Well funded startup Stayful promises real-time bidding for boutique hotelsNewsBy Sean O'Neil | July 17, 2013Share This article was originally published on New York City-startup Stayful thinks it can exploit a consumer niche that lies in-between Priceline's name-your-own-price opaque bidding model and the standard online travel agency model.Launching in private beta today, Stayful aims to help independent boutique hotels fill their unsold inventory via a bidding system.Consumers sign up for a free membership to gain access to listings (which are complimented by TripAdvisor reviews). Travelers make bids--with Stayful suggesting bids it thinks the hotel may accept--and that the hotel can accept or decline.Stays must completed within a month after booking. A user can make only one bid per hotel in 24 hours. The pickings are slim so far, with only a few dozen participating hotels in New York City and San Francisco. Initial inventory comes from the upscale Standard Hotels, Amsterdam Hospitality, and the Viceroy Hotel Group.Naturally enough, the start-up says it has other properties in the pipeline. By December, Stayful wants to be in 16 markets, such as Paris and London.Well funded, well staffed The ambitious startup recently received $2.4 million in a funding round led by Canaan Partners.The startup is a tight ship, with only seven staffers. The well regarded Cheryl Rosner is CEO, having previously brought BuyWithMe to market and having formerly been CEO of TicketsNow. Her other travel bonafides include previously being president of Hotels.com and of Expedia Corporate Travel. Co-founder Shariq Minhas is CTO and a former manager at Expedia and Hotwire.Q&A with CEO Cheryl Rosner:Our team has a deep background in travel and technology. Collectively the team’s background includes experience from Expedia, Hotels.com, Orbitz, Hotwire EZYield, TravelClick, Jetsetter, Amazon, Skype, Stumbleupon and Apple. We estimate our market size at $40 billion hotel bookings a year.Your competition? The combination of the following: Traditional online discounters, “last minute” mobile apps, and private sales for independent boutique hotels.What's your revenue model and strategy for profitability?Our revenue model is a low-cost (to independent boutique hotels) advance purchase fee model. Our strategy for profitability is market share gain through a supplier friendly low-cost model. We focus on filling perishable inventory resulting in better prices for consumers, community supplier acquisition strategy (our community helps to curate each market by inviting hotels to join the network) and an efficient lean approach to consumer acquisition.The result is a low cost, community driven, self-activating model. Our core value proposition creates a win for each stakeholder’s bottom line: The Independent Hotel, the Traveler and Stayful.Describe what your start-up does, what problem it solves and for whom?For the independent boutique hotel lovers craving unique experiences, Stayful provides a simple way to customize their trips with the best price, value and transparency.For the independent boutique hotelier, Stayful provides a low cost method of distribution to acquire new customers and a new targeted and fenced method of filling perishable inventory as opposed to broad based discounting.Consumer Problem: The traveller wants “logical” value and an easy way to book a hotel type they want. Stayful’s value proposition is to provide a better price with full transparency. Today, travellers are frustrated not only by the inefficiencies of searching through multiple of sites to find the hotel experience they want, but also the uncertainty of not knowing if they should continue searching through even more sites to make sure they have not overpaid. This is an inauspicious start for the traveller’s experience with the hotel and reflects poorly on the hotel, which has no control over the process.Supplier Problem: The independent boutique hotel category runs on average 58.3% occupancy as compared to the chain-affiliated hotel category at 62.8%. This translates to an annual $2.5B gap for independents in unsold, perishable inventory. Independents unnecessarily pay a significantly higher cost of distribution than chain-affiliated hotels due the relative strength of their brand and often the number of rooms in their hotel. Solution: Stayful Stayful’s magic is in helping consumers get a better price through a proprietary bidding model that recommends a price for a hotel room at an independent boutique hotel that would have otherwise gone unsold all at a low cost to the hotel.Stayful sells perishable inventory at independent boutique hotels to consumers travelling with the next 30 days at a cost of 10% to the hotel.Everyone wins: travellers get a better price at the hotel they want to stay at, and hotels get new customers for rooms that would have gone unsold.Why should people or companies use your startup?Stayful is an easy, fun way for consumers to discover new unique hotels at a better price.Stayful is an easy, low cost method for hotels to discover and acquire new customers looking for an independent boutique hotel experience and to sell perishable inventory, rooms that would have otherwise gone unsold.Other than going viral and receiving mountains of positive PR, what is the strategy for raising awareness and getting users?Raising awareness comes from a host of initiatives that are primarily product-focused. The product features continue to solve the price transparency problem for the consumer and the revenue and occupancy optimization opportunity for hotels.The Stayful team has a lot of experience in search engine marketing and optimisation where targeted campaigns attracting our specific segment can be highly optimised.Stayful will selectively participate in online marketing channels that provide a positive ROI and raise awareness.Stayful is community focused. Our thesis is the more we do for our community, the community will continue to thrive.Stayful serves small businesses, and this is an important connection with our community.How did your initial idea evolve? Were there changes/any pivots along the way?Our core idea has been the same from the beginning. The evolution came from in-depth hotel partner research and engagement as well as consumer community research and engagement. We learned a great deal about what our stakeholders want and we endeavour to serve, meet and ultimately exceed their expectations.How did your startup come about?Stayful started as a conversation with independent, boutique hotel owners and managers. These dedicated hospitality providers were struggling with multiple issues including: creating awareness of their unique propertiesfinding and connecting with new customersdealing with the (high) cost of distribution, and...finding a way to improve their occupancy in a highly competitive and fragmented environment. The question they repeatedly asked was, “How do we market and sell perishable inventory in a targeted way to a customer looking for the unique experience independent and boutique hotels offer?” We set out to solve these issues, all at a low distribution cost. Through extensive consumer research, we discovered there were a significant segment of consumers seeking these hotels and experiences, and they are frustrated by the current travel options.The consumers we're targeting are a desirable segment. They are savvy, self-directed, experienced travelers and early adopters. They do their own research, want to customize their trip, look for local experiences (and local experts) and for price transparency. They want to pay a rate they feel great about and they look for a great value. They do not look for the lowest price in a market, they look for the right value transaction for them; price is just one component of the ‘value transaction’ when considering the full experience.There's a social component built-in to our product, too, as the experience of staying at one of these properties at a discounted rate is something many digitally influential people will want to share on social networks. Our research tells us these consumers typically book their trips within 30 days; the sweet spot is 7-10 days out.We saw a product-market fit: hotels needing and wanting to reach these consumers, hotels wanting to sell a room that may have otherwise gone unsold, and consumers wanting to find the right hotel at the right price. We knew if we could create a low-cost model that connected the traveler and hotel, buyer and seller more closely; we would create value for the entire independent, boutique travel community. Since we have not publicly launched yet we have not considered anything outside our original vision. We will learn from our stakeholders what will be needed to ensure success and adapt accordingly.Where do you see yourselves in 3 years time, what specific challenges do you hope to have overcome (please refrain from using biggest, best or most awesome in your answer)?Stayful hopes to fundamentally change the way people purchase independent hotel rooms, creating opportunities for more affordable travel resulting in more trips. We hope to close the occupancy gap for the independent boutique hotel community, creating more opportunities for expansion in the category and helping the entire global independent boutique travel industry. And to provide a super fabulous experience for travelers.What is wrong with the travel, tourism and hospitality industry that requires another startup to help it out?Wrong is not the word we would choose; there remain gaps that inspiration, innovation, modern technology, modern marketing, modern approaches to data and creating a closer relationship between the traveller and hotel can solve. Today’s travellers’ landscape is very different than when we were at hotels.com and hotwire. Their access to technology and tools, as well as their inspiration and expectations, have motivated us, and passionately so, to create a new generation of travel products and services.Tnooz view: In a test search for late July dates in San Francisco, Stayful turned up Hotel Fusion as an offer at $189 a night--a suggested bid that, when we clicked, was accepted. That was a savings off of what Stayful called the standard rate of $209.Share this quote When we compared prices, the best Google Hotel Finder could do for the same query was $239 by Booking.com or Priceline.Share this quote If Stayful can hold true to delivering on its promise, it should be able to develop a profitable niche. But it will have to work hard at handling issues of customer service (because customers will assume that *it* is handling the transaction, and if a hotel bumps a customer at the last minute for a better-paying last-minute walk-in, Stayful may get an earful).Share this quote Stayful will also have to consider solving the same issue of back-end management of supply and updating price changes regularly as HotelTonight has faced.Share this quote Stayful says its model is unique, but it's basically a Hotwire that's restricted to non-chain, four-star hotels. Priceline's recently introduced Express Deals is also similar, though it isn't restricted to luxe hotels. If it's successful, it would seem fairly easy for a major brand--with existing contracts with suppliers and existing technology to support dynamically changing rates--to create a copycat brand on a much larger scale, and with a much larger marketing spend, than Stayful. That's a risk.Share this quote Stayful's model also reminds us somewhat of the model for the same-day hotel booking mobile app VeryLastRoom, which curates higher-end properties and offers with real-time rates that gradually decline as midnight approaches. The models aren't close enough to worry about, but the threat of a mobile-first startup popping up to do the same thing as Stayful is not to be dismissed lightly.Share this quote Bottom line: A for effort. Some of the most profitable Internet companies have taken proven business models and applying them to the high-end luxury sector. But execution will matter more than the cleverness of the idea, and speed is of the essence. The team is about to be tested.Share this quote NB: TLabs Showcase is part of the wider TLabs project from Tnooz.