Hospitality Industry
5 min read

Is blockchain the true solution to the OTA challenge or is it merely a silver bullet hope?

There is the paid search, the SEOs and everything else you pay commission for. This is the landscape at the moment. So, you have as a hotel, you have a Greek salad, which is very tasty, but if you mix it, it doesn't look very constructive. No direct business - Only middlemen”. D.A. President Swiss Hotel Association & Ambassador of Swiss blockchain start-ups.

How is Blockchain relevant to the industry?

In the new global digital world of the fourth industrial revolution, blockchain technology has been revolutionizing many industries from banking and insurance all the way to the art industry. While companies in the aforementioned actively work on blockchain-based projects to assess the opportunity the technology provides, the overall technological trend has not yet passed through the hospitality industry. Yet, similar to the overall stage of technological infrastructure in the industry, this leap in technological adoption posits many questions and challenges for hoteliers.

While empirical studies progressively demonstrate their research interest for blockchain-based applications in the hospitality and tourism sector, scarce literature and case studies are found on the benefits and feasibility of blockchain technology in the hotel industry. For instance, Dong et al. (2020) illustrate the technical capacity for a decentralized booking system that used blockchain for hoteliers and travellers.

Even though a variety of blockchain-based start-ups exist for booking sales, reputation management and procurement, the technical development stage along with the understanding of all stakeholders involved in this sector is still scarce. Various companies within the travel industry such as Cool Cousin, Winding Tree, Webjet, LockTrip, Hotel P2P, Sandblock, Travelchain, and TUI with its BedSwap project (Önder & Gunter, 2020), implement blockchain applications into their operational systems to gain a competitive edge through various benefits of blockchain technology.

"But we really want to talk about what blockchain technology can do, that would be relevant to the industry… it is a mainstream technology that's now in the arsenal of companies like IBM, Microsoft, and Amazon and others." D.R., Global Industry Leader in Hospitality Technology.

 

Most empirical studies acknowledge blockchain technology as the new technological hype to introduce a new age of relationship between systemic applications and consumers away from a current B2B, B2C, or C2C liaison through intermediaries. While some consider blockchain technology as a potential disruptive application that will change society’s dependence on intermediaries forever, others are more reserved, assuming blockchain to be a foundational technology, whose development and social-economic integration will take years to come. In that context, specifically critical are the lack of understanding by end-users, compliance regulations, as well as organizational and investing constraints of enterprises (Saheb & Mamaghani, 2021).

Furthermore, financial risks and an unpredictable return on investment make it difficult for independent hotels to join this chapter even though they may be the ones most in need or able to benefit from this technological trend.

“You have the idea that blockchain is decentralization - decentralizing current relationships. That is the important part. You get real peer to peer relationships. No middleman, just direct relationships, that's important, this is how we make real business!” D.A. President Swiss Hotel Association & Ambassador of Swiss blockchain start-ups.

 

The first author of this article conducted an empirical study that encapsulated the perspectives both of the suppliers of blockchain technology to the hospitality sector, hospitality players, and technological experts to shed light on the potential and limitations of blockchain technology, answering the question: Does blockchain have the potential to become the panacea to the OTA disruption 20 years after its launch?

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This research has brought to light three aspects that are central to consider when considering blockchain technology:

1. Marrying market knowledge and technological consequences

It is important that hotels focus their investment interest on blockchain products and services in a mature development stage. In this regard, a thorough assessment for the use, the need, and the expectations of blockchain-based implementations has to be conducted throughout hotel management accompanied by strategic tech consultants.

Once a use case has been defined, return on investment scenarios are key to judge the investment risk in case of a worst-case development. Further, a pro-active, frequent, and transparent communication between experts and implementers is crucial to grasp the needs of all stakeholders involved and to "bridge" the gap in complementary knowledge.

“Why should you use blockchain? Why you use this, in case you don't want either a centralized host, or you want to prove in a tamper free way that your data has not been altered publicly, or you want to share with many users in a transparent way, certain bits. So, whenever you've got an application that does not match these criteria, for me, from a synthetic perspective, is not worthwhile implementing it.” Y.R.H., Senior Strategic Consultant & Tech blogger on blockchain.

 

2. Copy-paste of current OTA infrastructures will only leave the final call to the OTAs

It is important to state that current centralized systems are equally engaged in the adaptation of blockchain technology to eliminate the threat of novel competition. The Big Four in the world of centralized booking platforms possess all elements needed for instantaneous and profitable implementation – financial recourses, sophisticated IT structures, global commercial networks, and vast international customer community. Their competitive edge would outpace any new-comer stage at all levels.

Consequently, there has been a certain apprehension that OTAs might be faster in developing blockchain-based concepts to outperform any aspiring independent start-ups since OTAs have the capital, portfolio, and established infrastructure to switch technological concept. On this note, since 2020 Expedia partnered with the booking platform Travala to offer over 700.000 properties against cryptocurrency. On the other hand, the independent luxury hotel The Chedi in Andermatt, Switzerland (The Chedi Andermatt), recently published its new method of payment option with Bitcoin and Ethereum.

"Is it going to be the hotels that use it first? And the advantage? Or is it going to be the intermediaries? Because the intermediaries could do this." D.R., Global Industry Leader in Hospitality Technology.

"The intermediaries want it because they feel threatened." Y.R.H., Senior Strategic Consultant & Tech blogger on blockchain.

 

3. Readiness of the end customer

The general challenge with the adoption of a radically new technology is the need for ‘educational support of the end-user’. End-users mostly know about blockchain through press-related marketing for cryptocurrencies such as Bitcoin, Ethereum, Ripple and so forth. To that end, scientists have not only questioned the readiness and acceptance of end consumers to adjust to the emerging new technology but they are also worried about the immature stage of blockchain applications and the risks of a possible hasty disintermediation process (Önder & Treiblmaier, 2018; Rashideh, 2020).

"The customer doesn't care about the underlying technology. The customer wants to download a practicable application." Y.R.H., Senior Strategic Consultant & Tech blogger on blockchain.

 

In the end, the implementation process of blockchain-based applications in the hotel sector comes back to one question: "Who owns the customer?" Owning the customer means owning the sales funnel, means owning the market share of business.

"After all, the big question is who owns the customer? Who owns the sales funnel?" D.R., Global Industry Leader in Hospitality Technology.

 

Overall, blockchain technology can be considered a natural continuation of the technological evolution the hospitality industry is still catching up with. While broadly recognized as a beneficial systemic application for multiple industries and governmental infrastructure, pursuing a hasty, strategy-less implementation may cause more challenged than benefits for hoteliers.

In the end, all thorough systemic developments require time and prediction models such as the Gartner hype curve of blockchain 2021 foresees another five to ten years until decentralized models will plateau. Hence, on the one hand it is too early to make a predictive call as to the potential for blockchain to provide the panacea to OTAs that the hospitality industry has been waiting for.

On the other hand, it perfectly comes down to the chicken-or–the-egg question. First and foremost, it all depends on the idea. The right idea which answers the needs of all stakeholders at the right time will disrupt the vicious cycle of continuous impediments. Only the right idea will provoke the long waited paradigm shift that acknowledges the beneficial feasibility of blockchain for the hotel sector and break with acclaimed hype cycle predictions. Henceforward, to conclude, the question remains "What does the right idea entail?

Dr Nicole Rosenkranz
Written by
Dr Nicole Rosenkranz

Associate Professor of Entrepreneurship and Strategic Management at EHL

Saskia Hillmann
Written by
Saskia Hillmann

Senior Managing Director

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