Launched in 2010, HotelTonight is a mobile application that connects travelers seeking last-minute hotel accommodations with hotels eager to monetize vacant rooms. Unlike competitors in the travel industry focused on traditional bookings via a web-based platform (i.e. Priceline, Booking.com), HotelTonight strategically chose a mobile-first – in fact, mobile-only – platform to capture the increasingly prominent spontaneous travel market. True to its name, HotelTonight initially offered discounted hotel bookings for the upcoming 24 hours in just three cities. Given the company’s model has powerful indirect network effects, it focused on gaining scale in hotel partnerships, geographies, and users. Today, millions of users can choose from 15,000 hotels in hundreds of cities in 35 countries. Its most recent rumored valuation was greater than $300 million and the company reportedly turned a profit in 2016, a feat countless billion-dollar-valuation platform businesses fail to claim. By building and sustaining a platform that expands the hotel marketplace and createsvalue for both accommodators and travelers, HotelTonight creates a defensible and differentiated role in the industry.
In the two-sided hotel marketplace, HotelTonight has to worry about generating both supply and demand in order to increase the value of the platform. On the supply side, the value creation is relatively straightforward: the platform creates a new way for hotels to monetize unsold rooms. Over the past five years, U.S. hotel vacancy rates have averaged 37%. Decreasing this statistic even marginally equates to significant dollars for hotel sales managers. CEO Sam Shank has shared that after convincing a hotel to join the platform, if HotelTonight can show a small incremental bump in bookings and revenue within three months, the hotel will be committed to remaining on the platform. Additionally, as the platform gains scale and travelers become more comfortable with last-minute books, it becomes a competitive disadvantage for hotels to be absent from the marketplace.
Generating demand is slightly more complicated. Using HotelTonight allows users to garner cheaper rates at quality hotels. The app aggregates data of vetted hotels and makes it easy to compare and ultimately book within a very user-friendly, mobile-first interface. The catch is that users must be comfortable with gambling on availability and with not being loyal to a particular chain. To counter these sacrifices, HotelTonight has strengthened its platform with innovations that bolster its value proposition.
- Advanced booking: Since launching, the app has expanded its booking window to one week. This mitigates risk for users concerned about traveling without a confirmed accommodation and potentially broadens the HotelTonight user base beyond th
- GeoRates: Georates allow hotels to dynamically offer better rates to users likely to convert based upon location. While this obviously creates value for hotels, it also allows users to secure discounts that are not available on other platforms.
- “Loyalty Program”: HT Perks provides users rewards for their transactions on HotelTonight. Launched in 2016, the program retroactively assesses lifetime spend within the app and designates users as level 1, 2, or 3. These statuses never expire and equate to different perks for users, including extra discounted rates, additional travel offers, and a dedicated support phone line. The program decreases the opportunity cost for users that have points with competitors like Starwood and allows them to earn rewards agnostic of hotel brand. HT Perks also solidifies HotelTonight’s role in the ecosystem by increasing switching costs.
- SAP partnership: Business travelers represent a large proportion of last-minute bookers. Through a collaboration with SAP’s Concur, HotelTonight can be easily expensed by 30 million employees at over 20,000 businesses. This seamless integration creates convenience for users and has the potential to drive hotel participation given the broader user exposure.
- Aces Virtual Concierge: Launched in 2015, Aces is a chat-based, in-app concierge service for users booking rooms costing $200+ per night to request anything from a toothbrush to be delivered to their room to local restaurant recommendations. The service saves users time and effort via a simple and convenient interface.
HotelTonight benefits from a very simple value capture equation. Similar to Amazon, the company takes a commission, estimated by analysts to be approximately 15%, from the hotels in each transaction. This is reportedly lower than the rates online competitors charge. A layoff in 2015 along with hyper focus on overhead reduction resulted in the recent profitability of the company. While HotelTonight continues to face competition from large hotel chains, Airbnb, and online platforms, its recent performance proves that it can defend a network-supported niche and gain loyalty in a travel market that is rampant with multi-homing users.