VC backed hotel apps have a huge connectivity problem

Over the last few years there has been a lot of venture backed startups building apps to sell to hotels. Notable ones are:

Alice — 39m (https://www.crunchbase.com/organization/alice-app)

Impala — 31m (https://www.crunchbase.com/organization/impala-8f76)

Htrip — 49m (https://www.crunchbase.com/organization/htrip)

Theres 1000s more examples out there but one thing is for certain the app economy is quite hot right now in hotel tech.

Why hotels want apps?

You might think: “Hey Evan, hotels don’t need apps right?”

Well… seems like they do, it’s because they use a property management system (PMS) and these systems do a lot of things. But no matter how much they do there’s so much they can’t do, especially now in the aftermath of the pandemic where hotels are demanding contactless technology solutions.

Some notable areas where apps fill the gaps of the PMS system:

• Revenue Management (Changes prices based on market demand and influences)
• Guest Messaging (Communicate with guests on their preferred communication channel)
• Self Check-in and Kiosks (Helps reduce queues at checkin)
• Channel Management (Sends hotel price and availability to sales channels)
• Housekeeping (Housekeepers can use an app to make their life easier)
• And More (Bi, Analytics, Accounting integration, Payments, PCI, Guest Guide, Booking Engine, Metasearch, Website Builder, OTA etc.

Why apps raise so much money?

Part of the reason some apps have to raise so much money is because of this connectivity issue. They budget a huge percentage of their development resources to connect and maintain PMS connections.

The rest of the money is spent on sales and marketing to try gain traction in the market.

Seems very inefficient to spend most of your money on things that don’t make the app better

App Exchanges to the rescue?

Some of the larger PMS systems (Mews, Oracle, Protel) have built an “App Store” this solves a huge problem in the industry around how to connect, how to get visibility and traction.

It’s not perfect yet with Protel as an example still charging over 10k USD just to “certify” your app.

Luckily Mews PMS is now scaling fast and all apps don’t pay any certification fees. Mews understands that the app economy is something that helps them sell more PMS.

Oracle used to be the worse example in the industry with some startups paying over 30k USD to connect, and hotels paying 10k USD per app! Looks like this is changing slowly with their new cloud based systems.

3 PMS have app stores, what about the other 1000 PMS in the world?

Siteminder Exchange is a platform set up by Siteminder to try solve this issue head on. It provides a one way API for PMS to send booking data, then hotel apps can read this data and pay a fee of 15 USD per app per hotel.

Unfortunately this has not caught on yet, for starters a 1 way connection sucks. The amount of apps that work with just a 1 way flow of information is low and then they have to pay 15 USD for that? There are plans to make it a 2 way exchange soon and that will make it much more useful.

Channex App Exchange

Currently Channex we help PMS systems fill feature gaps by providing connectivity and security services. We fill the gap of channel management, PCI compliance, mobile app and guest communication.

One of the major pains our PMS partners complain is the lack of 3rd party apps that connect their systems, these apps are willing to connect the systems with 1000s of hotels but not likely to spend money to connect a PMS with 300 hotels.

Soon we will introduce a 2 way app exchange that will solve the problem, much in a similar way that Siteminder exchange works but with a 2 way connection and a more scaleable business model where we charge 10–15% instead of 15USD flat rate. This is important since most apps are around 30–100 USD and the prices are likely do drop further with competition.

We will also share 50% of revenue with the PMS system for their guarantee they keep the information flowing smoothly and accurately.

Hotel App investments

Most well funded apps focus on the big PMS systems exclusively. It makes 100% sense to do that since that’s where all the big hotels are.

At the beginning it was a 0–1 type deal where the “housekeeping app” was the only choice in the store, but soon there will be 10 or 20 housekeeping apps on the market.

This will drive commoditisation of apps and the ones with massive investments will find it hard to stand out and be forced to lower their price or provide more value by going upmarket.

Soon they will look to the long tail of the market where there is no competition currently.

The Next 5 Years

I predict the next 5 years there will be 5 top “App Stores” in the world with a majority of apps using one or many to sell their apps to hotels in return for a fee to the app store.

If we ignore the PMS own app stores then there will be just Channex and Siteminder Exchanges that will power app connectivity to the 1000 long tail of systems globally.

What is your opinion? Do you think the app economy will continue to boom or will PMS build own in-house features and then nobody will require apps?