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The Oracle: Cindy Estis Green

• Jeff Borman and Matt Brown

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The CEO and co-founder of Kalibri Labs on the (many) existential threats to the hospitality industry, Uber and Facebook as players in the travel business, the challenges and opportunities around loyalty programs, and the hotel revenue buzzword that needs to go away.

00:50 Existential Threats to the Hotel Industry
04:40 When Will Amazon Return To Travel?
10:40 Will Uber Be A Player Too?
17:00 Direct Bookings and Loyalty Programs Impact
25:30 Mystery Question

https://www.kalibrilabs.com/

Matt Brown:

Hi everybody, it's No Show. I am Matt Brown, joined as always by Jeff Forman. Our guest today, Cindy Estis Green, is the CEO and co-founder of Calibri Labs, a next-generation commercial strategy platform that evaluates, predicts and benchmarks hotel revenue performance. This is just one of the many businesses she has founded and a career dedicated to examining the intricacies and opportunities in hospitality. Cindy has been named to Cornell Hotel Society's Hall of Fame. She's received the HSMAI Vanguard Award. She's also in the Hall of Fame for the Hospitality, financial and Technology Professionals. She is a prolific author, acclaimed speaker, world traveler, queen of numbers, demystifier of data, oracle of the future. Welcome to no Show. Let's get just right into it. I want you to scare me. What is the biggest existential threat to the hotel industry?

Cindy Estis Green:

Well, as I started doing research for this last book, I discovered a new type of distributor. That to me represents an existential threat for the hotel brand, certainly, and even a concern for individual hotels. For 30-plus years, american Express has been booking hotel rooms and it's been fine and they've been pretty specialized and they look mainly at high-end of corporate travel. But in the last two years, a number of the bank cards like Capital One, jp Morgan Chase, citibank have bolted on front-end booking portals for access to consumers and asking their cardholders to book travel through them, which is a diversion from online travel agents, but it also could be a diversion from marriottcom or hiltoncom. These credit card companies are a big—we don't know how successful they'll be. So I mean, this is really the last couple of years that started. But, for instance, capital One invested a couple hundred million dollars in almost 300 million dollars in a company called Hopper. That is a cloud-based system. They have their own online travel agent but they have a back-end cloud system that actually provides what's called FinTech or financial technology services for Capital One and presumably for other platforms, and the financial tech kind of de-risks the booking for consumers so they can do price-freeze protection. Hold my flight price for two weeks because I haven't decided if I'm going to take the trip or if I book a flight and the price goes down. I don't want to have to pay the higher price. So they agree to pay the difference so that if I'm a consumer, I don't have any risk. I can book and if the price goes down I get paid the difference. So they're doing that for hotels also.

Cindy Estis Green:

So for these credit card companies, all of them have very extensive loyalty programs already. They've had loyalty programs for years and you get points for travel, you get points for buying retail merchandise, and companies like Capital One have 70 million card holders. Well, bonvoy for Marriott has 190 million members and Hilton Honors maybe has 170 million. So you might think what's the big deal? The hotel loyalty programs have such a lag up. But the problem is that Marriott, bonvoy may interact with their members three times a year, five times a year, but for Capital One it's like on buying groceries, I'm going to the gas station, I bought my, I did my Christmas shopping and all goes on. It could be five times a week. So they may have fewer members, but they are more engaged with them.

Cindy Estis Green:

And if these credit card companies start diverting bookings. That's a concern because the hotels want to get as many direct bookings as they can and there's a cost associated with that. So there's two major issues for the hoteliers and this is the brands as well as the owners, and that's access to customers and the cost to acquire to acquire those customers, because if there's more intermediaries there's more cost, there's more toll booths along the way. So that's you asked me about an existential threat. If these credit card companies who have fully developed loyalty programs can satisfy the needs of the travelers with loyalty points, then that is threatening to a Marriott or Hilton who have really had a firewall with their loyalty program for the last you know, pretty solid firewall for six or seven years.

Jeff Borman:

What happens when Amazon finally launches a travel program. They're dabbling now. In India, expedia recently launched a partnership with the retail giant Walmart. It makes me wonder when's Amazon going to go full-on into travel.

Cindy Estis Green:

Well, amazon has entered and exited travel a couple of times Years. Five, six years ago I talked to the head of strategy in Amazon who said if we decide to get back and travel I talked to him right after they exited the last time We'll just buy Expedia. Expedia the market cap has been floating between 15 and 20 billion, which, compared to bookingcom at 125 billion, is quite a bit smaller compared to Uber at 129 billion or whatever. It was the last time I looked quite a bit smaller Airbnb at 90 billion. You got this little Expedia 15 to 20 billion. It could be Walmart buys them and competes with Amazon or Amazon decides to buy them. Yeah, there's going to be consolidation, and it's unclear because obviously Amazon has a very established loyalty program as well.

Matt Brown:

Why do you think Amazon has had fits and starts? Because I think we've lived in a world for the last 25 years where it's like Amazon can do anything.

Cindy Estis Green:

Well, they told me when I asked them which I think was 2016, that they thought it just wasn't a priority at the time when the online travel agents were kind of dominant in that space, and they just felt that to enter the space and deal with all of the hassle of getting inventory and everything else, they would rather focus on other things. It's not easy to get inventory for travel. Travel is complicated, so you've got flights where you've got all kinds of legs and the GDS system having to track and make sure that there's legal legality around that. I mean, there's just a lot of issues when it comes, because you can't just do hotel, you have to do all of it and it's complicated. So getting the inventory lined up is not simple. Now, if they bought Expedia, that would simplify it a lot because it would all be ready to go. So I think to do it on their own was a lift more than they thought would be worth it.

Jeff Borman:

Where do you think Facebook is in all this? You've mentioned almost all the fangs, but you haven't mentioned the F.

Cindy Estis Green:

Yeah, no, I actually I realized I left out Facebook when I was listing the big tech companies. Facebook has doubled down on their, the area around kind of social search and video and rich content and that kind of thing, and I think they'll play a lot. As social search picks up, which is like the TikTok kind of in YouTube, that area is going to become, I think, a haven for what I call micro marketing. So, instead of the gatekeepers who are these giant platforms that are the, they're like the Venus flytrap for consumers, like everything comes through them and they grab it and they hold on to it like a Google, everything goes through there. Well, no one wants to go through Google because the cost is so high.

Cindy Estis Green:

So the desire to micro market and be able to go to the thousands of influencers that are affecting if you're in the music business or in fashion or makeup or beauty aids or travel it's the TikToks and the YouTubes and the ecosystem of influencers is most likely going to be, I would predict, a growing channel of distribution and because you can specialize and find just the channel you want to go through, I consider it like a micro marketing and I think for influencers, if you can get the ones that actually can influence your destinations or your products. You can pay a lot less because you may pay one or two or 3% instead of 10, 15, 20%. So I think that Facebook could end up playing in that space, because they're all about social and they've tried to get into social search and I think that that is a ascendant growing area.

Jeff Borman:

So Expedia has been making a multi-billion dollar bet on one key, the new loyalty program, and you mentioned some of the gaudy numbers that Marriott and Hilton have. When they combine it all together, it's 200 million customer profiles on one platform, and on the surface I think it's more compelling than any brand loyalty program proposition Maybe not if you go a little deeper, but under one brand umbrella, expedia. In this case, you have everything. A traveler can also earn the same kind of points for their car and their air. You and I, I'm proud to say I usually agree with you, but last time you and I were together, we shared a different opinion on this one. You're of the opinion that this is not the game changer, but more of a Hail Mary. Why is that?

Cindy Estis Green:

I think that Expedia definitely is trying to make a play. I mean, they've tried to make a play on the loyalty side for a long time, but I think their user base is not diverse enough to support a broad kind of program, whereas a credit card company has a much more mainstream. I mean, the reason why I would be more concerned about Capital One or JPMorgan Chase or Citibank is because they're not specialized. Like MX was much more high-end business travel, expedia is much more middle market leisure and I feel like the credit card companies are just more mainstream. So a broader customer base. So the likelihood of them being successful I mean, we don't know, but I would think that they've a better shot at it whereas the OTAs not everyone is used to using them. The idea of booking through third parties is a little less comforting than your credit card company who you go to if there's a problem. They reverse charges, they help you do those things. Otas don't share that same. They don't have the same reputation with the consumer.

Matt Brown:

to make things easy if changes happen and you need help, Yet another technology company searching for a reinvention and resurrection is Uber. Uber's experimenting in London as a way to book overnight stays and it's a pretty clear view into their intent to be the next major player intermediating travel. How do you think Uber will be different in travel?

Cindy Estis Green:

I mean, they have a huge base of travelers right now, so they come into the market with a very well-established base of travelers. I think Uber will be a force to reckon with. If I were Expedia, I'd be really nervous about that. Bookingcom has about the same market cap. So when you think about the cost to operate in the market in 2022, expedia and Bookingcom were reported to have spent $6 billion in marketing. Well, if you're a $15 or $20 billion company, it's really hard to sustain $6 billion a year in marketing. But Bookingcom is $125 billion company. Uber is around the same size. So they have a better shot at operating in an expensive market and, of course, a lot of it is driven by Google being so expensive and everyone wants to get off Google and get more direct bookings to lower those acquisition costs and I think their base. They're coming with a running start. So I think that Uber has a very good chance at taking a lot of market share.

Cindy Estis Green:

My concern on the hotel side for the hoteliers you might think and there was one time when I thought, oh, if we get more big players in the mix, that's good for hoteliers. It gives choices. So Mariah can say I'm all in with Expedia and Google and Forget Facebook and Bookingcom or whatever. They could start playing the Coke and Pepsi game. But what seems to be happening is I just ran the numbers for my Alice presentation and it looks like about 60% of the business in hotels is coming through online channels, which are digital channels. So that's a combination of brandcom, ota and GDS. So when you look at all the business that's coming through third parties, my concern is just that it'll end up and I'm talking bookings only there's obviously, like I said in the beginning, 80% to 90% touch these other, like Google and other gatekeeper points of entry or portals. But I think what's going to happen is some of these other big players, like Uber or like Capone or some of the others. We're just going to add more of the total demand. More of it will go through third parties. So instead of 50% or 60% as it is today, it's going to be 70% to 90% going through third parties.

Cindy Estis Green:

And right today we pay 15% to 25% in the US market for customer acquisition in hotels 15% to 25% of what the guests pay and that's at about a 50% to 60% coming through digital channels. So when you start getting 80% of it, that 15% to 25% is certainly going to increase, even if the commission rates go down, which they have gone down. It's not because commission rates went up, it's because more business is subject to transaction fees and commissions. So in Europe the cost is much higher than in the US. In Asia it's higher.

Cindy Estis Green:

But if we start thinking how much can a hotel sustain economically, like how far can we go where cost of acquisition is 35% or 40%, before you start feeling the pain and crying uncle, like we've been going down that path. And the more Ubers and Cap Ones and others that come into the market, it's not that they're going to take over what Expedia was getting or take over at bookingcom. It just means that more business will come through third parties. And that is my biggest concern is for the health of the industry. To just change the economics in a way where cost of acquisition becomes equal to labor cost or something, which is obviously not a path that anybody wants to go down.

Matt Brown:

Let's switch gears for a second and talk about short-term rentals. While hotels still count for about 85% of the US market for overnight stays, short-term rentals have reached about 15% share, and that's nearly double the 8% they held in 2018, according to AirDNA's chief economist. Has this disruption settled or do you expect another wave of growth over the next couple of years?

Cindy Estis Green:

I think there's going to be some settling. But I also think there's going to be some hybrid, like do you call Saunders short-term rental? Like models that are kind of like I'm not sure we're going to look at them as two separate things, like it just becomes lodging, but I think for longer-term stays or for accommodations that are appropriate for longer-term stays, which is what the short-term rental is used for, there are markets where it will always be a bigger part of the supply and other markets where it's kind of irrelevant to the supply. So you know a lot of the hotels.

Cindy Estis Green:

The supply in the US market for hotels are like roadside, highway, tertiary market kind of business with select service hotels. That's 60% of the supply in the US is like that. So when you think about the markets for which short-term rental matters, it's a more limited portion of the market and I think it's specialized where not everybody needs that or is looking for that kind of accommodation. But for those markets where it's a factor, it can be a big and growing factor. So you look at Miami or Los Angeles or New York or Austin and yeah, it's a major factor, but it's not everywhere all the time growing because there's markets. It just is not going to be relevant or pertinent for In 2016,.

Jeff Borman:

Hilton did their stop clicking around campaign, one of the more memorable campaigns by a hotel company in decades. The proposition was that only direct bookings would receive honors points, benefits like discounted prices through member rates, and the desired outcome, of course, was the shift share of bookings from OTAs to brandcom. Other programs immediately followed Hilton. A question to you did it work? Because it's seven years later. Feels like low landscapes, basically the same.

Cindy Estis Green:

Oh, it worked, Like we've done massive analysis to see what happened. It worked, which is why I, when you say ask me about existential threat, I worry a little about these credit card companies because they may be the first players that are actually going to kind of disrupt that path. Because we I just ran the numbers in anticipation of my presentation at Alice and we're looking at loyalty contribution we finally exceeded 2019 levels of loyalty contribution. So we're at about 53% of the US demand is carried by loyalty members and it was like 50 ish percent in 2019 or 51%, I forget the exact number. So those programs had steady growth and they maintained where brandcom kept a steady lead over OTA bookings by about 50%. So the brandcom was running 20% and OTA business was 12 to 15% or whatever. So there was like a 50% differential where brandcom had an advantage. We've still maintained that lead with all of these other third parties. That balance of power may change, so I don't know, but it definitely worked because it kept the ratio between the brandcom and OTA. Even though they all grew, the brandcom maintained the lead that it had. It grew brandcom penetration at the same as loyalty contribution grew in SYNC. If somehow that loyalty contribution drops off. It could be that brandcom may start dropping off.

Cindy Estis Green:

The other thing is for the Capital One and JP Morgan Chase and so on. We don't know if those who are booking through those channels are going to get points for Capital One and points for Bonvoy or Hilton Honors. To Jeff's point about the OTA bookings the brands would not award the points if you book through an OTA. We don't know how that's going to work with the credit card companies. If there would be this like double dipping, we don't know if that would happen. If so, who pays for that? Because those points are not free Right now. The Bonvoy and Hilton Honors is paid by the owner of the hotel. I don't know what will happen if the credit card companies want to get or earn points and if they're going to charge the hotel or they're going to pay the points themselves. I just have seen too many times over the years that the owner ends up paying for a lot.

Jeff Borman:

The points are definitely not free. While I can't prove this, the trend that I keep seeing and feeling anyway is that the mix you just described, the positive amount of growth from brandcom that has equaled or exceeded the growth of OTA as a percent of room nights. My concern there is that it's not really loyalty and it's driving a wedge that we need to uncover and get deeper between what is loyalty and what is simply getting everybody to have a number At some point every check-in. If you'd like your Wi-Fi, you've got to get your Bonvoy number on there. I'm not really sure that that has changed behavior as much as the metrics are used to show, so much as we just slap a number on every guest that walks in the door now.

Cindy Estis Green:

Well, that may be the case, but I think the future, in order to combat some of these third parties, the only option and a bigger firewall than the loyalty program, but tied to it, is going to be the services that are associated with the loyalty program. If I'm a Bonvoy member and that allows me to get an early arrival or a late departure or guarantee me a connecting room or guarantee me the room of my choice or whatever it is, and the only way that I get that aisle seat or window seat or whatever I choose, the experience that I want in the hotel, the only way to get that confirmed is if I'm a loyalty member and I book direct. That to me will be the superpower that the brands would have because they're tiny companies relatively speaking Marriott at 60 billion, 60-65 billion valuation. Hilton at 45 billion valuation, when you're that small compared to these.

Cindy Estis Green:

Uber and bookingcom at 125 billion and growing, whereas the hotel companies have not grown, except for when Marriott bought Starwood, for example. They don't grow as much, so they don't have that same kind of deep-pocketed power, but what they do have is control of the inventory. If they say the only way you get the room of your choice or the early arrival. You got to book direct and be a loyalty member. I don't care if you're up against a trillion dollar Amazon, you're going to book direct and you're going to be a Bonvoy member. I think that is the way that the hotel companies, the power they have in spite of their smaller size.

Jeff Borman:

The thing that scares me. Airlines own their own planes and, as you mentioned, hotels are not owned by the brands that manage them and brand them. There's a concern of mine as I watch these loyalty programs that produce all these great results the airline model is creeping deeper and deeper into the hotel business, and that's to your fintech concerns, to the loyalty cost concerns, your book direct concerns. The more hotels emulate the airline programs, I think the ownership, ultimately, of that inventory is what's going to be at play. I don't know how that works out. It's down that same path of fear and concern.

Cindy Estis Green:

We talk a lot about shopping and buying. The bigger concern is the customer journey, the full customer experience. Like what's happening, the arrival, the eating, drinking, staying, paying, like all of the guest experience. Uber and Google want to own that too. If they try to do mobile check-in or room assignments or get tickets for concerts and sporting events and all of that, they'll start infringing on the guest experience that previously was controlled by a brand. The hotel brands have to control that guest experience and sort of block these big tech players from participating in the guest experience.

Cindy Estis Green:

From the time they get that into the hotel you might think, oh, they're never going to check us in and all that they're going to try. And if they start doing those services, then you start wondering what the brand value proposition is for the brand from a consumer point of view. Like what does the brand represent if Google or Uber is controlling the whole guest experience from the time I shop, I buy, I arrive at the hotel and so on? So I don't think the brands are going to allow check-in and room assignment and all of that Hopefully they won't. But I think they're going to have to really tightly control the access to inventory and the guest experience and make sure that is differentiated to represent Hilton, or represent Marriott or IHG or whatever, or even smaller brands.

Matt Brown:

It's time for the mystery question. This one's easy Cindy, give me a hotel revenue buzzword that should go away. What is an overused hotel business phrase or buzzword?

Cindy Estis Green:

Aire Share. Did you know I was going to say that, Jeff?

Jeff Borman:

I did, but you've made me so happy.

Cindy Estis Green:

So for years hotels have in order to decide how much business they could expect to get in a market, they'll say, oh my, the fair share of business transient. It's based on the size of their hotel compared to the size of other hotels. So if I'm a 200 room hotel, I would expect to have twice as much business transient business or corporate business as the 100 room hotel next door. That is the dumbest thing I've ever heard in my life, because not every hotel wants every type of business in proportion to their size. It's just a dumb way to think about it. So when I think about optimal business mix, some hotels want to get a disproportionate share A lot of this business transient or corporate business and others. That would actually undermine their profitability and they're better off getting loyalty, member rate or advanced purchase or some other kind of business.

Cindy Estis Green:

I say I don't want to hear anything about fair share. Tell me about optimal share. What's the optimal share based on the range of demand in the market and what is the mix that would gives me the highest profit contribution? That's my optimal share. Fair share relative to the size of my hotel has no bearing on each type of business that I'm getting, because why do I want twice the amount of OTA business, or twice the amount of corporate, or twice the amount of government? It just doesn't make sense. So when you get into looking at your most profitable mix of business, which is what is optimal for a hotel, that's all that matters. Fair share should go away as fast as possible. It has no place in the market.

Matt Brown:

There you have it, folks. The Oracle has spoken. Cindy, thank you so much for being a guest on no Show. This has been wonderful.

Cindy Estis Green:

Thank you, matt, great to be here, and Jeff, thanks for the invitation. Thanks for coiling up and�를.