In 2005, Moe Ibrahim thought the margins in the hotel business looked pretty good, so he became the stakeholder of two hotels: a 473-room resort in Bintan, Indonesia, and a 21-room hotel in Phuket, Thailand.
But since 2009, Ibrahim's margins have been pinched.
He says that customers are increasingly being diverted to online travel agencies (OTAs) and metasearch sites, which are less profitable channels for hotels because of the high commissions they charge.
He's responded to the OTA threat by co-founding a startup called Journeyful. His aim is to create a platform that enables a hotel to control its rates, inventory and brand across all distribution channels at once.
It's the first booking site to seriously tackle the opportunity of earning money from "social transactions," bookings made peer-to-peer between hotels and customers via social media-type tools.
No, he's not trying to build a rival to Facebook. He says his goal, instead, is to help hotels supplement income from OTAs, metasearch, and global distribution systems (GDSs).
In other words, Journeyful will try to link popular social networks with fulfillment systems that hotels directly control.
"Death by digital"
Ibrahim tells a story about how hotels came, in his words, to hate OTAs:
Once upon a time, OTAs had been the allies of hotels in profit by bringing in bookings from markets that hotels otherwise struggled to access, namely, leisure travelers from countries or cities in which they had no sales presence.
Five years ago, OTAs and metasearch sites supplemented the average hotel owner's revenue with about 20% of additional revenue.
Hotels agreed to pay hefty OTA commissions, typically between 20% and 25% of the gross booking value. The commissions came on top of the hotel's own marketing dollars to drive the bookings and operational overhead to process the bookings.
Today, OTAs are no longer the allies of hotels, according to Ibrahim. OTAs are no longer supplementing occupancy, but rather, competing directly against a hotel’s own promotional efforts in their primary feeder markets and cannibalizing the direct business. He uses this example:
A hotel generating US $3 million in 2010 is paying an estimated $150,000 per year in distribution costs to OTAs, GDSs, etc. By 2015, estimated distribution costs will rise to $250,000.
To maintain the same level of profitability, a hotel must grow revenue a whopping 17% to $3.5 million within 3 years.
But by 2017, OTAs may represent half the bookings of the typical hotel, if current trends go unchallenged.
Journeyful claims that the OTAs continue to gain market share while "squeezing" hoteliers in several ways:
1. Google AdWords and Paid Search. Using this tactic, an OTA runs a guerrilla Google AdWords and paid search campaign, buying variations of a hotel’s name as keywords.
This means that customers looking for a hotel directly are directed to the OTA website, often lured by misleading taglines like ‘50% to 75% off.
Some OTAs are doing this despite the fact they have no contract with the hotel – they are aggressively targeting a hotel’s direct consumers and feeding off of a hotel’s own marketing efforts.
2. Artificial Strike-Through Pricing. When pulling up hotel rates on an OTA, the strike through pricing is quite often fictitious.
It gives the illusion that great savings, once again 50-75% off, are available on the OTA. Comparing the real rate on the OTA with the hotel’s website will show it’s the same rate.
OTAs also often show prices before taxes and service fees, again confusing the consumer.
3. Share-Shifting. Suppose a user searches for a specific property on an OTA and there’s no listed inventory. Often, the OTAs will quickly avert the customer’s attention to the immediate competition.
On the grand scale, the OTAs have brainwashed hotels to abandon one of the most basic tenets of yield management: i.e., demand is price inelastic. This means that lowering your room rate will not increase demand over the long-term.
It often creates a temporary demand bump for your property, but as your competitors also lower prices, occupancy will redistribute across the competitor set and everyone suffers from lower pricing.
More and more guests demand discounted pricing, and more and more bookings are directed through third parties whose marketing gimmick is based on discounted pricing. So hotels are being squeezed on both fronts.
Moreover, the latest features being introduced by these OTAs are frequently designed to divert your guests completely towards those hotels paying the OTA additional fees for "premium placement."
In Ibrahim's view, a more healthy balance for revenue streams for the typical large hotel would be:
60% direct, 10% OTAs, 10% GDS, 10% mobile, and 10% "social transactions."
Journeyful aims to combines a social network with a fulfillment system to create the first transactional social network. Its goal is to reduce a hotel’s third-party-distribution costs back to letting a hotel use direct channels.
Journeyful is a self-funded startup that was established in April 2010 in Singapore, but was incorporated as a Delaware entity this month.
Q&A with CEO Moe Ibrahim:
How is the way you are solving this problem more special or effective than previous attempts you or the market has seen before and how different do you have to be to succeed?
There are a lot of companies out there trying to link social networks with fulfillment systems, but they’re not having much success.
We see some fundamental flaws. In short, people don’t want to be friends with a hotel or a brand. Rather, they’d like to get the inside scoop from hotel staff, or make friends with other guests.
We do this well via our Identities system: Hotels can create staff profiles and link them to their staff’s personal profiles such that a user can seamlessly switch between their personal and work profiles.
Moreover, each business Identity has robust mission critical utilities and features that hotel staff, travel agency staff, etc, use throughout their work-day.
Next, travel social networks built on Facebook infrastructure, or those without a fulfillment system, simply won't work because travel transactions are complicated. A proper travel site needs to deal with cancelation policies, dynamic room categories and dynamic pricing, modifications, extras, promotions, discounts, etc.
Not only has Journeyful built out a robust back-end, but it has done so in a manner that enables a hotel direct access to the guest at all times, ensuring any transaction settled through the Journeyful platform is a direct booking.
In addition, the transaction data is linked to each user’s profile, enabling a hotel to see its production by market, by channel, and segment.
We’re working on functionality that will enable rates and inventory to be made available to markets, channels and segments in a manner designed to maximize a hotel’s profitability. We call these Social Rates.
For the consumer, trust is key. We have invested heavily to ensure our transaction platform is secure and privacy is protected at all times. A traveler can see other travelers staying at the same hotel, but a traveler can turn off that option at anytime.
Our guest reviews are also legitimate. Not only do you have to complete a booking on the site to be able to review a hotel, but we link reviews to room categories. If you only stay in suites, you don’t care about a hotel’s low-end rooms, and vice versa.
We’re also improving our review capability so they become discussions. A simple response from the hotel doesn’t tell the whole story. The social network must be open enough such that it can actually police a good or bad review in whichever way tells the honest truth.
Our mobile application (scheduled to be released next year) will debut our Social Rates and Social Rewards functionality for users.
We are working on a rewards system that can be shared amongst consumers as well as hotels. We are also working on features that will enable both travel agents and travel bloggers to construct bookable trips on the platform, blog about them, and generate commissions from their user base.
Journeyful is developing a sophisticated B2B wholesale booking platform RatesPlaceTM which enables hotels to negotiate customized, dynamic rates with any travel agent registered in our system.
This dramatically reduces the overhead for a channel that was once thought to be dying. Travel Agencies have personal relationships with operators and tremendous local knowledge; websites do not.
Hotels that contract with Journeyful will have immediate access to our growing database of travel agents, and vice versa
Corporate travel is another market. Most business with corporates is done offline. We offer corporates access to our wholesale rates, and more importantly, our local knowledge and customized service are making us a BIG hit for companies looking for great service
Other than going viral and receiving mountains of positive PR, what is the strategy for raising awareness and getting customers/users?
Most new start-ups need a strong network effect until their hypothesis is validated or where reasonable traction starts to occur.
With just 1 hotel, Journeyful makes sense. A hotel using our white-labeled website booking engine, Journeyful.com for online distribution and our wholesale booking system to contract and transact with travel agents can see significant cost savings.
Moreover, for most people, a new social network is irrelevant to them. However, this is not the case with Journeyful.
The moment a guest makes a booking, hotel staff can begin the customer service/upselling process by messaging, chatting or posting to a guest’s profile.
A single hotel can add hundreds of users to the site in a single day.
Our business is about converting hotels.
In any industry, you always want to be closest to the inventory and it’s our business to help hotels take back control of their inventory, pricing and brand to win back the direct consumer.
What other options have you considered for the business and the team if the original vision fails?
We’re hoteliers and technologists for life. We’ll always own, manage, consult and/or optimize hotels, whether it’s on the ownership/operational front, or on the technological front.
What mistakes have you made in the past in business and how have you learned from them?
We have a strong reporting hierarchy in place, and we’re improving our process daily to ensure an open and efficient channel of communications between development, operations, sales and marketing, and most importantly, a heavy focus on usability and user experience.
What is wrong with the travel, tourism and hospitality industry that requires another startup to help it out?
Building a fancy façade on top of decaying infrastructure doesn’t solve the hotel booking problem.
Platforms like RoomKey miss the point.
It’s still an expensive, referral-based model. There is no fulfillment system and essentially, it’s a way for the big chains to use independent hotels to subsidize their online distribution costs.
Internet investors seem obsessed with large user bases. That would make sense if the existing advertising model lasts forever. But it won’t. Google AdWords is becoming too expensive for the reasons I mention previously, and there are too many ways by the large players to game the system.
The internet was supposed to be the great equalizer, but in the hotel industry, distributors are bullying and eating their suppliers’ lunch because nobody is policing them.
We need to take care of the hotels, and right now, they’ve got problems. As they become less profitable, the value to consumers will drop significantly. Both consumers and hotels will be the net losers at the expense of OTA profitability.
Journeyful is designed from the perspective of a hotel. We do not aim to compete with the OTAs, which typically only capture a small percentage of a hotel’s business.
We aim to sit in between a hotel and all of their distributors, using the social network to optimize, on a real-time basis, rates and inventory by market, channel, and segment - right down to the individual consumer.
Tnooz view:
Journeyful deserves praise for aiming to tap the growing popularity of social networks as a fulfillment system. You don't have to agree with his attack on OTAs to be impressed by the technological project.
But from the perspective of consumers, Journeyful is not yet ready for prime time.
The company says it has access to over 250,000 hotels via wholesalers, but only 1,200 are live on its site to date.
Journeyful blames the slow pace on its goal of making sure that each review has hi-res photos and contains fresh information.
The user experience may also need work, from the perspective of consumers.
As of today, when a consumer wants to use Journeyful, they have to are encouraged to sign in, confirming their e-mail address, filling out date of birth, gender, and other personal information.
In our recent test, a search for hotels in Rome on particular November dates turned up one option, Hotel Russie.
Posing as consumers, we were told the name, star rating, and rate (from $471 a night). A quick cross-check noted that Expedia was offering the same hotel for $375 a night on those dates. Hmm...
Journeyful offered some hi-res photos, but no user-reviews yet because no site user had yet booked and posted a review.
The biggest disappointment, from a consumer's perspective, is that when we attempted to "book" the Hotel Russie on those dates in Rome, we were given the news that the hotel was "not available for selected dates." We felt like we shouldn't have been shown a hotel as available for specific dates if didn't actually have vacancies.
Same thing happened when we tried to book a Four Seasons in Beirut and a Comfort Inn in London and The James in Chicago.
Re-setting a search to hunt-and-peck for dates was unnecessarily difficult, too.
User experiences like that could frustrate consumers.
But the website is still in its early stages. You don't want to judge a website by its launch.
The startup says it will be adding features to allow users to participate in content development and that it will also be expanding its content development team, with the aim of having 100,000 high quality profiles on the site within 12 months.
Unlike TripAdvisor and similar sites, Journeyful gives hotels control over every aspect of their profile – all information, photos, videos etc can be changed and updated by hotel staff at anytime. That's a nice touch.
The startup seems a bit ambitious, trying to solve too many problems at once. But with proper funding and good project management, it might catch fire with hotel owners, who can then help get the word out to customers virally.
Snap poll:
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NB:TLabs Showcase is part of the wider TLabs project from Tnooz.