How long will $650m buy differentiation for? This must be the question Hilton Group executives are asking themselves as they continue the roll-out of their Digital Key programme, which it celebrates its 2 year anniversary this month.
Hilton Hotel Group has invested $550m in technology “infrastructure” to run its app and hotel management systems and a further $100m (1) to develop and install the Digital Key technology [to read my review of Digital Key itself please click here].
Digital Key allows Hilton guests, via an app, to use a smartphone as a room key, bypassing the need to visit the front desk. To use this feature, guests most be enrolled in the Hotel Group’s loyalty programme, Hilton Honors (HH). [Apologies to the sensibilities of my British English spelling friends – it jars with me every time I read it]
Hilton launched the initiative in August 2015 and have rolled it out to 1,700 hotels across US and Canada. They claim the feature has been used 11 million times without a security breach (2). Hilton have now announced the launch of Digital Key in 10 UK hotels, with plans to extend to 100 by the end of the year.
The Economic Standpoint
While Hilton has arguably led the mainstream hotel crowd in the adoption of these types of technologies, one of the challenges it faces is how quickly these points of differentiation become ‘me too’. Without creating significant Intellectual Property or other ‘Barriers to Entry’, how long will it take the other players in this typical oligopoly market to play catch up.
Marriot is also heavily invested in a ‘me-too’ offering and plans to roll-out to 700 properties by the end of the year. Hyatt has conducted tests, but is focussing instead on other areas of speeding up check in, such as self-service kiosks. IHG seem to be bucking the trend, although this has clearly been a source of tension in the Boardroom with outgoing CEO Richard Solomons quoted as saying “Some of our competitors are talking about rolling it out, some actually already have”. (3)
I have heard several arguments claiming business transformation platforms that appear as ‘nice to have’ points of differentiation become, over time ‘must have’ table stakes, particularly for large multi-national companies. The same arguments have been applied to Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems. The argument could equally be applied to the Digital / Mobile Transformation being witnessed in the hotel sector.
Hilton will hope that the relationship it has nurtured with its repeat customers in the HH programme, will endure after its rivals have caught up from a technology standpoint, but their actual technology implementation has so much inherent ‘friction’ and is so ‘clunky’, this may come back to bite them.
The March of Technology
Metal Keys, Magnetic Stripe Cards [by the way, has anyone ever managed to put these in a lock the right way around first time?] and Radio Frequency Identity (RFID) cards, were all technology advances that became ‘me too’. Each one offered more convenience than the next, but honestly speaking, I’m not sure Digital Key in its current guise continues that progression. To read all my gripes about Hilton’s Digital Key please click here but this is the crux. It takes around 15 seconds to open a hotel room door with a Digital Key, and yet the technology exists today for the experience to be utterly frictionless, without even having to take your phone from your pocket.
And here’s the challenge for Hilton. The technology is moving so quickly that by the time they’ve invested $100m in their solution and rolled it out – it’s obsolete. There may be some cheer in the IHG’s Boardroom yet as a genuine case of second movement advantage in this field seems likely as a smoother guest experience is not difficult to achieve.
Forget the debate on which technologies to embrace – BLE vs Apple’s shifting stance on access to the NFC chip. Forget the onerous data protection requirements of GDPR and Privacy Shield [or potentially both for companies operating on both sides of the Atlantic] – these are all subjects for another blog on another day.
The real issue for Hilton is whether to hunker down with the investment it has already made and continue with a poor ‘at-door’ experience – or whether to consider this a sunk-cost stop-gap and aim for an utterly frictionless at-door experience. And that might just be something I could help them out with…