The Wonderful World of Free - and How it Can Work in Hotels

In the recent Hollywood comedy The Internship, a movie based on the unlikely premise of two guys on the brink of middle age landing internships at Google, there’s a scene where one of the main characters, played by Vince Vaughan, goes up to the counter at the infamous Google canteen and orders a coffee. When he asks the server how much he owes, he responds “it’s free”.

Vince Vaughan and Own Wilson in The Internship

“What about the bagel?”

“It’s free.”

“The muffin?”

“No charge.”

“The fruit?”

“It’s also free.”

It’s not a word for word transcript of how the conversation went, but the gist is there: Vince Vaughan’s character is in total awe of one of the reasons why Google has been voted one of the best companies to work at: the free food.

Free massages and other perks not withstanding, the free food canteen has become the employee-envy of choice for non-Googlers trudging to the pantry of their workplace every day to put their lunch box in the microwave.

But as said by others, the point of the canteen is not the wide variety of food that’s on offer, or that Google wants to spare its workers the daily distractions around what to eat at work. The point is the fact that, in stereotypical internet style….. it's all free.

It’s no secret that people like free stuff. Used as an adjective, Free is defined as “not under the control or in the power of another; able to act or be done as one wishes” but as an adverb it means “without cost or payment”. Combine the two - free of charge and free to consume - and you hit on something that is ingrained in our cognitive patterns which makes free stuff inherently and almost automatically attractive.

Of course, the label free is also a big fallacy and things that are offered for free almost never are. The free food and other perks at Google for example, are designed to foster employee loyalty, and I’m sure it works. There is no such thing as a free lunch, remember…

How Free can Work in Hotels

Given the powerful pull the label free has, I am surprised how little it is employed in hotels. Take movies, for example.

As I have pointed out before, the airlines have been doing a much better job with employing “Free” as marketing and branding tools by absorbing movie and other content costs in the ticket prices, meaning they are invisible to their customers.

Imagine the same customer who has watched two Hollywood movies “for free” on the plane over to Asia now checking in his hotel and discovering that the same range of movies will be charged at US$15?

In the age of BYOD, movie hit rates – specifically for Hollywood content – are suffering like never before, and fact is, that they won’t come back. So why not turn this trend into an advantage by offering Hollywood movies for free? The free-to-guest business model can be had for as little as US$5-6 per room and month (depending on the room count) which is surprisingly reasonable and can be a rounding adjustment, if absorbed in the overall room cost.

But even if not, the marketing and brand value is something not be sneered at. This kind of offering may not be for every hotel, but the hit rates for free movies in some of the more family-oriented hotels where our system has been deployed show a healthy viewership, indicating that it hits a soft spot with a certain demographic. This knowledge, if used wisely, can be a great loyalty driver.

Of course, not every feature or service can and should be free in a hotel. But a lot of hotel features move through a product life cycle that ranges from innovative to commoditised and a lot of times this matches the trajectory from chargeable to non-chargeable item.

Internet access/Wifi has already marched through this cycle and has arrived at a point where it is now expected to be free to guests. VOD is still at the beginning of the curve and hoteliers should move quickly to get the maximum brand and marketing value out of offering them for free before they, too, move to the commodity site of the cycle.

(Incidentally, I am writing this from my hotel room in Tokyo, a city where ‘free’ still seems to be a dirty word. Aside from the impossibility of finding cafes offering free wifi, my hotel initially insisted on charging me ¥2,100 (about US$20) for using the hotel pool. Only after repeated requests to explain the charges, the manager finally allowed me to ‘become a member’ which allows me free access…)

A Tale of Two Hotels – An example for why one size does not fit all (and never will)

Once upon a time there were two five star hotels in two major cities within the Asia Pacific region. They both had around 500 rooms and operated under well established brands within their respective markets. Both revamped and upgraded their in-room entertainment systems along similar parameters, albeit with some small but significant differences.

Hotel A wanted a system heavily reliant on video on demand content that featured an extensive selection of Hollywood blockbuster movies as well as Asian and Western adult, on top of some standard interactive hospitality features, such as weather and world time.

Hotel B also wanted to have Hollywood and Adult content, but was more interested in using technology in an innovative way to offer services such as interactive in-room dining and second screen applications that can be accessed through a tablet.

A few months after both hotels introduced their new systems, a look at how the two compare gives some surprising insights. 

Let’s take VOD hit rates first. Hotel A scores average monthly VOD hit rates of around 5% and healthy revenues in the 5-digit US$ range, almost suggesting the heyday of VOD hit rates in hotels are back again. The hit rates for Hotel B on the other hand, are limping along at a low 1.2%, much more in line with the picture of declining VOD revenues hotels have been reporting over the past few years.

So what’s the difference between Hotel A and Hotel B? Hotel A was aware that it was particularly popular with regional business travelers and consequently ensured that the entertainment portfolio was well stocked to meet this demographic’s preferences. They also adopted a flat-rate content business model that allows them to price their VOD library at a premium and thus make the most of the demand for this service.

Hotel B, on the other hand, is located within a prime shopping district and is frequented primarily by shoppers, honeymooners and families – not the demographic that would necessarily watch movies in the hotel room (and certainly not adult ones) when there are plenty of things to explore around the hotel. 

The key here is that Hotel B recognised this not be a disadvantage– quite the opposite. Being aware of the fact that VOD would not be a prime contributor to the bottom line, Hotel B decided to offer Hollywood VOD free to guests, creating instant, albeit more intangible value. I wrote in previous emails how Free to Guest (FTG) VOD is an inexpensive option for hotels to gain brand differentiation that can be more valuable than the (inevitably) declining revenues generated by offering it as a chargeable item (not to mention the administrative effort attached to managing the usual revenue share business model). 

And Hotel B did more. It focused on other interactive features that would not only enhance the experiences of their specific guest profiles but also add to the bottom line. Using the Second Screen, where guests can stream all hotel-specific features, including TV and VOD, on their iPad within the hotel for the duration of their stay prove to be a big hit. So did the interactive in-room dining menu that enables guests to order room service straight from their TV screen, which increased the overall in-room dining revenues significantly.

The moral of the story is of course that one shoe doesn’t fit all. If you feel ham-strung by declining VOD revenues because your demographic simply doesn’t want to watch anymore, offer it for free and get some brand mileage out of it. But if your guests are heavy users of VOD, maximise this revenue opportunity by stocking up your portfolio with appropriate selections and revise your business model. 

There is no doubting that content consumption as a whole is in a state of flux. However, as I said before, it will be some time until a business model emerges that connects the technology, delivery mechanism and content available today in a meaningful way that is also applicable at an enterprise level. Until then, hotels shouldn’t shy away from using the available features and services to differentiate themselves and add to the bottom line.

As long as the approach is not of the one-size-fits-all variety, that is.

Internet charges in hotels II: finding the middle ground in the multi-device world

In my last blog I mentioned some measures hotels can take to balance internet charges with guest expectations, so in this blog I’d like to get into more detail on what these actually are.

Whenever there are new research results released on what guests want in a hotel room (and there seems to be an abundance of these right now), one message is repeated again and again from Rio to Rabat and Berlin to Beijing: strong, fast internet access and for free, please. In a world where connectivity is taken for granted, and much information and other content provided for free, this is an understandable expectation – much like I imagine it became a standard to have a TV set in a hotel room, provided at no cost to the guest, 50 odd years ago.

If you are working in the hospitality technology space, it’s about now you may be inclined to feel a little nostalgic about those days when the highest tech gadgets in the room were a colour TV and a basic internet connection to let you cover off emails while one of 20 channels keeps you company in the background. The fact that these times don’t seem all that long ago reinforces that entertainment consumption and access has changed more in the past 5 years than it had in the 100 years before, a process that shows no signs of abating any time soon. 

The figures supporting these changes are truly staggering. If one billion new Internet users and 1 zettabyte (yes it’s a real word - over 1 trillion gigabytes) of Internet traffic in the next 4 years, as Intel predicted recently, are a bit too abstract to process, go to your average electronics retailer to see that it’s increasingly difficult to find consumer electronic devices that are NOT Wifi enabled – and I am not talking of the obvious e-readers, tablets or Blu-ray players here. Samsung just recently released its RF4289 refrigerator which comes with an 8-inch touchscreen and connects to the internet over WiFi, making Cisco’s prediction that there will be 15 billion connected devices by 2015 a lot more believable.

It is no wonder, and I suppose inevitable, that our fascination with the gadget, our connectivity addiction and the ubiquity of both is affecting the hospitality industry. Whether it is one conspicuous individual, traveling with laptop, iPad and smartphone, all vying to be “plugged” in to broadband access, or the modern family with its individual family members wanting to connect their respective devices when staying in the same room: the flood of connected devices will create a headache for hotels who, on one hand have to manage bandwidth cost, but on the other hand risk alienating their guests with escalating per-device charges.

But the industry is starting to experiment with alternatives. An increasing number of hotels choose to offer internet Free to Guest (FTG) as a marketing and branding tactic. While this will no doubt keep multi-device travelers happy, it may create serious bandwidth issues down the line if you read a recent In-Stat survey which says about 86% of tablet and smartphone owners are using them to watch video. Some hotels I have encountered in the region that offer internet FTG have started to warn their guests that if the amount of traffic a guest incurs exceeds a certain threshold it will cut access or move it to a lower tier. Whether this is real or just a threat I am not entirely sure (I’ve never been cut off), but personally I don’t believe that threatening your guests is a particularly effective measure if you are operating in a fiercely competitive service industry.

One of the areas where hotels can get some inspiration may be the airline industry and the way premium airlines handle their in-flight entertainment. Anyone who is familiar with the content industry knows that the VoD content on offer on flights has to be paid for through minimum guarantee and/or revenues share agreements with the relevant studios. Airlines recoup these costs (and then some, presumably) through advertising and absorbing them in the ticket price, which means they are not visible for customers who assume the content is offered to them for “free”, which creates a positive brand image. Perception is everything, so why not adopt the same principle for internet access in hotels rather than shoving the unpopular charges in guests’ faces? Based on historical data, hotels can average out bandwidth usage and spread the cost evenly across all room charges.

But it may be inevitable for hotels to introduce more predictable ways to manage their bandwidth costs while at the same time meeting guest expectations and corporate quality standards. One way of doing so is for hoteliers to look to the telco space where tiered systems with different Classes of Service (CoS) have been in use for some time. There are some similarities already inherent in High Speed Internet Access commonly deployed in hotels. The HSIA in hotels is predominantly built on a centralized gateway to the internet that effectively resembles an Edge Router, which in the telco world is commonly used as a single point of traffic management enabling different CoS to be applied to different users. While telco-class edge routers would be overkill for comparatively small operation like a hotel, there are a number of enterprise-class solutions available that are more suitable for hotels.

On the other hand, some major network equipment vendors have started to provide CoS capability with a software upgrade which eliminates the necessity for edge router-type equipment completely. While their solutions thus far are targeted to the telco world, it shouldn’t be long before lower-end versions will be made available to enterprise applications.

Either way, hotels need to get creative to bridge the gap between guest expectation and commercial reality and to do so, it is necessary to include both technical as well as strategic considerations to find the solution that benefit a hotel’s individual needs.