But Wait, There’s More!
10 years ago, iSeatz enabled the first U.S. airline to sell something other than a flight on its website. With airline ancillaries now representing $93 billion in sales globally, iSeatz founder and CEO Kenneth Purcell says it’s time for hotels to get in on the action.
LOG ON to the website of any airline and you’ll find more than just flights; you’ll have the opportunity to book a whole vacation with just a few clicks. Need a rental car? They’ve got it. A deal on a hotel? Covered. Want to upgrade your seat? Easy. And hey, looking for a gift idea? How about a travel gift card?
What you may not know is that it was a New Orleans-based tech company that led this now-multi-billion-dollar market change. Lafayette native Kenneth Purcell’s company, iSeatz, was the first to enable a U.S. carrier, Delta airlines, to sell something other than air in their booking engine.
Now, fresh off its 20th year in business, the approximately 100-employees-strong company is helping clients like IHG Hotels and Wyndham Hotels battle a market that’s been disrupted by newcomers like Airbnb by following the airlines’ example and breaking into the lucrative ancillary market. iSeatz’s trademarked OneView Platform — the world’s first global ancillary management system — launched in September 2018 and has since processed more than $3 billion in transactions, and 150 billion loyalty points.
According to a 2019 report on hotel ancillaries published by iSeatz and global travel research company Skift, however, these billions are barely scratching the surface of what’s possible for hotels.
A Man With a History of Disrupting Markets
Twenty years ago, not long out of college and looking to start a business, Purcell was living with his parents in New Orleans when he partnered with another family member, his aunt, who owned Where magazine to create a CD-ROM that would play at hotel concierge desks. The CD entertained guests with local tourist options while they waited for the concierge to book them a table at a restaurant.
Recognizing the bigger opportunity of the situation, Purcell used his tech knowledge to create a way for the public to make restaurant reservations online. Thousands of miles away, Open Table was doing the same thing.
“We didn’t know about Open Table, and they didn’t know about us,” he said. “We raised venture funding here in New Orleans in 1999 through the early 2000s, and we were off. For many, many years, we cornered the New Orleans restaurant reservations market.”
iSeatz became the first company to enable Galatoire’s to take reservations online. Other big names like Antione’s soon followed, with iSeatz making $1 a person per confirmed reservation.
A few years later, around 2003, Purcell was again moved to think bigger.
Around 2003 you transformed again to a different business model, this time working with airlines. Yeah. We realized that, first of all, our venture money was running out completely, and so we asked ourselves, “What else can we facilitate with our booking engine?” And the first thing that we started doing was pre-selling meals like brunch at Court of Two Sisters, breakfast at Brennan’s, dinner at Tavern on the Green. Instead of making a dollar a person per reservation, we were making a percentage of every meal that we pre-sold, so the net transaction value was significantly enhanced. For the consumer, they locked in a spot at Tavern on the Green for dinner, let’s say, and price fixed menu that they couldn’t get elsewhere.
People were pre-purchasing meals through our booking engine instead of just booking a table. Then we said, “What else can we enable people to pre-purchase through our booking engine?”
We started to white label our technology and power … and actually at one point we powered all of the major online travel agencies. Back then, there were four: Priceline, Orbit, Expedia and Travelocity. That really began our pivot into the travel tech space.
What were you doing with the online travel agencies? We were working with them, selling restaurant packages. They said, “What else can you do with your booking engine?” We said, “Well, we could probably sell activities and ground transportation and airport parking.” This was probably in 2004; we started pre-selling things to do and shuttle service and airport parking and such. Again, on a prepaid basis making good commissions per transaction. And now as travelers, any time you book an airline, a flight, you’re getting cross-sold something. Whether it’s a bag, a seat, a car rental, a hotel room, an activity, you’re being sold something that doesn’t necessarily count as the core seat on the airline.
So, you did that for five years and then came another switch. Yes, we got into the loyalty space. In 2012, what we found out was not only could we enable customers to pay with their credit cards to buy these ancillary products, we also realized frankly a very large market for this was also in the point redemption space. We launched American Express Travel — the company’s U.S. point of sale for basically all card holders that want to book travel through the AmEx website.
Whether you use points or cash or a combination thereof, you can book air, car, hotel — but interestingly enough, not things to do — through the American Express travel site. That relationship is still ongoing.
Live Events are the Biggest Moneymaker
They’re the most lucrative type of ancillary a hotel can offer, and 71% of travelers book them before they travel.
And then three years ago came the move to hotels.
Yes. It occurred to me that no major hotel brand was offering any ancillary cross-selling in their purchase pass. None.
For years, the hotel industry, we would call them and say, “Hey, why don’t you sell an activity along with your room? The margins are great.” And they were not interested. Many people outside the industry don’t realize this, but the money that companies like Expedia and Priceline generate is not from air transactions. Air transactions make up more actual units of booking than hotels, but pound for pound, hotels are just 10 times more lucrative to book.
So the OTAs, the online travel agencies, and travel agencies in general, basically they’ll facilitate an air booking for you, but really what they want to do is sell you a hotel room. So for many years, the hotels were making so much money and no one could touch them. The economy was growing. [Hotels] didn’t need to fool with generating income from non-core sources. Their rooms were lucrative enough.
Give Them What They Want.
Nearly 1/3 of travelers prefer to purchase travel packages from a hotel vs. an online travel agency or airline.
But then came Airbnb. Yes. With the onset of Airbnb and Home Away and Vrbo, the hotel industry got disrupted pretty big time. All of a sudden, they started to say, “Hey, what else can we do with our traffic that’s coming to our website?” That’s where this ancillary trend in the hotel space is coming from. It’s frankly because of the disruption in their business from players like Airbnb.
That was about three years ago you saw that? Three to four years ago, maybe a little bit more.
Within that, you’re also seeing the rise of social media, the focus on experiences and documenting those experiences and sharing those experiences. It’s all about FOMO [fear of missing out], right? It’s them creating FOMO or them actually experiencing FOMO because of a picture that someone else posted, something that someone else wrote about their experience.
We have this two-pronged disruptive thing that happened to the hotel industry. Yes, it’s wonderful to stay at a luxurious hotel in the French Quarter and take a picture of yourself at the pool, yes that checks the box. But your friend could be doing that at someone’s private house, or an apartment complex.
This whole peer-to-peer economy or ecosystem coupled with the Airbnb availability of rooms in people’s houses or houses really presents some challenges for the lodging industry.
So the answer, you’re saying, lies in ancillaries, like with airlines. Ancillaries for us aren’t just a way to generate revenue, it’s also a way to give a guest a relevant and targeted — but also relatively unique — set of options that they can experience during their stay.
Yes, a flight is expensive, but people spend most of their money while they’re in the destination, not necessarily on the flight. So how can hotels who have the best grasp of the local assets and all the amazingness that we have here in New Orleans, how do they leverage that knowledge and leverage technology to lock people’s dollars into the things that that hotel wants you to do during your stay?
Play the Cards.
The most common ancillary product currently offered by hotels loyalty programs is points for gift cards — most commonly Amazon.
The report notes an advantage to offering ancillaries like experiences on a hotel’s website is that doing so increases an individual’s time on the site, but also creates a link from the hotel to whatever experience they choose — whether that’s a meal or an all-day tour. Can you talk a bit about that? Don’t hotel concierges do that already? Why use technology? What we see with the large hotel brands we’ve worked with is, inevitably, whatever people book through you, they associate that experience directly to their stay with you.
This means if your hotel concierge is making recommendations to things, and that guest has a bad time, it’s not necessarily, “Oh, I had a bad time at this particular restaurant,” it’s, “Hey, my stay wasn’t good. They didn’t know where to send me. I didn’t have a good meal when I was in New Orleans.” They associate that bad experience back to your brand.
Hotels are getting the benefit — and possible detriments — of doing this now but maybe not doing it in a formal way. But if you engage formally, you can probably make money from this and also benefit by having a better level of quality assurance on the things that you’re actually recommending people do.
Hotels need to do this to maintain competitive status with the Airbnbs and the like, that are now offering experiences.
It’s All About the Experience.
The average trip involves four times more searches for experiences than hotels.
On the report it estimates the ancillary market for hotels is estimated at $93 billion worldwide ($28 billion domestically). Where did those numbers come from? Non-core products in the airline industry amounted to $28 billion in the U.S. alone for just the top 10 carriers in 2018. If you go to airlines, there are whole departments of people that are focused on creation of ancillary revenue and what we call non-core products. We look at the airline industry as a comp, and a parallel to what the hotel industry should be able to net from this space, if not more, because travelers tend to spend a whole lot more money in a hotel room than on an airplane.
Spas Are Healthy for Hotels.
The wellness industry is now worth $4.2 trillion, almost as much as the entire travel industry.
The report notes a 36% drop in hotels offering room service since 2014, but isn’t room service a moneymaker for hotels? Room service has historically been a dissatisfier for guests and a loss leader for hotel operators, so the idea we’ve trademarked is Room Service Reimagined, which is really dining delivery enabled through room service. By leveraging companies like Door Dash or Uber Eats or Grubhub, not only do you not have to worry about all the things that you’re serving to your guests and losing money on, but instead of two pages of offerings, guests are seeing maybe 100 restaurants in the area, with full menus.
You’ve listed off some big names, but do you work with smaller hotels, like individual hotels? No, we don’t. We’re a loyalty tech company that focuses on point bank integrations and travel and lifestyle bookings. We enable travel and lifestyle bookings, and we do that by enabling people to use their points to do that.
The other thing is, our solutions are not built for a single operator. We’re an enterprise class software provider. It’s not cost effective for hotels to leverage something on a one-off solution. So if they’re part of a larger corporate entity, it would make sense. But not on a one on one basis.
According to the report, live events are the most lucrative ancillary product. Yes. There’s a lot of margin in live events, right? In particular, in the secondary market. Plus, live events actually stimulate travel. People will make a trip to New Orleans, for example, to see Elton John perform.
If a hotel partners with some of the secondary market providers for live events, there are commissions they can generate, and those ticket prices are pretty big.
Hotels need to be working in advance to say, “Book this class of room and you will get access to our block of tickets,” which they can facilitate through ticket brokers.
For example, Jazz Fest does it the other way. You can book a trip with Jazz Fest and there’s destination companies that do this. But a boutique property could just as easily go and secure access to a major event and offer that access as part of what they’re doing to promote their rooms.
Long term, what does the future look like for hoteliers? I think long term, [three to five years] the missing piece is personalization — not necessarily one-to-one personalization, but let’s call it broader or more targeted segmentation, where you know generally what kind of customer is looking at your website, so you can offer them a more relevant room and ancillary combo than the one-size-fits-all offerings of today.
The post-click experience is terrible in the travel industry. So I’ve lured you to my website by showing you New Orleans hotels, or by showing you a unique property, but then you drop on my property’s page that I’ve just spent money on getting you to drop on, and there’s nothing contextualized for me whatsoever. My user experience is going to be no different than yours, than my friend’s down the street, or than my mom’s.
As far as I’m concerned, we are nowhere near personalization in the travel industry.
Say Goodbye to the $27 Cold Cheeseburger.
Since 2014, the percentage of hotels offering room service has dropped 36%.
Instead, two of the top five largest hotel chains have embraced food delivery. In November 2017, Intercontinental Hotel Group (IHG) was the first hotel brand to launch a food delivery partnership, allowing members to earn IHG points for food delivery with Grubhub. In April 2019, Wyndham Hotels & Resorts launched a similar partnership with DoorDash as a way to facilitate in-room dining at their limited-service hotels, which make up approximately 80% of the hotel group’s portfolio.
That’s something that you think iSeatz will be positioned to help with? Absolutely. The challenge that we’re going to face, though, is with the advent of GDPR [General Data Protection Regulation], CCPA [California Consumer Privacy Act], and a bunch of these consumer data privacy acts. For iSeatz, as a third party, getting access to the information that is there is tricky, but as we embed ourselves in loyalty programs, what we know is that the most valuable loyalty customers and the most frequent travelers do want, and expect, a personalized experience when they drop on a website. They’re not creeped out by it. As a matter of fact, it makes their life easier.
I think that we’re going to be enabling personalization and segmentation because when you’re a loyal customer, you’re much more willing to fill out things that you like, things that you don’t like, things that you want to see, and you’re willing to embed that in your loyalty profile. You’re willing to enable someone to use that to better serve you. That’s why I think we’re uniquely positioned: because of our focus on the loyalty space to enable personalization.
Fast facts source: State of Loyalty 2019 Hotel Ancillary Report — authored by iSeatz and Skift.
A Little Bit More About Kenneth Purcell
Favorite book? There are so many. Currently, my leadership is reading “Switch” by Chip and Dan Heath. It focuses on the psychology around why people feel change is hard.
Favorite TV show? With four kids under 10, a puppy, and a growing business, I rarely have time to watch TV.
Who do you look up to? Aside from my team there are a few folks I really admire. Arne Sorenson of Marriott really “gets” the customer, and I think he is a visionary when it comes to truly delighting guests. Herb Kelleher, the founder of Southwest, is a legend. His personality set the tone for how that company operates today.
Biggest life lesson learned? Learn how to fail fast.
Best advice ever received? Getting good at hiring is one of the best things any entrepreneur can do for their business. You can’t do it alone. Finding really great people to support your vision is crucial.
Hobbies? I enjoy working out. It’s a great stress reliever and I think staying in shape is important for long-term health. I also love fishing (I am from Louisiana, after all!). I’m looking forward to more fishing trips once my sons get a little bit older.
Daily habits? I wake up around 4:30 or 5 a.m. and spend time with my wife, kids and dog. I take my kids to school and then head to the gym. I usually get into the office around 9 a.m.
Pet peeve(s)? The idea that you have to sacrifice speed for quality, or quality for speed. As a scaling business, we need to be better and faster than anyone else in our space.
What are you most looking forward to in the next year? Continuing to grow iSeatz. We consistently win awards for being one of the best places to work in New Orleans, and I want to see that continue. We are also going to be launching some exciting new products for the financial services industry to help them drive loyalty and engagement. So, I’m excited to see those come to life and continue to transform the industry.