Last week hotel technology company Duetto Research received a Series B financing that brought its warchest to $33.2 million in total.
Today San Francisco-based Duetto announced its biggest client coup to date: Red Lion Hotels, which franchises and owns 53 hotels in the Pacific Northwest, is adopting the software-as-a-service (SaaS) provider's applications.
Prior to this news, the startup had 100 hotels in 17 countries as customers.
Beyond boosting rates
Up next? There's something CEO Patrick Bosworth hasn't talked much about in public: how his startup has larger ambitions than just helping hotels take the guesswork out of pricing.
In an interview with Tnooz, Bosworth says he has been disappointed that journalists have boiled down his company's premise to encouraging hotels to raise their rates:
"That's one slice of our business. But we have more products coming to market than that.
Hotel loyalty programs, for instance, have fundamentally failed to connect with the mass market hotel customer.
Imagine someone who doesn't travel enough to get a comped room or complimentary late check-out. That person has no incentive for booking direct with a hotel company.
A hotel should give something small to a mass market customer in a way that allows it to break pricing with Expedia and Booking.com, but in a way that's consistent with rate-parity agreements.
Any customer you, as a hotelier, know, whom you have an email address for, should learn that the best value he or she get, such as an inducement, can only be obtained by booking direct.
There's a host of things that can be done to work with Google to better market these offerings, and drive brand.com bookings."
Technology that applies across hotel departments
Until now, the vision Bosworth describes has been difficult to achieve in practice.
The siloed organizations of loyalty programs, database marketing, and online marketing haven't been integrated with revenue management from data and business process perspectives.
Duetto believes it can break down those barriers with its analytics software, which can sit on desks across departments.
"The software will tell managers what the efficient cost-per-acquisition would be per room night or per customer.
The analytics will let hoteliers connect with customers in the discovery and booking phases and entice travelers to book direct.
That's Duetto's immediate, incremental step -- to imbed revenue management into marketing, making the content of marketing more dynamic.
We have partnerships with some key brands in the industry to implement that, which we haven't announced yet. That's phase one. I won't discuss phase two or three."
Not just hotels
Bosworth says Duetto will grow to become a billion-dollar company helping hospitality more broadly than revenue management for just hotels.
"What we're building is more than just a pricing system. It's a core predictive analytics application to help hotel executives understand what's happening in their market.
We eventually will move into other interesting stuff.
I don't see us moving into multi-family housing or self-storage or even airlines, but there are some very, very interesting businesses that need a product like ours."
The real customer is hotel investors
The idea of revenue management software isn't new.
More than a decade ago Harrah's was providing customized room rates for guests who called its reservations line, based on how profitable of a gambler he or she has been according to the company's databases.
More broadly, several companies, such as Pros, have been offering revenue optimization services for years.
But hotels have been slow to embrace the technology. Key staff people are incentivized to grow revenue, not margin. And discounting -- sometimes excessively -- has been a way to boost revenue to meet targets.
That situation appears to be changing however. In the past two years, real estate investment trusts and other owners of hotel assets are pressuring property managers to focus on margin, not just revenue.
Some of Duetto's major investors fall into this category, such as Starwood Capital Group and Interstate Hotels.
The broader context is that the hotel industry is seeing overall revenue going up while average profit margins are slowly eroding -- possibly because of a growing role of intermediaries like Booking.com and Expedia.
In a statement today, Bill Linehan, chief marketing officer at Red Lion, said:
“Duetto’s unique ability to price customer segments, offers and discounts independently is truly revolutionary. This technology gives us the data to make rooms available and priced to meet demand."
Multiple patent filings
In the past year, Duetto has filed many patents for its technologies and intellectual property.
Some patents are related to "real-time decisioning," or alerting managers to changes instead of expecting them to dig through business intelligence data on their own. Says Bosworth:
"We think business intelligence is slowly receding into the past. There's new methodologies to making managers aware of insights they need to take action on."
The core remains hotel pricing
Today Duetto's signature products take a hotel's internal and external data to suggest what room rates it should charge.
It does this with small pricing experiments, showing different rates to similar customers, to see what works. These are essentially a series of A/B tests.
Exhibit A: Take a hotel running at 70% occupancy whose average rate for a double room is $119. Duetto's system will suggest testing a rate hike to, say, $124, or $139.
It then studies customer behavior. Does the customer book another date range because that alternative is cheaper? Does he or she switch to another channel to make a booking at a lower rate?
Duetto is working with call center vendors to obtain data from them. Historically, call center data has been essentially a pen-and-pencil affair, with hand tallies. Duetto wants to drop its tracking technology into the machines the agents are using to record the calls.
Duetto is also hoping to work with online travel agencies and metasearch companies to get broader insight into search activity and learn from that.
The analytics dashboard also aims to help hotels understand what's happening in the market that's affecting customer demand.
The startup intends to help hotel executives understand if revenue is being obtained cost effectively in each channel.
One of its ways of standing out from its competitors is to use a non-relational database, MongoDB, to generate "as of now, snapshot, data warehousing techniques".
That is difficult to do in a relational database -- and is something Duetto claims is groundbreaking for revenue management software architecture.
The startup also claims to measure price elasticity in a more sophisticated way than has been possible in the past, by analyzing previously ignored or inaccurately tracked signals, such as when a traveler gets a price quote but doesn't book it.
The company is pioneering novel ways of generating rate forecasts for particular dates by using datasets like airline ticket sales for a destination, weather forecasts, and macro-economic data.
Bosworth believes his tiny David can best the tech Goliaths. He says he's in this for the long haul, and that he and his co-founders have no plans to just grow the user base for a couple of years and then sell the firm to a bigger company.
"We've been laser-focused on what our core pricing product, helping hotel management companies in particular. But what we see this year is that the opportunity to help these customers is bigger than what we thought.
As we understand our customers needs better, we see the related technology ecosystem we're building around us with our partners has the ability to be transformative and help hotels connect with their customers in a more effective way."
The startup, which got its start in February 2012, plans to move to a new headquarters in the San Francisco Bay area that is twice as large as its current one, plus open offices in Singapore and Europe.
It says it expects to double its headcount to 50 in coming weeks.
Here's a promotional video about the genesis of Duetto: