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Independent owners and small-to-mid-sized operators manage a majority of the world’s hotels, bed-and-breakfasts, and short-term rental properties. But their lack of tech expertise and small budgets tend to make them tough sells for software vendors. That has left an opening for startups aiming to tackle this underserved market.

Enter HotelRunner, a startup offering basic tools for managing and selling travel lodging online. It has found traction this year despite the pandemic.

Since March, HotelRunner grew its client list by 10 percent to 40,000 properties. The London-based startup said on Thursday it had acquired RateFor, a small firm in Istanbul offering rate analysis, shopping, and comparison tools. The companies didn’t disclose the terms of the cash deal.

While many hotel tech vendors have been furloughing staff and struggling, HotelRunner has been profitable and is currently hiring for market managers, product managers, and developers in Europe and the U.S. to join its 55 employees.

HotelRunner has aimed to stand apart by applying a low-cost model — think Ryanair or Yotel — to a software market for running and selling properties online that has grown bloated and expensive, said Arden Agopyan and Ali Beklen, managing directors and former IBM engineers who co-founded the company in 2016.

Ali Beklen left Arden Agopyan on the right hotelrunner managing directors source hotelrunner

From left: Managing directors and co-founders Ali Beklen and Arden Agopyan. Source: Emre Corbaci at HotelRunner.

“Arden and Ali from HotelRunner have been some of the most impressive founders we’ve worked with here at Founders Factory,” said Louis Warner, chief operating officer, Founders Factory, where they take part in the company’s incubator program focused on the travel sector.

“Arden and Ali’s vision for the hospitality industry, and their innovative model that helps aggregate supply at scale, offering distributors efficient and smart contracting access to this supply, at scale, all wrapped up in robust tech, is unique and visionary,” Warner said.

Low-Cost Model for Hotel Tech

Being cheaper than rivals is one strategy for HotelRunner. The company gives away basic digital services like building a website and adding an internet booking engine.

“We plan to commoditize the hotel tech stack, including property management,” Agopyan said. “We’re already gathering many hotels into our peer-to-peer, LinkedIn-like, contracting environment.”

The company keeps premium features cheap by charging only 1 percent of gross sales, which is often less than total costs leveled by its larger rivals, it said.

“This inventory of many hotels and rentals that haven’t been truly available for global online distribution before is attractive to resellers, meaning OTAs [online travel agencies], bedbanks, wholesalers, payment gateways, transfer agencies, and others,” Agopyan said.

Resellers such as Agoda, Airbnb, Booking.com, Expedia, Hotelbeds, and Google tap the company for supply.

“Some demand partners don’t have people on the ground in, say, North Africa, especially during the pandemic, to onboard small-to-medium-sized hospitality businesses,” Agopyan said. “So they’re happy to pay, say, $20 per contract to acquire the hotel and sell it through their platform.”

The company charges each online travel agency a flat fee based on the number of contracts. It also has a commission-based service for helping agencies boost their revenue from a specific hospitality company. It charges resellers for reporting and benchmarking services to help improve their businesses.

Keeping things simple is another tactic for HotelRunner. It claims to let a hotelier or property manager get an account set up and a simple website with a booking engine running within about seven minutes. It strives to replace many of the phone-based interactions needed to set up services with chatbot customer service and self-service tutorials.

For more complicated or drawn-out processes, like setting a hotel up for distribution on an online travel agency brand like Agoda, the company offers step-by-step online tutorials that walk customers lacking tech-savvy through the process, a bit like tax preparation software.

Providing a one-stop-shop of basic tech tools is another tactic.

“We started out planning only to offer connectivity tools,” Agopyan said. “But we found that independent hotel companies and rental property managers generally preferred to get one basket of tools from one provider. A bed-and-breakfast owner in Arizona, for example, might not be tech savvy or know how to deal with integrations. So we pivoted to offering a full-stack platform.”

HotelRunner’s acquisition of RateFor helps built out its bundle. The deal means that hoteliers and property managers will be able to optimize their rates by analyzing the rates of competing properties in their region and be able to view which rooms of their property are sold, on which platform, and at what price, in real-time, to ensure rate parity, Agopyan said.

Competitive Hotel Tech Sector

HotelRunner is like a small dolphin in shark-infested waters. The hotel tech sector is fragmented, with dozens of vendors, as anyone taking a glance at product rating site HotelTechReport could see.

HotelRunner has only raised $5 million in funding from 212 Capital Partners (its largest investor), Aslanoba Capital, and Founders Factory, though it is preparing to raise a Series A round. So it’s outgunned financially in the connectivity segment of hotel tech.

One of the segment’s largest cloud-based players is SiteMinder, a Sydney-based hotel tech startup that received backing from giant money manager BlackRock before the pandemic struck. Another fast-rising company is Cloudbeds, a provider of enterprise software for hospitality management that raised a Series C minority investment of $82 million before coronavirus took its toll.

Other widely-used players include RateGain, a travel technology company based in Noida, India, that in 2018 bought and absorbed the widely-used connectivity brand Dhisco, and Hotelogix, an Noida, India-based maker of core operational systems for hotels, merged last month with AxisRooms, a distribution company, and RepUp, a maker of Xperium reputation management and guest marketing software.

HotelRunner, which only handles 35 million transactions a day, claimed it isn’t intimidated by its better-funded and better-established rivals.

“We can underprice the bigger guys because we’re slashing the unit costs to provide services to customers for less,” Agopyan said.

Some hotel tech vendors are burdened with heavy cost structures which has led them to only target bigger customers in developed markets, Agopyan argued.

“One of the well-known tech players charges something like $39 a month for a small hotel in the U.S. for its connectivity services,” Agopyan said. “That’s nothing for the hotelier. But in North Africa, the fee is something for them. In the U.S. you could sell a room for $89 while in North Africa you might sell it for $20. Our percentage-based system instead offers localized pricing by default.”

HotelRunner cuts costs in other ways.

“We acquire customers at a much lower cost than competitors,” Agopyan said. “Our digital marketing efforts to acquire a hotel user on a freemium model is as low as $3.”

The company also aims to provide customer service more efficiently via chatbots and a lot of self-service tools, rather than have bloated staffs of market managers, which is more common by the bigger players, it said.

Greater efficiency is a promise more easily made than kept, especially as a company scales up.

HotelRunner faces other possible critiques, too. Many other companies trying to offer an array of services have struggled, relative to players focused on solving a single problem well, while other vendors have struggled to find sustainable profit margins while chasing the long-tail instead of hotel groups and hospitality’s other big enterprise companies.

Yet HotelRunner can already say it is one of the few travel startups to be having a positive 2020. For more sector analysis, subscribers to Skift Research can read the report The Hotel Property Management Systems Landscape 2020.

Photo Credit: Swandor Hotels & Resorts Topkapi Palace in Aksu, in Antalya, Turkey. Some of Swandor Group's 18 properties in Turkey, Greece, Vietnam, Thailand, and Egypt use HotelRunner's software services. Swandor Group