Travelers who love hostels usually say their favorite thing is the social life – meeting new friends, hanging out in the bar or lobby or garden, the potential for new experiences.
This hasn’t changed much over the years.
Nor has the target market – the super-majority of hostel users are still between the ages 18 and 25. What has changed in the last five years in hostelling is the way that super-majority wants to research, book and interact with hostel operators.
"The percentage of online bookings for hostels is skyrocketing," says Michael Tumminia, CEO of Gomio, a hostel booking and social portal. "Users plan their trips on the internet, they research on the internet and they expect to be able to book on the internet."
This trend is forcing hostel operators to change the way they think about distribution and distribution technology.
Property management systems (PMS), even for smaller hostels, are becoming the norm, and there are literally dozens of PMS providers in this market, ranging from basic functionality like Backpacker Online to PMS’ for high-end and complex hostels like GuestCentrix.
What operators want now is interoperability between their own websites, third party booking websites and their PMS, and the channel management tools to manage it all.
This is starting to sound familiar, right?
Automating connectivity in a way that doesn’t break the bank or increase headcount while allowing the operator to have inventory available on multiple sites is the holy grail of all travel segments.
But most hostels still manage inventory on various sites through multiple extranets, a time-consuming process open to human error.
"There’s a real need for technology to bring about operational change to increase efficiency and effectiveness in hostel inventory management," says Tumminia.
New booking engine providers and integrators are popping up every day, exploiting the burgeoning demand for online distribution.
Brian Manning, CEO of CMS Hospitality, a PMS provider to the hostel market, agrees.
"This market is ripe for more sophisticated reservations and operations systems, especially as smaller operations consolidate and become more complex."
What’s driving these changes? The travelers themselves.
"Our customers are getting more savvy and demanding," says Maria Argyropolous, COO of USA Hostels Inc, a hostel group with 500 beds in three properties in California.
"We saw an amazing jump in direct bookings after a complete redesign of our website," says Argyropolous.
"We built a more sophisticated and intuitive site and implemented SEO practices, and now we’re working on optimizing the site for multiple device presentation. Now we’re worrying about ‘the fold’ on these devices as younger users tend not to scroll."
USA Hostels is aggressively pursuing a direct booking strategy, as it saves the company money. "As direct bookings go up, third party bookings go down, along with the fees associated with them," says Argyropolous.
But third party sites are important to USA Hostels. They have a direct connect via their PMS to hostelworld.com, and accept reservations from others. "Those sites are really useful, an unbiased source of reviews and good information for potential guests," Argyropolous adds.
The use of devices is on the upswing by hostel users, and that is having both operational and distribution impacts. “We’ve had a hard time keeping up with the bandwidth requirements on-property," says Oriol Badia, CEO of Equity Point Hostels, which has eight properties in Spain, England, Portugal and Morocco.
"Everyone used to lounge around in the internet café on desktops, but now they lounge around in the lobby with their devices," tapping into the generally free on-site wifi.
There isn’t much booking opportunity available on mobile devices. There are a handful of iPhone apps for hostels and only one iPad app that I could find, but most in the industry believe hostels need to be in that space.
"Mobile devices have a social aspect and hostels are all about socializing, so we should be there,” says Badia. "Plus the more tools the hostels offer for last minute booking, the better."
As with other long-tail segments like golf or vacation rentals, the hostel industry is incredibly fragmented with small suppliers spread out all over the world. "The market is so fragmented, and that’s good and bad," says Badia. One way to address the bad part of fragmentation, he says, is to focus on brand.
"Branding is becoming more important to the traveler, and it’s good for business," he says, citing a year-over-year doubling of visitors to Equity Point’s web site as they focus on building brand. "Brands are growing, and becoming more sophisticated in SEO and online marketing."
The big brands in the hostel segment, Badia points out, are not suppliers but Hostelworld and Hostelbookers, for whom supplier fragmentation is a good thing. Like USA Hostels, Equity Point also believes these online players have a role to play, but Badia would like to see some leveling of the playing field to support Equity Point’s branding strategy and growth.
There’s been a lot of movement in this space recently, with Rough Guidesannouncing that Hostelbookers would provide accommodations on its site, and Hostelworld recently becoming the budget accommodations provider for VisitBritain.
Certainly these two will remain dominant players, but as hostels seek to streamline distribution operations and make inventory available where their guests shop, the demand for interoperability and easy access to supply is creating a market opportunity for technology providers and new distribution channels.