Fending off global copycats: Lessons from HotelTonight’s story

How well does HotelTonight translate into European expansion?

Launched in late 2010, the mobile-only and same-day hotel booking app now offers rooms in 12 countries, including nine in Europe, with a modest portfolio there of 27 cities.

With 15 of its approximately 100 employees working out of a London office, HotelTonight’s “expansion is unbounded in terms of our aspirations,” says Sam Shank, CEO and co-founder. “We are interested in being everywhere.”

Success in the U.S., though, doesn’t necessarily equate to a slam-dunk abroad. Consider that Kayak, which struggled for years to gain a foothold in Europe, and had to acquire swoodoo in Germany and Checkfelix in Austria to begin to dig in. Travelocity bought UK-based lastminute.com, and Expedia purchased Italy-headquartered Venere in their drives for European relevancy.

San Francisco-based HotelTonight has spawned mobile-only imitators in Europe, including  Hot Hotels and Blink Hotels, both based in Spain, as well as JustBook in Germany.

Hot stuff in Spain

Conor O’Connor, the founder and CEO of Hot, says the app, which debuted in March 2012, “is clearly heavily inspired by HotelTonight,” but he doesn’t think HotelTonight will be able to replicate its U.S. success in Europe.

“They have a lot of money and they’ve done unbelievably well in the states, but I don’t think their model exports into Europe in the same way,” O’Connor argues.

Travelers looking for a last-second hotel booking may not notice a huge difference between Hot and HotelTonight, but the two businesses operate behind the scenes very differently.

HotelTonight attracted more than $35 million in funding, with participation in the latest Series C round from Battery Ventures, Accel Partners, U.S. Venture Partners and First Round Capital.

Hot, meanwhile, has just eight employees and is self-funded, although Connor says the company hopes to raise funding later this year.

In its home market, Spain, Hot offers same-day hotel bookings in around 49 cities, while HotelTonight is present in just Barcelona, Madrid, and Malaga-Costa del Sol.

Hotel relationships

One of the reasons for the disparity is that HotelTonight only contracts directly with hotels while Hot strikes direct deals with hotels, but also has relationships with third parties, including wholesalers.

This may give HotelTonight an edge in quality in terms of having the ability to offer one-off deals with better availability, but the leaner Hot, with its staff of eight people, gets the scale advantage.

“We feel we are more granular and more localized,” Connor says, adding that Hot’s “base stock of hotels is semi-automated,” albeit curated, as well.

While a hotelier in the U.S. may enjoy weekly contact with a HotelTonight market manager, “the last thing” a hotel revenue manager in Spain wants is daily conversation with the head of another distribution channel, Connor says.

“Light contact works well in Spain,” he adds.

Another difference in the markets, Connor says, is that hoteliers in Europe may be more sensitive to rate parity issues and Booking.com’s enforcement of them than HotelTonight may be used to in the U.S.

Countries, money and approach

Hot currently offers properties in 30 countries, including some in Europe, Asia, the Middle East and South America while JustBook and Blink Hotels are present in 12 and eight European countries, respectively.

Shank of HotelTonight notes that international expansion, based on user feedback, is a priority, and that his company has some financial firepower at its disposal.

“We’ve raised more money than all of them combined,” says Shank, referring to Hot, JustBook and Blink Hotels.

“But our real advantage is in our expertise,” Shank contends. “As the inventors of mobile on-demand hotel booking, we have the proprietary operating knowledge of running a business like ours at scale on multiple continents. Launching an app is easy — scaling a business and delivering value to consumers and hotel partners every single day is very difficult.”

It appears though that Hot, for one, has done more than just launch a mobile app, and is achieving some scale, at least in markets close to home.

Although it is obviously a more labor-intensive and cumbersome process, Shank sees an advantage in HotelTonight’s one-to-one approach to hotel contracts.

“All of our inventory globally is directly sourced from hotels,” Shank says. “We don’t go through any third parties. This results in the best deals (guaranteed) and a seamless booking experience.”

So how is HotelTonight doing financially in Europe?

“We are doing very well in Europe,” Shank says, without providing specifics. “We are exceeding our plans and growth is matching what we saw in the USA.”

HotelTonight projects that the company as a whole will notch 300% revenue growth in 2013 versus 2012, Shank says.

What’s to come?

HotelTonight burst on the scene in late 2010 as one of the first mobile-only hotel-booking companies, and the ability to complete a hotel booking in a handful of taps is still a distinguishing feature of the HotelTonight app.

Shank says HotelTonight sees it as a priority to further improve the mobile booking experience, and you can expect to see improvements on the payment side. For example, HotelTonight integrated Venmo Touch, which enables Venmo users to enter their credit card once and use it for payments on multiple apps.

HotelTonight is also focusing on enhancing personalization. Although HotelTonight currently displays a maximum of six properties for each city or section of a city, Shank says HotelTonight wants to get to the point where it shows even fewer hotels, or at least ensures individual customers are seeing the best choice for them.

“Are we going to go to showing just one hotel? Shank asks. “Probably not. But, if you aspire to have the first hotel shown to be the best hotel for the customer and that’s the one the customer books, then that is a win for us.”

Shank believes personalization is where things are headed, although he thinks it “is an incredibly hard problem because hotels are not commodities, and customers change, too, based on location, or at one moment they are a business traveler, and in the next they are a leisure traveler.”

Is a HotelTonight deal really a deal?

Meanwhile, a bevy of HotelTonight imitators have sprung up in the U.S., as well as Europe, and elsewhere. In the U.S. they include Priceline’s Tonight-Only Deals, Expedia Tonight Only, Jetsetter Now, and lastminute.com Hotels, for example.

So is HotelTonight offering real deals compared with the competition or is it all marketing spin?

On Saturday May 25, part of the Memorial Day weekend, I looked for a room for that evening in Baltimore, Maryland, and HotelTonight had deals for the Royal Sonesta Harbor, the Residence Inn Inner Harbor, Holiday Inn Express, Staybridge Suites BWI, and the Inn at Black Olive.

Jetsetter Now and lastminute.com didn’t show any rooms in Baltimore for that evening, and there were no special tonight-only deals through the Expedia and Priceline apps for Baltimore, either. HotelTonight’s rates were lower than those for the same properties through the Expedia, Priceline and Room77 apps.

For example, HotelTonight offered a room at the Royal Sonesta Harbor for a total rate of $173, and that was $43 cheaper than the rate through the Expedia app, and the Expedia rate through the Room77 app.

Likewise, HotelTonight’s $321 total rate for the Inn at the Black Olive was $114 lower than the Booking.com rate available through Room77, and $68 cheaper than the rate for the same property through the Priceline app.

Strong competition

HotelTonight certainly faces challenges in the U.S. and Europe. In another arena, consider how Priceline’s TV advertising campaign about its Hotwire-like Priceline Express Deals product shook Hotwire and its Expedia parent.

What would happen if the Priceline marketing machine turns its attention toward HotelTonight instead?

Shank argues that HotelTonight’s “world-class team,” plus its “focus and passion,” will keep it in good shape. “The only thing holding us back is ourselves, not the competition,” Shank adds.

Shank says HotelTonight is experiencing a lot of organic growth. “And, there is a time and place for that type of marketing,” he adds, referring to a substantial online and offline campaign. When those marketing campaigns do launch, they will be expensive, and that’s a fact that every startup these days has to deal with.

HotelTonight will certainly face some stiff competition in Europe from home-grown startups that may include Hot, Blink Hotels and JustBook. Shank isn’t talking about it, but an acquisition or two in Europe might make sense over the next few years if the Kayak pattern holds true.

Connor of Hot says year-old company has already been subjected to some acquisition nibbles, although not from HotelTonight.

While the ultimate leadership of the same-day hotel booking space may be in doubt, most observers believe the mobile revolution will propel its growth.

“We think the market is growing,” O’Connor says, adding that it could morph into 30% to 40% of hotel bookings in the future.

This is the third of a three-part series on funded travel startups, looking at where they started and their strategies for breaking out of the pack.

Part 1: The real-world challenge for travel startups, as mirrored in Hipmunk’s story

Part 2: Will Room 77’s deep pockets and strong product get it a seat at the table?