Definitely Doug 12/18/20: The Game Changers

by Doug Rice

The Game Changers

2020 is now thankfully almost behind us. With the arrival of vaccines, the hospitality industry is starting to regain some optimism about the future. The pandemic facilitated technology adoption, as hotel managers were forced to implement technologies that they previously rejected – and often found some of them very effective. This experience should reduce the resistance to adopting new technologies in hotels in coming years, at least a bit.

My year-end thoughts have turned to the macro view, and to some fundamental trends that accelerated rapidly in 2020. The technologies behind them are mature and widely used in other industries, but until recently had not been successfully exploited in hospitality, at least at any scale. To be sure, there are forward-thinking hotels and vendors in our space who have been using them for years, but the successes to date have been small.

The universe of hotels is increasingly divided when it comes to buying software. For smaller, independent hotels, the emergence of the “all in one” SAAS-based, mobile-friendly platform that combines the key elements of customer management, distribution, rate management, operations, payments, and often back-office functions as well, has made it much easier and more cost-effective for independent hotels to migrate to modern technology.

Companies like Cloudbeds, Mews and eZee Frontdesk have done a good job at fulfilling the needs of this segment, and there are others too numerous to mention. For typical independent hotels, there is no longer any reason not to replace premise-based hotel systems. Loosely coupled alphabet-soup systems (like PMS, POS, CRS, CRM, RMS, S&C) represent a fundamentally bad architecture for small businesses that want something simple that handles all their needs.

In the middle are the smaller hotel groups, up to maybe 100 hotels. Depending on specific needs and geography, there are several next-generation solutions that can work well here, although they may require a few third-party products to meet the full set of needs. Many hotel groups in this segment are also forced into a mixed technology portfolio because their hotels span multiple brands, each of which requires the use of certain core systems.

At the far end of the spectrum are the midsized and large hospitality enterprises, primarily brands and management companies. Most of these have amassed a stable of dozens of systems (many of them legacy) that may be able to exchange only the most mission-critical data, and often in inefficient ways. The result is a disconnected customer experience – as with one unnamed major chain whose online check-in app consistently sends me my mobile key only AFTER I have checked in to my room (and in one case after I had already checked OUT).

Many of the larger hotel enterprises look with envy at the solutions available to independents, but can find neither the vendor-partners nor practical migration strategies to achieve a similar result. Systems designed for a single property can usually be loosely coupled to gain some enterprise functionality, and this is often enough for small to midsized hotel groups. But they fail to really meet the unique needs of a larger enterprise that must manage many locations centrally and consistently, while still allowing local variations where needed. Differences in business practices, accounting standards, product support, and compliance and regulatory requirements around the world also mean that multinational hotel groups are forced to abandon global consistency for many of their systems. The proliferation of data privacy laws in recent years has only made this much more challenging as global enterprises must now respect stringent national or regional regulations for storing customer data.

Even Oracle, arguably the most successful provider in the enterprise space, lacks many key modules need to run a hotel enterprise. Despite years of investment, it still struggles with the consequences of the original Fidelio design around the needs of a single property. Numerous attempts and acquisitions over 20 years have not yielded much success in penetrating the core distribution or CRM requirements of the larger hotel enterprises. The legacy MICROS product line remains squarely focused on operational and financial reporting requirements; its distribution, sales and marketing capabilities are much weaker. To be sure, you can add other Oracle products for some (but not all) of this, but of course there is a price, and the integration is less than perfect.

A key challenge for hotel enterprises has been the willingness of the vendor community to work cooperatively with their competitors. For larger hotel groups this isn’t just a nice-to-have, it’s a necessity. No matter how much they might want a single solution provider that can do everything, any practical migration path to such a vendor (if it even existed) would necessarily proceed by replacing one system at a time over a period of many years. If a Hilton or Marriott were to decide that it wants to move everything to Vendor XYZ, it will have to start by taking a single one of XYZ’s products and integrating it with the other systems it has today, which in many cases will be from XYZ’s competitors. If XYZ doesn’t publish open interface specifications and proactively support real-time connections with its competitors, then it becomes very difficult for the hotel company to create a migration strategy that will work.

Market leader Oracle seems to have now recognized this and has been moving in the past few years to a much more open strategy. Competing vendors have widely reported that the company has become much easier to work with than previously. But it still suffers from a legacy product design dating back to the Fidelio and MICROS days, which doesn’t allow much of the internal logic to easily be exposed to partners. The company understands this and has made substantial progress towards this end, but still has a way to go. Other core system vendors in the enterprise class have varying degrees of openness, but the hotels will still say that industry-wide, lack of openness from certain vendors is a very significant barrier to moving their technology stacks forward.

In a column last year, I wrote about enterprise service buses (ESBs) as an effective way to tie together the disparate systems used by hotel companies. It is noteworthy that in addition to the companies mentioned there, Jonas Hospitality has embraced this approach as well and are now using their own ESB to provide connectivity to their two property management systems.

While the ESB approach has many strengths, it isn’t always the best solution for the problem at hand. It needs professional management that many hotels can’t or don’t want to provide, and there can be a significant investment to get started even on a small scale. This week I want to highlight two vendors that are trying to help meet the challenge in ways that are consistent with (but different from) the ESB. One is large and trying to address the enterprise solution challenge in its entirety; the other is small and simply trying to reduce the friction of sharing data. Both have the potential to be game changers.

The first is Shiji Group. While still not as familiar a name in North America as Oracle or Amadeus, those are its closest competitors. Shiji is a company with a long history and has a dominant position in China, and annual revenue of $550 million in 2019, almost exclusively in hospitality. By my estimate that makes it the third largest global provider of hotel software, after Oracle and Amadeus. In the past five years Shiji has made very serious inroads (backed by a nearly half-billion-dollar investment from Alibaba) into building a next-generation enterprise platform and starting to take it global. It has hired many top industry veterans in Europe and North America and built a substantial presence.

I’ve been impressed with Shiji’s clear understanding of how to meet the needs of enterprises, including their willingness to support open interface protocols and to work with their customers’ existing providers who may also be Shiji’s competitors. Their recently launched enterprise platform is customer-centric and is designed enterprise-down rather than property-up; it uses an event-driven microservices architecture with open, documented interfaces. The design supports a single enterprise-wide profile of each customer yet enables that profile to be stored in a data center that complies with various data privacy regulations around the world. The profile is designed to capture everything about the customer, even down to conversations recorded via the company’s AI chatbot. The architecture is consistent with what I have said for years is the right way to build software for this industry. While I haven’t looked at it closely, at first brush the enterprise platform appears to be a variation of an ESB, meeting many of the typical capabilities.

In addition to its broad historical product base, Shiji has in recent years acquired several products (notably Hetras, ReviewPro, MyCheck, and Concept Spa & Golf) that helped build out an extensive portfolio. As acquisitions are made, the first step in each case is to share guest profiles and data with the enterprise platform and to merge key aspects of guest profiles. Over time, Shiji expects to migrate core functionality as well.

What makes Shiji a company to watch is that it truly understands, at the most senior levels, the challenges faced by enterprise hotel companies, and they have put together not just an enterprise-grade platform and broad product portfolio, but a business strategy, funding, and a consultative support organization to implement effectively. It also derives most of its revenue today from China and other parts of Asia, where the COVID recession was short and now mostly in the past, so it is likely less financially challenged than many vendors who are focused on the Americas and Europe.

While Shiji is large and established company, the second one, Hapi, is tiny by comparison. It addresses just a single part of the problem; and it sells as much if not more to other vendors than to hotels. But within the past year, it seems like every other conversation I have with a vendor (and some with hoteliers), I hear Hapi’s name mentioned as a partner with whom they have engaged.

Hapi solves the basic issue of data exchange between systems, capturing information or transactions produced by one system and transforming it so that it can be consumed by other systems. It has some characteristics of ESB technology and for many use cases can produce similar results, but it is better able to deal with certain common situations such as ingesting a bulk data dump from one system and converting it to transactions to be processed by another one. I would not describe the technology as elegant, but it’s modern, very practical and, in comparison with a full enterprise service bus, lightweight. Further, because Hapi competes with none of the application providers it helps to connect, it has been better able to establish productive working relationships with many of them and has built a core competence in exchanging data to and from their solutions. And unlike a true ESB, its technical methodologies can work in some cases with little or no support from the other vendor. It can be used as a service, without heavy up-front investment.

For better or worse, all but the very smallest of enterprise customers in our industry have to deal with a diversity of systems that don’t connect cleanly. That has stood squarely in the way of creating a seamless customer journey and of providing hotels with accurate and actionable guest data … and of getting me my mobile key in seconds rather than days. It’s high time that the major hotel companies start solving these issues, and the tools are now out there that begin to make this practical.

The best of the holidays to everyone. See you in 2021 and let’s make it a great year!

Douglas Rice

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