The tragedies of Sept. 11 only added to the problems in the already troubled niche segment. But even before Sept. 11, many hotels and suppliers were caught in unrealistic business models that could never have worked under any conditions.
The initial (shall we call it phase I) business model was for the provider to absorb all upfront capital costs and share revenue on a heavily favored split, as high as 90 percent provider, 10 percent hotel. Since the hotel had no upfront costs, this seemed reasonable because 10 percent was better than nothing and now the hotel had a valuable amenity to offer its guests.
This arrangement was unworkable for many reasons; the most prevalent were very low “take rates” (2 percent to 5 percent) caused by a lack of marketing on the part of the hotel. Since the hotel had no investment in the project, there was little incentive to advertise and promote the service because the hotel’s percentage of the revenue was small.
With such flawed models, a shakeout has occurred and has caused the HSIA segment to enter a new phase (phase II). In this phase, there will be much more realistic business models, a closer relationship between the hotel and the service provider, and most importantly, better service to the guest.
Obviously, updated business models are required for the success of the service provider, the hotel and the guest. Now, the hotel must participate in capital costs in a significant way. If the hotel absorbs all capital expenditures, then revenue sharing is not necessary and the service provider can be paid a monthly fee. If the hotel wishes to “hedge” against lower than anticipated revenues, then revenue splits are used when sharing capital costs with the provider. There are several variations of this basic business model, depending on the requirements of the hotel.
As HSIA enters a new phase, here are a few statistics of interest. Approximately 6 percent of the hotels in the United States are equipped with HSIA. Wayport and STSN are the leaders in number of hotels installed. Marriott has the most properties installed of any of the chains.
There are basically three ways to wire a hotel for HSIA: 1. xDSL over existing copper wires to the rooms; 2. rewire the property with CAT 5 data cabling; and 3. install wireless access points that still require some CAT 5 wiring. Costs can vary significantly, anywhere from $200-$700 per room, depending on the hotel’s layout.
There can be limitations on certain technologies, such as DSL, which has distance limitations between the hotel and the telephone company’s switching station.
It is important for hoteliers to understand that the guest might use a high-speed connection for:
- business, including accessing a corporate VPN, e-mail, etc.;
- non-business information such as news, stocks and weather; and
- entertainment such as live radio sports and Web surfing.
One study suggests that adult-oriented Web sites will fuel demand among male travelers much as adult movies have spurred pay-per-view TV usage. Almost 50 percent of all pay-per-view movie rentals in hotels are adult content.
With all the talk of guestroom requirements and improved take rates, the real revenue will be generated in the meeting rooms. Corporate meeting planners have increasingly requested HSIA in their RFPs, and some seek out hotels with HSIA.
The following is a sampling of some of the leading suppliers of HSIA along with some newer companies that have interesting approaches. The sampling is not intended to be all encompassing or as an endorsement of any one supplier, product or approach.
One of the early suppliers to the industry, Wayport (Austin, Texas) has pioneered the use of WIFI(802.11b) and offers wireless access at airports and hotels. The subscription service allows the business traveler to be connected at the airport using a wireless card in a notebook PC, as well as at Wayport-equipped hotels.
Wayport partner hotels have actually seen an increase in occupancy because subscriber members request to stay in Wayport-equipped properties. The company also offers hard wired solutions for hotels.
Dan Lowden, vice president of marketing for Wayport, said that revenue for the company has reached record levels. He attributes this to Wayport’s combination of subscription wireless and complete hotel solutions. He said that take rates will increase for Wayport as more devices, such as palm pilots and cell phones, are WIFI wireless equipped.
Guest-Tek (Chicago, Ill. and Calgary, AB, Canada) was one of the first service providers to realize that the pure revenue sharing model was flawed. Hotels purchase or lease the equipment and then decide for themselves how they wish to offer the amenity (e.g. complimentary or for a fee) to best succeed in their local marketplace.
Guest-Tek provides all the monthly services, including guest support, for a fee. The company is the preferred supplier of Hyatt Hotels and Carlson Hotels Worldwide.
Johanne Audet, vice president of marketing and product management, said that despite the events of Sept. 11 and the economic slowdown, Guest-Tek is experiencing steady revenue growth. Increasing usage rates and revenues are key strategies for helping to ensure the success of high-speed Internet access within a hotel. Audet points out that more and more guests are becoming aware of the service itself, which is helping to increase take rates.
Hotel Internet Technology (Ft. Lauderdale, Fla.) has taken a regionalized approach, servicing only hotels in Florida, mainly smaller independents and bed and breakfasts. The company specializes in system integration, with no contractual arrangements with any one manufacturer. This allows the company to offer new products as they become available and also permits lower cost configurations in some cases.
One technology deployed by the company is called VDSL (very high data rate, digital subscriber line). While a developing standard, VDSL has the backing of major players such as Cisco, Texas Instruments and IBM Research. The target downstream bandwidth is over 51mbps or 30+ times as fast as current T1 speeds. These speeds will enable the hotel to support HDTV and video-on-demand over the Internet connection.
Another technology being reviewed by the company is networking using the hotel’s electrical power wiring. This approach will enable a hotel to plug a device in a guestroom electrical wall plug and have a high-speed connection without additional wiring or using existing phone wiring. This approach should be a very cost-effective solution.
Monroe Patillo, president and CEO, said that his company enjoys the challenges of new technologies and specializes in getting them operational.
Another exciting technology comes from Simpler Networks (St. Laurent, QC, Canada). One of the major costs in implementing xDSL in a hotel are the DSLAM (digital subscriber line access multiplexer) ports that are required (one per room).
The Simpler SwitchmanTM 200 is a dynamic port distributor that provides a scalable solution to maximize the use of the DSLAM ports. The distributor can effectively share ports on a varying ratio, depending on the take rates at the hotel.
This approach allows all hotel rooms to be wired, thus eliminating the need to juggle inventory of those rooms with HSIA. Other benefits include having every room wired, thus increasing potential take rates and the product reduces the amount of equipment and power needed for HSIA.
Brian Searl, vice president of marketing, said, “Inserting the Switchman solution into the telecommunications loop creates a funnel effect, enabling 200 rooms to share a pool of 1 to 50 DSLAM ports. This first-mover technology delivers a 58 percent to 65 percent savings on DSLAM costs while allowing hotels to enable high-speed Internet access to every room. The DSLAM cost savings translate into a 22 percent to 50 percent savings on the overall job cost.”
StayOnline (Atlanta, Ga.) is offering a wireless approach for its clients, both in the guestrooms and meeting rooms. Using the popular 802.11b(WIFI) standard, the company is able to provide the guest connectivity no matter where he/she might be on the property.
The inherent problems of installing a wireless card in the guest’s notebook computer have been overcome by providing an ez-air connector. This device serves as a bridge between the notebook and the wireless access point. The guest simply plugs a CAT 5 patch cable into a standard network card on the notebook and to the ez-air device. Connection to the Internet is then automatic.
While security has been made an issue with wireless networks, Antonio DiMilia, president of StayOnline, assures guests the company has taken measures to alleviate those concerns. DiMilia said, “New technologies have greatly improved wireless security. In addition, our Guestpass server provides yet another level of security.”
DiMilia points out that there are different security requirements for a corporate VPN (virtual private network) and a guest-based public network.
The company offers hotels either a purchase- or lease-based plan for initial capital expenditures and then a monthly fee for services. Major clients include Hawthorn Suites and Ramada Franchise-Canada.
Other major players in the HSIA market include STSN (Salt Lake City, Utah), which is partially funded by Marriott. STSN is one of the market leaders in number of hotels installed.
Another up and coming supplier is Unisys (Blue Bell, Pa.) who refused to play the give away game early so they got off to a slow start. The company also offers a number of non-Internet products for the hospitality industry.
CAIS (now Ardent), an early market leader, has reportedly withdrawn from the hospitality industry.
The Future
What is in the future of HSIA (phase III)? Take rates will continue to climb, as will revenue. Over time, guestroom revenue will decline as HSIA becomes an expected complimentary amenity. Meeting room revenue will be the key to covering costs, and even making money, on HSIA.
Technologies and equipment will improve, thus lowering capital and on-going replacement costs. Timid hotels that wait for this may be left behind, however.
Wireless technologies, especially 3G (third generation wireless-i.e. fancy cell phones) with its increased data speeds, will put a dent into guestroom revenue. It will be important that the hotelier lower daily usage fees as 3G becomes more prevalent. Failure to do so will have the same effect on HSIA that cell phones have had on in-room telephone usage.
Whether the hotel uses a national service provider or a local company, make sure that the appropriate technology is in place and that service is rendered promptly to guests, both in their sleeping rooms and especially in the meeting rooms.
HSIA is here to stay, don’t be left out!
Geoff Griswold is a hardware and network specialist for The Omni Group in Atlanta, Ga. The company assists clients in all phases of technology including the use of HSIA. Geoff can be reached at (888) 960-8787 or theomnigroup@mindspring.com.