HotelTonight – a Marketplace for the Spontaneous Traveler
Can HotelTonight – a pioneer in last-minute booking – sustain high risks of multi-homing and the fierce competition from OTA's and grow its platform beyond the spontaneous travel market?
The mobile-only Platform
When it comes to last minute travel, HotelTonight can be a true lifesaver. The San Francisco based app that launched in 2010 is a digital platform that allows travelers to book same-day hotel rooms at a fraction of the cost advertised on other booking website. Unlike traditional OTA, such as Bocking.com, Expedia or priceline, HotelTonight only connects last minute travelers with vacant hotel rooms on their mobile-only platform. The platform aims at capturing the increasingly spontaneous and young travel market by offering vacant rooms that hotels are eager to monetize. [i] As the name reveals, HotelTonight initially only offered discounted hotel bookings within 24 hours. Today, the platform has expanded its reservation timeline to up to 100 days. Millions of user can choose from 25,000 hotel partners in 1,700 cities in 35 countries. [ii] The app’s business model has generated strong indirect network effects and focuses on growing its user base, extend in geographies and enter more partnerships with Hotels. HotelTonight aims to differentiate itself and occupy the extended spontaneous hotel market by building a digital mobile-only platform that creates value for both the hospitality partner and the traveler. The company reportedly turned profitable in 2016 and received a rumored valuation of $463 million. [iii]
Value Creation: Hotel vs. User
In order to increase the value on both the supply and demand side of the two-sided B2C hotel market, HotelTonight has to strengthen and grow its indirect network effect. On the supply side, the platform creates value by providing the opportunity for hotels to monetize unsold hotel rooms. Listing rooms on the platform decreases hotels vacancy rates and generate additional value for the hotel. An increase in revenues also ensures the commitment of the hotel and its listing on the platform. Moreover, as the platform gains scale and the user base increases, hotels can use their listings as a competitive advantage over hotels that are not leveraging the last-minute booking market. On the demand side, HotelTonight allows user to book high quality hotels at deeply discounted rates. The platform collects and publishes data of pre-approved hotels which users then can compare, view, and book through the mobile app. To users who are comfortable with higher risks of waiting and last-minute bookings, the app offers extensive value-add and can save up to 40% on accommodation in comparison to other OTA websites. In order to ensure user-friendliness, app loyalty, and competitive advantage HotelTonight has expanded its platform through partnerships and innovations to increase its value proposition. [iv]
- Advanced bookings: HT has increasingly expanded its booking window from 24 hours, to seven days, up to 100 days in advance. This mitigates for the risk of travels being uncomfortable with late-minute bookings and not having a confirmed accommodation. It simultaneously expands the platforms user base to the broader traveler. [v]
- Loyalty Program: Before 2016, users were not able to collect loyalty perks when booking through HT. Now, perks include extra discounted rates, additional travel offers, and a dedicated support phone line. Through the loyalty program, the platform can increase switching costs for users and decrease the opportunity cost for users who are collecting loyalty points with competitors such as Hilton or Starwood.[vi]
- SAP Partnership: Through the partnership with SAP’s Concur, bookings with HotelTonight are expensed by over 20,000 businesses. The seamless integration not only broadens the user exposure to business travel but also creates convenience for users and increases hotel participation.
- Aces Virtual Concierge: The virtual concierge service, launched in 2015, offers in-app, chat based services to users such as local restaurant recommendations. Users save effort, time, and navigate the same interface that they are familiar and comfortable with.
- GeoRates: Through GeoRates, Hotels can offer lower rates to users in the same location and promote bookings. [vii]
- Multi-Homing: Multi-homing is an active and everlasting risk for HT. It is as easy for hotels to post their inventory on HT as it is to post the same rooms for similar of higher prices on other booking sites. Similarly, the price-conscious traveler will most likely search for rooms’ prices on similar applications, as they simple want the best price for the room.
Value Capture:
Similar to other digital platforms, HotelTonights takes commission from hotels for each successfully facilitated transaction. Likely, in response to increase competition the company laid off 20% of its workforce in 2015, with the founder sharing that the company was overly focused on growth instead of profitability. Through layoffs and focus on overhead reduction the company reached profitability in 2016.[viii] Through changes to the platform and additional features such as loyalty programs, HotelTonight has strengthened its user loyalty while also providing attractive exposure and extra revenues to hotels and will continue to tempt hotels with the opportunity to use mobile-exclusive data that the hotel otherwise wouldn’t be able to obtain.
Although HotelTonight will continue to face competition from online platforms such as Airbnb, OTA like expedia.com, and large hotel chains, its growth and performance imply that it can sustain its niche in the travel market and gain user loyalty.
[i] https://techcrunch.com/2014/09/24/hoteltonight-pivots-beyond-same-day-booking-as-competition-heats-up/
[ii] https://techcrunch.com/2017/03/22/accel-leads-hoteltonights-37m-series-e/
[iii] https://techcrunch.com/2017/03/22/accel-leads-hoteltonights-37m-series-e/
[iv] https://techcrunch.com/2015/01/27/hoteltonight-location-specific-discounts/
[v] https://techcrunch.com/2015/06/10/hoteltonight-expands-location-based-offers-with-georates-and-ht-escape/
[vi] https://techcrunch.com/2017/12/12/hoteltonight-is-revamping-their-rewards-program-with-infinite-levels/
[vii] https://techcrunch.com/2015/06/10/hoteltonight-expands-location-based-offers-with-georates-and-ht-escape/
[viii] https://techcrunch.com/2015/11/10/hoteltonight-cuts-20-percent-of-its-workforce/
Interesting post! I wonder if the company has disclosed any info on the split of customers that book hotels for use within 24 hours or a few days vs. several weeks in advance like more typical customer behavior. I think it’s generally a good move to increase the window since booking within 24 hours is very risky and likely only a small group of customers will be willing, but if the window opens too large, and the level of discounts become similar to OTAs, I think HotelTonight will have much less differentiation. Although the company has innovated quickly, it’s unclear how much growth it can generate in a niche market when all the other successful travel sites have expanded beyond hotel bookings. Perhaps HotelTonight might make a good acquisition target eventually to one of these larger OTAs.