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3 Impacts on the Hospitality Industry

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October 29, 2018
Technology | Investments
Ted Horner - Ted@hornertech.com.au

Despite more than 30 years in the industry as a technology consultant, I’m still surprised at how little hotels invest in technology – around 3.5 percent to 4 percent of revenue, according to recent surveys. In my opinion, those percentages are quite low, particularly when compared to the technology investments made by other industries.

I’m reminded of a major European software vendor that wanted to get involved in the hospitality business a few years ago and commissioned a report on technology investment in hotels. Upon receiving the report, the owner was so shocked at the low percentage of investment that he sent the team away to check the number. When they came back with the same figure, the owner decided it wasn’t worth his time to invest in a new PMS product.
I also find it annoying that many hotels demand five-star service from their technology vendors yet seem unwilling to pay more than two-star prices for the services and support they receive. In the end, we’re seeing what I call “a race to the bottom” with pricing of both software and services. In my opinion, if this trend continues, many vendors are going to struggle to survive as they are being forced into contracts that are commercially unstainable.
1. Free Wi-Fi & Global Pricing Deals
Now that Wi-Fi is free in most cases, there is little or no revenue to offset support costs and hotels are demanding that vendors drop support fees. This trend is exacerbated by the fact that guests now use cellphones and tablets to access the internet, which is a much simpler process today than it was in previous years (with fixed internet) when guests routinely experienced problems connecting cable to their laptops and needed 24/7 support. In fact, in the past few years, internet connectivity issues in hotels have declined so much that some hotel chains are handling support calls themselves.
Moreover, several large hotel chains have negotiated global pricing deals with wireless access vendors, leaving no selling margins for the resellers of Wi-Fi systems to hotels. Combine this with the ongoing pressure to reduce support fees, the future of some Wi-Fi resellers is questionable, particularly considering that their margins are being squeezed on all fronts.
2. Third-party Installation & Training
Another trend that has the potential to disrupt the market is the arrival of third-party companies that compete with established PMS and POS vendors for the supply of installation and training services. These companies, which often take advantage of reduced labor costs from Eastern European and Middle Eastern countries, are going head-to-head in offering competitive pricing, in some cases reducing rates by as much as 50 percent. And, they are gaining serious traction in the market, with one major international hotel chain already mandating their use for all new PMS installations. (And I’m sure this is just the beginning.)
Unlike PMS and POS vendors, these third-party companies have the capacity to quickly scale up for installations at large hotel chains, as they can access a sizeable pool of experienced personnel who can be deployed on short notice. Vendors that traditionally reaped substantial profits from training fees are watching their revenues shrink. Combine this with the move from up-front CapEx license fees to monthly software-as-a-service fees, and the financial consequences for some mid-range vendors could be disastrous.
3. Consolidation of Hotels & Vendors
The trend toward consolidation of hotel operators is gaining momentum with Marriott International acquiring Starwood Hotels & Resorts and AccorHotels doing the same with Fairmont and Mövenpick Hotels & Resorts, to name a few.
I believe we’re going to see the same trend with technology vendors as is evidenced by the recent announcement that Amadeus acquired TravelClick. An ongoing pressure on margins, reduced support costs and the arrival of third-party companies are all disrupting traditional pricing models for supply of technology services in the hotel marketplace. 
In my opinion, consolidation of vendors is all but inevitable.

©2018 Hospitality Upgrade 
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