The blockchain challenge: how should hotels respond?

As with most innovations, there is a “hot mess” phase while bugs get worked out, infrastructure and protocols are developed – look at the crash of the dot-com boom. But does that mean you should throw the baby out with the bathwater? Imagine if people had stopped using the internet in 2000.

With the rise of the internet, hotels, like everyone else, had to reimagine the way they do business. Not since the invention of the printing press has a technology more profoundly changed the world. Now that we shop for everything from artisanal small-batch prosciutto to hotel rooms through digital storefronts, the relationship between hospitality companies and customers has been radically transformed.

We are moving toward a customer-controlled marketplace, and hotels need to stay alert to new technologies to remain relevant. There is no rest for those in the bed business – and blockchain technology is a case in point.

Many hoteliers tend to be afraid of the complex technology around blockchain or are lulled into complacency because there hasn’t been lightning-quick adoption. We must keep in mind that while customer habits are slow to change, once they do change, they cut across categories and even well-established companies can become obsolete overnight – remember Blockbuster, anyone?

So what is blockchain in a nutshell? Some of us are secretly confused by the concept and jargon – but then again, not everyone entirely understands the internet either, but we still use it every day. Blockchain is a new-ish idea, and while it’s been around for a decade, the general public has not had much time to get used to it.

Mark Pascall, executive director of BlockchainNZ, describes blockchain as a simple concept at heart: “It’s a ledger – a giant spreadsheet – and this ledger is different from any other ledger we’ve seen before, because there is no central database and it’s distributed on lots of computers – this ledger is able to store and access transactions with no bank, corporation, or person in the middle of it.”

In blockchain, people exchange electronic ‘IOUs’. So if you promise to pay ten dollars (or ten units of some other currency/value – anything valuable to humans) the “ledger” records that transaction and ten dollars are transferred from your account to the other person’s account. If you try to spend it again, someone will clock you on this, because it’s all transparent.

Blockchain provides a permanent, irreversible record of all transactions. Because blockchain is decentralised, it has the potential to revolutionise exchange.

So why should hotels care?

Reason One: The big guys are getting on board

Amazon, American Express, Oracle, Goldman Sachs, Twitter, Disney, Facebook, Nestle, Alibaba Group, Ford, Walmart, Maersk, Samsung – basically all global corporations are exploring blockchain.

Cutting-edge hospitality brands like Lufthansa, TUI Group and Nordic Choice Hotels are all on the verge of implementing blockchain. In May, Nordic Choice took the plunge with Winding Tree, an open-source travel distribution platform and successfully used blockchain for booking at Nordic Choice’s Hobo Hotel Stockholm.

In other words, it’s time to start paying attention to blockchain. Blockchain is a foundational technology that will change the operating models of businesses across industries. It uses sectioned data-records, known as blocks, arranged in an ever-expanding chain across a peer-to-peer network.

Each block holds a cryptographic hash of the previous block in the chain, a timestamp and transaction data. There is no editing or deleting, only appending. The hash safeguards that transactions can be traced accurately to their source; Walmart is using a private blockchain system as a supply tracker, for example.

The decentralised storage model makes the chain virtually impossible for hackers to manipulate. A “public key” option gives each member of the peer network access to transactions, allowing for greater transparency and reduced risk. While the system was initially a way to exchange currency, it can eventually be used to directly exchange anything of value which requires a trust model.

In short, blockchain creates a new trust exchange system which does not require intermediaries, which brings us to reason two of why hotels need to pay attention to this technology.

Reason Two: Blockchain cuts out the middleman

The hotel industry – which has been running on old technology and is firmly enmeshed in Online Travel Agencies (OTAs) like Expedia and Priceline, with a barrage of new intermediaries coming out of the woodwork every day – may seem like an unlikely choice for taking on blockchain. But it is precisely because of the middleman commission problem that hotels are overripe for embracing this technology.

OTAs seem very convenient to the customer since they can easily compare prices all in one place, but they are bad for hotels because customer loyalty is out the door and OTAs take a considerable cut of the profits. Then that cut gets passed on to the consumer, so they aren’t getting the best deal possible.

This type of random, price-based comparison shopping can leave management and employees unmotivated to go the extra-mile. With blockchain, the middleman is eliminated and savings can be passed on to the guest.

Some entrepreneurs worry that without OTAs, their hotel loses visibility. But when customers learn of discounts as high as 50% they will definitely find that hotel – and with new profits, businesses can invest in better search engine optimisation.

Hotels already possess the portals for this technology. With the pressure of the intermediary commission out of the way, hotels can focus more on the guest experience and building brand allegiance, which brings us to reason three.

Reason Three: Blockchain beefs up loyalty

Ultimately, blockchain technology can create an ecosystem of customers and loyalty programme providers, as well as other hospitality players – such as tourist boards, governments, and regulators – all of which can interact in one system without middlemen. This platform allows loyalty programmes to grow exponentially, particularly in the area of convertibility and exchange.

Gabrielle Giancola, co-founder and CEO of Qiibee, a Swiss loyalty token protocol which assists companies to run loyalty programs on Blockchain, says that in the old days of loyalty points and miles programmes, customers were restricted to how they could use their rewards, but “now they can exchange loyalty points for cryptocurrencies from their smartphones”.

The benefits of blockchain-based loyalty tokens, besides guaranteed liquidity, is that they can be traded. In the old model, you might be stuck with Delta Miles that you would not be able to redeem in any way, but with Qiibee, you can cash out your miles or trade your Coke token for someone else’s Starbucks token.

The decentralised model can eventually bring cross-pollination between larger companies and small fries in a mutually beneficial network, for example with a large hotel chain using the services of a local, independent guide for a more personalised experience.

What forward-thinking hoteliers need to keep in mind is that, like with the printing press, the ripples of internet-based disruption are not over but will continue for decades. Maybe not today, maybe not tomorrow – but blockchain is coming, and it’s time for hoteliers to wake up.

Professor Riccardo Campione is a Lecturer in Revenue Management and Pricing at Les Roches Global Hospitality Education, Switzerland