Oyo made headlines for offering hotels a minimum revenue guarantee in exchange for taking control of hotel operations. Bob Diener and David Litman are doing it with a twist — trying to drive demand to select hotels to steal business from their peers in exchange for hefty margins on each sale.
Bob Diener and David Litman, the sexagenarian duo who co-founded Hotels.com and Getaroom, are back with the launch of a unique hotel distribution network in the U.S. that offers mostly 3-star hotels a minimum revenue guarantee.
Unlike Getaroom, a wholesale hotel distribution service that the two self-funded in its early days, the new Travel Funders Network, which debuted a few days ago, comes with $50-$100 million in funding from private equity firm Court Square, which teamed with a Canadian pension fund to acquire global distribution system Worldspan in 2003.
“We look to be a core base of business for the hotel,” Diener told Skift exclusively Tuesday. “We help them cover their nut and then they can revenue manage the rest of their rooms at higher rates.”
Minimum revenue guarantees for hotels sound like shades of Oyo, which tried and eventually abandoned the practice, but the Travel Funders Network is not the Oyo model. Unlike Oyo, the Travel Funders Network doesn’t operate hotels on behalf of owners, doesn’t have a flag, and doesn’t insist on a hotel exclusively working with the network.
One business model for the Travel Funders Network is that it offers hotels a minimum revenue guarantee with no up-front costs in exchange for a larger than usual margin, Diener said. The network markets the hotels through a business-to-business network of private channels, including frequent flyer programs and professional associations, and marks up the net rates it gets from the properties.
Unlike Oyo, the hotels establish the rates and can raise them.
Minimum revenue guarantees are not unique. Tour operators and wholesalers have used them. But Diener argued that the Travel Funders Network model is different because it gives participating hotels the ability to set their own rates, and has access to an unusual array of public and private distribution channels.
The Travel Funders Network, Diener said, also distributes the hotels to the public as add-ons to airline tickets or on tourism websites, and then incentivises a network of outsourced call centers to sell participating hotels.
So there will be next to no distribution through online travel agencies like Expedia or metasearch businesses like Kayak or Trivago, but Diener argues that the Travel Funders Network can do the marketing for hotels through the margins it takes, and drive demand to the properties.
There are no brand or franchise fees involved, and the Travel Funders Network is confident it can make a viable business and keep things going through the margin it takes on the back end once someone checks into a hotel.
The network isn’t trying to be all encompassing. Its goal is to initially sign up 100 properties, and expand it to 300 to 500 in a few years. The company will handpick hotels initially in markets including, New York, Washington, D.C., Boston, Chicago, Las Vegas and Orlando, targeting travelers from southern or midwestern states who might be driving to Florida or flying into Las Vegas, for example.
Diener claimed the Travel Funders Network would meet the needs of hotels on the U.S. East Coast who might have previously filled rooms with airline employees, cruise line staff, or travelers from Europe, or West Coast properties that attracted guests from Asia, all of which have basically dried up.
“It’s meant to be totally incremental to the hotel,” Diener said.
The Travel Funders Network currently has a half dozen full-time employees, and has an expansive roster of contractors, including call centers in Asia and Latin America. Diener said incentized call center agents can often close transactions from 30 percent of customers compared with travel websites that might convert 2-3 percent.
The minimum revenue guarantee is not the only way for hotels, including independents and franchisees, to do business with the network, Diener said. The company also offers to provide advance funding for renovations over the course of a deal, and marketing agreements.
The Travel Funders Network is licensing technology from Getaroom until the network can build its own, Diener said.
Diener, 63 and based in Miami, is president of the Travel Funders Network, and Litman, 64, is CEO and lives in Dallas, where the company is headquartered. That’s the way they’ve always operated their businesses, including Hotels.com and Getaroom, after meeting as college roommates in the 1980s.
They are clearly not launching their latest business because the two need the money. They co-founded what became Hotels.com in 1991, and sold it to USA Networks, now known as IAC, for $405 million in 1999. They sold Getaroom to a private equity firm in 2018.
You can read more about the history of Hotels.com and hotel distribution in Skift’s Definitive Oral History of Online Travel. Diener is interviewed in the oral history.
Asked why the duo self-funded Getaroom but took $50-$100 million in funding from Court Square for the Travel Funders Network, Diener said: “Getaroom was a startup where we had to prove the business model and did a very slow build up. We had to create the demand from scratch.”
He said he’s confident of the new company’s business model, and already has its “unique demand channels on board.”
“We can deliver mass volume for hotels immediately now,” he added. “We have great visibility into demand channels to be confident of our ability to deliver what we guarantee.”
Hotel distribution experts will be watching to see if a minimum revenue guarantee for hotels is a viable foundation for a startup this time around.
Photo credit: Marriott's Lakeshore Reserve is next to the main Marriott Hotel on John Young Parkway. The Travel Funders Network is targeting Orlando as a key launch market. George Skene / Orlando Sentinel/MCT