Pot O’ Gold

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June 01, 2013
Hotel Revenues
Dan Philips - dphillips@dare21.com

As far back as 1999 I began the search for a new revenue stream for hoteliers, and came across advertising revenue from various digital touch points found in hotels and their guestrooms.  Many, many vendors have promised gold from advertising, but to date the leprechaun has remained hidden at the end of an elusive rainbow. Hoteliers have been promised advertising revenue through a variety of methods, from printed guest directories, to speed-dial buttons on phones, to digital signage, to ads on laptops, and really, nothing much has been delivered. Many vendor solutions have touted the capabilities of advertising potential, especially in guestroom TV user interfaces and HSIA portals.


What has prevented this gold from reaching hoteliers?  The hotel industry is so fragmented it is difficult to accumulate a significant number of hotel rooms to be attractive to advertisers. With hotel brands, management companies and hotel owners, there is not one decision maker in any hotel, let alone large segments of this vertical. Until recently, technology wasn’t quite to the point of making advertising easy to penetrate hotel guest experiences. With these particular issues, any substantial revenue stream from advertising in hotels just couldn’t happen. There just hasn’t been that single vendor that can provide both the technology to enter the guestroom and the advertisers that will pay to be there. The real question is, is now the right time?

IHG's Jim Bailey, director of business relationship management, said, “Our standards do not encourage advertising as a revenue generation opportunity for hotels. These programs are difficult to track and monetary payouts don’t seem to meet the original expectations…Our TVs have plenty of programming with advertising and we need to stay within our core competency of running hotels and encouraging everyone to be a guest.”

His response is not uncommon with other hotel companies. Marriott, for example, has not endorsed this type of advertising either. However, many companies do not have standards that prevent digital advertising in the guestroom. In fact, one HSIA provider has approximately 1,300 hotels with video ads on the hotel HSIA login.

Al J Schneider Company CFO Ron Strecker said, “The chains should see this as a reasonable trade-off for the guest. There is also the possibility to create an environment where the actual advertiser that is paying the hotel might in fact be another hotel in the same chain but different city. Handled correctly, the chain headquarters could coordinate the transactions and likely offer very attractive pricing to the advertising hotel and passive income for the hotel distributing the content.”

What would make this type of advertising both acceptable to hoteliers and a success with guests?

Matt Koch, COO of Telkonet Inc., a company that provides HSIA through its EthoStream division and partners with companies such as Boingo and jiWire, said brandwide authentication and a login process that is both tactful and non-intrusive would make this type of advertising appealing to hoteliers and guests. 

“Hotel guests have very specific needs (local attractions, shopping and dining),” Koch said. “If the network or ad-provider could tailor the login process to include this data it would be a benefit to the hotel guest rather than a hurdle to network access. Until advertising is useful to the guest and hotel, it will be met with resistance.”

Let’s take a step back and describe some of these digital advertising vehicles. Darren Cummings, CEO of AllView Networks, LLC, provided some ideas of the types of advertising  offered in the hotel space:

  • Providing an electronic program guide (EPG), or even an interactive program guide (IPG) that partitions the TV screen to show the channel lineup and includes room for video or static advertising.
  • Providing a new landing page when guests log onto the hotel’s HSIA network that shows video advertising for 15 seconds before the guest gains access, which can offer a call-to-action type campaign that has a higher price point to advertisers.
  • Providing a frame or a bracket around the computer screen as guests access the Internet that displays banner advertisements which can include vehicles like QR codes. 
  • Providing new, over-the-top TV shows (OTT) that are high quality, HD and come with their own advertisers that pay the hotel to be included in the guestroom channel lineup.
Boingo Wireless Vice President of Product Management and Advertising Sebastian Tonkin said there are companies that offer Wi-Fi sponsorships and advertising products to hotel partners. “We’ve designed a variety of engagement modules that can be tailored by campaign to the advertiser’s specifications, and by location, device and daypart,” Tonkin said. “Each of these modules is designed to offer advertisers guaranteed consumer engagement via the cost-per-engagement advertising model.”
Some companies also offer standard IAB display units advertising for hotels and other consumer venues Tonkin said.These advertising strategies provide several benefits.

“We believe there are many access points for ads in our network and the capabilities expand with newer IPTV or bidirectional set-top box systems,” Cummings said. “We are seeing with our own sales that looking at the market as a whole; the opportunity nationally alone is several billion dollars a year.”

Just how big is that pot? According to the Interactive Advertising Bureau, digital advertising in the United States grew by 15 percent to a record $36.6 billion in 2012. One can see that the pot o’ gold for hospitality might just be the real thing.

There are two different languages used by the hotel industry and the advertising world. Where hotels talk about per room statistics, advertisers talk about CPM (cost per thousand) and cost of campaigns. This makes it difficult to translate revenue figures into something hoteliers can relate with. However, research has shown some general expectations of revenue to the hotel or hotel company that might look like this (these figures are per room, per month, not per occupied room, and do factor in many assumptions):

  • Channel guide at $1 per room per month
  • HSIA video ads on landing page at $.40 per room per month
  • HSIA banner ads at $.10 per room per month
  • OTT channels at $1 per channel per room per month

In regards to these figures, Strecker said, “I feel that the IPG/EPG and OTT estimates might be on the low side, but a lot depends on the occupancy and what advertisers ultimately are willing to pay. The OTT is the one I feel would be met by the least resistance from a guest so long as it was done tastefully. Landing pages and HSIA banner ads/frames bring up what I feel are less desirable routes and could bring about unwanted gripes from customers.”

Tonkin acknowledged another reason why the time might be right for this type of advertising and this type of revenue stream.

“The potential addressable market for Wi-Fi sponsorship and advertising in hotels is huge,” Tonkin said. “Last summer, Four Points by Sheraton found that business travelers bring three to four devices with them when they travel. That’s a lot of screens for advertisers to reach consumers on. With device usage exploding, hoteliers also need to upgrade their Wi-Fi networks to meet the data demands of their always-connected guests. Wi-Fi sponsorship and advertising revenue helps hotels offset the costs of network upgrades necessary to provide a quality connectivity experience to guests.”

When all interviewees were asked if hoteliers could do this by themselves, the unanimous reply was, no. The U.S. hotel industry arguably has between 5 million and 6 million hotel rooms.  In terms of population, this is equivalent to the total population of Chicago and Houston combined. While these cities in and of themselves are attractive, particularly to local advertisers, from a national perspective this is just not enough exposure. Even a hotel company with 100,000 or 200,000 rooms will have a difficult time attracting enough advertisers to make the revenue worth the effort. It will be up to partners that can attract large advertising agencies to run multiple campaigns in various footprints to successfully enter the hotel space.

Is this attractive to hoteliers? 
“It really depends on the way in which it is managed,” Strecker said. “If it comes in the way of a vendor handling all the overhead of finding advertisers, but partnering with the hotel on the [advertiser and style of] content and creating an equitable revenue share, then it makes the proposition much easier.  However, if the approach is to develop tools for the hotel to do sales and marketing to then insert ads and stay on top of billing and refreshing, then it would be a hard sell.”

The author would like to thank: Jim Bailey, director of business relationship management, IHG; Ron Strecker, CFO, Al J Schneider Company; Darren Cummings, CEO, AllView Networks; Matt Koch, COO, Telkonet Inc.; and Sebastian Tonkin, VP product management, advertising, Boingo Wireless.

Dan Phillips is a partner at Dare to Imagine and can be reached at dphillips@dare2i.com.

©2013 Hospitality Upgrade
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