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…)

In-room Dining: From Cost Centre to Revenue Generator

When the New York Hilton Midtown announced a few months ago that it would replace its room service with a self service option, it sent surprisingly large ripples through the industry. While some industry observers asked whether this was a watershed moment where a trend was set for an industry at large to rid itself of a service that is declining in popularity, the majority viewed this as an isolated test case.

I couldn’t agree more. The New York Hilton wasn’t the first hotel to give room service the flick and it won’t be the last. But it doesn’t mean room service as a whole is dead.

It’s an interesting and worthwhile discussion to have though, and I believe there are a few points that are worth considering in the room service debate.

Things outside the US are different…

…particularly in Asia. In the US in 2012, room service revenue represented 1.2 percent of total hotel revenue, down from 1.3 percent in 2011, according an industry survey done by PKF Hospitality Research in Atlanta. This seems to echo Hilton midtown’s reports that demand for the service has declined.

But then, if you look at the charges a hotel in US typically slaps onto the room-service bill it’s no wonder: a “delivery fee” or “room service” charge of $3 to US4, plus compulsory gratuity at 18% that is automatically added whether you appreciate the way your server puts down the tablet or not. Not to mention a room service tax of about 10%. Now even an ardent room service user like me would think twice about ordering when I look at these types of charges…

Fortunately for me, here in Asia things are a lot different. With many countries not imposing value added tax and a workforce that remains vastly cheaper than in the US (or in Europe for that matter, at least in northern Europe), room service comes at a lesser cost to a hotel than elsewhere, which is generally reflected in the cost of ordering food.

Not all hotels are equal

The well-stocked ABC Store
at the Hilton Hawaiian Village

Of course, not all hotels are equal in the room service debate.  Aside from long-stay type accommodation that provides reasonably equipped kitchenettes, another type of property where room service may not be needed is resorts, where the whole resort atmosphere is part of the holiday experience and you rarely see a lone business traveler. Big resorts like the sprawling Hilton Hawaiian Village for example have not only plenty of dining options within the resort’s premises, but also a large convenience store that stocks everything from booze to ready-made meals for take away. And you can book it to your room, too. This resort has phased out room service last year (before the Hilton Midtown) and I can’t say that I’ve missed it when I stayed there.

But what about business hotels (and I would imagine the Hilton Midtown ranks in this category)? Judging from my own experience as a frequent solo-business traveler, I would give a hotel without room service a wide berth. The most important thing for me while traveling for business is convenience and minimal disruption – after a long day of meetings I don’t want to trawl around for food. I want to sit in my room, catch up on emails and eat my room service meal at the same time.  Aside from that, as a female solo-traveler going for a lone meal is not always the most pleasant thing to do, particularly in a country you don’t know well or feel unsafe in.

From cost centre to revenue generator

The one key argument that I found largely absent from the debate is how to turn room service into a revenue generator. One thing’s for sure: the room service experience of yore, where the guest is bored by pages of unimaginatively written food options, won’t do it.

Capturing the imagination of the hungry hotel guest at the point where he/she decides between ordering food from the hotel or go next door and spend their dollars elsewhere requires something more engaging.

A picture tells a thousand stories...still

It’s the perfect type of service to reside as an interactive in-room dining menu on the room TV or tablet – it’s a cliché alright, but a photo still tells a thousand stories. 

Putting the dining menu on the in-room entertainment platform, featuring inviting photos and descriptions, or even a video, combined with a direct POS link to the kitchen and voila, it’s room service re-invented as a revenue generator, rather than cost centre. 

And let’s not forget that a hotel will retain 100% of the revenues generated through in-room dining, as opposed to just 25% of other payable services such as VOD movies.

Some of the hotels that have rolled out our interactive in-room dining feature have reported overall hit rates of 5% for room service (that is 5% of total occupancy), which may not sound that much at first glance. But if you compare it with other on-demand services such as movies, where hit rates hover just about 1%, the view changes somewhat. (More data to come here in the near future!)

Lowering the barrier for guests to communicate with the hotel

Another benefit of putting the in-room dining menu on the entertainment platform is ease of use. Specifically for those guests who do not speak the local language very well, putting this service on the entertainment platform allows them to choose their preferred language of interaction and seamlessly order their meals without having to pick up the phone and speak with someone who they may not understand very well. 

For in-room dining to be successful and not a loss leader, it has to conform to the same criteria as every other service offered in a hotel – it has to be easy to access and use and offer value for money. If that cannot be achieved - for whatever reason - it should probably be scrapped, but not before carefully looking at all options.

The importance of a strong hotel brand in the age of OTA domination

Hotel owners and operators fought it out at the recent Asia-Pacific Hotel Investment forum in Bangkok during a panel discussion titled “Hotel owners bear all the risks and operators reap all the rewards”. True to its racy title, the panel drew lots of sharp breaths from the audience as two owners were pitted against two operators. The instant survey conducted immediately afterwards showed the audience was siding with the owners’ argument, albeit by a smaller margin (61% vs 39%) than expected.

Complaints about hidden management fees aside, the owners’ side quickly honed in on OTAs and loyalty programs as the culprits responsible for eroding their investment returns. It’s not surprising that owners don’t like either, but particularly the attack on OTAs sounded a bit like sour grapes. There can be no denying that the traditional hotel industry simply missed the boat and is now having a hard time getting in on the OTA action, if that is possible at all given that even Google has recently become an OTA.

The attempt by the big brands to counter the OTAs by launching their own – Roomkey.com – seems to have failed so far – there’s a great article on RoomKey.com’s misguided strategy by Vikram Singh here.

So how to counter OTAs? The response of the operator side was simple: build a brand. One of the panelists claimed that 75% of bookings at his hotel are made directly through their sales channels, rather than OTAs. His message to the owners: if you want to maximise revenues from the hotel brand occupying your property, choose an operator that is willing to build a brand that entices and thereby compels travelers to book directly through them.

I couldn’t agree more. OTAs have added another level of competitiveness to the travel sector and are fast commoditising hotel rooms. Recent research by comScore showed that online travel spending surpassed $100 billion for the first time in 2012, a 9% increase over the previous year, with OTAs such as Orbitz, Expedia, and Travelocity claiming a sizeable chunk of these revenues. Currently the OTAs dominate the market when non-branded keyword phrases are searched. For example, searching for “Hong Kong Hotels” on Google – which is what the average traveler without brand preference would do - churns out a list heavily dominated by OTAs.

While the OTA challenge seems formidable, hotels can certainly claim back some of these revenues through online strategies and paid search ads. A hotel I booked recently through Agoda offered me a promotional code at check-in that will give me 10% off my next stay if I book directly through their website. While these strategies may work, I would argue that a more effective solution would be to build a strong brand.

On Loyalty Programs

The other beef that owners had during the panel discussion was loyalty programs. Unanimously they condemned loyalty programs as “free night programs”. The argument was that if a hotel offered a unique and memorable guest experience – if they ‘got it right’ – then they did not have to offer loyalty programs in the first place as guests would flock back to them without any incentives.  

I think this is somewhat oversimplifying the loyalty concept, specifically if owners don’t believe in building a strong brand – how can you foster loyalty without it?

Courtesy Market Metrix, http://corp.marketmetrix.com/

For one, the ‘free night program’ argument no longer holds. A study by Deloitte found that travelers place more importance on factors such as value for money and past experience, rather than free room nights. This is echoed by many other surveys, including the one by Market Metrix on the right.

In other words, just like with airline programs, it’s the perks that count. The value of fast luggage delivery, waitlist preferences and increased upgrade potential to the airline high flier, is the equivalent of room upgrades, executive lounge access, internet access and late checkout to the hotel loyalty card holder.

And let’s not forget the other factor here: loyalty programs tickle the human ego by delivering something that hotels ‘getting it right’ cannot: status and the opportunity to feel valued and more important than the non member customer next to you that didn’t get an upgrade.

Unless you are a ‘one of kind’ hotel such as the Raffles in Singapore, loyalty programs in hotels across the world are ways to lock in frequent travelers by delivering a ‘rewarding’ experience which will help build a strong brand.

Of Thumbelinas and Indexers and what it means for technology in hotel rooms

I can’t remember just how many times I have heard hotel managers looking at in-room technology saying “but will my grandmother be able to use it?’, or “it needs to be simple, our guests are not tech savvy.”

Let me just say upfront that these are absolutely valid comments and the many stories on Tripadvisor and elsewhere of in-room technology not working proves that there is definitely danger in over-reliance on technology, let alone technology that is badly executed. But not all technology is bad technology and sometimes the brush gets applied a little too broadly, so it is worth investigating this further.

If, for example, your hotel is in a country where power outages are common (think India and Thailand for example) it is probably not a good idea to rely heavily on centrally controlled curtains, air-conditioning and lighting (generators not withstanding), lest guests get trapped in the dark.

But even in countries where continuous power is assured, technology can turn a hotel stay into a nightmare. Most often this happens when it is badly executed or simply doesn’t work, which is wholly unnecessary and risks giving technology as a whole a bad name.

But even when it works well, technology has the capacity to annoy and delight in equal measures, depending on what type of person you are. And that’s the problem: guest rooms today have to bridge an ever increasing generational gap which makes choosing what type and the level of technology a challenge. The challenge is though that it’s no longer just about thinking of guests being positioned somewhere between early adopters or laggards – the differences are much more profound.

New generations live IN technology, not just WITH it

Between those of us who were born in the 1950s or 60s and those born in the 1980s is a cultural canyon as wide as the Pacific. As French philosopher Michel Serres puts it succinctly (and as retold by Christopher Caldwell in the FT here), young people “walk among the living ruins of a culture that makes little sense to them”, with libraries, newspapers, DVDs and even hand writing rapidly losing their footing as common cultural denominators. And while older generations don’t completely forsake technology, they merely live with this technology, while the new one lives in it, which is a significant difference. Serres calls the new generation “Thumbelinas” for their thumb-driven communication habits, which I guess makes us older folks “Indexers” for we still remember using index fingers to dial the old rotary phone, the main communication vehicle of yore.

But think what you may about the information revolution (Serres, for one, thinks it’s about as significant as the invention of the Gutenberg Press), the fact is it is something that cannot be reversed and it should not be ignored by hotels or they may risk alienating their future guests. So how to make it right for all? It’s a true dilemma for hotels and does not just affect technology – although I would argue it is here that the divide is most pronounced.

One way this can be dealt with is a dual approach, where old and new sit side by side. Don’t completely remove the printed in-room dining menu. But don’t decide not to introduce an interactive in-room dining menu on your TV because you are afraid it may alienate the ‘less tech-savvy travelers’. Have both and let the guest decide what he or she prefers and then gradually phase out the paper version when you think the time is right.

Technology needs to make sense

However, I don’t believe that in-room technology should be there for the sake of it - it needs to reflect real life and/or address a need. Just as a few years ago flat screen TV adoption in the home forced hotels to replace their old CRT sets, we again need to look at where technology has moved to in the living room to get a cue on what guests may want in the future. Mobility and BYOD is one of those technologies that are here to stay, so screen mirroring is a big one that hotels should embrace sooner rather than later.

Fundamentally though, technology also needs to make sense. My washing machine does not have an in-built microwave, neither does my fridge, so why Skype should be included in an in-room entertainment system defies me. In my view, the only time Skype on the big screen makes sense is when you gather the family to have a reunion chat of sorts, which is a scenario that I would think doesn’t happen too often in a hotel room. The fundamental question every hotel should ask is before embarking on any technology upgrade is “would guests use this?” 

The Trouble with COAX

At a recent initial meeting with hotel clients, we discussed the general requirements for their newly built 4-star resort-type property, how many rooms they had, whether they wanted VOD or not and what other features were of interest for their in-room entertainment system. Almost casually, we threw in the question “You have Cat 5e or 6, right?” to which the perplexed answer was no.

While the Asia-Pacific region as a whole is in terms of connectivity and technology innovation outpacing many more developed regions, there are significant differences within the region when it comes to connectivity.

In more mature markets like Hong Kong and Singapore COAX has been long replaced by UTP cabling, and sometimes even fiber, but developing countries such as Indonesia, the Philippines, Malaysia and particularly China remain a COAX stronghold, even for new builds. So why this lingering attraction to COAX?

The Cost Factor

Economics usually drive customer decisions and for a long time, COAX was considerably cheaper than CAT5e or CAT6, specifically in developing countries where broadband speeds were low. The reasoning went something like “Why pay for something that you won’t be able to get any time soon anyway”? But this cost argument no longer holds up. COAX pricing has remained constant for many years while UTP pricing has dropped consistently over the past 10 years to the point where it is now on average 20-25% cheaper than COAX (and fiber is yet cheaper again due to the higher cost of copper used in UTP).

And given that the demand for UTP remains strong, this price gap is likely to get even wider, making the COAX proposition even more unattractive to the bottom line.

The Need for Speed… and Quality

The other factor is speed. While it’s true that COAX, through various methodologies, can provide higher speed than UTP, the reality is that the speed comes at the cost of quality. COAX uses analogue modulations which doesn’t provide background noise resilience and means the overall quality will not match UTP’s digital modulation.  

Then there’s future proofing. There is this saying that bandwidth precedes data rates just as highways come before traffic. As streaming media applications such as video and multi-media become commonplace, Ethernet is the highway that will facilitate these services now with higher reliability and will enable higher bandwidth in the future, when the next generation of applications demand a smooth thoroughfare on the data highway.

Can’t rewire? Try Smart TV

Of course, sometimes rewiring an existing hotel is not an option for cost reasons, at least not in the immediate future. The good news is that there are solutions that will enable these hotels to install attractive technology innovations to wow their guests – at least until the next re-wiring renovation.

Smart TVs today offer a great alternative in cases where no UTP cabling is available. In this scenario, the TV channels can be delivered analogue to the Smart TV, and the hospitality features, such as in-room dining, messaging, facilities, and other interactive services can be delivered wirelessly through the SmartTV’s in-built wireless AP. Given that all TVs will eventually be Smart TVs, investing in this type of set up is certainly a very viable alternative where re-wiring is not possible. And once the hotel can finally run UTP to the back of the TV, they can easily cutover the analogue TV channels to IPTV channels.

So why has COAX managed to hold out this long? With cost and quality significant factors to decide against COAX, the reason COAX-based TV systems are still being deployed today could be due to a lack of awareness.

Advantages and Challenges of Delivering a Networked Hospitality Experience Part 2: In-room Entertainment

There seems to be a consensus that aside from mobility, Cloud computing is the technology trend at the forefront of transforming the way businesses operate. It can help making operations more efficient, enables faster time to market, delivers higher quality and lowers cost – items that are on top of the of every hotelier’s concern list. Some hotel technologies and operations are more suitable than others to be placed in the Cloud, such as PMS systems. But is the Cloud ready for in-room entertainment?

The answer is yes - and no, if digital TV comes into play. Delivering digital TV through the Cloud requires at least 1Mbps per room, making it prohibitively expensive in the majority of countries today. On top of that, most countries require providers to acquire a broadcast licence to deliver TV services through the Cloud, which particularly in Asia can be fraught with red tape.

So for hotels who want to provide a high quality, digital TV viewing experience, a walled garden IPTV solution remains the only option for the foreseeable future.

Ready for the Cloud: Hotels with
bigger emphasis on
 individualised guest services

TV aside though, delivering other features and guest entertainment services through the Cloud (including VOD), is a viable alternative for hotels, provided certain criteria are met. 

The beauty about Cloud-delivered entertainment services is of course is that hotels can do away with the expenses of having server equipment on their premises. And if hotels have invested in the latest SmartTVs, they also don’t need an STB in the room, provided the in-room entertainment provider integrates with the major SmartTV providers like Samsung and LG. In this scenario, the service could even be provided on a monthly subscription basis, which reduces hotels’ upfront CAPEX and allows more flexibility in terms of service updates. In this scenario TV remains analog but even then, delivery at an acceptable quality requires reasonable and reliable bandwidth to the hotel.

However, in some locations and for some hotel brands which are content with analog TV and have a bigger emphasis on individualised guest services, using the Cloud or a hybrid, minimum equipment solution may well suffice. The question is: why aren’t more hotels taking advantage of delivering their services through the Cloud?

The main reason is that it is always hard to change established ecosystems and the people that have been trained within it. And Cloud technology is particularly disruptive, which goes against the grain of the established IT ecosystems in hotels and elsewhere.

An analogy is the Windows monopoly that took years for Apple to crack with ground shifting business models and technologies. Similarly, the Cloud has been around for a while in some shape or form, mainly known simply as the Internet. But the mobile/connectivity world we live in today has created one of those inflection points where the simple Internet has transformed itself into the Cloud, with the business models and technology advances to match. This hopefully will also result in the next generation of IT managers embracing Cloud technology at a much quicker pace.

It won’t happen overnight as hotel IT managers have to deal with legacy systems and architectural constraints, among other things. But they should certainly be ready and look for ways to take advantage of the Cloud in every which way possible – including in-room entertainment.

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The Challenges of Delivering a Networked Hospitality Experience – Part1: PMS

At the recent Hotel Technology Conference in Singapore one of the topics discussed was the wisdom of putting devices into hotel rooms. A good question, given the fact that the average traveler tends to be accompanied by more than just one connected device. Wouldn’t it be easier to utilise the guest’s devices with downloadable apps and the like, rather than go to the expense of bulk buying expensive hard ware that may be outdated within 12 months?

The instinctive answer may be ‘yes’, but whether you rely on guests’ own devices or decide to put devices or technologies in the room for guest use, the key for designing a successful service in both cases comes down to how easily those technologies and services can be used and how effective they can be managed.

Unfortunately there is not one single provider that can take care of every technology requirement in a hotel. Within a hotel’s technology belly there are at any given time a number of different systems, protocols and versions trying to play with each other, which makes incorporating various new technologies to enhance the guest experience and a unified approach to interface and service workflow difficult.

The check-in process:
still unchanged & tedious

One of the main culprits seems to be PMS. The ideal of the PMS as the “master mind” of a hotel that manages everything from front desk, equipment, maintenance and guest preferences through a single piece of software is increasingly hard to find. Many PMS’ are lagging behind the ever faster spinning guest tech curve, which results in the dissonance in providing a smooth and unified approach when managing these devices and services in hotels, even in newly built properties. Case in point: the check-in process, which remains largely unchanged – and tedious.

While you can read that the hottest PMS trends currently are mobile optimisation for management and guest-facing systems, given that we are now in year 6 of the iPhone and year three of the iPad – which arguably kicked off our current smart device revolution – this seems hopelessly late.

Enter the Cloud

To overcome the barrier to creating a highly integrated hospitality environment, convergence of all subsystems in the private or public Cloud may be the only way forward, particularly if we are talking about fixed or mobile guest device management.

While the debate is still ongoing in the hospitality industry whether cloud services provide sufficient control, security and connectivity, as an ex telco-person it is clear to me that there is no better way of managing critical data efficiently than in the cloud (see here a good article on the benefits of the Cloud for hospitality).  

From the perspective of guest device management, the most important benefits are a unified management interface, ease of systems updates and lower Total Cost of Ownership.

But what the Cloud doesn’t automatically deliver is improved hospitality services. This still depends on the functionality of the PMS, regardless of whether it’s running from the Cloud or not.

Kiva robots in action
(image courtesy of Kiva Systems)

A good example – albeit outside the hospitality industry - of how a unified technology ecosystem can make a difference is the story of Kiva Systems, a supply-chain robot-maker which was bought by Amazon last year for $775 million. Kiva is a highly integrated system that uses robots to retrieve and carry entire shelf-units of packages to appropriate shipping points. There is a great article here that explains how Kiva is an integral part of the migration into Cloud computing by connecting the virtual world to the physical world. It’s a great example of what true convergence should look like and I hope we will see similar initiatives in the hospitality technology space soon.