I read with some amusement Max Starkov’s June 14 article, Debunking the impact of blockchain on hotel distribution. The article reminded me of an older colleague who, sometime around 1997, told me that the internet and e-commerce would never really take off because “you always get a busy signal when you’re dialing AOL.”
The blockchain article makes some valid points, to be sure, but also several assertions that are as outdated today as my friend’s dial‐up connection was in 1997.
I will start on a point of agreement: Blockchain is not going to eliminate commissions. Commissions are appropriate compensation to incentivize one party to generate business for another one (as online travel agencies clearly do for hotels).
Commissions are about heads in beds, not the technology transactions that tell you who’s going to show up and how they’re going to pay for it (which is what blockchain can do).
In the earliest days of blockchain travel startups, there was definitely some hype that “blockchain will wipe out the OTAs.” That has toned down significantly as the blockchain efforts have refined their plans. Most of them now talk primarily about other benefits, including a few I will highlight here.
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As to the comments about inefficiency, blockchain as a technology is not even 10 years old (the name itself is even younger).
We all know that Bitcoin was the first public blockchain, and its inefficiency (speed, cost, electricity use) has been widely reported.
But how is this relevant to hotel distribution? Certainly, no one has proposed to use the Bitcoin blockchain for distribution.
There are far more efficient blockchain ecosystems than Bitcoin, both in use today (such as NEO) and coming soon (such as the Casper release of Ethereum, which is widely anticipated for later this year).
These and other future blockchain ecosystems are where distribution innovators are focusing, not on Bitcoin or even the current version of Ethereum. The technology is about to move from dial‐up speed to DSL.
Let's talk security
Security always matters, but blockchain security is much better than the article suggests. Blockchains themselves are highly secure, and among the common ones, there have been no significant hacks of the blockchain itself.
To be sure, there have been hacks of cryptocurrency wallets (which are NOT part of any blockchain, but are used by many people to access them). And there have been many types of fraud perpetrated using blockchains.
In thinking about hotel distribution on the blockchain, it’s critical to understand that not every distribution‐related transaction will live on the actual blockchain.
Douglas Rice
But we could say the same about the much more mature payment card network. With credit cards, merchant systems are often breached, and many fraudulent transactions are perpetrated using credit cards.
But the core networks run by Visa, MasterCard, American Express and others are considered paragons of security.
Saying that there are thieves using blockchain is accurate, but no more relevant than saying there are thieves using the internet or the public highway system.
In thinking about hotel distribution on the blockchain, it’s critical to understand that, contrary to the assumption in the article, not every distribution‐related transaction will live on the actual blockchain.
Distributed databases that are designed to integrate with a controlling blockchain (such as Swarm or IPFS with Ethereum) are being used to address the latency, speed and consistency issues, particularly for fast‐changing data like availability, rates and inventory.
These and similar tools can also be used to deal with issues such as data privacy, GDPR and PCI (since public blockchain transactions are visible to anyone). They can also provide better options for modifying and canceling reservations (since blockchain transactions are permanent and immutable) and the need for immediate confirmation.
While there is still much healthy debate about what data should go onto the public blockchain vs. be stored in these side channels, and how best to architect the data models, few blockchain developers consider the problems insurmountable given the current toolsets.
Certainly, the technical issues raised in the earlier article are no longer serious barriers.
The B2B opportunity
The article makes the point that it would take a blockchain many years to get access to enough hotels to compete with the 750,000 listed on Booking.com, particularly with all the legacy hotel systems in use today.
I fully agree with this, but it’s only relevant with respect to the B2C market.
While a few blockchain efforts are indeed focusing on the B2C market, many others have refocused on B2B - and for exactly this reason. Work undertaken by the HTNG blockchain working group has identified the top near‐term blockchain distribution opportunities as B2B, not B2C.
Many B2B bookings, whether corporate, group, wholesaler or similar, pass through an inefficient web of intermediaries (and often manual processes) as they move from booker to supplier.
Many of these intermediaries, such as GDSs, were designed for the 1980s travel agency landscape, and later came into use for B2B bookings simply because there were no other realistic alternatives.
Blockchain may well change that. A functioning blockchain distribution system for corporate bookings could in principle be launched with just a single hotel and a single corporate client; no need for 750,000!
That one hotel could potentially replace multiple intermediary fees (TMC commission, GDS fee, switch fee, channel manager fee, CRS fee and/or credit card fee) with a single, minimalist blockchain fee per booking.
I’m not predicting that all intermediaries will go away in this scenario - far from it - but blockchain may challenge intermediaries who charge fees in excess of the value they provide to the hotel or the person booking.
For corporate bookings in particular, blockchain seems to have relatively few implementation barriers, and a significant potential for fee avoidance or reduction.
A functioning blockchain distribution system for corporate bookings could in principle be launched with just a single hotel and a single corporate client.
Douglas Rice
This is where we undoubtedly will see the first successful implementations. And since most hotels get 20 to 50% of their business through B2B relationships, a significant cost reduction on even part of this wouldn’t be trivial.
As for getting supply, the problem really isn’t as difficult as the article suggests.
Most hotel systems, even legacy ones, already interface with a switch (such as DHISCO or Derbysoft) or channel manager, the role of which is to connect to external systems.
While blockchain purists may argue that you should really connect your inventory source directly to the blockchain so that you can get rid of every intermediary, it turns out that hotels actually like some of their intermediaries, and most of hotels who are looking at this seem quite happy to let one of their preferred partners connect them to the blockchain.
So the legacy challenge can be addressed. And if the economics provide benefit for B2B business, hotels will likely sign up.
Once enough hotels do that (say half a million to be in the same general range as Expedia and Booking.com), the B2C market starts to become feasible for blockchain.
I think that’s several years away, but I’d be surprised if it doesn’t eventually happen.
Even so, I don’t see blockchain competing directly with OTAs, because as the article points out, that takes (among other things) billions of dollars of funding for advertising.
A more likely path is for blockchain to enable new competition in the OTA space, whether from established companies like Amazon or Facebook, or from innovators with new ideas.
This isn’t likely to spell the end of OTAs, but could result in increased competition and lower commissions. Which is a good thing.
About the author...
Douglas Rice is the managing director of Hospitality Technology Network.