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The Great Disruption

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June 18, 2018
Technology | Trends
Trevor Warner - TrevorWarner@WarnerConsultingGroup.com

Tony Seba, a well know authority/author/speaker on technology, points to two potent examples in his presentations that show the dramatic and powerful impact of technology disruption. The first is a picture from 1900 in New York City that shows one car and hundreds of horses. The proceeding picture from 1913, shows one horse and all cars. In just 13 years, our society completely changed from horses to automobiles. In his second example he points to 1985 when AT&T hired a market research company to predict the impact of cell phones. At the the estimate for users in the year 2000 was 900,000. The actual number was 109 million. That’s pre-iPhone® which was released in 2007. 

The introduction of the iPhone was a technology advancement, but it resulted in a societal change, a disruption that in Seba’s definition created a new market as well as destroyed existing industries. 

Leonard Brody, best known for his presentation, “The Great Rewrite,” shares a simple picture of the Pope Benedict being anointed in 2005 from behind the spectators in St. Benedicts Square.  You see many heads and a few handheld video cameras.  The next picture show Pope Francis being anointed in 2013 from behind the same angle, and it’s very revealing — every spectator is holding up a smartphone recording the event. The phones light up the entire square. 

A more relatable example to the hotel industry is our ability to travel. Early on in his presentation, Brody shows that from 4000 B.C. until 1830 A.D. 85 percent of humans would live, marry and die within 15 kilometers of their birthplace. For 6,000 years we didn’t travel. It was not until 1830 and the advent of the railroads that humans began to move in large masses.  Train travel is something that we hardly even consider when making travel plans today, but it completely changed our society less than 180 years ago. Railroads fit the very definition of disruption as they killed industries and sparked change including the very hotel industry we are all a part of today. 

Because of technology, this amazing transformation as a society was accelerating at a pace we have never seen since the beginning of man. The classic Game of Thrones saying, “Winter is coming” carries the negative connotation, so for the purpose of this discussion we’ll say, “change is coming” and like winter, we’d better prepare. 

At the Hunter Hotel Conference this year the conference invited Leonard Brody to speak to attendees. Brody focused his message directly to the hospitality industry. His primary message was that hotels are shifting to be in the entertainment business. Think Disney. This would be a fundamental shift from service oriented to entertainment centric. American’s currently spend two-thirds of their day in the virtual world – email, Snapchat, Twitter, Facebook, etc..  Brody believes this is the most significant gap for hospitality, finding a way to address guests in both the physical and virtual world.  It’s a weakness that could bring outside disruption. 

A great example of disruption inside the industry is coming from Airbnb. Similar to Uber, the company used technology to create competition to hotels without ever purchasing land or laying a brick in the ground. Airbnb is at its heart an entertainment company which sells an experience that is organic and better than the hotel industry could provide. While Airbnb has not made a major impact nationwide, they have in markets such as San Francisco and New York City. This is old information, I know, but the point is relevant – our industry has a lot of really smart people who compete in the traditional hotel space. No one saw Airbnb coming and the competition came from outside the industry with little to no capital. 

Airbnb has announced plans to work with branded apartment developers creating new, novel properties that fuse residential and hotel amenities. The term ressimercial is used for this idea as these developments will look and feel like residential. Brody claimed the trend will make a significant impact to the hospitality industry in the next 4 years. One advantage hospitality has today is loyalty. Brody said the opportunity is there for hotels to stay relevant through loyalty –  consider a return to the days of travel clubs, AAA and affinity clubs. Subscription-based programs for specific audiences could break the OTA’s grip on hospitality. Programs that cater directly to specific groups and preferences like women traveling for business, families with young children, or retired couples. 

Perhaps a bigger disrupter is Google. If you remember the movie Ex Machina from 2014 (if you don’t, take the time to watch it. It’s very forward thinking.) On a side note, a few weeks ago I watched the movie, Private Benjamin which released in 1980. In one scene, Goldie Hawn is at the bar when a stranger tries to pick her up. To show off, he takes a picture of her with his watch, which was crazy to think about 38 years ago. One of the points of Ex Machina is that those who control the eyes control the world. The AI developer AVA in the movie creates an AI specifically for the pawn (Caleb) based on his profile, history, etc. It’s a sure thing that Caleb will fall for AVA. This isn’t targeted marketing, this digs deep to the very basic decision making influencers for a human being. 

Google sits in a similar position. Specific to hotels, it has the ability to wipe out OTAs as we work with them today and create disruption to our industry we have not felt since the growth from trains in 1830. But as many of our current brand/hotel initiatives discover, by the time we implement, it’s out of date. 
The bigger impact is likely to be AI.

With Alexa, Siri and Google Assistant we no longer search using browsers. Instead we use these devices like a concierge. The AI connected to these devices, knowing our profile, preferences and tendencies could book travel, destinations and lodging without ever opening a computer, logging in, researching, inquiring, calling, emailing or any of the time-consuming interactions it takes today. The industry average is quoted as 29 days to go through the process described above. With AI, it could be a few minutes. Based on the modeling Seba can show that AI will be 1000x better in 2025 than it is today. In less than 7 years, something we already incorporate today will see a 1000x improvement. 

We don’t want to confuse AI with automation. While they are interchanged, today in the hospitality industry AI is nothing more than a gimmick. First to market doesn’t equate to making an impact. Whether it’s robot vacuum cleaners, an Alexa in the guest room, or Hilton’s robot concierge “Connie,” it’s a first generation attempt to bring technology trends to the property. It’s more likely that the impact of AI will come from outside the industry.

Google appears to be the leader in the club house.  It owns the data and has made significant advances in AI through the leadership of Jeff Dean (who’s coworkers believe he doesn’t exist but instead created an AI of himself a few years ago). Google’s current strategy as a company is “AI first.” Outside of hospitality Google appears to be focused on medical. The company is testing software that detects a complication in diabetes that causes blindness and another that looks for signs of breast cancer. Google’s only constraint is people – the company can’t find enough qualified people to work its AI projects. 
Like the use of AI, disruption though is likely going to come from outside the industry. Seba uses the dental industry where the dental brace market was wiped out almost instantaneously with the advent to 3D printing.  In an instance, the cost to 3D-print custom braces was a fraction of the cost for a traditional brace that could be custom made and made in an extremely short turn around. This is not a direct parallel to hospitality since we are not going to 3D-print destinations to stay in when we arrive at a destination, but the narrative is the same, disruption. Virtual reality is a good example, but a better example may be augmented reality.  Both are seen as marketing tools but as AI advances in parallel could significantly disrupt the industry replacing the discomforts of travel with instant gratification of hanging out in a place anywhere in the world. 

Consider the impact of autonomous vehicles. By the end of 2018 Tesla will have the technology in its cars to go from San Francisco to New York City without a person (considered level 3 of autonomous vehicles). Tesla said by 2019 it will begin production of vehicles that no longer contain a steering wheel or accelerator. What is the impact to the hospitality industry? Autonomous vehicles run on EV and based on Seba’s modeling autonomous vehicles will represent 95 percent of the miles traveled by 2030. The results will likely disrupt many industries, one will certainly include hospitality. Consider that in 12 years the hospitality industry is not at all what it is today. 

In theory, hotels are brick and mortar, so they will always have a place. The hotel industry and the technology that drives it is going to change, quickly. One of the important points Seba makes is that adoption is not linear, but instead works off an S curve. We are already experiencing this today in hospitality. The most common issue is technology initiatives that are out of date by the time brands/vendors can get them to market. On top of that we see contract terms that far exceed the useful life of the technology. Both of these issues put the hospitality industry at a significant competitive disadvantage. How will the hotel industry respond to technologies like 5G? We are building to IOT but if guests bring their own devices and their own secure connectivity, how quickly can we shift the initiative? 

What are those technologies that hospitality can adapt and adopt that will make this industry relevant and not disappear like TomTom or Nokia. It’s no longer OTA vs. OTA, OTA vs. Brand, or Brand vs. Brand. It’s hospitality vs. all comers.  

Trevor Warner is the Chef de la Direction at Warner Consulting Group. He can be reached at TrevorWarner@WarnerConsultingGroup.com.

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