HOTELS The Cloud Part 2

Here is a continuation of Pertlink's Terence Ronson's "Cloud Computing" piece –
"Reflecting back – an indulgence.
Before I did what I do now, some of you will know that I was involved in Hong Kong with a leading PMS provider – in a Business Development role. During my time with that company, in 1997 Asia went through a Financial Crisis and not only did people stop buying, but they also stopped talking about buying. Do you recall those dark and cloudy days?
Well, for a Salesperson, that's disastrous, and so in order to try and stimulate the market I dreamed up with a sales model (which today would be referred to asSaaS – Software as a Service), whereby we would charge users a transaction fee versus an upfront License fee and recurring annual fees.
The model would have a base monthly cost to get Users into the system, and then we (the Company) would charge a transaction fee based on Occupied Room nights – I exercised great imagination over the naming of this concept – finally calling it "PAYS" – Pay as you Sell.
It was a simple model – the Customer absorbed the hardware costs – although we could have arranged leasing via a major manufacturer, and then they (the Customer) paid a small upfront amount for getting into the system, which included implementation and training, and then they (the Customer) would be Live. A transaction fee could have been US$1 per occupied room night and billed monthly, or deducted from a credit balance, whichever was more suitable. Control for us to know what was sold, and in turn needed to be billed, was straightforward since we controlled the software, and could generate the billings, turning off the software if the Client failed to pay within a contractual time period.
Potentially, it was a WIN-WIN for both sides.
For the Customer – it meant reduced upfront costs, only really having to pay for what they used/sold – and the associated materialized revenue – a kind of demand-based billing system. If their business was good – so was ours, if it dipped, then we would be at one with them through that quiet period – as partners, but still assured of a monthly service fee to keep them on the system – and cover our basic costs.
For Hotels it was a paradigm shift. Moving some of the costs from Capex to Opex – much appreciated by Owners – and at the same time allowing them to better control the performance and related costs of their Operators – The Hotel Management Company.
For the Business – it would have allowed us to grow market share, show empathy with our clients, and be assured of a recurring revenue model over a long-term contract.
Sadly, it never got off the ground – Why?
Well, after making a detailed business case and presenting it to my Line Manager at the time, it was rejected on the basis that "we were not setup like a mobile phone company, and were more in the business of generating License fees, and not recurring revenue…"
You can only imagine how I felt then, and the grudge I still bear up until now at this shortsightedness. I actually think this decision was more personal in nature – being made on the basis of personal compensation for achieved targets. Not recognizing License fee revenue under the traditional model, would have meant a decrease in personal earnings – again, how grossly shortsighted was that?"
"Why do I raise this now?
Moving to The Cloud exhibits several similarities to the PAYS model I conceived back in 1997, and the business models some providers are now putting in place today.
In fact, because of The Cloud, many new tech terms have entered our daily vocabulary – and here are three more you should get to know:
1. SaaS – Software as a Service
2. IaaS – Infrastructure as a Service
3. PaaS – Platform as a Service
SaaS – Software as a Service
This removes the need to own software – you just pay for it as you use it – a kind of demand-based billing – a utility.
IaaS – Infrastructure as a Service
This is where you place your systems in to DC – and pay rental for the associated services.
PaaS – Platform as a Service
Mostly used by Developers – these are development systems for creating Applications.
Moving Forwards
Now you know these systems will be outside of your physical property and handled by others – potentially, you will surrender some direct day-to-day control over them, and you will likely be concerned over the following business issues:
Data Security and Ownership
Reliability and Availability of the system
Day-to-Day Management of the system
Costs for this service
Data Security and Ownership
Let's not fool ourselves – all systems and therefore by default – data, are vulnerable to attack. Being off-site does not necessarily change this critical fact and suitable precautions need to be put into place. There are as many experts out there to advise on this, as there are un-desirables lurking in the shadows waiting to pounce on your systems and steal the data, which includes the private transactional information of your clients.
Also to be considered are jurisdictional rules about data transfer cross-border (Data Protection Act) and local data privacy issues. Add to these concerns over ownership of the data – and (long-term) Hotel Management Contracts will have to be amended in order that this issue is fully transparent to all parties – Owner and Operator. Oh yes, don't also forget Incentive agreements based on amended Opex costs and ultimate profitability.
It's often a sticky issue that when a brand pulls out of a property – who actually owns the data held on the systems? This was an issue when systems were on-property, and now with them going off-property, the data may have to be extracted from a Central system, or cluster of systems, and repatriated in-house. Lawyers will love this conundrum and be more than happy to charge for their services.
Reliability and Availability
When you have your Systems (Computers) on-property you will have a natural sense of security that if something untoward happens, like a power failure, data corruption or hardware crash, your local IT Team can jump in and hopefully quickly, and painlessly fix it. With Cloud based systems – that particular feeling will be traded off to others to handle – and you are at their mercy. Likely, contrasting to your local trained and managed team – they will not be Hoteliers (in mindset) – but technicians without that unique embedded Hospitality service culture you so painfully try to embed into employees.
Sure, Data Centers/Hosting Companies will give you all the assurances in the world – but what do you do when a Guest is in the Lobby and you can't print a folio, or check them into a room or unlock various services because your Internet connection is down, or 'something' has happened at the Data Center.
I'm not so naive to know that similar circumstances can't happen even with on-property based systems, but a quick walk to the Computer Room will allow you to see at first hand with your very own eyes the people trying to fix the particular issue – rather than frustratingly deal with them over a phone line – wherever they may be (different time zone), and in whatever language they speak. Trust issues may ensue.
Business Continuity plans must be put into effect to mitigate these issues, when they occur. It's not a matter of if they will occur, because – it's just knowing that when they occur, that they can be dealt with swiftly and efficiently to allow you to continue your business and Guest Services in line with your Customer Service Guarantees.
Look very very carefully at the Terms and Conditions of your SLA (Service Level Agreement) – focus on the Service, Support and QOS (Quality of Service) these offer and compensation when they fail. Having a compensation of US$200 per hour that the system is not available is ludicrous, and more trouble to you than benefit, especially when running high occupancy, or when Guest Service and your business reputation is affected.
Not only do you need to concern yourself over the availability of the System in the Data Center (Cloud), but also how you connect to it – the Internet, and the relevant costs.
In some countries, the cost of Internet connectivity is prohibitive, and on top of that notoriously unreliable. If you have to spend many thousands of US$ per month just for this connection, then the value proposition does not make good business sense – even if Corporate mandates, since your bottom line and profitability – owner returns, will be severely affected. Perhaps that's why many of these Cloud based initiatives have sprung up from developed geographies (like USA and Europe) where Internet connectivity is both stable and affordable.
Consider also what can happen if there is a natural disaster, and Internet connectivity is lost such as an undersea cable gets cut, a Typhoon knocks out power, or your Local Government decides at a whim to turn-off the Internet. How will you operate then?"
The last installment on this article will run tomorrow.