Mr. DiLeva

Wi-Fi

Maintaining a HSIA & Wi-Fi Business Model

By Michael DiLeva, Executive Vice President, The IDT Group

High-Speed Internet Access has arguably been the single most contentious technological addition to the hospitality industry since the advent of the Property Management System. It's hard to imagine something so beneficial (faster Web access, easier access to e-mail, etc.) creating such a varied reaction and in the process destroying nearly billions in venture capital (and more than a few careers) along the way. But as anyone who is even remotely associated with the hospitality industry can attest to the fact that broadband has been just that - a lightning rod for controversy and debate.

As an amenity or service, high-speed access has truly "crossed the chasm" from "nice to have" to a common requirement of business and leisure travelers alike. Compounding the challenges resulting from the wide rates of adoption of HSIA is that many brands - from luxury operations to budget properties - are now offering the service for free. This obviously makes it difficult to preserve the de facto standard of the $9.95 per day business model. So now that all of the dust has settled and the drama has played out, hoteliers worldwide are left wondering - is there an ROI?

"Be not the first by whom the new are tried, nor yet the last to lay the old aside." - Alexander Pope

Before looking at what can be calculated relative to ROI, it's necessary to determine what exactly the "I" - investment - is for properties that have deployed high-speed. One way to do this is to classify properties not just by the technologies they deployed, but in terms of when they deployed HSIA since that timing may influence how they view high-speed moving forward. Geoffrey Moore coined "crossing the chasm" in his now-famous book of the same name as an expression of when products cross the divisions in the Technology Adoption Lifecycle, a commonly accepted high-tech marketing model. Applying that model to high-speed can provide some interesting insights into the possible barriers some properties may be hitting - both financial and psychological - as they ponder the broadband business model moving forward.

For nearly 50 years since it was first introduced, the original Technology Adoption Lifecycle model has played out relative to the market acceptance of hundreds of new products and technologies, and hospitality HSIA is certainly no exception. Hoteliers on the left side of the bell curve are known as the "innovators" and "early adopters." These properties are the ones that endured the difficulty of poor project management from start-up providers unfamiliar with enterprise deployments of production-ready solutions, immature technologies, including some that actually overheated to the point of nearly catching fire under the desk, and a consumer population that had not yet generated the critical mass of broadband demand. (Yes, there was a time when most travelers did not have Ethernet cards, let alone wireless cards). Worst of all, as the early providers imploded, these properties were left with a hodge-podge of technologies, questions as to who owned the equipment (the property, a bankruptcy court, etc.) and an inability to upgrade such systems to make them workable once the critical mass of demand actually emerged. These properties, while seemingly having first mover advantage, actually experienced the opposite and have been left with a negative view of HSIA due to not only the early pains that they endured, but the fact that they've had to go back and reinvest in new infrastructure as well as expend time in vendor selection, technology evaluation and business interruption during de-install/redeployment. As such, the "innovators" and the "early adopters" are the ones that will most likely have the greatest struggle with adopting a third-generation view of the HSIA business model, likely to be the next phase in the solutions lifecycle that is following the initial dot-com explosion and the currently expiring opt-in $9.95 model.

The "early majority," while enduring the early ridicule of many analysts and pundits for their slow adoption rates, are having the last laugh and have actually enjoyed the most positive experience and the most significant return relative to HSIA and ROI. They took advantage of advances in technological performance and the reduced pricing associated with a declining hardware price curve and timed the market properly. As a result, they have been able to depreciate their network and in most instances paid them off in full and are earning a tidy profit from their investment thanks to opt-in guest and meeting room utilization. However, while these hoteliers have enjoyed the best of the broadband experience, that very success may be a bit of a curse because controllers, owners and general managers accustomed to such a high-margin revenue center may be extremely hesitant to abandon it. This is all despite a market trending towards the "free" model at lightning speed, causing them to erode their competitive value proposition and actually lose much greater revenues via reduced ADR and occupancy than the revenues they would be preserving with an opt-in HSIA model.

The remaining segments on the right-hand side of the curve are the "late majority" and the "laggards" -- also known as the "conservatives" and the "skeptics". While the late majority has most likely been able to recoup some of their HSIA investment from guest utilization, they've probably entered the game too late to fully recover their investment. And the laggards find themselves in the worst position economically of all adopters. While their caution allowed them to bypass the early trauma, their late entry gives them precious little time remaining to recover their costs under traditional models and in most instances, they are only begrudgingly deploying as a result of competitive "amenity creep" pressures within their market -meaning that they're getting into the game at a position already behind competitors that have gained "mindshare" as high-speed providers among guests to their market.

"Innovation is the specific instrument of entrepreneurship.... the act that endows resources with a new capacity to create wealth." - Peter Drucker

While the notion of investment - economic and psychological - varies depending on the deployment period, the degree to which the hard costs have been amortized, and the personal experiences of the decision-makers. However, the true impact of those factors are in not what should be considered during this next phase of HSIA, but rather how difficult it will be for properties to take the necessary actions. After all, it's understandable to think that a visionary early-adopting general manager -- once bitten, twice shy - would be hesitant to innovate again. Nonetheless, the market continues to move and properties will need to take more strategic steps to obtain even a qualitative return and to leverage HSIA less they get left behind in this next phase. So what can be done?

RECOGNIZE THAT HIGH SPEED IS NOT A PRODUCT, HIGH SPEED IS INFRASTRUCTURE

By taking a broader view (no pun intended) of broadband, it immediately expands the possibilities beyond the standard myopic view of simply charging for a product or service. Infrastructure in general is an extremely flexible investment that can reap returns in a number of ways. For a broadband network, it can be leveraged to deliver a wide range of ancillary services, ranging from networked energy management and streaming digital video-on-demand to CRM services and IP telephony / voice-over IP. And by leveraging the network for those solutions, the overall ROI - including the initial infrastructure investment - is greatly amplified.

SHIFT FOCUS TO THE MEETING GUEST

Futurists predict that the wireless Web will become ubiquitous and when it does, that probably means that guests - including high-margin meeting guests - will not need to rely on the hotel as a Broadband ISP. That's still many years off (most likely between 5 and 10), so for the immediate future there will still exist high-margin returns from providing broadband to groups. In fact, it's reasonable to project that much like in-room HSIA has become commoditized and now offered for free, some properties will eventually offer complimentary meeting room HSIA, hence the window for properties to recoup a broadband infrastructure investment is limited.

DON'T FORGET ABOUT VALUE

The industry is much too competitive for any offering to not have a solid value proposition. If still charging for in-room access, take an in-depth assessment of the value being offered. One quick way to assess this is to ask, "if the property next door offered free access, would there be anything different about my offering that would justify a fee?" For guests, added value ranges from a simple portal with a walled garden where guests could obtain information about local attractions and services (the proverbial virtual concierge) to custom in-room digital services such as room service or unique content like music or news customized to their preferences. For meeting room users, value can be offered via a proactive approach by property engineers or directors of catering/convention services to contact their vendor and ensure that their group's VPN (virtual private network) configuration will operate over the network, or to arrange for preferred Help Desk or support call priority and services.

PRICE REASONABLY

Consumers will always pay for convenience and sometimes even endure a lesser product if it's more convenient. But gouge them for the privilege and they'll turn a cold shoulder. Exorbitant in-room telephone charges that did wonders in driving guests to use their own cell phones, effectively accelerating the downward trend in telephone services as a profit center, are the best example of this dynamic and one that we should remember when pricing services. For properties that are focusing on meeting room broadband or are hanging on to the notion of charging guests for in-room usage, pricing should be scientific, taking into account the price of substitute and complimentary products (i.e. what does the property down the street offer) as well as the price/value trade-off (i.e. what would the group really lose if they declined the broadband service?). One rule of thumb is that standard meeting room broadband service pricing should not exceed twice the property's guest room ADR.

Overall, there remains an opportunity to present HSIA in terms of the property's overall enterprise business model and to integrate the solution into the property's overall value proposition. By recognizing where your property fits in the Technology Adoption Life Cycle, and more importantly how that segmentation impacts your perspective on broadband, it will become easier to recognize opportunities, change business models and implement new innovations that will improve your ROI and your competitive position.

Michael DiLeva is executive vice president of The IDT Group. He has near experience in the hospitality and gaming sectors, and has provided marketing, technology, CRM, networking and consulting services for major hotel companies in the US, France, UK and UAE. He holds a BS in Marketing Management from Rutgers University and a MBA from Saint Joseph's University. He completed an executive leadership program conducted by the University of Virginia's Darden School of Business and serves on the Technology Advisory Board for Penn State's School of Hospitality Management. Mr. DiLeva can be contacted at 215-487-3522 or mdileva@theidtgroup.com Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.