Unlocking Innovation Potential: A Steady Supply of Rocket Fuel
Most of us involved in hospitality technology are aware that in 2015 McKinsey ranked our sector third last in their Digitalization Index, with only construction and agriculture keeping us off bottom place. This, of course, was a big embarrassment for all concerned but as someone who was in the throes of bringing a new SaaS solution to market during this period, I can confidently say that the lack of digitalization in the sector was by no means due to a shortage of new ideas or a lack of desire to revolutionize processes and procedures for the mutual benefit of hotel operators and guests.
In my case, two industry veterans had identified an opportunity to drive greater revenues through an innovative method of understanding demand and optimizing room prices, and in 2012 they raised capital from a number of leading investors in travel technology to bring their idea to market. After nearly two years of development, the game-changing application was ready for launch. There was one snag. To truly realize its potential the application required access to real-time data from the hotels’ property management systems in a format never previously provided. Starved of this fuel the launch, and the company’s very survival, was at risk.
At this time getting rich data from a PMS not only presented a technical challenge but a commercial one too as the free exchange of data eroded established revenue streams. Through bloody-minded determination, and by pulling numerous strings, the start-up team convinced a significant legacy player to support their interface requirements, and by late-2014 we were in business. The company is now thriving and has been a catalyst for significant change in the industry’s approach to revenue strategy but without that key interface things could have turned out very differently for them and, arguably, for the industry. This is a success story but how many other game-changing applications have ended up on the scrap heap starved of the fuel that would have allowed them to take off? I do not have any statistics, but I can guess the answer — a lot.
Thankfully, over the last 5 years, there has been a tremendous shift towards cloud technologies and open APIs (i.e. where neither the connecting party nor the hotel is required to pay an interface fee) which has made it significantly easier for fledgling ideas to take root and grow, nourished with the data they need from third partying systems. But this does not mean its plane sailing!
Even with a growing number of applications offering open APIs to facilitate the free exchange of data and broad recognition across the sector that data fuels innovation, a company wanting to access hotel data is still faced with many challenges.
Your interface or mine?
An interface on its own does not add value. It is simply a means to an end and therefore no organization wants to build a new interface if they can avoid doing so. So, whilst it is common for tech companies to quickly agree to work together a Mexican stand-off often ensues around who will code to whom. After the flexing of a few muscles, the more established company normally wins the argument leaving the new kid on the block to find the resources to build the interface, usually at the expense of some exciting new feature in their application.
You want what data?
Many of the most established and widely used applications were developed prior to the open API era meaning interfaces to these systems were developed after the core application and often don’t support the transmission of certain fields. Thus, the data available through a system’s standard API may be sufficient for applications with simple data requirements (e.g. check-in, door locking, etc) but
can’t support the needs of more complex applications such as CRM, Business Intelligence, Revenue Management, etc. Invariably this results in the end solution being a complex arrangement of custom adaptors and processes, even modifications to the core application, which not only takes time to develop but is a sustained drain on maintenance resources too.
Can I borrow some engineers?
It’s not only the third-party partners that will push back on deploying resources to unlock new business potential. There is likely to be significant internal resistance to custom interface development to any system that isn’t considered strategically important. Product management and engineering will stoutly protect resources working on core features. To resolve this stalemate the business will often dictate a minimum contract value from the first customer to justify the investment. Invariably finding a single customer on a regional PMS that meets the required threshold is close to impossible, so the business is effectively walking away from that market opportunity forever.
Faced with the decision to invest time and money in complex interfaces that divert precious resources away from core application development tech providers have a handful of alternative solutions to consider.
Interface for rent
The easiest option is to rent an interface from a middleware company that has built interfaces to a wide range of applications. These companies convert third party interfaces into a single ‘generalized’ interface that is made available to anyone to connect to. This works well where the requirements are simplistic, but the one-size-fits-all solution does not serve the needs of vendors with complex requirements and who require control over future enhancements. Also, as the client doesn’t own the interface, they need to accept that their business continuity may be compromised if the partner stops trading or terminates the service as they would be faced with re-establishing multiple connections at short notice.
Companies requiring complex integrations can outsource the development to a specialist integrations company with deep knowledge and experience of most third-party interfaces. Whist the fees to outsource development may seem high the reality is that internal costs are often higher once salaries and overheads are considered, especially when you factor in the learning required with each new interface and the opportunity cost of diverting internal resources away from application development. In this scenario, the company owns the intellectual property (IP) and can elect to bring the code in-house or outsource the hosting and maintenance too. Either way business continuity and ongoing development to meet their evolving needs are always within their control.
There is another way!
A third and increasingly popular option is to subscribe to a managed interface service, as it provides the vendor with custom capability but at a development cost less than that of a custom interface and maintenance fees comparable to a rented interface. Companies following this route also own the IP. The model relies on the fact that a significant portion of any interface is common which is replicated to create the core of each customer-specific interface. These interfaces are in turn housed in a common framework that ensures monitoring and infrastructure costs are shared. Essentially
customers using this option are rewarded with a bespoke interface but at a lower cost and with the means to take it in-house at a time of their choosing.
For the past five years the hospitality industry has shaken off the shackles that anchored it to the lower levels of the McKinsey Digital Index but the pace of change is set to accelerate at an unprecedented rate as hotels adjust to welcome guests in the post-COVID-19 era. Technology companies that serve this industry have a fantastic opportunity to deliver services previously only imagined but in doing so they need to consider carefully their interface strategy. Their ability to unlock their potential could simply be a matter of finding the right interface solution.
Written by Michael McCartan, SaaS & Travel Tech Business Leader & Advisor