Are You a Super Aggregator or Among the Super Aggregated? Six Evergreen Questions for Incumbents by CDT

Shafiq Khan, senior vice president of channel strategy and distribution at Marriott International, spoke about Marriott’s digital strategy at a recent Center for Digital Transformation symposium.^[1] His talk surfaced six questions that executives of incumbent businesses like Marriott should be asking themselves regularly.

1. What else can we make easier for customers?

Mr. Khan is one of the longest serving digital executives in the travel sector. He began his career at United: “We were spending one in every six dollars of our sales, of our revenues for distribution,” said Khan. “We were not selling a TV set or a car that had to shipped, warehoused, or transported, but we were still spending 17 percent.”

That was too much for distributing an intangible. Khan analyzed United’s system and discovered an incredibly onerous process for delivering a paper ticket to a customer: “You couldn’t take a flight without it,” he said. Accessing flight schedules was complicated, and there was a travel agency on every corner. Those contributed to United’s costs. So the airline invested in technology to replace printed tickets with digital ones and give customers direct access to United’s inventory online.

Khan went on to launch marriott.com and other digital initiatives that have made customers’ lives easier. Since then, travel has become the single largest sector on the Internet. “Thirty-five percent of all sales on the Internet are for travel,” he said. “The fact that we were there early made it much easier for us, as big as we are.”

2. How can we broaden our value proposition?

Today, there are far fewer travel agencies and far more travel aggregators such Expedia, Orbitz, and Travelocity. The upside is that they reduce Marriott’s distribution costs and reach a greater range of consumers than Marriott could afford to reach on its own. The downside is increasing price transparency: consumers can compare prices easily. They can also get data on quality and sign up for an aggregator’s loyalty program.

Over time, these sites have aggregated inventory from other hotels as well as airlines, rental car dealers, restaurants and other local attractions. “Expedia and Priceline, for instance, have a proposition that’s much broader than ours, and they can take that to the bank.” Once they get scale, they start to have leverage, and that leverage translates into higher costs for Marriott.

3. Which ecosystem are we in, and how are we leveraging it?

One level above Expedia are Google, Apple, and Amazon, aggregators at an unprecedented scale. Most of these players started in a beach head segment, as Amazon did in books. It made books easy to find and buy. For Google, the beach head was search: it enabled users to find information anywhere on the Internet.

Google has moved far beyond its beach head. Consider how many people have a Gmail account, watch YouTube regularly, or own an Android Device. Khan said, “Seventy-five percent of the world now uses smartphones or Android devices,” said Khan. Google is “no longer just a marketplace, it’s an ecosystem itself. Apple is an ecosystem. Whoever runs these ecosystems can take their toll” from suppliers. If it’s a benign ecosystem, maybe it does what Apple has done with iTunes: 99 cents a song with 30 cents going to Apple. “If it’s not very benign—and, frankly, no business is benign if it has leverage and monetizes that leverage—then it’s a situation,” he said.

Incumbents can’t afford to dismiss anything these super sites do, whether it’s driverless cars, delivery by drone, or the iWatch. “Make no mistake about it; these are business superpowers that are bigger than anything we’ve ever seen,” said Khan. IBM and Microsoft “pale in comparison to the power that Google has in owning the customer relationship.” He added, “I don’t think they’re leveraging the ecosystem as much as they could.”

4. How are we using data to identify unmet needs in our ecosystem?

“You’ve got to own the customer relationship to the extent you can,” said Khan. In the battle for customers, the advantages of software platforms, network effects, and data analytics will make the digital marketplace far more difficult for incumbents than it is now.

Look at Airbnb. People who couldn’t easily rent their apartments can now do that through Airbnb’s platform. All of a sudden, supply goes up. According to Khan, the question incumbents should ask is, “Is this additional supply coming with demand that didn’t exist before?”

Khan gave an example: “Let’s say AirBnb was largely in the couch business. There are lots of kids who would take a trip because they could sleep on somebody’s couch for fifty bucks; they couldn’t afford a two-hundred dollar hotel. That’s okay.” That’s new supply for new demand.

But Airbnb is moving into other segments served by incumbents. According to Khan, “supply goes up in a market by 10 percent, and demand is going up by only two percent. The laws of economics take over. Prices come down, or we have low occupancy and margins go down.” That’s bad for existing businesses.

Incumbents could do more to meet the existing needs of their market segments. “We’re not playing in the castles or fort space ourselves. That’s not the core business at Marriott,” said Khan. But Marriott is debating whether to enter the apartment rental space.

Incumbents could also do a much better job of mining their data. Khan recognizes that the super aggregators have access to far more data than Marriott—that’s an emerging threat—and so Marriott has invested in its analytics capabilities and created an internal organization dedicated to data analytics.

5. What are we doing to ensure brand relevance?

“The brand is our biggest defense,” said Khan. Customers are loyal to it. “People are coming to us directly in far greater numbers than they are through aggregators.”

But incumbents must be strategic about maintaining brand strength and relevance. Khan expects acquisitions to remain a part of Marriott’s strategy: “When I joined the company 15 years ago, we had 1,700 hotels. Now we own 4,100 all over the world.” That kind of scale brings Marriott both economic benefits and leverage. “In the emerging environment, we need both.”

Service innovation is critical. Marriott.com now enables customers to rent space by the hour, and guests will soon be able to text room service, housekeeping, etc. Mobile will enable Marriott deliver the right service at the right point and to personalize the customer experience.

Innovation isn’t always easy. According to Khan, Marriott has “tremendous baggage in terms of our legacy systems: these old systems don’t really connect very well to the new systems on the web.”

Should incumbents move onto a completely new platform that doesn’t integrate with their old platform? Or should they extend their old platform and make it more flexible? Marriott is grappling with those questions now.

6. Are we having fun yet?

“This is one of the best times to be living in the world,” said Khan. “The Digital Revolution is the second biggest revolution after the Industrial Revolution. Ninety percent of the world was in poverty before the Industrial Revolution. Now about 50 percent of the world is in poverty. It’s a big change. We are all going to see a lot of really exciting things happen, so enjoy the ride!”