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Opinion: How HITEC Is a Case Study in an Industry at a CrossroadsJuly 1, 2014 By: Adam Leposa
Travel agents are no strangers to change – since the rise of online booking, our industry has seen a revolution in business models as agents have raced to adapt to changing technology and a struggling economy. But sometimes it’s useful to take a peek outside our industry and see what insights can be gleaned elsewhere.
Recently we got a chance to attend the hotel technology conference HITEC on behalf of our sister publication, Hotel Management, and what struck us most wasn’t the latest smartphone door lock or mobile concierge app, but the sense that the hotel industry is maturing in its approach to the issues raised by rapidly evolving technology.
Some context: in recent months hospitality has been rocked by two major instances of data theft – the breach at Target over the holidays, and the large-scale theft of guest credit card data at Marriott hotels operated by chain operator White Lodging. Those two breaches were top-of-mind at this year’s show, as the opening keynote focused on security, but in a way that balanced the need to maintain guest security with the need for hotels to adapt to an evolving industry.
“People are writing checks based on fear,” said keynote speaker and former Google CIO Douglas Merrill, citing statistics that showed 80 percent of CEOs believed they had been hacked in the last 12 months when in fact, “the real number should be in the single digits.”
In his talk Merrill argued that the need to protect guest data must be balanced with the potential for using that data to create business innovations. As an example, he cited his time working at record label EMI at a time when the recording industry felt itself under threat by file sharing services like Limewire.
During Merrill’s time at EMI, a lawsuit against an individual music pirate might average a payout of $7,500 - at an average cost of $25,000 per lawsuit. But did the lawsuits deter piracy?
Merrill decided to try an experiment. He went to Limewire, and cross-referenced the top 100 sharers on Limewire with the top 100 music buyers on iTunes. There was significant overlap between the new lists because, as Merrill discovered, users were using Limewire as a means to try out individual tracks before buying.
"Limewire was essentially paying us to be a marketing channel - and we sued them out of existence!" Merrill said.
In this case, collecting user data allowed Merrill to come to a greater understanding about the evolving music business. There are generally two main obstacles to collecting this data, Merrill said: information security people and lawyers. Information security professionals want to minimize the amount of data stored to reduce risk, and lawyers worry about running afoul of privacy regulations.
"When building an information security function, there are two important things to understand," Merrill said. "It's important to have a theory of security, but at the same time you have to have the constructive power of pragmatism. You have to care about getting things done."
The Pressure: The Collaborative Economy
The idea that hotels need to keep innovating to survive was not an abstract fear. The rapid growth of room sharing startup Airbnb has been getting the attention of hoteliers, and in HITEC’s second keynote author Rachel Botsman took a look at what the rise of the collaborative economy could mean for the hotel industry.
"I'm a little nervous about this talk because I'm sensitive to the fact that many of the startups in this space are disrupting hospitality hard and fast," Botsman said. "But I'm not going to be how those startups win - I'm going to explain how these ideas are connected by the collaborative economy."
The collaborative economy (also called the network or sharing economy), Botsman said, uses technology as the glue to build trust between users, allowing entirely new business models to develop, such as those pioneered by Lyft, Uber and Airbnb.
"I met the Airbnb founders in September of 2007," Botsman said. "They told me the story of the company's founding - the founders had moved to San Francisco, they had just run out of money, and a big design conference had come into town and hotels were completely sold out. They decided to blow up mattresses, put them on the floor and see if anyone would book them - they sold out in 30 minutes."
"My husband said, 'That's the worst idea in the world!'" said Botsman. "But what he was really talking about is, 'I don't trust people.' More, he was judging the idea by what it was then - not what it would become."
For large organizations like hotel companies, Botsman described the main approaches to a disruptive startup - being an ostrich, fighting and being a pioneer.
"Being an ostrich means saying - please don't let this happen on my watch," Botsman said. "This change is still five to 10 years off."
For fighting, Botsman cited the recent example of a series of protests by taxi drivers in Europe against the black car startup Uber. During the protests, signups for the Uber app increased by 850 percent within 24 hours.
"Once the public decides that there is a new way, and that that new way is better, you can't reverse the story," Botsman said. "That's why the fighting mentality is difficult - the industry innovates around you."
As for pioneers, Botsman said that even large, established brands can react to disruptions in their industry in three positive ways: investing in the disruptors, forming smart partnerships and investing in innovation of their own.
"In terms of innovation, I really mean true business model innovation, when you think about your products and services completely differently," said Botsman. "It's about judging ideas not for what they are today, but for what they could become."
The hotel industry, then, seemed to be at a crossroads – hotels are racing to keep ahead of guest expectations while making sure they don’t misstep and wind up causing more harm than good to their reputation.
“I think [the recent data breaches] will reign in some of the exuberance to just go connect everything,” said Josh Weiss, VP of brand and guest technology at Hilton Worldwide, during a conversation we had toward the end of the show. “It makes us rely more professionally on partners. Just because we could do something doesn’t mean we should do it. Protecting guest information and securing networks has become that much more important.”
What are the challenges your business is facing? How are you balancing the need to adapt with the need to protect your business? Let us know on our Facebook page.