Linking Changes in Hotel Distribution to Changes in Customer Expectations By Julie Sickel / October 28, 2018 / Contact Reporter Share The hotel distribution landscape, like the broader hotel industry itself, is complicated and fragmented. It's made up of entrenched intermediaries, lagging legacy systems and Band-Aid solutions developed over the past 50 years to take the industry from on-property bookings to call centers to internet systems to today, when locating and booking a hotel room is expected to be as easy as saying, "Alexa, find me a hotel." With the complexity inherent in the distribution landscape, it's easy to get overwhelmed and lose sight of which shifts may be occurring and why. But the reality is, many of the changes hitting the hotel industry link right back to changes in traveler behavior and expectations. And, hoteliers, like corporate travel managers, are working not only to keep up, but also to prepare for the future. What follows are some of the moves taking place in the hotel industry and how they link to shifting customer demands, plus a roundup of other disruptive forces shaking things loose in the industry.Cloud-Based Systems to Support Shifts in Booking BehaviorIn recent years, a number of the major hotel companies—including Choice Hotels International, InterContinental Hotels Group and Wyndham Hotels & Resorts—have announced cloud-based central reservation systems. A hotel company owns, leases or licenses a CRS, alternatively called a global reservation system, as a centralized database that communicates with property management systems so the hotel company can process reservations for all its hotels, according to curriculum from the Hotel Electronic Distribution Network Association. The new cloud-based systems have either been built in-house, such as Choice's ChoiceAdvantage, or they've been developed by global distribution system providers, such as Wyndham's adoption of Sabre Corp.'s Synxis Central Reservations. Why the move to the cloud? Since online travel agencies and meta search companies have entered the hotel distribution landscape, hotels are expected to distribute content on an increasing number of channels. Travelers, in turn, expect to be able to search and book hotels on whichever channels they prefer. "What we are seeing is the explosion in shopping and booking transactions, and this is in the billions—literally hundreds of billions—that we deal with every year," Choice president and CEO Pat Pacious said last year about the shift to ChoiceAdvantage. "We saw a need to improve the velocity of our ability to move information around from our hotels out to third parties out to our own proprietary sites, and we saw the variety of data. So, the volume, the velocity and the variety of data was really changing in a significant way. We needed to be on the forefront of that." A cloud-based system, he added, enhances speed across the system and increases the accuracy of hotel content because it's not being stored in disparate systems. The new CRSs aren't the only cloud migrations taking place in the industry. Property management systems, too, are heading to the cloud. PMS software sits at the property level and coordinates various functions at a hotel—including bookings, accounting, point of sale, payroll and sales and marketing—according to STR. Opera by Oracle is one of the earliest PMSs and, therefore an entrenched player in this space, but there are hundreds of providers globally. The costs of switching to a new system are high, which keeps this level of distribution fragmented. CRSs developed as a way to connect disparate PMSs. However, with the emergence of cloud-based systems, PMSs can bypass CRSs in the web of distribution. Yet, most PMSs aren't sophisticated enough to meet the needs of that "explosion in shopping and booking transactions" Pacious referenced. That's where channel managers step in. Channel managers emerged around the rise of online travel agencies to serve as an interface between internal hotel systems and third-party extranets for inventory distribution. Today's channel managers do more, however. "If you look at the channel managers of yesterday, they're becoming much more like CRSs, and I think the independent hotel space is getting a lot more access to technology that previously was reserved for the chains because of how companies like ours have evolved," said Mike Ford, co-founder and CEO of large channel manager cum cloud platform SiteMinder. The company's tech sits on top of a PMS or a CRS to provide connectivity to the guest-acquisition landscape, keeping up with paradigm shifts and establishing hundreds of integrations with the various distributions channels, including OTAs, wholesalers and metasearch companies. For hoteliers, the growing sophistication of players like SiteMinder has important implications around things like revenue management. But for travel management companies and corporates, increasing sophistication at this level of the distribution landscape—including CRSs, PMSs and channel managers—opens up the possibilities for direct connections with hotels that bypass GDSs."A lot of third parties are out there providing niche services now to connect hotels to various points of sale," Ford said. "Even though you have channel managers or PMSs connecting to direct channels, you've still got sometimes two or three systems sitting between the hotel and then who they sell to. ... I think that's going to become a lot more streamlined. The hotels are going to have access to a lot more direct distribution."Moving to the cloud and possibly moving away from intermediaries has implications around traveler personalization, too, but more on that later.Traveler Choice, the Need for Content & the Power of OTAsThe proliferation of search and booking channels across the travel industry has conditioned travelers to expect to choose where and how they book. As a way both to drive traveler satisfaction and to plug up program leakage on the corporate travel side of things, many travel managers and travel technology providers bring in content from aggregators to offer as many hotel choices to a traveler as possible. While this can be a positive for travel programs and their travelers—Unilever and ITW are two examples of programs that have embraced high volumes of content through open-booking or supplementing with an aggregator and have seen positive results—it can complicate an already complex distribution environment and have knock-on effects for hotels. At the risk of oversimplifying, consider Expedia. It serves as one of two dominant players in the OTA bucket of distribution, alongside Booking.com. Its position in the industry allows it to charge hotel commissions in the range of 15 to 25 percent. The hotels don't like those high commissions, but, in spite of attempts to bypass OTAs through recent direct booking campaigns tied to loyalty, hotels cannot ignore Expedia as a distribution channel. But Expedia is not just an OTA, it's also an aggregator with its Expedia Affiliate Network. And there's been no shortage of deals in recent years to feed content from EAN and similar aggregators into GDSs, TMCs, and corporate booking tools as a way to expand the choices available to travelers. So while hotels spend marketing dollars to try to get travelers to book direct and not on Expedia, which conflicts with how corporates would like their travelers to book, the tools corporates then ask their travelers to use to book hotels are supplemented with content provided by, essentially, Expedia. "Because of how fragmented and how difficult it is for people to access hotel content availability and whatnot, [Expedia] can capture a lot of business indirectly by basically feeding its connectivity to a bunch of other companies and just sharing revenue," said Arise co-founder and CEO Nadim El Manawy. Arise uses a distributed ledger—aka blockchain, though Arise doesn't use cryptocurrency—and aims to, among other things, decrease the number of intermediaries that sit between hotels and buyers. The company is currently building out two proofs of concept. The first focuses on commission tracking and reconciliation for large TMCs. The second touches on the lack of transparency in how rooms are sold via aggregators, GDSs and wholesalers. In that second proof of concept, smaller OTAs, travel chatbots and others that rely on content from a combination of aggregators, GDSs and wholesalers connect into Arise's network. "We can basically now track all their search and booking queries that they send to those intermediaries, and we aggregate and anonymize them all," El Manawy said. "Then we can show hotels how much money they're losing for all those bookings getting produced for their hotel by all those different types of travel companies that they currently don't see because it's kept opaque by the guys in the middle."El Manawy said the hope is that distributed ledger technology would more easily allow for direct connections between hotels and TMCs or even between hotels and corporates, which would eliminate the need for wholesalers, aggregators, switches and, yes, GDSs.Personalization & All the Data Choice and flexibility aren't the only expectations of today's corporate travelers. They also want personalization. The good news is: Corporate travel programs and hoteliers alike want to provide personalization because both know it can drive traveler satisfaction and loyalty. The bad news is: The structure of modern hotel distribution makes it difficult for both sides to work together to deliver. The problem is centralization, said El Manawy. Picture a game of telephone between three people. Person A on one end tells a story to Person B who sits in the middle. It's a good story, lots of details. But when Person B turns to Person C on the other side, all Person B can remember is the rough plot, no nuance. That's what a centralized system does — no matter how well Person A tells a story, Person B only has the capacity for so much information. "GDSs need to limit the amount of information that can pass through their systems, which is a big problem," said El Manawy. As a distributed ledger company, Arise does have a stake in decentralizing hotels, but El Manawy said information sharing for personalization has come up repeatedly in conversations with large TMCs. "There is way more information they would love to pass back to the hotels," he said. "They're starting to gather much more relevant information about the travelers, especially in corporate travel, when people travel more often. But this is information they can't pass back to hotels because again, it's very limited in terms of the capabilities of what they can pass back through the GDS." What to Watch & What to IgnoreBlockchain. Arise isn't the only distributed ledger company trying to change hotel distribution. Another entering this space is Winding Tree, which already has a strong foothold in the airline space and just recently partnered with Sciant to make Hospitality Technology Next Generation's distribution standards compatible with Winding Tree's distribution platform. Winding Tree founder and COO Pedro Anderson said the goal of the company is to democratize the travel distribution flow. He said that as the industry encourages more open innovation, it increasingly will be able to attract talent to help solve and disrupt current issues in hotel distribution. Metasearch. AccorHotels CEO Sebastien Bazin said in June he spends more time worrying about what Facebook and Google will do in the future than he does about hotel competitors. Bazin may have the right idea. "Google is really starting to accelerate their movement to travel now, I think," said SiteMinder's Ford. "They've been doing a lot of groundwork in the last few years around the travel experience. … It just feels like they're sort of accelerating efforts there and providing hotels a real opportunity to participate directly at that point of sale, essentially competing directly with the OTAs."Chinese travel companies. Google may not be the only potential threat to Expedia and Booking.com. Ford notes that Chinese companies like Ctrip and Alibaba have been fairly focused on local markets and Chinese domestic travel but that's likely to shift in the coming years. "They're really starting to move to be global players, and that's quite a big change," Ford said. According to eMarketer, China is expected to account for a quarter of digital travel sales worldwide by the end of 2021. NDC for hotels. Hotels may have been fine with piggybacking on airline distribution last century and even continuing to adapt airline revenue management practices for the hotel industry. But when it comes to New Distribution Capability, it looks like hotels are going to pass. Last year, Hotel Technology Next Generation explored adopting NDC standards and what that could look like. In the end, they found that "NDC is really solving a problem the hotels don't have," said HTNG COO David Sjolander. Anderson added that NDC for airlines is more than five years in the making, and were hotels to look to do something similar, "by the time that it's made, it may not even be relevant."