October 2018, Las Vegas
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Hyatt and Wyndham share views on recent industry consolidation
With Amadeus’ recent acquisition of TravelClick, is continued consolidation big news, bad news, good news or just another sign of the changing times? Pamela Whitby hears from two hotel heavyweights
It wasn’t the only tech-eat-tech online travel company deal in August and it probably won’t be the last in 2018.
Nevertheless, Amadeus Hospitality's $1.52 billion acquisition of TravelClick, a provider of cloud-based and data-driven solutions for hotels that promise to maximise revenue, is a significant one. In a similar area, earlier in the month, it also emerged that India-based RateGain, a supplier of hotel software and travel distribution tools for the travel industry, had acquired another tech distribution firm, DHISCO, for an undisclosed sum.
While one aspect of these deals is to fill technology gaps, another strategic reason for the Amadeus-TravelClick acquisition was articulated by Francisco Perez-Lozao, Senior Vice President Strategic Growth Businesses, Amadeus. “While we have already made strong progress with the large chains, TravelClick gives us access to the mid-chain and independent hotel segment that makes up almost three-quarters of the market,” he said in a press release.
The question, however, is all this consolidation on the tech intermediary front good for consumers, hotels and the wider industry? Will it help hotel management companies provide better tech services for hotel properties, improve the customer experience and lower costs? And, what is the longer term vision?
…the mid-chain and independent hotel segment… makes up almost three-quarters of the market
For Sanchit Rege, a manager of distribution strategy at Hyatt, who will be speaking in Amsterdam, the consolidation is helping to remove friction for the customer, is a positive move and is being driven by two trends.
In a mobile, connected world, consumer behaviour is changing and they have high expectations of the travel experience. They simply aren’t tolerant of an experience that may be the result of two systems not talking to each other.
- Hotels, as result, are demanding more from their technology providers - be they external vendors, agencies or internal teams - to deliver seamless solutions that don’t miss the mark.
“These higher expectations from both consumers and the hotel customers are the perfect impetus for industry consolidation,” says Rege, who believe that this also creates two-fold value.
Firstly, it could be a reduction in system costs through consolidation in a highly competitive space, as has been seen in the online wholesale environment. For example, in 2017, HotelBeds, a global bedbank and business-to-business provider of services to the travel industry, announced the integration of former competitors GTA and Tourico Holidays. To provide further value to hotel partners, this year the group moved into the fast-growing tours and activities space by partnering with Redzy, the Sydney-based booking software provider specialising in tours & attractions.
On the other hand, it could be in value created from the seamless integration of technology products that reduce friction for a customer. “Ultimately as long as this incremental value is passed on to the end consumer, it is good news. In the same way, if hoteliers are able to deliver these seamless experiences and gain incremental value in the process, the consolidation is good for the hotels,” he says.
Connectivity and costs
Another hotel view comes from Inderpreet Banga, a senior distribution executive at Wyndham, who views the Amadeus-TravelClick acquisition as an interesting move. “Travelclick has many aspects of the business that Amadeus doesn’t have, but from my point of view, this is about connectivity; about how they build revenues through connectivity with various channels,” he says.
Put another way, acquisitions like this could be seen as companies playing in the same arena closing ranks to rail against the trend towards disintermediation like the one Winding Tree’s ‘experiment’ – a decentralised platform for travel using blockchain technology - ‘ is aiming to achieve. While hoteliers are watching closely, hopeful that blockchain will enable them to partner more effectively across the ecosystem, many believe that this is still a long way off, due to the capacity required for the number of transactions that would need to be processed.
It is likely that Amadeus….will be centre stage as blockchain technology matures!
With this in mind, however, firms like Amadeus and TravelClick are upping their game. And, in fact, it is likely that Amadeus, which released a paper last year identifying four ways that blockchain could be used in travel, will be centre stage as blockchain technology matures!
“It remains to be seen how this plays out, but I personally believe that Amadeus will be one of the key drivers [of blockchain]. Indeed, we have already seen, and even heard from Winding Tree, that it won't be simple to remove all middle men,” says Joerg Esser, a Roland Berger consultant, theoretical physicist and former Thomas Cook director.
How the intermediary tech landscape is moving is not dissimilar to how consolidation has played out, and continues to do so, in the highly fluid OTA-meta environment. The recent acquisition by Booking Holdings of Australian metasearch firm HotelsCombined in July is just one move, and echoes the firm’s $550 million acquisition of Momondo Group in 2017. Both these deals could be viewed as real estate plays by Booking Holdings to give its six-year-old metasearch Kayak more traction in Australia and EMEA respectively. It could also, arguably, help to reduce dependence on Google, the elephant in the room, where customer acquisition costs continue to rise.
Says Banga, who will be speaking in Las Vegas: “Just like consolidation in the OTAs helped to drive commissions up for hoteliers, I can see consolidation in the connectivity/intermediary driving up connectivity costs up for hoteliers as well.”
[In the future] there will be a very limited number of partners that will dictate where consumers spend their time, and everybody will have to pay the piper
While in the short-term costs will remain relatively steady, he continues, “as a long-term play, the reduced number of players in intermediation allows for price increases”.
So maybe not such good news for hotels?
Banga is pragmatic: “You have to kind of expect the M&A happening across the entire spectrum. The bigger you are the more negotiating power you have and, eventually, I believe there will maybe be three to four big players in hotels, connectivity and distribution.”
Rege, meanwhile, puts this argument forward. “In sectors of the industry where margins are shrinking, we can expect players to consolidate. For example, tours and activities companies in different markets. When it comes to technology providers solving travel problems, I would expect to see companies continue to add capabilities and synergies, either through internal innovation or acquisition.”
Looking into the crystal ball, there is a concern that power will eventually reside with a very limited number of platforms – Facebook, Google, Amazon, WeChat - where customers will do pretty much everything from searching to booking and paying for all goods and services. Already, this is happening in China with WeChat.
“That is why the ‘book direct’ is so crucial not just for hotels but also for third parties because there will be a very limited number of partners that will dictate where consumers spend their time, and everybody will have to pay the piper,” Banga says.
Taking a broader, sweeping view of what current M&A activity signals, Esser argues that besides the strategic drivers like expanding customer base, the longer term M&A and partnership game is increasingly about simplicity, about making it simple for customers. It’s also about choosing partners wisely and simplifying operating models so as to avoid becoming Jack-of-all-trades.
“Realising this requires having the capabilities for innovation, primarily to achieve scale,” he says. “The Amadeus-TravelClick deal goes some way to achieving this and, in doing so, helps to “slightly” counter the innovation clout at Google & co.”
Going forward, however, technologies like blockchain may mean that the vertically integrated M&A deals of the past, and more horizontal deals of the present, may not be the only way to take back control of the supply chain.
So not just big news but some good news and a sign that times are changing!
Join us in Las Vegas (Oct 18-19) to hear more from Inderpreet Banga, Senior Distribution Executive, Wyndham or in Amsterdam (Nov 28-29) where Sanchit Rege, Manager, Distribution Strategy, Hyatt will be speaking