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The race for the next $1 billion travel technology company is on. Hotel tech startup SiteMinder has just received an investment that placed a more than $750 million ($1.1 billion Australian) valuation on it.
BlackRock, the world’s biggest money manager, led the round in the Sydney-based startup, which helps hoteliers get guests online. The companies didn’t disclose the size of the investment. BlackRock did not claim to be either the largest shareholder or a majority owner. Other investors include AustralianSuper, Ellerston, and Pendal Group.
‘We began the fund-raising journey targeting $70 million ($100 million Australian),” said SiteMinder CEO Sankar Narayan. “But, due to the interest and demand in the business, we ended with well above that.”
Before this round, the company had raised approximately $50 million ($70 million Australian) in venture capital from investors, including TCV (Technology Crossover Ventures) and Bailador Technology Investments. It launched in 2006.
For the year to June 30, 2019, SiteMinder, via its holding company Online Ventures, reported revenue of $67 million ($96.9 million Australian), according to filings. So the company’s valuation is roughly 10 times last year’s earnings.
Its business model takes a slice of a slice of a transaction. That’s much less than the fat commissions that, say, Booking.com charges. The startup seems to be competing on price.
For example, SiteMinder’s revenue for the year represented about 0.2 percent of the roughly $35 billion ($50 billion Australian) in gross bookings it handled for hotels last year.
To justify its new valuation, SiteMinder needs to find more ways to become useful to its hotel company customers. It must help hotels boost their revenue per guest, if the startup aims to push up its take rate beyond that 0.2 percent of gross bookings.
The methods hotels use to distribute their rooms to online and offline agencies have long been ripe for improvement.
“Today, you need a Ph.D. to distribute your rooms on the plethora of online and offline channels that are out there, or you buy in some tech to do that for you,” said Wouter Geerts, Skift senior research analyst. “Most hoteliers take the second option, and SiteMinder is one of the most prominent channel managers on the market.”
“You can’t argue with the success of a company that has 35,000 partners,” said Dan Lynn, co-founder of Zuzu Hospitality Solutions, a Singapore-based company that offers chain-like support for independent hotels. “SiteMinder’s channel manager product has got broad and deep connectivity, is fast, and reliable.”
SiteMinder faces competition among other channel managers, said BookDirect CEO Ephraim Spiro. “For instance, Siteminder has a minimal presence in Greece, where WebHotelier reigns supreme, or Russia where TravelLine is very dominant, or Brazil, where Omnibees commands majority market share, or South Africa, where Nightsbridge is deeply entrenched,” Spiro said.
SiteMinder’s numbers today may not justify a high valuation. Looked at one way, the startup booked about $1.3 million ($2 million Australian) in income, a measure of profit, in the year through June 30, 2019, or about 2 percent of revenue.
In that light, the company’s growth depends on expansion into services beyond channel management. The startup needs to deliver a set of higher-margin services, not just a piece of software.
“The challenge with any pure SaaS model is that they work in big, advanced hotels, who have mature head office teams in sales, revenue management, and distribution,” Lynn said. “But in smaller hotels, where a GM [general manager] is operating alone, we see low penetration of any channel managers, never mind more sophisticated revenue management systems,” Lynn said.
If you accept an estimate that there’s about 1 million hotel properties worldwide, a majority still use manual interfaces to upload their rates and availability to appear in the listings on online travel agencies. So the opportunity to sell automation is vast.
A Potion for Vendor Fatigue
In November, the startup formally debuted SiteMinder Exchange, a way to let hoteliers manage their rates, room availability, and reservations between their property management systems and about 400 online booking sites. Hotel managers can use the service to push their reservation data to the software applications they choose.
“For hoteliers and tech vendors alike, integrating all the different pieces of tech that are available today is a nightmare,” Geerts of Skift Research said. “Having an intermediary, like SiteMinder Exchange, that sits in between all the different vendors as a middleware layer would allow the intermediary to focus on ensuring integrations are established and connections are maintained, while each vendor only needs to connect once to this intermediary.”
The SiteMinder Exchange product competes to an extent with other vendors that help hotels find cheaper ways to connect to tech vendors, such as Impala and Data Travel’s Hapi.
“SiteMinder is pretty smart in how it’s repurposing its solid foothold with so many hotel customers into becoming a platform for providing connectivity with vendors,” said Valyn Perini, vice president, strategic relationships at hotel upselling tech vendor Nor1. “Impala is a smaller company that’s not as proven, and Hapi has a leadership group that the hospitality sector respects for having tons of industry knowledge but that doesn’t have the sector penetration.”
Other companies offering channel management and other hotel connectivity services include Derbysoft, which counts many of the world’s largest hotel chains as customers, and RateGain, which is well capitalized.
Despite the presence of rivals, SiteMinder hasn’t been seeing pricing pressure, argued David Yuan, general partner at TCV and a SiteMinder board member.
“SiteMinder primarily gives small chains access to demand, and many of these hotels aren’t on a GDS [global distribution system], so we haven’t been seeing pricing pressure,” Yuan said.
Opportunistically, SiteMinder could boost the effective take rate to more like 0.5 percent or 1 percent rather than 0.2 percent, Yuan said, if it helps hotels fill more rooms and also upsell and cross-sell more services over time.
Addressing “Dashboard Fatigue”
“Key aspects of our growth plan are to expand our geographic footprint among properties but to also provide more transaction-based services for guest acquisition,” said SiteMinder Co-Founder and Chairman Mike Ford. “During the next 18 months, we’ll come out with new products that address more customer segments. Over time we’ll add more intelligence tools that help hotel companies manage their business and give a high-level glance at their revenues, guest booking profiles, property occupancy levels, and so forth.”
Already about 17,000 of its 36,000 customers are using SiteMinder’s booking engine for their websites and apps, helping with direct bookings.
“Guest acquisition is so much more than plugging a hotel into, say, an online travel agency,” Ford said. “It’s also about how a hotel can use its direct e-commerce ability with a booking engine, a slick website, various marketing services, and upselling on things like airport transfers.”
In the last three years, SiteMinder’s staff rose more than 65 percent to 900 worldwide, and in June, the company will relocate its headquarters to a new district in Sydney. It’s hiring for a second office in Europe.
SiteMinder’s latest fundraising underscores that investors see opportunity in the operations of the travel industry, even though consumer-facing booking startups tend to remain the best-funded and most discussed. If its trajectory holds, SiteMinder is poised to reach a $1 billion ($1.45 billion Australian) valuation ahead of other hotel tech contenders, such as two Accel-KKR-backed companies, Pegasus and Cendyn and TA Associates-backed RateGain.