Have we seen hotel technology hit the apex of an industry life cycle?

It has been exciting to see the level of investment going into connectivity in recent years. Hotel technology providers, on the most part, have largely bought into the fact that they are part of something bigger than themselves. 

While not all of them have got it right first time; some APIs are Frankensteins and there are some fairly convoluted mechanisms to achieve simple tasks, but if we look holistically, the trajectory is looking very positive and the future, bright. Teething problems will always be there as developers come and go, funding rounds change the face of the business, investors change tack every so often.

Rather than jumping into specific systems and technologies, I've taken a bit of time in recent weeks to step back and evaluate the industry landscape. 

The nature of our work at Umi has changed significantly over the last 5 years, and I have been seeking the answer to the question of where a traditional service business, like ours, fits into the current tech landscape. 

What is the Industry Life Cycle?

The concept of an industry lifecycle is a fascinating one. In 1996, a chap called Steven Klepper proposed the stages through which an industry will traditionally progress. These are defined as the launch, growth, shake out, maturation/consolidation phases which can be seen clearly below.

Back in my university days, while studying economics, we saw the life cycle of the social networking industry play out in just 10 short years when traditionally this process took decades. 

We saw Facebook launch, grow, mature and consolidate an entire industry and while this occurred rapidly in comparison to a traditional industry evolution, it gives us an insight into how we might also map out the next steps for ourselves. 

Where is hotel tech in the industry life cycle?

Where do you think we find ourselves within hotel technology and distribution? I can entertain a few different thoughts here, but I think my primary feeling is that we are really seeing a shake-out of the industry and are entering into a maturing phase. 

Agnostic to specific solutions, the market penetration of technology in hotels is very high, which shows us that the ‘growth phase’ has definitely occurred. The majority of hotels will have a tech stack that looks much the same as the next, with varying degrees of connectivity and success. Most have a booking engine, most have a PMS, most have a CRM etc. 

There are, however, an vast number of combinations of different systems; which is one of the core friction points to progress. It is also the sheer volume and variety of solutions that make me believe that we are primed for a ‘Shake Out’.

Now let’s look at some other symptoms to work out the trajectory. The last few months have seen an unprecedented number of deals take place. Mews makes has made its 9th acquisition of the year, Amadeus is acquiring biometrics tech, Travelsoft is acquiring payment providers among many others, Agylysis has acquired Book4Time this week, the list goes on.

Skift wrote an interesting piece on the 15 deals within 10 weeks. There is no indication that this is slowing down, and there will certainly be more deals done before the year is out. While M&A in this space is nothing new, it is the pace and nature of the deals that gives me reason to believe that the industry is consolidating and ‘Shaking Out’. 

This consolidation phase typically involves the companies that have gained traction ‘shaking out’ by either outwrite failing or merging with competitors; typically resulting in the top 3-4 companies occupying around 70% of the market. 

The resulting market conditions are that growth continues, but at a slower rate, with in-organic growth (mergers) more often relied on by the larger firms. We need only to look at Access Group for evidence of in-organic growth and market share through acquisition. 

As companies prepare to be acquired (as well as the acquirers) profitability will start to become more of a focus with expense reduction and slower rates of innovation. 

What does this mean for the rest of us?

Slower innovation? Tech companies targeting higher profits? 

Sounds dreadful, right? I think the opposite.

The pace of innovation has far exceeded a hotels' ability to fully capitalise. The technology and feature-sets in place within most hotels is so rarely maximised. In particular, the connectivity that the supplier has painstakingly implemented is seldom touched and there is rarely a technical team member within hotel leadership to guide on a holistic tech strategy. 

Traditionally, we see alliances forming between a shrinking group of higher-market-share providers. This will typically deliver higher levels of standardisation and integration and a greater degree of professional development and upskilling as individuals begin committing to robust, stable platforms. Think about Opera and how that is now pretty much a required skill in job descriptions for luxury hotels. 

Conclusion

With a stabilised, more consolidated industry landscape, we, as service businesses, will be far better positioned to build unique user experiences, data flows and integrations. Agencies and specialised consultants can begin to better position themselves as the consultative members of within hotel leadership teams, operating as a hotel CTO.

While everything is theoretically possible at present, and there are many wonderful people in our hotel tech community, the fragmentation of systems has made it tricky. Much of our work has been revolving around gap analysis and not necessarily on innovative solutions.

It is such an exciting time for niche agencies and the service space. It is a time that will reward the specialists and those that have a consultative approach as opposed aggressively productising their offering.