Q&A: Hospitality tech guru Dave Berkus on disruption, exec mistakes and Amazon

In the 1970s, Dave Berkus created one of the earliest property management systems for hotels. Over the next two decades, Berkus grew his company, Computerized Lodging Systems (CLS), into one of the world’s biggest suppliers of computer automation for hospitality, with Marriott licensing the system in 1982 and just ending its use this year.

Berkus sold CLS to MAI Systems in 1990 and shortly after turned his attention to venture capital, as an investor or board member for more than 180 early stage companies since 1993. Berkus is managing partner of Berkus Technology Ventures, Kodiak Ventures, three funds managed for Tech Coast Angels and Wayfare Ventures, launched in 2017 to invest in early stage travel technology companies.

He's the author of more than a dozen books on entrepreneurism and business management, speaks regularly at industry conferences and, in 1998, received the International Hall of Fame designation from HFTP (Hospitality Financial Technology Professionals association).

We asked Berkus about a range of topics, ranging from technology lifecycles, the risk of hacking, moves by the tech giants into travel, his advice for travel entrepreneurs and the biggest mistakes being made by travel executives.

What will be the biggest changes we see for hospitality technology in the coming years?

From an operational view, most everything will move to the cloud, allowing chains to control a unified guest record across properties and applications. The gains will be in reduced cost, speed of access and control over data.

From a guest perspective, hotels will speed innovation to be at least equal to the expectation of guests at home. That means supplying high-resolution, big screens in rooms with content often supplied by the guests through casting from devices guests bring to the hotels.

Robotics will become familiar and universal at hotels and resorts. Robots will do the repetitive things, such as cleaning inside and outside, bringing requested food and amenities directly to the guest and more.

We all question whether robots, self-check-in systems or kiosks will displace the human touch at four- and five-star properties. I believe we’ll see that aggressive change in an increasing number of three-star properties, where cost and convenience align between guests and management. But that same level of displacement will much more slowly creep into high-service or luxury properties.

What is your opinion of voice technology in the hotel environment?

We are already seeing and using in our homes at least several of the many millions of voice-controlled devices and applications. Of course, voice technology will do much to enhance the ease of interface with systems, speed processes and increase guest satisfaction.

We are already comfortable with Alexa, “Hey, Google,” Siri, “Hey, Cortana,” and more. And this revolution has just begun. If we are comfortable with speech commands and processes in the home, we will want this in our hospitality experience as well.

How should brands evaluate the decision on whether to build or buy when it comes to technology?

Brands innovate; properties implement. Brands are in a race to find ways to attract the younger generation of guests used to leading their search and decision-making using technology. And brands gain from loyalty when ahead of competitors in application and marketing of guest-facing technologies.

Texting between guests and property departments is a recent example of this. Of course, the “shiny object” technology attracts guests, even if not profitable.

For operations and the back office, brands will be much more careful and slow to implement or propose to owners, based upon ROI above other criteria. Independent properties, those with more than thirty rooms, amount to almost 19% of all U.S. properties. Owners of independent properties are left to their own devices, and often lag brands in innovation and application. That’s a challenge for management – convincing owners of independents to pay for technologies to keep up with brand implementations.

In your blog you talk about the fact that product lifecycle is much shorter today than even five years ago for technology. What are the implications of that?

Major renovation and replacement (MR&R) spending always lags the need throughout the business world, including hospitality. There should be a disciplined approach to MR&R, starting with an annual budget amounting to 2.5% of revenue for facilities and technology and a budget for new technology implementation over and above this.

Those who do not do this, a majority of businesses everywhere, are digging an increasingly large hole over time. At some point, the building must have a complete renovation, and the technology of the past must be replaced, not upgraded. Costs for this are much higher than keeping up with need. And all this is on top of new technology implementation.

Any idea how long the runway will be to upgrade from (or eradicate?) the old legacy platforms?

I often tell people that the front office system I licensed to Marriott in 1982 was in use for 37 years by the chain. That’s not unusual for central reservation systems and for chain PMS systems that are the work horses of the industry. Yet, as costs decline and alternative solutions appear, the mandate to change is becoming easier to recognize.

Again, cloud-based technology will soon be an obvious way to consolidate functions, reduce property costs and increase the utility of information. The question is whether best-of-breed systems integrating with each other or new multi-function systems will win out. Vendors are diving in both directions, and there is no clear answer for the near future.

We are focusing upon the check-in today as the biggest pain point and missing all of the other agita-producing moments in the journey.

Dave Berkus

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Is it really possible to create hotel systems that are immune to hacking?

The simple answer is “no.” As long as there is a human in the tech chain, there is a chance of opening a door to hackers. Most hacks come from human interaction at some point in the tech process, from inserting a USB device into a workstation to vendors leaving a backdoor entrance into any part of the process.

The most visible hacks in the past several years found their way into these backdoor entrances, starting at a property’s POS system or linked auxiliary system.

Hotel owners seem to be seeing franchise, distribution, reward program and technology fees increasing faster than revenues – is this sustainable?

The cost of technology implementation is constantly falling. Training costs for new systems used to be a major part of the cost. These are becoming far less as staff familiar with technology interfaces are able to reduce the time their process of absorbing new processes takes. But, of course, new technologies add new costs – supposedly with an attached ROI that is attractive to owners.

Distribution costs have been increasing for the past decade as third-party systems attract new and repeating guests by offering information about multiple alternatives and displaying comparative pricing. To combat this, brands are investing heavily in their loyalty programs to keep guests inside the family. As long as brands insist upon price parity though, intermediaries will profit from consolidation of information.

With most tech players moving to a SaaS model based on a cost per room (or similar), what happens when there is a downturn? Who gets squeezed?

There will always be periodic downturns in occupancy driven by outside forces from weather to the economy. It is true that the wisest owners shed as much fixed overhead as possible. But most SaaS systems charge by the room, not occupied room, making those charges fixed as well.

However, technology costs per room are a small portion of total costs per room. So, owners are much more aware of their larger fixed costs over time.

What are your thoughts on some of the tech giants - Google, Amazon, Facebook, Alibaba, Tencent – moving into travel?

Travel is second only to healthcare in total revenues worldwide. Of course, that creates an attractive beachhead for all of those companies you mention. And many are already experimenting with direct travel investments. After all, Facebook is an example where one company that has access to billions of names, with demographic data accompanying each. Amazon knows your shopping habits. Google knows much more about you than both. Talk about micro-marketing (atomized marketing in my blogs).

Can you describe your “Berkus Method” for valuing early stage investments?

Interesting that you should ask. I am not known for this in hospitality, except for startups. I created this method in 1996 to attempt to quantify risk in early stage investments I was making, assigning a value to four areas of investment risk for pre-revenue companies.

You will find much more by querying “The Berkus Method” in any browser. The method became “famous” when Harvard’s Howard Stevenson published a book that year, naming the method, describing it and endorsing its use.

What parts of the travel experience are the biggest pain points for you – where do you see opportunities for disruption?

Think of the travel experience as a series of steps, from leaving the home, to method of transport to the airport, the flight, travel from the arrival airport to the destination, check-in and the stay, and the reversal of this process upon return.

The customer journey is difficult, produces anxiety at many of its points and is prime for disruption at numerous points. What if Airbnb offers to pick you up from home, deposit you at the door to your rental and do the same returning home. That would be a game-changer.

We are focusing upon the check-in today as the biggest pain point and missing all of the other agita-producing moments in the journey. We’ve been trying to solve the pain point problems during a stay for years and even then have missed the elusive ability to offer a single reservation for room and activities. (Industry veterans will remember that we called this “dynamic packaging” and it is a problem still not solved.)

You’ve mentored a lot of people. Who was your mentor and what how did he or she impact you?

I was one of the unlucky ones. I had no mentors - which is what induced me to become that person to numerous entrepreneurs over these past 26 years. I measure my impact in several ways, from influence upon company culture to revenues to speeding the processes each values - and ultimately to helping obtain maximum value at the exit (sale of a company or IPO). 

Other than yourself, who is someone you think has had an important impact on hospitality industry technology and why?

There are so many who have left an indelible impression upon hospitality technology over the years. All you need do is look at the list of HFTP Hall of Fame awardees from inception of that award. It’s an impressive list of innovators and implementors now numbered at 46. (See how I dodged the question, retaining friends I might have lost by attempting to name a few?)

What is the biggest mistake you see travel executives making?

Start with under investment in technology as discussed earlier. Continue with under-estimation of the sophistication and cultural choices of our newest generation of travelers. Blow through ignorance of the impact of alternative competing sources of guest stay, and end with discounting the needs of travelers for convenience at all points of the journey, before during and after the stay.

What advice do you have for entrepreneurs trying to break into travel?

There will always be opportunities for innovation in travel, especially in technology. My fund, Wayfare Ventures, invests in early stage travel tech. We pass on our best to venture capitalists specializing in this niche, including Thayer Ventures.

Money is available for the best ideas and early implementations. Brands are on the prowl for new technologies that can differentiate them from the competition. (Those innovations that can save costs are viable if by an order of magnitude.) And every generation of new technology platform creates an opportunity for entrepreneurs to displace previous generations of applications.

This will never cease. Nor will the arrival of new, enthusiastic entrepreneurs ready to solve problems we never know we had, and those that have vexed us for years.