For a long time, early stage investors were wary of travel technology.
Why?
Because it’s an industry dominated by deep-pocketed Goliaths firmly entrenched within an intricate web of multi-decade commercial relationships. Companies like Sabre, Amadeus, and Opera/Oracle have comprised the industry’s vital infrastructure since the 1970s and 80s, while the likes of Expedia and Booking.comhave dominated the B2C space since the early 2000s — despite not having raised venture capital themselves. That was because the travel industry was slow to adopt new technology, and there were few examples of startups that reached a level of scale and success that would excite investors.
However, the success of VC-fueled companies like Airbnb and Hopper have recently awakened early stage investors to the scale and opportunity in B2C travel tech. Though annual investments in the space have fallen from their 2022 peak, the overall trend is up. And with the emergence of successful growth stage companies like Navan, Mews, and Lighthouse, we believe it’s time to shine a light on the enormous opportunity that currently exists in B2B travel tech.
A perfect storm of market challenges is forcing the industry to rethink its relationship with technology. First, online travel agencies (OTAs) increasingly dominate customer mindshare and diminish suppliers’ margins. Gaping holes have emerged in technology infrastructure and the scalability of existing systems, and are notoriously impacting customer experience. And finally, operational costs have exploded for service delivery, where employee turnover has risen dramatically and highlighted the low desirability of jobs in the industry. As a result, industry players have evolved from a “throwing bodies at the problem” mindset to searching for scalable technology-driven solutions.
For the first time, travel and hospitality providers are adopting new software tools at a rapid pace. According to Hotel Tech Report’s annual survey of hoteliers, 81 percent believe technology will be more important for the success of a hotel business in the next five years. Technology budgets in hospitality have been steadily rising to 4.2 percent of revenue in 2024, with 37 percent allocated to new implementations and R&D. Meanwhile, 78 percent of airline CIOscited an increase in technology investment this year. Over the next several weeks, I’d like to outline three key areas where B2B startups are transforming travel right now, starting with the new operational and commercial tech stack that startups are building for hotels.
Hotels Are Rapidly Adopting Technology Right Now
For hotels, the pandemic exposed many commercial and operational challenges that had been percolating below the surface for some time. Lagging technology left hotels unable to deliver the digital-first experience guests needed, and awoke the industry to its woeful state of software adoption. Consumers were digital-first, but hotels continued to throw people at their problems. Many travelers were (and often still are) shocked at lengthy check-in lines and frustratingly analog guest experiences that other industries had digitized long ago, from tipping to contactless check-in. In an industry with more than 70 percent employee turnover, delivering a great guest experience became a costly challenge for hoteliers. Meanwhile, hotels have been losing their most profitable, direct customer channels as they have been squeezed by OTAs.
In response, hotels have been on a software buying spree to modernize systems. We see three priority areas of investment:
Property Management Systems: The vast majority of hotels run on aging property management systems (PMS), built decades ago by vendors such as Opera (Oracle) and Agilysys. The mission critical nature of a PMS has led these often on-premise solutions to become the proverbial “server in the back of a closet” no one wants to touch. While the PMS has generally proven far stickier than many ambitious entrepreneurs imagined, we are now seeing more hotels hitting the “reset” button and adopting one of the numerous modern, cloud-based options. Frontrunners include Mews, Stayntouch, and Cloudbedswhich, when implemented successfully, facilitate delightful experiences for hoteliers and their guests, and help hotels take a large step forward into a future-proofed, digital-first technology choice.
Guest Experience: Many hotels are hesitant for a wholesale replacement of their PMS, but need a modern platform from which to deliver digital-first guest experiences. Companies like Canary Technologies and Duve are creating a new technology layer serving as the digital interface with guests for interactions such as contactless check-in, digital tipping, messaging and more, without replacing existing infrastructure or increasing headcount. This new category additionally serves as an important jump-off platform for AI in hospitality and is often cited as a top priority new investment area for hotels.
Commercial Operations: Hotels have long had a lopsided bond with OTAs, who increasingly own the customer relationship and drive profitability away from the hotels. This has sharpened hotels’ lenses on commercial operations and ensuring distribution, pricing and profitability are best optimized. With stronger data-science tooling available, startups are bringing high quality data, business intelligence, and recommendations to hotels to help them run their business better. These include full end-to-end commercial platforms (Lighthouse), modern revenue management solutions (Duetto), powerful distribution tools (Siteminder) and far-reaching customer acquisition networks (Sojern).
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A perfect storm of market challenges is forcing the industry to rethink its relationship with technology.