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New Hotel Technology Likely to Bring Sticker Shock

The need for a new generation of computers, data centers and security equipment for the nation’s hotels is driving up the expense of technology in the hospitality industry, says Mitesh Shah, chief executive officer at Atlanta-based Noble Investment Group, a privately-held company that invests in and manages hotels.

“The average [technology] cost for a 400-room hotel has been about $50,000 a year. That cost is going to go up as the brands start implementing new technology to take the place of systems that have been in place for quite some time,” says Shah. “That cost could be significant. It could be several hundred thousand dollars in additional costs over the next three, four or five years.“

That’s a major investment for a company like Noble, which manages 10,000 hotel rooms at 51 hotels in the U.S. under such brands as Marriott, Hilton, Hyatt and Starwood. The company has recently contracted with 12 new hotels, says Shah.

The upgrades involve both communications that make life more convenient for travelers, and the unseen hardware that makes hotels function more smoothly. “A lot of computers were bought in 2006, 2007. We’re looking at a replacement of that. You’re looking at replacement and expansion of business data centers, and security costs for IT (information technology).”

Hackers are more aggressive than ever, and the cost of protecting hotel systems has risen accordingly, says Shah. Not only does a company have to replace computers, it also has to ensure that the latest encryption software is in place. But protective measures involve not just encryption, but also thwarting any compromise to corporate systems and executive communication.

That means C-suite personnel as well as the hotel general manager. “How do you enable the security for their laptops, for their desktops, for the overall network?” asks Shah.

Industry hasn’t kept pace

The hotel industry hasn’t kept up with the state of the art to the degree other industries have, says Shah, particularly with regard to pricing and customer convenience. “I think we’ve done an adequate job — we’ve worked to make sure we have the high speed Internet, and the various things that are a real necessity right now.”

Traditionally, too many hotel managers focus on the condition of the carpets and walls — whether they need painting or new pictures, or fresh plants in the lobby, rather than scrutinizing their technological infrastructure.

Examining how people buy and use media shows that bandwidths are growing more sophisticated, and the trend in a hotel experience is to become more connected, says Shah. Whether it’s checking in through an iPhone or ordering goods and services, guests want to activate requests through their personal devices. And too many hotels are unable to provide that level of technical response.

As they strive to grow, major hotel brands are looking East, to India and China, but not just to build new hotels, because many already have properties in place. Instead, they want to “own” the corporate customer in China, India, or Brazil — to instill loyalty to their individual brands.

“How do we, if we’re Marriott, or Hilton, Hyatt, or Starwood, make that company loyal to our company, to our brands?” One way to impress a partner or client is to provide a seamless communicating process through better technology, says Shah. “If you’re China’s investment management arm and you’re loyal to Marriott, you want to just talk to your person at the Marriott Marquis in New York. You don’t want to have to go through 1-800-Marriott or to the website — you want a connection point.”

Who bears the cost?

Costly upgrades don’t always translate into higher rates, however. “The question really is, can you charge more for it? Or is it part of the experience?” asks Shah.

“Hotels spent a lot of money putting in flat-screen TVs with all the different capabilities to connect through them. But you haven’t seen hotels be able to charge for those things on a continued basis.” When it comes to high-speed Internet, for instance, it’s an amenity that customers demand, but they’re not necessarily willing to pay extra for it.

Another expense involves business intelligence technology — the detailed analysis and tracking of a hotel’s daily, weekly, monthly, and quarterly performance. Noble Investment Group’s system pulls nightly data that tracks not only occupancy and average daily rate, but also measures the performance of group or individual travelers against the market. Noble also charts daily labor statistics through property management systems. Operating teams then analyze the results and plan their financial strategy on a day-to-day basis, says Shah.

As it examines corporate data or develops analytical programs, Noble Investment Group uses several systems. Delphi, a supplier of electronics, tracks customers’ spending habits and other metrics. Cognos, an IBM financial performance management system, helps to develop programs to extract data. For accounting, Noble uses Aptech and Dynamics. Aptech is particularly helpful in examining leading and lagging indicators for the company’s hotels, says Shah. That helps the company focus on areas where it can drive revenue.

The TiVo generation

When it comes to creature comforts, travelers don’t want to compromise, says Shah. They want the same comforts on the road that are available at home. “If you’re an Atlanta Hawks fan, can you watch that game when you get to your hotel?”

If a traveler arrives too late to watch a live program, they want to be able to call it up on the room’s flat-screen TV, just as they do at home. “Where they live, they TiVo everything or DVR it. They’re able to watch it when they want to watch it,” says Shah.

That’s driving costs are going up, as the hotel network becomes more and more sophisticated, adds Shah. “People want to stay like they live.”

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