Anyone looking at the mergers and acquisitions of the past year would know that there is something in the air.
Big, brand-name firms have been jockeying to acquire technology companies that provide business-to-business (B2B) services for hotels.
To name some deals: Priceline acquired direct-booking marketer Buuteeq. Then it snapped up management platform Hotel Ninjas.
Oracle bought Micros, whose systems are used by 30,000 hotels. Amadeus spent $500 million on hotel specialist Newmarket International.
Hotel marketing provider TravelClick switched hands, in a $930 million deal. Travelport tucked in distribution system Hotelzon.
For insight on how industry consolidation might play out, Felix Laboy is a good person to ask.
Laboy co-founded a startup company, E-site Marketing, that became a market leader in the hospitality industry. Sabre Hospitality Solutions (SHS) bought the startup, and Laboy became president and general manager of SHS, which has for years been that company's fastest growing division.
Laboy led the team that made SynXis a market leading hotel central reservation system.
In May 2013, he left the company and became a consultant to investors and entrepreneurs.
Laboy recently spoke with Tnooz about the rolling up of hotel tech B2B startups.
Tnooz Q&A
Felix: What are you hearing among investors?
There will be more deals done in the hotel tech space. The challenge is that, if you're a private equity firm or a large investor, you're looking to a large deal to make sure your shareholders get a good return.
But right now, there aren't a lot of large companies to snap up. That’s one reason why TravelClick was highly sought after by several private equity firms. It was a big company for the hotel tech space.
Might someone try to combine a variety small and medium-sized investments?
You may see an attempt by a few players to piece together a variety of companies to make a larger investment -- a consolidation into a one-stop shop or suite.
Of course, you may merely see investment in smaller companies, to help them grow over a 3-to-5-year period.
Is it too early for these startups to be rolled up, integrated in a manner like Perfect Trip Fund, and given cash to scale?
It depends on the size of the private equity firm if it's actionable.
For a firm with a billion in assets, when you're talking about companies in the $50-million-a-year-in-revenue range, it's probably not exciting for them, because it's not a large enough play to make enough money to justify the time.
But if you're talking about smaller private equity firms with smaller funds, it might be fine.
Where are the opportunities for established companies to make acquisitions?
Priceline's acquisition of Buuteeq is the end of a long line of acquisitions by various companies of digital marketing firms. All the most promising digital marketing targets have been snapped up.
So I think, looking forward, it's about looking at what's missing in these companies. The goal of each one of these is to use one-stop shopping to wrap their arms around independent hotels and each regional chains.
So they need to add services that they don't have to create an entire portfolio. That way they can enable any one hotel chain to get all of its services from one vendor.
Business intelligence firms are missing. Data and analytics are interesting plays. Revenue and yield management, too.
Everyone focuses on private equity and corporate acquisitions. Are there any other potential investors in this market?
I'm hearing that hotel companies are really starting to evaluate innovations, whether internally or externally, because they really need to get innovative to survive.
Hotel companies are facing external competition from Airbnb-type, peer-to-peer companies that are taking a piece of the accommodation pie.
Why is hotel tech suddenly hot?
More and more, hotels are looking outside their walls for technology development, innovation, and support. This reflects an attitude shift among hotel owners.
I've been in the business for about 25 years, and I've seen US chains increasingly be driven by savvier investors, who are pushing for change. That's creating a market for these hotel tech services.
The US leads the way. But you're starting to see a lot more growth in Asia Pacific and South America.
Hotels in emerging markets don't have preconceived notions about what kind of companies they should work with, as in the US. It's easier for an unfamiliar name to break into the market.
A Goldman Sachs analyst report estimates that 40% of hospitality software spend is in-sourced, and 60% is outsourced. Which of that is the low-hanging fruit that hotel tech companies can target: the customers still insourcing or the ones already outsourcing?
For several of the players out there, it seems that the easiest customers to get are ones that are already using a competitors' solutions.
Let's say I work for one of these vendors. I'm asking my team, down the road, what does Customer X need that overlaps with a solution we sell.
How can we create an offer that will be better than the competition's when Customer X is ready to consider new options.
For a digital marketing service, it's a short sales cycle.
But for a central reservation system or many other software-as-a-service (SaaS) products, hotels enter three-to-five year agreements.
You anticipate. You have to be ready with the best offer when their contract comes up.
For other low-hanging fruit, you provide limited services for the long-tail, or smaller independent properties. Then once the comfort level of the relationship has been established, you upsell more significant products.
Among the services, you're starting to see the cream rise to the top. The companies with strong technology, sales infrastructure, and solid financial backing are winning, if you will, in terms of how they're working with hotels.
I think that's why you saw TravelClick acquire EasyYield and Rubicon, and why you saw Micros acquiring TIG Global and Pegasus acquiring Open Hospitality and other firms.
Central reservation system SynXis has had a very wide adoption rate, relative to its competitors. Why?
Well, I'm obviously biased, having been president of the company running it.
But before the acquisition of my company E-site Marketing, my company was partners with SynXis. And from that early, vendor perspective, we liked it because it was different from other vendors.
SynXis was built as a software-as-a-service provider from the beginning. It wasn't a platform retrofitted, the way other solutions on the market are.
It started as that, with a community-based model in its DNA. Any technology innovations built could be shared in the community. That's what separated them from the pack.
It doesn't hurt to have Sabre's financial backing and Sabre's sales infrastructure.
We felt that if we combined SynXis with my former company E-site Marketing -- and added other services -- we could be a stronger provider.
That "suite approach" has proven itself, as the Sabre IPO financials demonstrate.
It's been a little over a year since you left Sabre. Why'd you leave?
It was a great experience for me. The Sabre executive team was great to work with.
But both of my kids had just got to college. And I wanted to do some bucket list things, and take a little time off, and get into some fresh business matters.
Now I'm executive chairman and an investor in Hotel Neighborhood, a B2B hotel tech platform that aims to monetize informing guests of local services at a destination, starting with restaurants.
We're working on three trials with different brands. If the trials go well, we can work with 3,000 hotels in the near future. I make introductions with hotel companies.
I'm managing director of a company called Speed Shift Ventures, which helps early-stage companies get financing and plot their growth strategies.
I'm also a part-time lecturer at Cornell University's School of Hotel Administration.
It's been a while since you've been in Entrepreneur Land. What's the same? What's changed?
Entrepreneurship is still a lot about relationships. Back in '99 and now in 2014, it's about, when I pick up the phone to make an introduction to an investor, it's still about my reputation and about my interpersonal skills.
On the other hand, entrepreneurship has changed a lot in that there's much more press coverage about venture capital. The media exalts the size of funding rounds.
So entrepreneurs sometimes run their businesses based on the amount of investment they've received rather than on the amount of revenue they're generating. That's not a good equation in the long run.
There are a lot of companies that are raising money without proving the business model. They flame out.
Is it a danger for small companies to get enamored with venture capital?
Only speaking from the experience of my partner and I, we were completely self-funded. That turned out to be great for us financially when we sold eventually.
But more importantly, it helped us during the formation of the business. We could prioritize what was important to us without being second-guessed by an investor.
So what's your advice to startups?
Use the money for growth. In other words, get the business to a point where the money that you're asking for is to fuel growth.
E-site marketing had a laser focus on executing its vision. What does the concept of "executing well" mean to you?
This may sound old-school, but it's about meeting and exceeding the customer demands.
Whether a small startup or a larger company, whenever I've been able to make sure my team can exceed the needs of their customer and make the customers extremely happy with the solutions, we've been profitable.
Everyone says "focus on the customer". But what does that mean practically?
You have to be willing to say "No." At E-site Marketing, we turned away over 90% of customer inquiries. Those potential clients didn't fit our model of what a successful engagement would be.
We needed a certain level of profitability from each account we took on to provide the incredible level of customer service we needed to to meet our vision of a company and create great word-of-mouth.
Too many early-stage companies try to work with everyone and don't do a great job with any of them. That's often why they fail.
You can't always choose which customers you want to work with. In the case of a corporation with quarterly quotas, you may not have that luxury as a leader.
But the general principle still holds at large companies, too.
You should only go after accounts where you can understand what the customer is paying you for and where you can figure out how you're helping the customer manage their business or meet their goals.
Notes of caution
While the Tnooz interview with Laboy focused on the potential for more acquisitions in the hotel tech space, that's not the only possibility. If the current acquisition boom continues rack up mileage, things might well get out of hand.
Several lights on investors' dashboards are flashing yellow:
High asking prices for companies, opportunistic funding rounds, valuations based on very high multiples over earnings, a low cost of money systemwide, companies buying businesses they aren't prepared to absorb and help scale, and sometimes dizzyingly large leverage.
Yet, despite those caveats, more acquisitions are expected, driving consolidation in the hotel technology sector.
Looking ahead, venture capital firms, corporations, and possibly hotel companies seem to be trolling for startups that are revenue producing, have a B2B plan aimed at recurring revenue from hotel customers, and have a quick logical path to income.
MORE FROM TNOOZ:
Priceline’s acquisition of Buuteeq brings it right behind the hotel front desk
Q&A with Forest Key of Buuteeq on what's next for hotel marketing
Amadeus and the new long game in hotel technology
Target-setting – who might be on the Amadeus acquisition list?
How much could consumer brands like Priceline disrupt the hotel technology market?
SiteMinder, a hotel tech provider that's just received a $30 million "opportunistic" funding round
Wake up everyone – TripAdvisor lives up to its name, focuses on entire trip
NB: Burning laptop image via Shutterstock, Power my startup image courtesy Flickr/Creative Commons, and My compelling message image courtesy Flickr/julianpartridge/Creative Commons.