Late in 2013, Amadeus paid $500 million to get its hands on Newmarket International, a provider of cloud-based hotel technology.
The acquisition was a sign that the Spain-based travel technology giant has opted to invest in hotel chain enterprise solutions, its currently small business unit.
This search/technology play is a bolder move than spending its money on extra-dividends or buying back shares.
Until now, a majority of the company's transaction-based revenue has been linked to air travel -- central reservations, ticketing platforms, and the global distribution system [GDS] booking connections with agents.
Amadeus might consider buying other Hotel IT companies to complement its current offer and try to get a large launch customer for its hotel IT platform, which they have pursued for almost two years now.
Oddo Securities analyst Yan Derocles told Tnooz:
Amadeus has stressed that Newmarket was somewhat an exceptional transaction in size. But obviously it is still looking at some other targets in this area.
The issue is that the size should be a bit smaller and it's consequently a bit more difficult for us to forecast the next target.
I believe that they will do something with a new company that will help them to obtain a launch customer from the large and mid-sized hotel chain segments.
Juan Ramón Correas Rubio, head of European equity research at Santander, noted:
Amadeus intends... to pursue a large-size launch customer for its new-generation hotel IT platform, in order to then add scale. This is a long-term project.
So management expects to get the launch customer in 2014-15, monetize the platform by adding mid-size customers, and undertake mass implementation from 2018 onwards.
So far, Amadeus has been unsuccessful in recruiting the targeted launch customer, citing as the main hurdle the risk of a blackout in the migration to the new platform. However, the company keeps talking about locking in the top 20 chains.
Eyeing hotel IT competitors
Newmarket becomes part of the Global Hotels Group at Amadeus, which is headed by Jeff Edwards.
To learn more about Amadeus's hotel strategy, Tnooz recently spoke by phone with Edwards. (Interview has been edited for brevity.)
What's your responsibility at Amadeus?
For two years, I've headed up the global hotel group. I essentially oversee two divisions. One is the IT organization; this is where we have development of property management systems (PMSs) and e-commerce solutions.
The other is distribution: I own the desktops of all of our agents -- leisure, corporate and TMCs -- as they relate to hotels.
That means physically the software they use, and connectivity they have to book hotels on those desktops, and our relationship with the chains on the supplier side -- account management -- to ensure the content.
Before this role, what were you doing?
I was CIO for Wyndham group. After more than 20 years of being on the vendor selling tech to hotels, it was fascinating to be over on the hotels' side for five and a half years.
It opened my mind to what drives the suppliers' approach to business challenges.
How did the Newmarket deal come about?
When I came on board, Amadeus was interested in growing the hotel side of its business, both in distribution and in IT.
We've looked at the classic make, build, buy choices: Should we partner, should we build these things ourselves, or should we buy our way in?
When I very first started, we identified a target list. We tracked them. I know the principals at these companies. I've known the Newmarket guys for 20 years. We identified them early on.
The reason that made good sense to us, is, we like that kind of infrastructure play.
On the airlines side, we have tons of infrastructure and subject matter experts everywhere.
On hotels, we have pockets of expertise. But we don’t have broad expertise in customer service directly for end users, for deployment capabilities worldwide, for on the ground sales forces worldwide.
To buy that subject matter expertise, and inherit that infrastructure, that was by for the most important consideration when we looked at Newmarket.
We liked the product set because there's not much of an overlap in terms of what we're doing, too.
That was part of our strategy from the hotel group from Day 1.
Last summer, you gave investors a presentation about Amadeus's growth plans. The Powerpoint included a slide listing Amadeus's perceived competitors in the space. The slide [shown hee] included Newmarket as well as Hitit, a hotel enterprise loyalty solutions provider Amadeus acquired in April 2013. What did you tell investors when you showed this slide?
It was the central problem statement for the hotel industry: It's a complicated landscape.
If you want to play in one aspect of this, it's a pretty big mosaic. Niche players. Some big players in a narrow piece of it.
Our aspiration is to understand it all, and to take a leadership role where it makes sense.
We think there's an opportunity to consolidate some of that, so that a user, either a booker or a supplier, has more of a "one throat to choke" point of view. The user wants people to own the accountability of their success.
That's how you hold us accountable for our services, if an event happens that was good, you pay us a fee. If not, you don't pay us.
It's not cynical. I'm incented to make sure you do very well, because the better you do, the better I do.
When you look at this mass of players, it's really hard to do that, regardless of whether you're on the buyer's or sellers side.
We think there's an opportunity to consolidate, to offer more of an end-to-end play that offers full accountability.
TravelClick is on that competitor list. Is it a solution in search of a problem?
Other people’s business plans are very easy for me, as an outsider, to critique. I'm sure they think about my plans the same way.
They’re extraordinarily good at business intelligence (BI). We aspire to be good in that space.
Over the years, they've built a very viable business around BI, taking central res for the long-tail market. There's certainly capabilities there.
But I think in our world, we don't see these as silo opportunities. We think them as much more horizontal.
We'd like to be able to offer services like those on a use-fee basis but allow the chain or hotel to select from a broader menu of products and services.
Our strategy is like a living organism. It evolves. When it comes to M&A, we're opportunistic.
That company you mentioned is publicly for sale now and I assume someone will buy them at one point or another.
One name that pops out on the competitors list is Micros Systems, whose hotel e-commerce engine is widely used. Pegasus is another similar company. What are your thoughts on this category overall: "IT hospitality specialists and long tail"?
From a strategy point of view, companies like Micros, I mean, congratulations, they're wildly successful.
I worked for it for five years, including as president. They do what they do extraordinarily well.
We hope to become a viable competitor one of these days.
However they grew up by building up vertical systems, like a property management system (PMS) as standalone software. Again, wildly successful at doing that.
So they have auxiliary systems. They're not in distribution per se. They're in software and services.
If my whiteboard is only 25% full, how would I approach that in today's world.
If I was starting from scratch, the metaphor I would use to guide my work would be to think of services as like iPhone apps.
What we think again is not to approach from those sorts of companies as a competitor to sell a PMS. It's only about the distribution. Our systems are purpose-built to do distribution, not meant to be primarily PMS.
From a come-to-market point of view, we differ with those sorts of companies. We want a single platform and, most importantly, we want to provide it on a service level, on an occupied room rate, or a net reservation. That's the way the model works at Amadeus.
The dynamics are different. The tech is different. The approach is probably different as we’re distribution focused. And we’re service oriented -- so many cents a reservation as oppose to selling you a piece of software, training your people, and then giving a maintenance contract.
Nothing wrong with what they do. Obviously, they've been phenomenally successfully. But after 30 years, there's an opportunity in the market to approach things a different way.
Could you elaborate on that iPhone apps metaphor?
If you think of these systems -- like a PMS or central rez or an ecommerce platform -- there's a fairly big percentage of it that's the same: the customer profile, the content, the rate, the inventory, the availability.
So why build a separate one for PMS, central res, and for ecommerce. Because then you have to find some way to connect them all.
We see it the other way. The baseline part is what I own and manage. It's like the Apple operating system.
From that, you add apps. If you want PMS so you can check people in and out. You don't buy a standalone system. You have an "app" for it. Everything on the platform underneath is the same.
When you have meetings with hotel chains, what's on their minds?
In almost all of the meetings I have with hotel chains and big hotel management companies, if it’s meant to be an IT discussion, what they actually want to talk about want is distribution.
To the extent they want a new central reservation system [CRS], let's say, or an e-commerce platform, it has nothing to do to with the IT technical questions, like "what kind of platform do you write in? Java?"
Their questions are instead all in support of, "How does that meet our distribution needs?"
For example, if they don’t feel they’re getting enough share off of their brand.com site, they want to know why.
Are they doing something wrong? Would buying a new system make a difference? Is there something wrong in how they're pushing their inventory? Do they have the right content?
I met a regional European hotel chain a month or so back. It aspires to have its content accessed globally. One of its questions was, how do you get on the shelf on bookers everywhere in the world with a message that's clear, concise, and bookable?
How concerned are hotel chains about distribution?
Whenever I have wanted to get meeting with one of the top 25 chains, I've never had anyone one say, "We're not interested in talking about distribution."
Don't get me wrong. They don’t think of themselves as helpless or inadequate. But they want fresh ideas.
The pipeline between a booker and a hotel now has 47 turns, due to industry fragmentation that's grown dramatically. But Amadeus doesn't have the power to smooth out the kinks in the hose, does it?
Maybe we at Amadeus can normalize the supply chain, with the relationships and technology we have.
From a hotel chain's point of view, is the way I describe the attributes of my hotel hotel rooms and amenities ideal?
Can I make sure that content is uniformly pushed out into the marketplace, not just through a GDS but through all channels including mobile, so that regardless of where a booker books it, it looks the same, it has the same rate patterns?
That's not the case today. Some booking channels have a lot better content than others. Some have video, some don't. Some have mapping, some don't.
But what magic does Amadeus have to clear up all this underbrush that's grown up?
We're aspirational on the hotel side. But we do this already on the air side.
Whether Amadeus directly supplies the system to the hotel chain or other supplier, it has nothing to do with the fact that they need to own and manage their content in a much more efficient way. Period.
If you don't have robust, accurate content, it doesn't matter how you push it out to various distribution channels. It's just garbage.
The first thing we talk about with chains about is exactly that.
From a technology point of view, as a hotel, you need a central repository of your content. Amadeus can help you make sure its curated identical, attribute information, so that everywhere it's pushed it will look the same.
Our account managers can work with a supplier and say, "Your content needs to look like *this*. If you you can get your content look that way, I can absolutely get you more bookings."
So even if we don't provide the IT side of it, we know what it needs to do. We can show a supplier that if you make change X, it will move the needle immediately in a target market -- like, bookers in London.
Suppliers need to realize that the market is going to change further. New platforms will emerge for booking rooms. Will they be ready?
Can you give an example?
Here's what might happen in the future.
Say I'm a traveler. Say I have a reservation for a hotel room that's near the elevator.
A few days before arrival, I look on my mobile device, and there's a map of the hotel. It says I can change my room assignment to one that's in a quieter part of the hotel and has a better view if I pay an upgrade fee of $25.
I click on that room, and there's photos of it. I can see it has a king bed, and a work station.
That's an aspirational model. But if you, as a supplier, don't input the attribute information in a central repository in that level of detail, you won't be ready when booking channels start performing that type of function.
If you don't describe your hotel rooms to that level of detail internally, no third-party can serve it up to a buyer that way.
Why the focus on the large chains?
We've focused a tremendous amount of effort on launch partners. Here's why.
If you complete a relationship with a couple of the biggest global chains, just hypothetically, and you can solve for most of their issues around distribution, my assumption then is that really meets the needs as well of a broader share of the marketplace.
No one's going to get rich picking off a couple big hotel chains and calling it a day. That's not how this business works.
But you need to understand the global chains' intellectual property, how they drive value, how their franchisees think that value chain works.
What's the sweet spot of the market?
The sweet spot of the market is the mid-tier, large regional chain independent market, because they can't compete in the same way in managing inventory and figuring out rate management and getting on shelves globally.
So if you can arm them with the same tools the big global chains have, now they feel they can compete.
But why are lessons relevant to big global chains relevant to mid-size regional chains? Aren't they different beasts?
Because if I understand the global chains, it forces me to understand how that logic works in all the sub-regions. So by osmosis I get to know that value chain.
By the time I go to reach mid-size chains, the global chain has already educated me that this how that particular regional market works, this is what the owners care about, this is how their clientele books.
If I go from top down, then I get that benefit.
If I try to do bottom up, it gets complicated. I have to snap a lot of puzzle pieces in place before I get the global picture.
If my launch partner were a regional hotel chain that aspired to be a global supplier, I would need to form a launch relationship with strong chains in multiple geographic markets.
I’d have to make sure I understood those markets independently.
Then I'd have to stitch together some kind of IT solution that incorporates all those things.
Does Amadeus actually have anything new to sell to this market?
Probably never before in 30 years have you had such a perfect storm. You have a lack of investment in enterprise solutions by hotel chains. There a couple of reasons for this.
To start with the blindingly obvious, it's gotten a heck of a lot more complicated to manage the reservation process -- from the supplier's, that is, the hotel owner's, perspective.
A hotel literally has thousands of avenues that it can distribute room inventory through. Think about Astralasia. It has very strong content providers that agencies would like access to, but that middle layer adds complexity and cost.
I remember when a mid-sized chain would have a central reservation call center, and that was it. If you were lucky, you'd have an agency interface. It was simpler then.
The rising new complexity has caught lot of chains a bit flat-footed. They didn't realize how quickly the new complicated distribution model would take hold. Mobile has happened much faster.
Most of the major chains today are largely on a franchise model today. That's another shift. So they wind up being in a service provider role to their franchisees. And that dynamic is different than when you own and manage properties. That adds pressure.
Global chains have an even more complicated predicament. Distribution is done differently in, say, China, than in, say, Italy. The geographic-specific complexity stymies horizontal solutions.
How does a supplier know you're not just adding more complexity? Shouldn't a hotel chain be skeptical that Amadeus's system will play nice with all its sub-systems?
Think about channel managers. The great thing about them is you can see every place a booking was made and figure out the effective rate of those bookings to you.
You can't start manipulating those channels effectively until you have great content.
Say I'm a supplier. I can see historically where I've had success and do more of what's been successful. If I've open a new hotel, I can pushed content to the relevant audiences for that geographic area.
I can be more offensive than defensive. Once I own quality content, I can be much more intelligent about how I push inventory through channels.
As a traffic cop, I can optimize. That's the second phase. We offer channel management as a service, as do other companies.
Then what?
As a supplier, you now want to ask, "How could I effectively market and merchandise my content? How do I make myself more visible? Do I have the right incentives and packages in place?
From a consulting point of view, Amadeus can say: "Here’s what’s really effective in increasing bookings with a certain type of booker in, say, Azerbaijan."
Some of the big chains are very sophisticated about merchandizing, and we become an enabler of their internal marketing plans.
But most of the hotel marketplace doesn't understand that space very well, so they want guidance. Amadeus can have a coaching, or mentor, role. It's otherwise hard to find and retain expert channel managers.
What is the tech problem Amadeus is solving for? Is the problem that hotel chains have systems that are basically just DOS pigs with lipstick on them?
Hotel companies have old school monolithic CRSs. They've built satellite systems around that. Loyalty systems for customer relationship management. Revenue management systems. Group and event management systems.
All these little interfaces -- maybe 20 or 30 of them -- that lead back to some twenty-year-old central host reservation system.
The systems weren't never designed to open and close individual distribution channels on a minute-by-minute basis.
Suppliers are realizing this, that they've surrounded the core with something that's not particularly efficient. To your language, they've exhausted their supply of lipstick.
The hotel chain now is at a crossroads. They ask themselves: Do we redesign the whole thing ourselves?
Or are there partners out there whose products could lessen the complexity, while giving more sophisticated tools to differentiate us in the marketplace?
So this market is an easy sell?
A lot of times in markets you spend your time as a vendor forever trying to tell people you're selling the better mousetrap. Not now.
That said, hotels think of third-party distribution, including the GDSs, as a necessary evil. They'd rather drive customers to their brand.com sites.
So -- not to be too cynical about this -- you have to accept that, as a GDS, you belong to a category that's not their preferred option.
So you want to be the least unpalatable choice in the category. You want to be the best-looking horse at the glue factory.
Can you give an example to make this clearer? Let's say mobile company XYZ is a channel for last-minute booking distribution. How to handle that?
As a supplier, you want to intercept this type of decision further up the chain.
Your goal is to have a central system containing all of the content for your hotels, and then, with the big picture view, decide where you want to push your inventory.
Right now, if mobile content company XYZ wants your content for a specific set of rooms, you need to figure out how to push it to them. There’s no way, no central dashboard, for you to turn a switch on.
Suppliers are in an odd dichotomy. They want to simplify their systems, but they're definitely afraid of missing out on a channel like that. So there's an uneasiness.
Are they’re willing to absorb the pain? But then they're in a weird situation where they have to support these things individually and they don't get the value out of them.
Hotels feel over-dependent on the OTAs, right?
In the early 2000s, hotel chains got hooked on the drug of OTA distribution. But that's a very expensive channel. It's been a long process for them to try to detox.
Like any good 12-step program, you have to say, "Hi, I'm Hotel Chain X, I have a problem."
After that, the next step is to talk how, in an elegant way, you move from where you are to where you want to be.
The biggest thing we talk about is transition.
Almost 50% of the time, we're figuring out how to help suppliers minimize the downside risk of making the transition. How to do it without a detrimental effect on operations?
"I like the end vision, Jeff, but this is major surgery on a live patient and if you hit an artery, we're all in big big trouble here."
You talk about simplifying complexity. But isn't it in Amadeus's interest to maintain the complexity? That's where the profits are. Everything else is in returning value to the supplier.
Is it in my best interest to keep this process complicated to make a few cents more on every transaction? Well, it doesn't matter if it is or if it isn't. The hotels don't want it to be complicated anymore.
If I want to serve that market particularly well, I have to learn how to unbend that pipe -- or else some other competitor will.
Now that the Newmarket deal is closed, are you done with it?
I was personally involved all the way through the acquisition.
We will look at, over time, integrating that to essentially become a hub for us in global IT. However, Amadeus is not disrupting Newmarket's internal structure.
We executed on our acquisition strategy. We placed a $500 million bet.
People I work for are asking me every day, "How are we doing on that strategy?" We need to keep the momentum here.
NB:Hotel mobile image via Shutterstock.