Hotel Tonight – A Travel Winner
Hotel Tonight (HT) is a mobile-only marketplace that brings together hotels with travelers. HT started in 2010 as a mobile app that helps travelers find a hotel room on the same day at a discounted rate. It achieved deeply discounted rates by making the hotels’ unsold inventory available to the travelers. HT was able to expand its value proposition by offering discounted rates up to 100 days before the travel – but the longer the traveler waits, the sweeter the deal. Despite heavy competition in a crowded space, with big contenders such as Expedia, HT was able to grow significantly, turn profitable and plans to go public.
HT changed the game in the travel industry, by challenging those Online Travel Agencies (OTA) such as Expedia that shook up the travel agencies world by the advent of the internet. It is now the second internet revolution, the mobile technology – which was enabled by mobile platforms such as Android and ios – that has helped late-entrant HT to impact the OTA business.
How did HT do that? Is HT creating value for their customers – both travelers and hotels? Is it capturing value? Or is it doing both?
First, let us analyze the value creation to the travelers. The value created for travelers comes in the form of:
- Convenience and Usability: the mobile friendliness of Hotel Tonight was one of the early elements that contributed to the success of the platform. The founder of HT have taken advantage of the evolution of mobile technology to develop a user-friendly mobile application (first on ios, then android) that makes it very easy to book a hotel room from your mobile phone in a few touches; which is something that competition were not doing effectively, as they did not have mobile apps at the time (incumbents such as Expedia followed suit few months to a year later). Knowing the technology at play is also important, as HT’s convenience and user experience (UX) helped it build an early edge.
- Price: the ability to offer deals to clients by offering good prices for inventory at a last-minute. For travelers that have a risk appetite to wait or have last-minute travels, the savings they offer is a huge value-add, as they can save up to 40 percent less than what other travel sites are offering. HT does not only provide that value but also shows it on their app, as they show the deals that the user is getting and ensure that the traveler knows he or she is getting a deal. Their rewards program also reward their most loyal travelers with extra discounts.
- Choice: Inventory is highly curated and the global nature (HT is available in 300+ cities) makes it a winner in choice. It provides enough choice, with the attention to curation. The curation element is a value-add, as if executed well, which is the case, it provides a way to differentiate from other OTAs. Offering the right amount of choice is an art in itself and mastering provides value to travelers, who either find themselves with too much choice on some platforms or with too little choice. Curation of the hotels also takes into consideration of the ratings, as the hotels that are rated low are dropped from their platform. To ensure true reviews, HT accepts only reviews from their travelers, ensuring that those travelers have stayed at these hotels.
- Transparency: HT provides reliable ratings of hotels by ensuring travelers-only ratings and does not remove ratings. Travelers can share their photos as well, enabling them to experience the hotels from their phone.
- Gamifying/Entertainment: HT was able to gamify the overall experience and create a perceived long-term value by creating different milestones as a traveler reaches one. For example, if a customer reaches $1000 of bookings, he or she will get additional discounts and benefits. This is a psychological value creation, as travelers it entertains them and make them feel they are working towards a travel goal.
- Service: HT provides a concierge service for certain bookings, and to some of their most loyal clients. This additional service is beneficial to those who enjoy it.
Second, let us explore the value creation to the hotels:
- Reliability – hotels that can partner with a reliable broker who takes their unsold inventory and provides it to a large clientele and able to deliver on that, is a huge value add to the hotels. The fact that the rates are guaranteed and non-refundable to the traveler makes the transactions reliable and provides the additional revenue from the unsold rooms. This is additional revenue generated to the hotels that they would otherwise not be getting.
- Marketing – by creating a mobile platform with convenient usage, hotel rooms that come and go, and dynamic prices, HT entices the travelers to check their platform more than once a day for deals, this creates a platform for advertising the hotel, as the hotel could decide to put only one room available for that purpose.
As we have seen, HT provides a good amount of value creation to both sets of clients: hotels and travelers. Nonetheless, it also captures some of the value from the hotels by taking a cut (20-30%) on the transactions. It also captures value by collecting data such as offering geo-location deals or tools to targets different types of user segments and learns that feeds more data in the system and learns. This helps it become better at what it does and strengthens its business – offering HT more power over time as more customers transact. In the future, this would allow to capture more financial value or capture more value that they create to their customers in other forms. This would help them in gaining more market share and build their business model considering the next digital innovation such as voice and potential disruptions that would come with them. Nevertheless, it is essential for HT to continue to create and provide more value to their customers, as opposed to capturing value. It is also important to note that a lot of that HT does not only relies on value creation (as others in the industry do create value too) but mainly on the superior perceived value creation. This perceived value created was essential to them ‘winning’ in the industry, and they will need to ensure to keeping that in order to continue ‘winning’.
https://techcrunch.com/2017/03/03/u-s-consumers-now-spend-5-hours-per-day-on-mobile-devices/
https://en.wikipedia.org/wiki/Hotel_Tonight
https://techcrunch.com/2017/09/07/hoteltonight-to-expand-booking-window-to-100-days/
https://techcrunch.com/2014/09/26/hoteltonight-seven-day-booking/
https://techcrunch.com/2015/01/27/hoteltonight-location-specific-discounts/
https://techcrunch.com/2013/09/05/hoteltonight-series-d/
http://vator.tv/news/2017-02-21-how-does-hoteltonight-make-money
https://www.pcmag.com/article/354212/hotel-tonight-on-why-last-minute-bookings-are-the-way-to-go
Great post, MAB — I liked how you used our DIT framework to separate Hotel Tonight’s value creation from value capture. If you are interested in this space, you may want to take a look at a new start up called Overnight (https://techcrunch.com/2016/05/26/overnight/). Instead of dealing in hotel rooms, Overnight positions itself as the “Hotel Tonight of the AirBnB realm” by connecting travelers with a locals who can provide a spare room. Seems like it could provide some competition for Hotel Tonight?