Guest Internet: Break the Trend, Sell Guest Internet

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March 31, 2011
Guest Internet
Trevor Warner

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It’s collusion to the detriment of our properties and our guests.  It took the first hotel or the first brand to jump the competition and sell rooms on the bait of free Internet to attract guests.  It’s true, we are in the business of selling rooms, which is why, if we examine the options, we should start charging for guest room Internet to improve occupancy.

Let’s start by saying the lack of success from my local Columbus Blue Jackets (professional NHL hockey team in Ohio) has not driven me to insanity.  The argument for or against charging for guest Internet access has changed with the evolution of guest usage.  Originally, the early adopters charged for Internet because there were no other options.  The focus of the network was a revenue source to the hotel to offset declining telecom revenue.  (Keep in mind that people under the age of 18 don’t know what long distance is, yikes.) The next evolution came when guests started using networks but in a limited capacity so hotels (or brands) saw the free Internet as a built-in amenity to attract guests.  That strategy worked while the costs and usage were low.  From this it’s evolved into the philosophical debate of nickel and dime or include amenities.  Each side had valid arguments for its personal situation.  Flash forward to 2011 where the number of users and heavy usage is beginning to make this less of a philosophy discussion and more of a necessary business decision. 

Early on guest usage was based on bursting traffic (e-mail, Web page) like shooting a 99 cent plastic squirt gun.  Guests could live with individual short-term availability speeds from 128k to 256k.  Costs were typically capital intensive (installing the network) while the monthly cost to support the network was much lower.  Bandwidth for the guest network to support bursting usage was typically a single T1, also keeping monthly cost low.  Bursting traffic kept pressure off guest scores.  Guests were just happy to get online, and since bursting traffic is not something that properties visually monitor (like hitting send on an e-mail), there was not a measure for the quality of the network other than being connected.

Guests are now part of the Internet world, which is based on streaming.  The cost to support the guest network has now drastically increased in parallel to the change from bursting to streaming usage.  Unlike our 99 cent plastic squirt gun, streaming usage is the equivalent of turning on a fire hose.  Netflix, Facebook, iTunes and any Webpage that shows video (which is almost every Website) are examples for streaming content for the Web.  Networks that were built for bursting have suffered and so have guest scores as bandwidth works as a garden hose instead of the fire hose we need.  Guest expectations rival what they receive at work or at home, which can be up to 50 MB.   The more realistic connection is between 768k and 1 MB.  The primary difference is that bursting was a short push and pull of information, so 128k to 256k was sustained for one second.  The example of 768k of streaming must be sustained for five minutes or longer.  To get the fire hose to support this usage properties have to greatly increase the cost, which owners are reluctant to do in this economic climate. 

The question heard the most is how to start charging for something that is currently given away for free.  There is a balance between free and charging.  Tiered bandwidth, for example, is a strategy that gives guests options.  For the simple users who just need a connection (such as 512k), a property can still offer a free tier.  For guests that need more, sell more.  Typically there are see tiers of 1.5 MB and 3 MB but much of this and the price point for each tier depends on the hotel clientele and market.  In the properties reviewed the take rate was a rising 5 percent to 8 percent upsell and was growing each month.  The reality is that guests are addicted to Internet speed. Those who need it will pay for it. 

The obvious benefit is revenue. Since being offered free of charge, HSIA continues to be a sore subject with owners and operations.  Networks cost money to maintain and bandwidth is a growing cost with no offset on the P&L.  Based on the take rates for upselling that were reviewed, the revenue averages $2k to $20k per month.  This revenue gives us options.

The first and most important use for the revenue is to pay for a larger pipe.  Unlike T1s, there is a declining cost per MB when properties purchase big bandwidth (ie Fiber, Metro E, etc.).  The pipe is typically much bigger than the amount of bandwidth we actually purchase so prices fall from $300 per meg on a T1 to $40 per MB on a fiber connection.  In scenarios such as load balancing, the same declining cost holds true depending on the type of bandwidth being balancing.  For example 16 MB may be $100 while 50 MB is $200.  If a property is going to upsell bandwidth it must insure the bandwidth to sell.  Disregard the franchise standards; by the time they were printed they were out of date.  Properties need much more bandwidth whether they decide to charge or not.  By upselling to the 10 percent or more of guests who want it, the property can pay for the larger pipe.

The second option, and often overlooked yearly budget item, is building a reserve for network equipment.  One mistake ownership made early on was believing that once it bought the network that was it.  The reality has been much more complicated.  Not only have properties had to deal with break/fix issues, the change in usage patterns have handicapped the networks and driven down guest scores.  Going forward properties must keep networks up to date with both software and hardware.  By upselling for Internet, properties can take a portion of the revenue and set aside a reserve for equipment.  Keeping the network up to date is essential in creating a seamless connecting experience.  

The residual effect of tiered bandwidth is better quality for users  of free Internet service.  In the debate of free or charging, this residual effect becomes the most important piece of the puzzle.  These free users are still and will be for a period of time the majority of users.  By installing a bigger bandwidth pipe that is paid for by the top end users, properties can bring in a more consistent connection for the guests that subscribe to free usage.   By charging for Internet and using some of the revenue to keep the network current, properties create a better connecting experience.  Each piece plays a part, but the primary concern is bandwidth, which today directly reflects guest scores.  The difference will be happy guests and improved guest scores. 
Selling tiers is just one option available where the result is giving the guests what they have long desired, quality Internet.  There are other charging methods that can be implemented which open up the revenue stream.  Properties are in the business to sell guestrooms.  To do so, it’s time for properties to start charging for Internet. 

Trevor Warner is the president of Warner Consulting Group and can be reached at (614)486-4636 or by e-mail at trevorwarner@warnerconsultinggroup.com.

©2011 Hospitality Upgrade
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