Tuesday, 12 March 2013

Hotel search startup hopes to be disruptive

Commentary: Online travel seeing new upstarts with a mobile focus

By Therese Poletti, MarketWatch

Room 77/Apple
Screen shots from the Room 77 mobile hotel booking service.
SAN FRANCISCO (MarketWatch) — Before the Internet, most people hired travel agents to book hotels, buy airplane tickets or rent a car. But in the late 1990s, a wave of websites that allowed people to do their own bookings transformed the industry forever.
But now, many of those same first-generation sites like Expedia, Travelocity, Priceline and others are going through an upheaval of their own, with new upstarts challenging the ways of what now passes for the “old guard.” The shift to mobile is a big part of that, as more people want to do bookings with their smartphones and tablets.
Research firm PhoCusWright estimates that there are at least 500 start-up companies focused on travel that have formed in the last several years. And one of those is Room 77, which is seeking its own foothold in the $303 billion U.S. travel market.
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Mountain View, Calif.-based Room 77, founded in 2009, searches information directly from hotels. Customers can make a booking directly with a proprietor, instead of using the less direct approach of most other big travel sites, which frequently require full payment in advance and lack cancellation policies. Room 77 claims that its own data indicates that 93% of consumers booking travel online believe that hotels often give them either average-or-worse rooms because they used popular travel websites for deals.
Whether the big travel sites agree with this view or not is uncertain, but they are clearly taking an interest in the new players coming on the scene. Priceline PCLN -0.87% announced plans to buy Kayak.com last year for $1.8 billion. Expedia also recently bought a 62% stake in a German startup called Trivago, a search site for European hotels.
And Expedia Inc. EXPE +0.02% recently invested in Room 77. Expedia, founded in 1996, also now owns the most widely used hotel booking sites, Booking.com and Hotwire.com. In January, as an investor in Room 77’s $30 million round of venture funding, Expedia said, “The level of innovation and depth of content at Room 77 excites us about its future role in this important customer acquisition channel.”
So how is Room 77 different than the other hotel booking sites or more comprehensive travel sites like Expedia, Travelocity, Priceline or Orbitz Worldwide Inc. OWW +4.06%  ?
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Room 77 has a concierge element that helps you find the best room. When a customer books a four- or five-star hotel, or has a reservation that totals more than $400, a room concierge can help you. Customers can request the type of room, or even a specific room number. Thus, the name Room 77 indicates the ability to help consumers also find the exact room or the type of room they are looking for.
The company claims its approach often results in cheaper bookings, especially for last minute deals. Last Friday, a quick comparison of prices looking for a specific hotel at Miami International Airport later this week showed a $20 difference between Room 77 and Booking.com. A Room 77 spokeswoman said on average, the company saves consumers $72 per hotel stay.
“Room 77 doesn’t have our own specific offerings. We are just searching everyone else’s sites,” said Brad Gertsner, Room 77’s founder and chairman. “We search the hotel’s direct site, and we are allowing you to book directly.” That also enables frequent travelers get their rewards points, if a hotel has a program, which are not typically given with most online travel sites.
But the leaders, as they see the flurry of new ideas and innovations from startups like Room 77, Hotel Tonight —another company Gerstner is investing in — and many others, are not standing still. Last September, Travelocity unveiled an iPhone app for last minute deals. They have also introduced a concierge service.
But disruption is also coming from the fast growth in mobile usage. Like the Internet giants which are trying to figure out how to make money in mobile, the first generation of online travel sites are in the same boat. The new wave of startups, including Hotel Tonight and Room 77 all have mobile apps that are easy to use to help consumers find last-minute deals. They also find themselves competing with Google Inc. GOOG -.00%   and its Hotel Finder search tool.
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“Every startup has to have a mobile strategy,” said Douglas Quinby, an analyst at PhoCusWright. “It’s like when you had to have a website. Now you also have to have a mobile strategy. But there are some companies that are purely mobile focused.”
Quinby said that consumers can jump so easily to the next site to get better deals, companies need to have other innovations beyond lower prices. The question, he said, is whether or not the room level recommendation is enough to distinguish a company like Room 77.
“Is that enough value add...that can set them apart, in the very well-funded area of meta search,” Quinby said. “TripAdvisor now has a meta search. Priceline has acquired Kayak. All these companies are intensely focused on hotels. There is a lot of well funded competition. But there are some really capable guys behind Room 77, so it will be a very interesting space to watch over the next few years.”
Gerstner, whose day job is managing a hedge fund called Altimeter Capital in Boston, said in mobile consumers “don’t want to see a list of 10 blue links.” He said the site is now doing about one million searches a month. It derives revenue from a “healthy” unspecified cut of the hotel transaction, or through payments from its partners who pay a cost per click, because its search engine is also driving traffic to hotel sites directly.
Last-minute deals are easy to find on Room 77, too, he said, because they provide data that is coming from the hotels. During Super Bowl weekend, he said, “every hotel was sold out, but Room 77 had a ton of availability.”
It’s way too early to say whether startups like Room 77 will grow up to be sizable businesses on their own, or be swallowed up by an older online travel giant in need of innovation. In any case, travelers have no shortage of new services to try.
Therese Poletti is a senior columnist for MarketWatch in San Francisco. Follow her on Twitter @tpoletti.
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