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The decades of lost Innovation in the hospitality industry

A professor once taught me “Check yourself when things are going well”. Things are looking well for the hospitality industry, in particular, the hotel industry. With expected global revenue to grow to USD $ 550 billion until 2018, the industry could rest on their laurels. Looking at the hospitality industry from an outside point of view, I can’t stop to think that the hotel industry is facing some of its biggest challenges with a disruptive competitor on the rise and a new customer segment who are increasingly expecting a different hospitality experience. In this post, I will look at how digital innovation shaped the hospitality industry in particular hotels and how the relation towards innovation has shifted. In fact, it seems that we are looking back on two decades where hotels have stopped to keep track with the advancements of technology.

Digital Innovation in the Hotel and Hospitality Industry

Infographic: History of digital innovation in the hotel industry

Click for Infographic

Looking back at the history of hotels (see infographic) it becomes obvious that shifts in technology are not new and were actually embraced in the periods between the 50s up to the 80s. For some reason, this previous spirit of innovation has been lost. The question is why and what can be done to regain it?

Technology has influenced and impacted the hotel industry ever since the second industrial revolution at the beginning of the 20th century with the electrification and invention of the telephone. As the infographic shows it really took off during the digital revolution and was especially embraced by hotel brands:

Hilton Hotels:

  • Introduced the electronic booking system HILCROM
  • Introduced AirCon in all rooms
  • Introduced TVs in all rooms
  • Introduced the MiniBar (with an increase of 500%)

Westin (formerly Western):

  • Introduced the first reservation system
  • Accepted Credit Cards in all their properties as early as 1983

However, with the rise of the internet the innovation driven by hotel chains ceased. To me, this is very similar to banks which had their last big innovation in the 70/80s with ATMs and then consequently ceased to innovate with the last glimmer of innovation in the 90s with the creation of online banking. Hotels stopped innovating with the last glimmer being hotel websites in the early 2000s. One could argue that apps are the newest innovation. But most hotel apps add little value and have been created mainly to push direct booking and display loyalty programs. A different example of a hotel authentically embracing mobile technology and integration it into their concept would be Virgin Hotels and their app Lucy.

“The internet is just a trend”

In early 2005 the arrival of OTAs initiated a massive shift towards OTAs. In 2016 OTAs took an estimated USD $ 16 billion cut out of hotel revenue in terms of fees. American Airlines CEO once told the Priceline.com Founder “We would be better off if you were hit by a truck.” This feeling was probably mutual in the hotel industry. Not counting M&A and the creation of an overload of brands real innovation seems to be missing from the industry. This is especially interesting as the past two decades have seen the highest innovation driven by advancements in technology. It seems that most hotel chains have developed a negative sentiment towards technology. The Internet is seen as a marketing channel, and innovation was dumped on the CMO’s desk as an additional topic. 

Veterans of the banking industry told me about their meetings in the late 1990s on discussing if the internet was just a trend and would go away. Most likely this question was asked in the hotel industry as well. Little did they know that the OTAs were just the beginning. A new generation of customers, the Millennials, are becoming increasingly affluent asking for different experiences. Social Media and sites like TravelAdvisor enable guests to research properties reviews and express their opinions in public. And a new disruptive business model Airbnb entered the market in 2008 and has become #2 in the market in terms of numbers of rooms. It seems safe to say the internet is not a trend and is here to stay.

I believe the next years we will see tremendous shifts in the industry. It will be interesting to follow the incumbent hotel chains if they can come up with something better than a push for direct booking through loyalty, more M&As or creating new brands targeting a generation which is looking for authentic experiences and not a new hotel brand that is supposedly tailored to what market research says Millennials want. Currently, innovation seems to come from newcomers like Airbnb, Richard Branson’s Virgin or even from ex-Facebook employees turned hotelier. Hotels have started investing and open innovation labs like Marriott’s “M Beta” . But having lost the innovation gene from its DNA it will be hard for the incumbents to effectively drive and integration innovation back into their daily operation. Should they fail to do so they will most likely join the ranks of disrupted brands like Kodak, Nokia, and Co.

Recommendation for further reading:

Skifts brilliant in-depth piece on the history of online travel.