ISG Software Research Analyst Perspectives

The hospitality industry has a complex structure. It is highly fragmented, with many small operations but also a significant number of global companies. Moreover, a property can be managed by one company (the brand name over the door) yet owned by another, which might be a one-off local real-estate partnership or a larger-scale owner of multiple sites. The consumer side of hospitality has its own challenges as well, resulting from the dramatic shifts brought about by the Internet in how people worldwide buy travel and leisure services. In addition to this external environment, IT requirements within the hospitality industry are complex and demanding. If you run a hotel, resort or casino, you need software to manage reservations, the physical plant (properties require constant maintenance), human resources (the business is people-intensive), ancillary on-site businesses (including food and beverage, golf, spas and retail shops) and distribution (such as the interface with online booking vendors) and to support sales and marketing. Companies that offer gaming need specific software for that as well. The hospitality software industry’s structure adds to the challenges here. Historically, it has been highly fragmented and in aggregate has generated subpar returns. While that has driven vendor consolidation in recent years, there also are new entrants attempting to take advantage of technology shifts to establish their presence in the market. Against this volatile backdrop, I recently attended a meeting with Infor in Las Vegas to get a formal update on my review from last year. For the software industry, hospitality has been a challenging market because of its complex requirements, the buyers’ traditional unwillingness to invest in information technology (much like the retailing industry) and the highly fragmented market. Infor entered the hospitality vertical through its acquisition of SoftBrands, a closely held company with a suite of reservation and property management software. It quickly made an additional purchase of the property management software business of Amadeus (an online reservation system). Infor already had some presence in that market’s back-office operations with Infinium (mostly in North America) and Sun Systems (in Europe and Asia Pacific) as well as in the marketing department with Epiphany. Today, it offers a broad set of software to manage most aspects of the hotel and resort business, including performance management (with planning, budgeting, reporting and scorecarding) and financial consolidation. I had three key take-aways from the session. One is that evolving technology will continue to be a market driver. Hospitality is a global market, and international tourism and business travel continue to grow, especially outside of the mature economies of the developed world. Countering the growth potential, the business is highly competitive and caters to a price-conscious crowd, forcing operators to constantly wring out inefficiencies. Information technology can help with this aspect through a combination of increasing the efficiency of employees and automating manual processes, especially in the back office, and in providing information and insight to executives. Moreover, new means of delivering IT capabilities such as cloud computing can substantially decrease the operating costs of hospitality operators, especially smaller ones, by offering economies of scale. Mobile devices can be used intensively in operations because most employees are not tied to a desk or fixed location. Mobility can improve guests’ satisfaction through faster resolution of their requests (housekeeping issues, for instance) and the ability to free up inventory sooner for earlier check-in. (And speaking of desks, if you’re going to have to get back into your car anyway to drive to your room, why not skip the trip to the lobby and use curb-side check-in?) It’s worth noting in this context that cloud-based software is not without problems, however. Many hotels and resorts are in remote locations (that’s often the point), which can make using the technology challenging or not feasible. And as has been recently demonstrated, using cloud-based systems in countries where the government manages the Internet can be a problem, especially if it decides to turn it off. A second take-away from our visit is the challenge Infor faces in taking advantage of its suite of capabilities to support hospitality companies more fully. For larger operators, I think this means finding ways to increase share of wallet by expanding their footprint as they replace existing software components or by adding a comprehensive suite of performance management software. For smaller ones, it’s the challenge of finding ways to deliver a comprehensive cloud-based hospitality management suite that is cost-effective. My third take-away is that the hospitality software business will continue to be a tough one, for all the reasons mentioned earlier. Moreover, the software market in North America and Europe is mature, and growth opportunities are mostly in Asia Pacific, the Middle East and Africa where economies continue to expand and local demand for travel and leisure increases. Still, I think Infor’s hospitality business has the key advantage of being packageable as individual components (because few if any operators will toss out all of their systems at once), combinations of components or a full suite. Relatively few companies in the industry – especially smaller operators – are using performance management and analytics capabilities to their fullest but important as my colleague pointed out. While the market remains challenging, I think Infor has the raw material to gain share if it manages its product development strategically and markets it effectively. Regards, Robert Kugel – VP & Research Director

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