business (B2B) spaces. In the B2C arena, the desire to strengthen customer relationships, develop new revenue streams, enhance profit margins and create more value are all motivating rapid change. 
 

Defending the brand 

Internet intermediaries such as lastminute.com and travelocity.com have recently spent large amounts of marketing funds to build brand awareness. Bass plc and Starwood Hotels & Resorts Worldwide, for example, took early equity stakes in lastminute.com, which sells distressed room, flight and other inventory. The business has moved rapidly and successfully in building high levels of brand awareness out of the starting gate. Loyalty programmes targeting Web-site purchases have now evolved (e.g., AltaVista.com Points Reward program, mypoints.com). This new brand awareness and loyalty is a direct threat to the decades of investment in the bricks-and-mortar brands of the industry. 

As online clearinghouses (businesses selling distressed room inventory) appeal to a growing number of customers, they are directly challenging the hotel brands. Online purchasers may no longer be buying a Holiday Inn room - rather they may be buying a lastminute.com weekend break or a priceline.com vacation. The major brand owners have had to fight back. And aligning with competitors in the industry is often perceived to add more value than aligning with the new intermediaries. 

Evolving the brand 

Customers’ needs do not stay the same. The hotel industry meets the core need of providing a safe and secure home-away-from-home for the business and leisure traveller.  But an increasing number of guests - business and leisure, domestic and international - require high-speed Internet access and related capabilities. Guests expect remote-office (and entertainment) environments no less functional than they have at home or in the office. Recently, we have witnessed agreements being signed by Windsor Hospitality Group and Four Seasons (with Wayport, Inc.), Mandarin Oriental (with STSN) and several other chains. Under these agreements, hotels are able to offer their business and leisure clients the same levels of Internet access (speed and response, for example) that has become the norm in their offices or at home. 

Opportunities for incremental revenue growth 

The new intermediaries have used technology to create other revenue generating tools.  There has always been distressed inventory, but networked technologies are allowing the industry to sell it effectively rather than let it perish. There has always been the aspirational non-user of hotel product and services. Now technology is allowing the industry to sell attractively packaged offerings to a market that heretofore has been difficult to identify and reach. Used intelligently, these businesses are adding a further arrow to the marketer’s quiver - enabling the industry to add occupancy by targeting specific (and new) market segments. The extreme last-minute decision-maker and the highly price-sensitive traveller are both in this category. Growing numbers of consumers now compare room facilities and rates, and they are learning to bid for rooms and spare seats on aircraft. A third-party can do the aggregation and the constant updating. It can also act as a brand buffer allowing companies to discount unsold seats or unsold rooms indirectly. Even with concerns about the competition, why let the value leak to the middleman? 
 

We have seen the successful hotel businesses of the old economy partnering to compete with the start-up businesses of the new economy. As these ventures get off the ground, they have the potential to cut deeply into the revenue streams of the new Internet businesses, which have relied on commissions and on the sluggish response to market threats of the airlines and hotel companies. It will not be that easy to get companies with an ethos of confidentiality to cooperate with competitors - in the process promoting transparency to common customers. But by pooling their resources, the major hospitality and travel chains can develop portals quickly and at lower risk to compete in this dynamically changing market. 

Corporate travel 

The corporate traveller is a key segment targeted by almost all the major brands.
Corporate policy, rather than individual choice, increasingly dictates business travel.  According to Forrester Research, Inc., companies eager to save travel and processing costs will mandate the use of Web-based corporate booking engines. The few remaining unmanaged business travellers will buy their business travel online as leisure bookers do. 
Corporate policies will increasingly require travellers to use company-approved online booking engines. These engines deliver two elements to improved margins - directed use of a company’s negotiated room rates with their preferred suppliers, as well as reduced service charges for making employee travel reservations. Due to the self-service nature of online business travel booking, companies and travel suppliers must increase efforts to encourage continued use. 

The Internet’s cost efficiency appeals to companies that currently manage travel offline, and it should lead to an increase in the number of companies that manage travel overall.  Companies with larger travel budgets can be expected to be the first to shift their travel buying online with 70 percent of Fortune 1,000 companies making this migration by 2002, says Forrester. Larger accounts that are currently unmanaged will increasingly buy online and thus will soon adopt managed travel. Even smaller firms will move their business travel online as well, first encouraging individuals to use any Web interface, then gradually adopting targeted services. 

Each managed traveller’s company computer will include a desktop icon, which, after entering a user name and password, will link directly to a personalised profile within the travel site. Once business travellers sign on to corporate travel sites, entire trips can be booked with one click on the desktop icon, eliminating the need to re-enter login information. On the road, managed travellers will have the ability to research upcoming trips, check on late flights or change an existing hotel reservation.

The loyalty challenge 

Due to a combination of new bookers and the increasing amounts consumers are spending, the online travel market continues to boom. Travel sites, however, face the same challenges that online retailers struggle with - most consumers are not loyal. Web travellers rely upon the convenience, abundant information and low prices found online, and they are willing to research multiple sites for the best deals.

Forrester divides customers into three segments: disloyal, curious, and loyal bookers.  “Disloyal” bookers, customers who research and book at multiple sites, search far and wide to find the best deals for their sophisticated travel needs - including the lowest prices, enticing special offers and exacting itinerary requirements. “Curious” bookers research multiple sites, yet return to the same site to book travel and accommodations. The third category identified by Forrester, “loyal” customers research and book at one site. Both curious and loyal consumers rely on one site due to easy site navigation, favourable previous experiences and low prices. 
 

Even though many customers aggressively seek choices to meet their needs, some sites attract more loyalty than others. The one-stop-shop nature of online travel agencies effectively attracts bookers that rely on one site for all their booking needs. Hotel chains, on the other hand, may have a harder time attracting loyal bookers because they are offering only one element of the travel package. Hotel chain web sites can lure disloyal bookers away from agency and consolidator web sites with special room rates and upgrade perks available exclusively online. Although portals have the greatest reach of all travel sites, they get the lowest percentage of bookers from all three segments.

To combat online booker disloyalty, hotels, agencies and portals must take lessons from online retailers on how to encourage loyalty. Suppliers must establish dynamic partnerships with suppliers in other travel categories that allow consumers to book flights, hotels, and car rentals at the same site. Hotel chains must sell adjacent categories of products and services. Portals should let the agencies and hotels fight over bookers and instead focus on what portals do best - offer information to consumers. 

B2Business: Accelerated change 

B2B applications are even bigger accelerators of change than those in the B2C space when it comes to how hospitality and travel companies will do business in the years ahead. The B2B space is populated by many types of companies, including links among supply chain partners and market exchanges selling products and services online to businesses. eProcurement is one example of a growing B2B space in the hotel industry.  Adoption of B2B strategies that connect businesses in varied ways is being driven by a number of factors: 

Simplifying IT infrastructures 

Yesterday’s information technology (IT) model was based on each hotel and/or hotel group maintaining an in-house IT team, which owned and managed the business’s hardware and software. Tomorrow, most businesses will have migrated to an Application Service Provision (ASP) model. 

Under the ASP model, providers offer a variety of applications and services to companies, which these clients can access with nothing more than an Internet link to the ASP site.  This marks a dramatic change from the traditionally defined “service bureau,” which once involved the transmission of operational data to an outside agency for management by a remote application. More recently, the explosion of Internet-based software applications and services by ASP providers has caused old economy and new economy businesses alike to revisit off-premises application processing. The processing of unit-level data at a distant site via an ASP provider may well represent one of the most important ways to obtain mission-critical IT solutions in the hotel industry on a cost-effective basis.  Micros-Fidelio, for example, introduced the OPERA ASP application at HITEC.  MICROS-Fidelio’s Director of Hotel ASP Sales and Solutions, Barry Lowenthal, said: “The marketplace is moving toward seeing the value of ASP solutions. Some chains will do their own hosting, others want services provided.” 

Serious concerns remain about data ownership and the risk of whether the public Internet offers the speed, data security and reliability to support a highly interactive PMS application. But this is a dynamically changing area, and companies can expect to see ASP technology being introduced to radically simplify IT infrastructures. The ASP model will most likely be successful in the case of vendors offering a complete range of outsourced products - not just a PMS or CRS, but the complete systems operation for properties. 

WAP: Wireless Application Protocol 

Mature businesses are not simply assuming that a focus on eBusiness is enough. The wireless market will introduce new competitive elements. Wireless Application Protocol (WAP) is a global specification that gives wireless devices - including mobile phones, personal digital assistants (PDAs) and computer terminals - access to the Internet. The distinguishing feature of wireless service is the ability to identify a user’s location. The network seeks out the mobile phone to complete the call and knows where the holder of the phone actually is. This offers advertisers a dream channel to target customers in a personalised, time- and location-specific way. What are the potential applications or competitive threats? Looking at the customer-facing systems, there is every likelihood that WAP-enabled functionality will be developed to provide access to hotel reservation systems and loyalty traveller databases. In the administrative areas, WAP technology can be applied to interface the mobile sales force with the centrally held customer relationship management (CRM) database - linking the revenue generating and cost generating systems in the bedroom (e.g. telephone, mini-bar, air-conditioning) to the centrally hosted property management system. 

Realistically, none of this will be available until 2002, but progressive businesses will be determining what strategies to follow, seeking expert advice, and will begin demanding these applications of their vendors as technology progresses and the wireless market, particularly in Europe, develops.

Conclusion 

Are traditional hospitality and travel companies destined to fall behind in the marketplace as new economy companies challenge them for customers? Clearly not. Any organisation can acquire new economy attributes, either by addressing technology-driven change by themselves or through cooperation with other companies, including competitors. The ultimate success of hospitality and travel companies will depend on developing business models to capture new value produced by the information collected, generated and transmitted by digital technologies to create value for all their stakeholders: customers, employees, partners and investors. 

Ian Graham, based in London, is Director in Arthur Andersen’s Hospitality Industry Team in the United Kingdom. The author is pleased to recognise the contribution made by many researchers at both Arthur Andersen and Forrester Research, Inc. to this article.

© 2000 Arthur Andersen.