While all corners of the travel industry are grappling to assess the potential benefits offered by effective interpretation of big data, for hoteliers one key opportunity is the potential for stronger revenue management and pricing strategies. Former Wynn Las Vegas executive Patrick Bosworth, alongside fellow former Wynn executive Marco Benvenuti and former Salesforce.com chief technology officer Craig Weissman, earlier this year launched Duetto Research, a technology firm that uses the big-data approach to develop and implement hotel revenue management systems. Boosted by $2.1 million in seed money from investors both inside and outside the industry__a list that includes Starwood Capital, Thayer Ventures, Sunstone Hotel Investors chairman Bob Alter, FelCor chairman Thomas Corcoran and Expedia co-founder Rich Barton__Duetto in the past few months has been bringing its first hotel clients online and is in negotiations with major hotel chains to expand its adoption.
Bosworth, now Duetto's CEO, last month spoke with The Beat's Michael B. Baker about what a big data approach means for hotel revenue management and how it ultimately could affect corporate rate negotiations and auditing.
Baker: What problems do you see with current revenue management tools?
Bosworth: There was a tremendous amount of revenue management innovation in the '90s as the techniques developed in the airline industry were brought over to the hotel industry. There was still a fair bit of innovation in the early 2000s as systems became available and independent hotels began to have systems instead of just the Marriotts. There hasn't been a whole lot of change since then. [Hotels] are using the exact same data sets that they've been using since the early '90s, looking at purchase data. You use at the number of reservations you have today and in the future to determine how to forecast the demand and set the pricing. The systems themselves are built on 1990s Windows platforms. We were very frustrated seeing that something like 13 or 14 percent of hotels in North America are using a system, and it should be much higher than that. Of the people who have purchased a system, many of them aren't using it.
We looked at those causes and how to fix it. There was a certain degree to which we tried to fix it as consultants. We tried to work with different vendors and other people to get a coalition together to solve this problem. Either through unwillingness or an inability to respond, we weren't making any traction, so we decided to go out and do it ourselves. We founded the company in February, started developing the technology in March and launched the product in August, which was an incredibly quick turnaround. We were shocked our engineers thought they could get a fully featured revenue management system that was functionally equivalent to systems out there today in less than six months.
Baker: Who is using it so far?
Bosworth: Our first customer is Sonesta Hotels. We committed to deliver the system to them on Aug. 15, and we delivered it on Aug. 14. Now we're rolling out to another five or six hotel companies, including one major chain. We're blowing through dozens of hotels and will be nearing 100 hotels by the end of the year and hopefully in the thousands shortly thereafter.
Baker: What's different with this system?
Bosworth: It's cloud-based, very modern and built off of a web platform, so people can access it from anywhere. You can access it from your iPad and it works great. We're going to have a mobile application starting early next year, which is very new to these people. They're used to green screens, and they need to be at their terminal to get access. Typically, enterprise software takes two to four months to get going. You have to schedule it with the installer and order the hardware. We can bring a property live in two to three days. We're hoping to get to a point where it takes hours. You sign up on our website and tell us what system you have, it gives you instructions on how to upload your data, and you're up and running. You don't have to buy hardware. There's no implementation fee, training fee or special report fee. Everything is all-inclusive, and it's a monthly subscription. Hotels that before thought they could never afford a system because they needed to pay up to $300,000 up front can sign up for a 30-day free trial and pay month to month.
On the data side, we thought that there's a lot more you could do to get a picture of a hotel's demand and whether they have pricing power. The first thing is [looking at] customer shopping behavior. For all of our customers, we add a JavaScript tag, similar to what Omniture or Google Analytics does, that allows us to track what check-in date and check-out date someone searched for, what rate they were quoted by room type or if anything was sold out, whether they clicked around in the booking engine and whether they ended up booking. What that allows you to see is not only people who purchased but also people who chose not to purchase, so you can see which price points aren't booking.
Baker: That's data from the hotel's website?
Bosworth: That's where we're starting. Obviously, we would love to get other channels of data as well. We're working with other channel management companies like [Sabre's] SynXis, to be able to capture, for instance, queries coming from third parties like Expedia or global distribution systems, so we can then aggregate that data and include it in the algorithms. That's a powerful data set. Academics have written from the 1970s that you need [to assess] not only purchases but also the lost business, and it's never been done before. I don't know why. The technology has been around for five or six years, but none of the vendors have done it yet.
We have a partnership with ARC so that we can begin to incorporate airline data__ticket prices as well as seats and plane ticket sales into a particular airport. We're looking at partnering to get [hotel user] review data. We're also looking at companies like RateTiger and SiteMinder to get competitor shopping data, in terms of what rates they're charging, and incorporating all that into the application to inform the recommendations that it provides.
Baker: What could hotels do with that data?
Bosworth: A revenue management system traditionally has to fill two functions. It will produce a forecast by day, so on Nov. 17 it will indicate the number of room nights the system thinks you'll do, and it recommends a price. If you're selling at $199, it might recommend raising the price to $219. In the core functionality of the system today, that's what it's doing. We're starting to do other things and want to be more of a demand management platform. Today, the people hired in revenue management positions in general are not of the skill set you ideally would like to have. The revenue management position at a hotel tends to be a fairly junior position, something you do to create an interesting career path for one of your better front desk agents or call center agents. They tend to be very sharp people who hopefully know how to use Excel, but you're not hiring Ph.D. statisticians. You're not even hiring people who necessarily took a stats class in their lifetime. The systems out there today will recommend a price, but if you don't understand why, you're digging into table after table of data. There are dozens of different knobs you can turn to optimize it, and they don't know how to optimize it. Our system does all that for the user, and the user interface is very clear.
[We've developed] an alert system in which, rather than you needing to dig in and look at this week, the next week and the week after to figure out what's going on, it's monitoring the next six weeks, six months and the next year. Anytime there's a meaningful trend, it alerts you. If you have a spike in searches on your booking engine, that could trigger an alert. If you are not open and selling on Expedia on a day where you clearly should be, that's an alert. Where revenue managers are spending a lot of their time today is in managing distribution. There's an explosion in distribution partners. All the startups are creating more and more complexity, because they each have a unique business model and a different way of connecting with the systems, and the person who ultimately is accountable for making sure that you are honoring your rate parity clauses and that you're open and selling on the right channels on the right days is the revenue manager. Your average revenue manager today says they spend 80 to 90 percent of their time on that stuff rather than setting pricing. What we do is, with the data that's available to us, monitor all that. You don't have to dig through these extranets and figure out what's going on if you stop getting bookings. We tell you.
Baker: Could that apply to corporate rate audits as well?
Bosworth: Yes. We'll look at those bookings coming in. If you have a 10 percent commission, you can know you are still getting reservations from the GDS or American Express or other channels, and if they're coming in at the right pricing. The channel management solutions are starting to offer monitoring, but most don't. When you push a rate, you have faith that it got there and that the change was successfully implemented through the GDS or an online travel agency. We're able to know what price was supposed to be charged, monitor the reservations coming and tell you when there's a discrepancy. We can do that too even for separately negotiated corporate contracts. If you do a one-to-one deal with IBM or Johnson & Johnson, then we can set it up so we can monitor that and make sure you're honoring the agreement.
Baker: What does it mean for a hotel's ability to engage in corporate contract negotiations?
Bosworth: The first thing is group rates, which is a similar challenge. You're going to be taking a group 13 months from now, what should you charge? The corporate contract is a similar dilemma, as it is with some of the wholesale contracts. We are going to be getting into that area sometime early next year. It's not under development right now. Every revenue management system today is looking at two things: How many bookings you have, in which case you'd have almost none, and your historical performance. Most [hoteliers] just say that this year is going to be flat, 3 percent up or 5 percent up, then go into you negotiations and say, "We're going to ask for 5 percent." It may be hard to break that paradigm. To help you understand whether you are charging the right thing, we're going to start including macroeconomic data. That itself is not that reliable, but if you look at things like the government's GDP forecast, we could also incorporate PricewaterhouseCoopers' or STR's forecasts for the industry and look at the relationship between that data and how your property tends to do. If your property tends to overperform those indexes, then maybe it gives you more courage to tell people in negotiations about the dynamics in your particular market or hotel. With review data, research coming out shows hotels have tremendous ability to push RevPAR growth if they can improve their TripAdvisor score. We'll look at how that score is trending to give you a sense of your pricing power.
In the end, it's going to be a property-by-property thing, where they'll use their own gut feel, but we'll expose to them as much information as we can. If the corporate contracting business is 40 percent of demand and from a few companies, they're still going to have a lot of bargaining leverage. When I was in Vegas, at Wynn, that was 3 percent of our demand. If we knew the leisure demand and transient demand was going to be booming, we could get a lot more aggressive with those negotiations. Independent hotels are negotiating against very sophisticated people with all kinds of forecasts. We'll at least arm those people with some information that allows them to be a good negotiator.