Internet Strategies to Boost Hotel Valuations in the Hospitality Industry

By Jason Price and Max Starkov

Background:

The impact of the Internet on consumer and business travelers continues to accelerate. This year over 29% of all hotel bookings in North America alone will come from the Internet. By 2010 45% of all travel reservations in North America will be done online (eMarketer). Smart hoteliers and investors alike understand that high visibility on the Web results in qualified website traffic, lessens dependence on the third-party channel, builds brand equity, and garners greater market share and higher ADRs. The one-to-one transaction between buyer and seller serves as the foundation of a direct online distribution strategy.

From luxury to economy brands, hotel euphoria remains strong in 2006, according to Smith Travel Research. Increases in occupancy, a rising RevPAR, higher demand, and in many cities, a shortage of hotel rooms has begun generating abnormal returns for hotel owners. Increases in cash reserves encourage acquisitions and property turn over as a property portfolio is reshuffled selling off some units while buying others. The online channel plays an increasingly important role in the value of the hotel and can be used to influence the purchase or sale price of the hotel.

Property Website Acquisition Checklist:

From an Internet standpoint, how does one measure the value of the online channel in the purchase or sale of a property? What does one look for in the diligence process? How is all this valued so that it makes sense to either party involved in the transactions? Here are some considerations.

General Website Site Assessment

The Domain Name

• Secure the primary domain name, take full ownership.
• Identify and secure any additional domain names that were purchased and relevant to the acquisition.

Web Maintenance and Hosting Company

• Secure full ftp access login info.
• Who hosts and manages the website? Obtain names and contact information of website hosting/maintenance vendor.
• Request a copy of the existing hosting/maintenance agreement.
• Solicit feedback regarding performance of hosting/maintenance vendor.
• Is there a Content Management System (CMS) on the site and what is the login info?
• What is the website analytical tool? Request the login info.
• Obtain a list of names and contact information of all employees and vendors with partial or full access to:
  • ftp access
  • access to the Content Management System (CMS)
  • access to the site analytical tool.

Property Website

• Who build the site, and when? Name and contact info of website design vendor.
• Does the site have an attractive look and feel or will it require an entire new redesign?
• What are the historic bookings and revenues from the site over the past 24 months? (monthly breakdown of bookings, room nights, revenues, average stay, ADRs)
• Is the site built in html, flash, frames, or other?
• Is it built on a Microsoft (e.g. aspx) or Linux (e.g. php) platform?
• What kind of content management system does it have?
• Has the site been recognized by any trade and won any award?

Website Traffic Reports

• Obtain access to the website analytical tool.
• Obtain monthly reports or gain real time access to web analytics and test for the following:
  • Growth in traffic per month
  • Growth in page Views per month
  • Unique Visitors vs.Visitor Sessions
  • Growth in traffic month to previous year
  • Main entry/exit pages
  • Main referral sites
• Obtain conversion data, if available:
  • Revenues per month
  • Revenues per month to previous year
  • Conversion rates

 Website Imagery

• Is there a library of high-resolution images from the property and destination?
• Who has the IP rights to these photos?
• When were these photos taken? What is their quality?
• Obtain all of the existing images with clear origin and IP rights in a digital format (e.g. eps, jpeg, gif, etc)

Virtual Tour/Rich Media

• Do you have a virtual tour or other form of rich media on the site?
• Who has the IP rights to these rich media applications?
• If provided by third-party, what is the length of the contract?
• Obtain copy of the existing contract and contact information.

Booking Engine Contract

• Who is the vendor and when does the contract expire?
• Request a copy of the existing contract.
• Does the booking engine have a packages and specials module?
• Does it interface with the PMS?
• Does it provide GDS connectivity?
• Solicit feedback regarding performance of booking engine vendor.

GDS Connectivity (for Independent properties)

• Who is the vendor that provides GDS connectivity for the property?
• Request a copy of the existing contract.
• Does the GDS connectivity have an interface with the PMS?
• Solicit feedback regarding performance of the GDS connectivity vendor.

Property Email Opt-in Email List

• Is there Customer email capture functionality on the website? Who is the vendor providing this functionality?
• How big is the property opt-in email list?
• Who controls and manages the property opt-in email list? Get name and contact information of either third-party vendor or employee.
• Request login information to third-party email marketing ASP vendor (e.g. Constant Contact) to review past email campaigns, open and click-through rates, opt-in pace, etc.
• Secure a copy (best in .csv for Excel) of the latest property opt-in email list, containing at the minimum first name, last name, email address, city, state, country, ZIP, and any other customer information in the profile.

1-800 Numbers

• Was a unique 800 number used for the property and a separate one for the website?
• Consider transferring this number over to your new website.

Loyalty Program

• Does the property have a loyalty program?
• Who was the third party vendor, what were the functionalities, and how was it performing?
• Obtain contact information and copy of the contract with the third-party vendor.
• Obtain any historical data from the past 24 months.
• Obtain a list of the loyalty members, in .csv for excel format, containing at the minimum first name, last name, email address, city, state, country, ZIP, and any other customer information in the profile.

General Distribution Contracts

Third Party Online Intermediary Contracts (e.g. Expedia, Travelocity, Orbitz, etc)

• Which of the third party intermediaries does the property have merchant/net rate contracts with?
• When do these contracts expire?
• Obtain contact information at each such third-party intermediary.
• Obtain a copy of all contracts.
• Obtain historical data for the past 24-month performance of these merchant/net rate contracts: (monthly breakdown of bookings, room nights, revenues, average stay, ADRs).

Direct Distribution Assessment

Internet Marketing

• Do you use an online marketing firm or manage this in-house?
• Who is the outside firm, what are the terms of the agreement? Obtain a copy of the agreement.
• What is the annual Internet marketing budget? Obtain a copy of the budget.
• What are the historical ROI's from the property's Internet marketing initiatives?

Online Media Contracts

• Does the property have active online advertising campaigns?
• Has the property had any Internet display ads over the past 24 months? What were the results? Obtain historical data.
• List all the online media advertising contracts with contact information.
• Obtain copies of contracts/insertion orders for all ongoing online advertising campaigns (e.g. banner ads).

Link Popularity

• What is the Link Popularity of the current website (number of incoming links)?
• Does the property maintain a list of all paid listings on online directories, CVB sites, etc with contact information, listing costs and expiration dates?
• If yes, obtain a record of these listings with contact information, listing costs and expiration dates.

Search Marketing Accounts, including PPC Accounts

• Identify what search marketing services the property has active campaigns on (e.g. Google AdWords, Yahoo Search Marketing, etc).
• What has been the size of the monthly budget over the past 24 months?
• Is the property managing PPC and other search marketing in-house or are they using an outside Internet marketing firm?
• Obtain account login information to see current and past campaigns. If agency account obtain monthly reports for the past 12 months.

Search Engine Registration

• Identify search engine registrations with username and password to access the registration accounts.
• Is the property site registered with and on which search engines?
• Who is in charge of maintaining the search engine registrations?

Co-Marketing Partnerships

• Does the property have online marketing partnerships with local vendors, CVB, regional co-op marketing associations, etc?

Affiliate Program

• Does the hotel have an affiliate program?
• What is the size of the affiliate network?
• Obtain copy of the agreement with the affiliate program vendor.

Conclusion:

A direct to consumer online distribution strategy is critical to the future success of a hotel as more of the transaction process is website generated. Management has to treat the online channel with great importance and use this as an asset to enhance the property's value or serve as a condition to lower the asking price, depending on your perspective. A direct to consumer distribution strategy is critical, as it serves as a financial predictor of future cash flows. It is the least costly marketing channel as well as the fastest growing revenue channel. HeBS has worked with a number of companies and helped them in evaluating the online channel of a prospective property or in packaging the online assets of an existing property. HeBS has been instrumental in achieving positive results and guiding its clients in the murky waters of the online asset evaluation.

In order to boost the valuation of your property, you must develop a clear understanding of:

a) What to look for when you buy a property, as far as Internet exposure and online channel utilization are concerned.

b) How to boost valuation for an existing property, using its Internet presence and online channel exposure.

About the Authors:

Max Starkov is Chief eBusiness Strategist and Jason Price is EVP at Hospitality eBusiness Strategies (HeBS), the industry's leading Internet marketing strategy consulting firm for the hospitality vertical, based in New York City (www.hospitalityebusiness.com). HeBS has pioneered many of the "best practices" in hotel Internet marketing and direct online distribution. The firm specializes in helping hoteliers build their direct Internet marketing and distribution strategy, boost the hotel Internet marketing presence, establish interactive relationships with their customers, and significantly increase direct online bookings and ADRs. HeBS helps hoteliers control their online brand and price integrity and drastically lessen dependence on online intermediaries and other expensive channels. A diverse client portfolio of over 300 top tier major hotel brands, multinational hospitality corporations, hotel management and representation companies, franchisees and independents, resorts, casinos and CVBs and has sought and successfully taken advantage of the firm hospitality Internet marketing expertise. Contact HeBS consultants at (212)752-8186 or info@hospitalityebusiness.com

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