October 20, 2016
How To Solve the Connectivity Issue for Smaller Players in the Hospitality Industry
Connectivity between a hotel supplier and distributor over the Internet is the lifeblood of the hospitality business today. Suppliers and distributors come in all sizes, big and small, but their connectivity need is constant and critical.
What it takes to establish this connectivity is often the million-dollar question.
Lay of the land
It’s good to take a bird’s eye view of the players in this industry and understand the scope of the connectivity issues that need to be addressed in the first place.
The bird’s eye view reveals that even at the level of considering just groups of players based on their function, the choices for communication and the possibilities of interactions are complex. In practice, of course, the actual connection is between two specific businesses. Multiplying the number of suppliers by the number of distributors represented by this simple schematic results in a mind-boggling number of possible connections.
Connectivity challenges aside, not every supplier/distributor combination or pairing makes business sense, but in most cases, it is the lack of enough transaction volume that makes good connectivity economically unfeasible. Naturally, smaller players with lower transaction volume bear the brunt of this problem.
Let’s consider how this comes about.
Types of connectivity
Hotel suppliers and distributors that want to work together must establish a connection between their respective platforms. Traditionally, this has been through a direct connection between their platforms, reflecting their direct commercial relationship.
Though a direct connection usually burdens one company more than the other, nearly all such connections require some work by both companies due to the bespoke nature of their platforms. As a result, direct connections generally require significant technical resources, time, and money on both sides. For a single supplier to directly connect to a single distributor, both the businesses incur this significant outlay of resources.
Recalling the number of possible connections involved in hospitality eCommerce from our diagram above, we can understand how the effort involved in establishing these direct connections can quickly get out of hand.
Another connectivity method is to work with a third-party connectivity provider. While this method is usually faster and easier on the supplier and distributor because the provider is doing the heavy lifting, the inevitable customisation necessary at one or both ends still makes this method most suitable where high booking volumes justify the complexity and cost involved.
The trade-off in third party connectivity is that when a supplier and a distributor want to work together, instead of working directly with each other’s technical teams, both of them need to work with the third party provider. The benefit they glean from this approach is that they may gain connectivity more easily, with lower additional development cost, and with other players connecting to the same provider.
Significance of booking volume
To understand the significance of booking volume, we need to keep in mind that booking volume represents the revenue that would offset the costs involved in establishing connectivity. The lower the cost of connectivity, the lower the revenue required to offset it, and hence the lower the volume needed, in general. In other words, for a given player, once the average booking volume and the revenue it entails is known, the break-even cost of connectivity is established. Solutions with cost of connectivity lower than this break-even amount are feasible for this player.
So, the focus is on the cost of connectivity. The move from direct connections to third party connectivity slashes the cost by a large factor. Businesses need the outlay for just one integration as opposed to multiple integrations. However, the cost for a single connection to the third-party provider is still generally high if it is fully customised.
Assuming the third-party provider has a connectivity plan that offers lower cost, clearly more suppliers and distributors can participate in that plan. The connectivity network becomes larger and more business relationships can be established. The following schematic depicts the effect of differing costs of third-party connectivity in how suppliers and distributors can enter into commercial relationships.
In this schematic, the larger bubbles represent larger booking volumes and by extension, ability to sustain larger connectivity costs. In this perspective, let’s say that cost levels A, B, C, etc. refer to different plans for third-party integration, whether from the same provider or different providers. Also, placement of the bubbles in both the suppliers and the distributors box is such that all bubbles at a certain level or above can afford to use plans at that level or below.
Connectivity challenges for the smaller player
Against this backdrop, smaller distributors and suppliers need to connect to their counterparts, both large and not so large. For example, a regional OTA may do a lot of business with a specific subset of hotels that are part of a global hotel group. Or, a smaller hotel group desires to connect to one of the global OTAs but doesn’t want the overhead of a whole connectivity team.
The cost of integration in terms of technical resources, time, and money manifests into other considerations. For example, constrained by resources that cannot keep pace with the demand, larger hotel chains often maintain a long queue for integrating directly with smaller distributors.
Such scenarios highlight just some of the challenges of custom direct connections:
- High implementation costs
- High maintenance costs
- Long queues for project kickoff
- One-by-one customisation and certification
- Operational inefficiencies
Custom connections to third-party connectivity providers alleviate some of these concerns, but do not eliminate them.
Noting our earlier observation that each supplier and distributor is able to arrive at a break-even cost that determines the feasibility of considering connectivity offerings in the marketplace, the challenge is to shop for solutions at or below this cost level.
The smaller player’s action plan
As long as there is a connectivity option below the break-even level, the task for any supplier or distributor is to evaluate the cost and features of that plan and make the decision to integrate based on the suitability of the level of flexibility the plan offers and the affordability of its cost.
The prospects for a number of smaller players to enter this network of connected players have been improved with the availability of a solution from DerbySoft—an option with a price point well below that of fully custom connectivity.
DerbySoft developed Go, a powerful, standardised solution that still offers robust fully-featured connectivity but at a much lower cost. Go achieves this reduction in the price point by standardising the connectivity interface through a unique API that encompasses the elements that are necessary and dispenses with those that are not. By leveraging all of the best practices that DerbySoft has developed over the years, Go offers a powerful yet affordable solution for the smaller player in the hospitality industry.