Mark Andreessen, venture capitalist and co-creator of the web browser, once said that “software is eating the world.”
Today software appears to be eating hotel marketing, in particular. Internet-based services are becoming cheaper, replacing the need for hotel companies to maintain dozens of proprietary, back-end IT systems.
Wall Street's spreadsheet jockeys have taken a sharp interest in software-as-a-service (SaaS) plays in hospitality.
In recent months, Sabre, with its hospitality IT services arm, is IPO-ing; Amadeus has bought hospitality IT specialist Newmarket International; and a private equity group has acquired TravelClick.
A star business among cloud-based services is Buuteeq, a Seattle startup that provides digital marketing for hotels.
We decided to check in with CEO Forest Key, to find out how his company is doing.
Our talk covered trends in digital marketing, possible consolidation among cloud-based hotel tech startups, and the fates of companies such as Amadeus, Booking.com, Micros, Sabre, and Pegasus.
How is Buuteeq doing?
In our fourth year, I'm extremely satisfied with what we've accomplished. We have over 130 employees and we have upwards of 6,000 hotels using our tech. We had a phenomenal first quarter.
Only 6,000 hotels? Two years ago, around the time of Concur and Madrona's$10 million investment, you had 4,000 hotels.
At the time, we had a lighter touch with many of our customers.
So you've been successful at upselling customers?
We've since developed much more profound relationships, providing greater depth of functionality -- website, booking engine, connections to customer relationship management systems.
As context, in 2011, we introduced a free product that's a Facebook application for hotels. That was popular, and it helped educate customers about the concept of cloud-based services.
Since then, more of them are now subscribing to our full marketing stack.
How are you different from TravelClick, a US digital marketing consultancy that was recently acquired for $930 million.
We're the antithesis of TravelClick, strategically. We don’t look at it as a direct competitor.
It's just a very large digital agency. It's not really a software company. It bought whatever software it has.
It has essentially a door-to-door sales force, a much costlier proposition. So the product and service has to be priced to cover that cost. The typical engagement may be 15 times more expensive.
TravelClick is actually selling consulting services, it's not selling software in the cloud like we are.
Any thoughts on the TravelClick sale?
It was fantastic for shining light on the potential of the space. They had many bidders.
There is $500 billion a year in room night sales worldwide. The vertical is largely electronically transacted and it could be made more efficient by switching to cloud-based services.
Which companies are best positioned for growth?
There was a class of startups that launched around 2010 and that now supply cloud-based services to hotels.
The best known is SiteMinder, which provides channel management booking software for hotels. In January it secured $30 million in additional funding.
Another company, Revinate, which does semantic analysis of reviews, surveying of guest satisfaction, and other things, is gaining traction. It helps hotels manage their online reputation.
Duetto has an next-generation revenue-management approach, delivered with a cloud approach to the technology stack.
Another one I like is StayNTouch, a Virginia startup, which develops cloud-based staff and guest mobility solutions for hotels. The founding team has a lot of veterans of property management system (PMS) provider Micros. It's in the early stage, but it's finding a better way to deliver services via mobile devices.
All of these companies are primed to be capturing capital in the next five and ten years. They can scale and grow at the expense of established players.
Is there an opportunity for consolidation with this class of startups?
Each of us is taking a different technology approach. That creates opportunities for strong synergies.
As the companies mature, there could be some rolling up. Because the largest expense for a fast-growing company is customer acquisition costs (CaC).
The subscription business model requires a lot of upfront spending to get a customer, but then the customer tends to stay for a long period of time.
If you look at Salesforce.com, an SaaS provider, their financials in the first decade or more is trying to overcome the cost of acquisition as they build up a robust customer base.
When we split that cost with vendors that share our philosophy, it helps.
For instance, we shared the cost by doing roadshows with SiteMinder, visiting decision makers in hospitality together in Europe. It's mutually beneficial to evangelize the cloud, versus the traditional agency model.
We have a two or three year cycle. It may take a while before a hotel is ready to make a switch.
Could venture capital build and back a multi-armed machine for cloud-based hotel services?
It's almost inevitable as a natural economic synergy.
Today it's a little early because, as a software company, you have to find the perfect market fit first. You need to learn exactly what your customers expect your platform deliver.
We're mostly not yet at the stage where all we need is capital to act as the rocket fuel for us to scale rapidly to hundreds of thousands of hotels.
When you first launched Buuteeq, you did a Q&A with Tnooz. You said your business had four main parts: A content management system, digital distribution, online reservations, and business intelligence. Is that still true?
Today, I'd talk about it differently. We have the same vision of technology delivery as we had four years ago. But our sophistication of how that tech fits into a hotelier's life has evolved.
Buuteeq handles the whole flow. We manage the marketing presentation of the hotel to the guest: web, mobile, social-optimized content.
We generate traffic around that content, creating a positive brand impression. If there's a transaction, we strive to have it happen at the hotel's own website, where the hotel gains the most margin.
From there, we go into the data layer -- whether that is a central reservation system (CRS) or a channel manager into the PMS -- and effectively provide the guest's arrival experience for check-in/check-out.
After the stay, we handle the guest experience survey.
That full cycle, done in the cloud, is how we think of ourselves today, rather than those four quadrants we talked about a couple of years ago. We use the word "traffic" much more today, too.
How focused are you on discovery, tracking, and conversion processes?
Very. We're very top-of-funnel. Today we have more than a dozen connections that plug our system into leading operational systems, like CRSs, PMSs.
And in late March, Buuteeq began its first integration with SiteMinder.
Yes, and Siteminder gives us connectivity to hundreds more systems.
Are you mostly going after independent hotel owners?
Outside of the US, most of the market is independents and small regional chains. We're covering the globe. So, yes.
The US is one of the rare exceptions where it's chain-dominated. We can manage brands, too. We're adding relationships with groups like Choice International.
Right now we're over-indexed on America and chains, from where I want us to be.
What's Buuteeq's geographic coverage right now?
The U.S. market is about 70% of our sales.
South America is about 25% of our business globally. There, we're taking it country-by-country. In Chile, the first South American market we targeted, we're getting to 10% market share.
What's a forecast for Buuteeq's eventual share of cloud-based digital marketing for hospitality?
Today Buuteeq is well below 1% market potential, assuming there are 600,000 hotels worldwide. We could achieve 20% share.
It takes time to educate hotels about the concept. It took Google a decade to get to about 10 million small-to-medium sized businesses (SMBs) using its productivity-based applications in the cloud.
How large is the market?
I talk to a lot of established companies serving hotels, like Micros or Sabre, and they think there are anywhere to 100,000 to 150,000 hotels worldwide. That's the range of inventory that global distribution systems have had historically.
But we see 600,000 hotels worldwide, conservatively, as a more realistic number of hotels that have a dot-com web presence. Those are obviously not all working with online travel companies.
We think there's lots of bespoke digital marketing agencies targeting them for implementing direct marketing communication with their guests. It's a very fractured, long-tail market.
So we think the only way to approach that market is a software-based approach with a huge investment in technology, like the one we're taking.
How does Buuteeq fit into the broader picture of SaaS spreading globally?
Many SMBs, like hotels or car dealerships, manage their operations with tools they buy off-the-shelf from vendors. This is often software for marketing systems, billing, and customer relationship systems.
SMBs have historically not had vertical cloud platforms, which are systems that deliver very customized software for a particular vertical, or industry.
When we started in 2010, there weren't a lot of vertical clouds built out.
There were some horizontal solutions, like website builders Wix and Squarespace. They handle websites across businesses -- a car dealership next to an accounting firm.
Your sales model sounds nearly like it's door-to-door.
It's phone-call-to-phone-call. It's webinars, video demos, word-of-mouth.
If you're dealing with all these different customers in different geographic areas and different types of clients, how can you build a platform that's universally satisfying?
It may be counter-intuitive but it's true. The reason vertical SaaS solutions work is that you can design for a specific data set to a set of best-practice solutions.
My direct inspiration for starting Buuteeq was a company started by a friend called Bandcamp.com, which is a platform for musicians to create an online presence and comrpomise.
You might think, at first glance, it'd be difficult to give something satisfying to such a diverse set of customers: major-label rock bands versus an electronic DJ that does weddings, and different audiences, like folk versus rap.
Yet the technology to market their presence online and to drive e-commerce, can be designed in a way to be functional across the vertical.
So a high-design Cancun-based resort will want industry-wide best practices as much as a hostel in Nicaragua or a Hooters in Las Vegas does.
Their messages may differ, but how they manage their message, track conversion efficiency, make changes to improve the message --- there is a common set of needs, and the cloud infrastructure can deliver all of that.
For people outside the industry, paint them a picture: What's going on at the hotel, when it comes to distribution?
Today, in the back-office of a hotel in, say, Santiago, there's a guy who spends a big part of his day opening and closing rates and availability in various channels.
He does that partly through some channel management tools, partly by logging into extranets like the one same-day mobile app Hotel Tonight or online travel agencies like Booking.com.
To the extent they need to manually open and close, they're prone to errors. It's labor-intensive and thus a costly line item.
Plus, every channel wants last-minute availability, because that can be a very profitable sale. No company wants a potentially profitable room to show up as "not available" in their system when it appears available elsewhere.
That's ludicrous. There should be software at the front desk that automatically optimizes yield based on some heuristic, with overrides set by the hotel once a week based on their strategy for the market.
For smaller properties, they can piggyback on the revenue optimization best practices of the industry rather than learning the hard way.
What do you think about Micros, one of the established competitors in providing hotel technology services?
I would say that, when I check in to a hotel -- because I travel quite a bit -- when I look behind the screen used by an employee at the front desk, and the system is MICROS-Fidelio, it sure feels a lot like 1994.
Thoughts on Pegasus?
Pegasus is a switch. Increasingly people are using technology like Siteminder's to do an end-run around switches like Pegasus offers and connect directly to extranets.
Many hotels may not need 100 channels. A switch is a bit irrelevant to the market of long-tail, independently operated hotels, which want flexibility.
Sabre is launching an IPO, and they have a big hospitality arm. What do you think about it?
Its SynXis product is the best-performing, most innovative, broadest functionality CRS on the planet. They surround it with agency services and other components that are high-quality.
We aspire to be very well integrated with their system. We already have a formal partnership with them in Asia, where we deliver our product integrated with SynXis to hotels in Asia.
Does Amadeus have a chance to get into the market?
There's a quote from the Facebook movie -- The Social Network -- that has stuck with me.
It's the Sorkin character's words for Zuckerberg, who says during the depositions defending against claims of intellectual property theft: "If you guys were the inventors of Facebook, you'd have invented Facebook."
Likewise, you look at Sabre: It made a big bet on the cloud. Its product feels like 2013. It gets the cloud. You look at anyone else, you ask, if they were going to do something, wouldn't they have done it by now?
Switching to a cloud technology model and a subscription-based revenue model is a non-trivial challenge.
It's very hard to switch your mentality and modality for revenue, customer delivery, service, and technology. You upset your operational systems, your labor, your quarterly numbers.
If a well-capitalized company has been serving a space for twenty years, you would think that, if they were going to create something amazing in the cloud for hospitality, they would have done it by now.
Speaking broadly, what's the difference between the two largest online giants of travel: Expedia Inc and Priceline Inc?
Priceline's Booking.com is very impressive. It's a European company and it has focused on independent hotels. It has a long-tail, geographically dispersed approach, that will serve it well as it expands globally.
Expedia is a US company that has focused on chains and brands in the most popular markets, like Las Vegas.
That's a principal difference between the companies that's often overlooked.
Because the rest of the world is composed in a long-tail market like Europe, Booking.com's approach has an advantage.
Booking.com also has credibility as an innovator. It leads the industry in its performance for guest conversions because it is iterating constantly. Its product has a good market fit.
If you told me Booking.com is going to do something new that's radical and different, I'll believe it, given its track record. Tech talent feel the same way, so it can hire the best talent.
How did you under the protective arm of Concur?
I was reaching out for mentors, and Concur is located nearby here in Seattle. I was introduced to their management.
I fell under their spell. They have a holistic view of how travelers, mainly business travelers, will experience travel in the future at every touchpoint.
They think about everything from re-routing flights at the airport on your phone, checking in to your room via your tablet, having your promotions be approved by your corporate travel policy while you're in the middle of a trip, etc.
I've had a chance to join a couple of meetings held by their portfolio of companies. Each company is working on a piece of the puzzle. You could imagine stitching together their APIs.
We did our first integration with one of The Perfect Trip companies, Trover. It's an iPhone and Android app that lets you see things at your destination worth checking out, like activities and restaurants, via a photo-rich interactive experience.
We integrated their feed for the sites of about 30 hotels we service, to give guests a sense of what's worth doing near the property.
Why should front-end or back-end developers want to work for Buuteeq?
It's about our mission and our benefits.
Being part of a company that is helping empower people to travel is inspiring.
What we add to that is a program where we give a $2,500 annual stipend for travel. We encourage employees to take long blocks of two- or three-week vacations.
They can go anywhere. But when they come back, they have to give a presentation on what they learned.
What's been one of the most helpful to you as an entrepreneur?
TinyPulse has helped the company a lot, specifically around getting employee satisfaction.
I'm a Gen-X-er. I recently turned 40. My peers have different quirks than people in other age groups.
Buuteeq, like a lot of companies, has a lot of millennial employees. I didn’t understand millennials at all. Maybe 20 colleagues, I thought they were bizarre. They're smarter and harder-working than me, but culturally very different.
So TinyPulse is a surveying tool that's a lens to let me in, to understand the starkest differentiators generation-wise, such as how millennials approach their careers, what validation they want in the workplace.
As a manager, it’s a way to educate myself about the needs and aspirations of my team. We ask a weekly question by email. It gathers the feedback anonymously.
We've done dozens of significant changes to our company in how we hire, how we run the company, how we inspire, how we reward, how we train, how we share -- it's all systematically informed by this anonymous feedback.
For example, simple things like how important it is for a millennial to see progress in his or her career on a narrower time horizon than it was for other generations.
If it comes across as if they're not focused or they're egomaniacal, they just have a broader perspective earlier in life of how everything they do in life has to inform where they're going. If a job doesn't, it correlates to dissatisfaction, they may leave the company.
Is software "eating the world"?
It may not be eating the world, but it's creating a lot of efficiency. These vertical clouds, of which Buuteeq is a leader in the hotel space, could reach 80% to 90% penetration in each vertical -- hospitality being one vertical.
It's like fractional ownership of marketing IT. It's a very small monthly cost, versus their spend with an agency to build a customized solution.
Hotels get access to a several-million-dollar recurring research and development investment. We have more than product managers making releases to the platform every two weeks or so.