Hotel Tonight on Why Last-Minute Bookings Are the Way to Go

By Dan Costa Features PCmag

For this week's edition of Fast Forward, I'm in San Francisco at the headquarters of Hotel Tonight, an app that lets consumers book last-minute hotels for way below standard rates.

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Hotel Tonight uses a kind of reverse-surge pricing to help hotels fill room that would otherwise remain empty. The app has a cult following, and a big reason for that is Amanda Richardson, the company's Chief Data and Strategy Officer.

We spoke in the lounge right next to the kitchen—it was salad day—so you may hear people doing dishes in the background, but our conversation is well worth it. We discuss real-time pricing, the incredible power of user data in crafting products, and the existential threat of Google swallowing up all service industries. Watch the video and read the transcript below.

So, I'm a big fan of Hotel Tonight, I'm actually staying in a Hotel Tonight-booked room tonight, coincidentally.

That's perfect.

We did not plan on that, but for people who are not familiar with the service why don't you explain a little bit about the app and the service and what makes it special.

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We're the best place to get a last-minute hotel booking. The industry is one where actually a third of all hotel rooms sit empty every night. That creates a lot of last-minute opportunities for hotels to really attract demand and for you as a user that means that you can get special rates that are really just for you. Whether you're mobile, whether you're out and about, really just taking advantage of that last-minute inventory.

I think one of the things that's always an obstacle for us with users is airline prices actually go up as you reach the flight time but hotels are the exact opposite. There are a number of reasons. I think there are fewer airlines so the industry's super-consolidated; hotels have just a lot more diversity and are more willing to broker on those last-minute prices.

We actually watch rates fall...in some of our bigger markets like New York City, we watch rates fall 30, 40 percent within the last couple days before check-in, so it pays to wait.

It's an interesting dynamic, so if you go to Hotel Tonight, you open up the app, you can't book a room more than seven days out.

That's right.

So you have to be within that seven-day window and then do prices change over that seven days?

Absolutely yeah, so we see prices fall until that last day. In fact our date roll—the time we stop selling rooms—is actually 2 a.m. of the next day. You can see prices fall all night. The inventory's constantly changing based on when hotels sell out or fill up or decide they've had enough or whatever the case is. I mean, we have hotel revenue managers who log in and change rates 20 to 30 times a day, where they're changing rates and trying to arbitrage and figure out how to attract people.

It's real-time pricing for hotel rooms.

I think that's one of our differentiators. The beauty of being new and young is that our technology is new and young, so we don't have the latency, we don't have a lot of the regulations and rules that are in other contracts for what's called an OTA, an online travel agency, which we're considered [to be]. So, the revenue managers literally can log in on their phone and just change rates, and add rooms, take out rooms, close out, message their front desk, whatever they need to do to manage their inventory.

The concern is waiting too long. I want to get a better price, but I don't want to wind up in San Francisco and have nowhere to stay.

I know, it's challenging and exhilarating all at the same time. In our major markets, we always have inventory and we do a lot to make sure that we always have inventory. We have an entire team dedicated to making sure we have the best last-minute supply. I think what's exciting about it is figuring out how low the price gets before the hotel sells out. Also, what neighborhoods you want to be in. But it also just creates so much more flexibility in your day and your schedule. When I travel, it's wonderful.

I was in Paris and London visiting our offices a couple weeks ago. I just landed and I was like wow it is going to be beautiful and sunny, I'm going to go for a run on the Seine. I'm going to book a hotel near the Seine and I'll just walk a little further to the office, that's cool.

Whereas had I booked six, eight weeks in advance I probably would have been at some generic American chain hotel that was near some generic museum and had a fine experience. But this way I got a cool, unique hotel that was actually an old fabric warehouse and so everything had these custom fabrics that they had used and just felt very personalized and very boutiquey and a little cool, which is hard to do in Paris because I'm not really a cool person. So it was fun to feel cool in Paris.

I think you're a pretty cool person. I think that you struck on an interesting thing about the app, too. Part of it is getting the best price, but it's also a more browse-able experience where you can experiment on a hotel if you're getting a pretty decent price. You're like, 'it was $600 a night, now it's $250, at $250 I'll give it a shot' and I'll have a great experience that I wouldn't have been able to have otherwise.

We really pride ourselves on having boutique, unique inventory that you probably have never heard of because these aren't companies that are big enough to do TV advertising and catch your attention everywhere. That's our value proposition to hotels as well—we're going to give you the exposure and the access to...a younger demographic. These are up-and-coming users. We want to attract those to your hotel and introduce them to your brand.

Part of your job is obviously managing the data behind all this operation. You've got data that even the hotels themselves don't have, and that opens up a lot of opportunities. Can you talk a little bit about how you handle segmentation and using all that information?

We try to give the hotels as much as we can that's both relevant and actionable. I try to spend a lot of time with my team and within the company talking about the difference between actionable insights and fun facts. I have a lot of fun facts—they're not very helpful but they're fun. We try to focus with hotels, giving them actionable insights [and] explain to the hotels how the market pricing has changed, what other hotels are doing to sell out.

I think we've also heard from the hotels that they use our tools as a way of understanding what's going on in the market that day. So, if there's an event, for instance this weekend is Escape From Alcatraz [triathlon] here in San Francisco. That will create some compression and so hotels will log in to see where everybody else is pricing and what's going on in the market. That's the data we provide to the hotels

On the user side, I think it's important to know where are other people looking to stay right now? What's popular amongst the crowd? So, that's an indication of what might be the right choice for you, that could be good or bad. I have my moments where I'm like, 'Oh my God, 20 people are looking at that hotel, I'm not going there it's going to be super crowded let me go where it's quiet.' But then there are days where you're like, 'there must be something going on.'

Then we try to also personalize a little bit both in terms of results. [We also] have tools for the hotels to really target the different types of users and segment the different types of users that they want and so we try to feed that data back into the system.

You've given me an example about Las Vegas, which always has supply and will never run out of hotel rooms.

There are more hotel rooms in Las Vegas than I think anywhere in the world, for sure.

And they do steep discounting, so there are hotels that you can stay almost for free. They assume you will stop in the casino and spend money there.

So I would say the other thing we pride ourselves on at Hotel Tonight is really working well with our users. This came out of a conversation with some of our partners in Las Vegas where they were talking about their challenges at the last minute. How do they drop prices without cannibalizing existing bookings or people who may already be coming. The specific example was they know that if they drop prices for people in [Orange County] or LA that they will drive in, but how do they do that without cannibalizing a couple from New York who's had that plane ticket for six weeks and just hasn't gotten organized yet?

So, we came up with this idea of geo rates, where we actually target the users based on where the users are in that moment and the intent is to really drive demand. It works here in San Francisco where some hotels will choose to target the airport and so they really want to get travelers, or they want to target people who are already downtown for meetings and so they'll set a rate that's only available to users that are within a couple miles of the hotel in the hopes that you haven't made a booking yet and you're here for work and you're going to grab the room. Or, hotels in Napa will target San Francisco. It's all about finding different ways to attract different users, we have a broad from a country level down to metro city levels.

It's an interesting dynamic, because it is so customized to individuals. In the future, every business is going to be like this, where supply and demand are constantly going to be in flux. The thing that I worry about is businesses are going to have divisions dedicated to this, to pricing and to supply chain management. I feel like consumers are not necessarily as savvy. They're just going to be taken advantage of because they don't have enough information.

One of our core values is respect. We always want to do right by our users and that's not just our app users, but also our hotels. We want to be a fair marketplace because if either side isn't winning, we're definitely not winning. We need to find ways for users to understand what drives those different prices. I think it's hard as an industry. Even as a company, when you talk about machine learning, you talk about our artificial intelligence and you see where the world is going. You do end up with these, what are affectionately known as 'black box algorithms,' where you don't know what the big driver is, but you know it's working. So how do you make sure it doesn't feed on itself in a negative way?

We were talking a little bit offline beforehand around even the bubble that can be the news media. What you hear and what you see in your Facebook feed based on who you are and who your friends are and it kind of feeds on itself. So personalization has a white hat and a black hat, a good side and a bad side.

So, you're saying even the vendors themselves may not understand the algorithms that they've put into place. They know they can measure outcomes positively or negatively, but they might not understand how it works. I don't think a lot of people realize that.

That's how a lot of these machine-learning tools work. One hundred years ago when I started in Product, we would just pick the five or six leading indicators and say it's 20 percent based on this and 30 percent based on that and 20 percent on this. Now, it's like, let me feed all the data into the machine, let the machine power through multiple cycles to figure out what the driver is, and of the 50 pieces of data I've given it, it may only be watching two or it may only be watching four but I don't know which two or four. I don't know how those weigh out.

That may sound a little scarier than it is, the machine will feed back what it's doing and what it's reporting on, but that's a very different world from what it used to be like. Now it's a world where we give the algorithm everything and let the algorithm tell you what the important variables are. Choose what you drive your algorithm off of wisely.

We're moving from a world of A/B testing, where you would decide what to test, to a world where we test all the variables, all the time.

And all the variables may work in different combinations for every user. That's personalization, but when you talk about it that way it sounds really scary.

It's pretty clear how real-time pricing works for the hotel industry. Are there other industries that would benefit from that same dynamic?

Oh, sure. I mean I think everybody can be smarter about how they're pricing. I think we've seen some experimentation in terms of last minute, in terms of restaurants, I know there's some experimentation happening with last-minute food, interestingly. So that day of vegetables and inventory that's expiring, how do you price that?

Specials on the menu.

Exactly, the specials on the menu at the restaurant, but now the Whole Foods that is not Whole Foods. It's kind of the Whole and Mushy foods, or something like that, which is probably not the right brand for them, but figuring out exactly what they want to do and there's a ton of opportunities.

Surge pricing is all about finding ways to dynamically price, but it's a challenge on all companies to have the technology that's able to do that. I think what's hard for our hotel partners, where you have one GM or a GM and a revenue manager managing inventory for 365 days, working the front desk, and trying to make sure that the towels get delivered to room 506; it's a lot to manage. So how do they both capitalize on that without being able to specialize? That's an opportunity for us to make sure that we're treating our hotel partners right and giving them tools that are helpful.

What other broader trends do you see in the travel industry?

I think there's a lot of interesting trends. Aggregation, aggregators, and meta have become huge. This is the rise of things like Trivago, Google Travel. Kayak's been around for a while. I think just in terms of users no longer going just to one place and expecting to get the best price...

Trivago says you have to go there first.

They do, they do. My mom thinks I work at Trivago. True story, she doesn't know much about Hotel Tonight and can't understand why anyone would book a last-minute hotel room, but she always says, "That Trivago guy, he's so nice, is that your boss?"

He's very compelling.

He's very nice.

Strangely compelling.

'I don't work at Trivago Mom, just in case you're listening, I don't work at Trivago still.'

We'll send her a link to the show.

Send her a clip! But yeah, meta has become both an opportunity and a challenge for the hotels. That's radical transparency, to your point about data being available to customers, all the data's there. Why are you pricing differently on Expedia versus your hotel website versus Orbitz or Booking.com, it's all there. Other interesting travel trends are really about the "in-stay experience," which hasn't been improved in 75, 100 years. You still go to the front desk, give your name, get a key and then walk to your door, other than the soda machine, nothing's new in there.

Hyatt's got their app with their electronic check-in, but I was staying at a Hyatt just two nights go and I'm like 'I don't want to download another app to check into my room.'

It's a challenge, right? And then there's also the capital investment. Most of these hotels only expect to refurb the rooms 10, 20, 30 years depending on the property. If you're buying door locks today, they have to work in 2027. I don't even know what you choose, it's a hard challenge.

My husband and I did a stay last weekend and we had to call down to get the valet. I don't know why that was so annoying to me, but it was just really annoying. I was like, 'can't we just push a button, 15 minutes in advance?' We've a young child, we've got a 1-year-old, who's like running around pulling the curtains off the wall and I'm trying to be like 'No, no can you hear me, it's ticket 693?' There's just got to be better ways to improve the experience.

That is something that could be automated.

We're doing some things now, it's no longer experimentation. We've done a lot with automating a concierge service for our guests. If you book with Hotel Tonight in the major markets, we offer what we call a pro with your stay. That pro can help you with everything from 'tell me the cool coffee shop,' to 'where do I want to go for dinner,' to 'can you just call the hotel and make sure housekeeping comes,' or 'can you get me more towels.' And it's all just a chat interface.

A chat interface with a real human.

A chat interface with a real human! I mean we talk about all of these algorithms and where the world's going, [but] the reality is there's still a lot of humans needed. It's our customer service team and they will reach out to the hotel and do what they need to do to make sure you have a seamless stay. Users love it, they rave about it.

That's because the pros have all the numbers, they don't have to find the number for the front desk.

They don't have to figure out the front desk or the seven different buttons on the phone. It's just all very easy and seamless. And it's the interface where you want to be. For better or worse we're all on our phones all the time. It's in your pocket and so yeah we've seen incredible both conversion rates and retention rates with that. I get a lot of questions when people say, 'That must be so expensive to have this team of people,' and no we have full-time not small, a sizeable number of people answering these calls but it pays for itself because it's just a better customer experience.

Do people have to pay extra for pro?

No. It's just part of your booking.

So you have the mobile app. What comes next? Obviously at Apple's event this week, they're pushing voice interfaces. Google's pushing voice interfaces. We've got Facebook Messenger bots also doing transactions right now. It is also being used as a customer service tool. What platforms are you going to develop for next?

We spend a lot of time debating if we were to hire 10 more developers, would you deploy them to desktop? There's certainly a lot of bookings that still happen there, even though over half of all bookings now are done in the last minute on your phone. We have a big opportunity; there is still presence on the desktop. But, given 10 developers, we're much more likely to drive those to a new interface. I don't know which the interface it will be, but voice is key.

If you give your phone to a 5-year-old or an 8-year-old and ask them to search for something, immediately it's like, 'Hey Siri, where should I go for coffee?' Siri's just always there and it's an easier way to search.

I think the conversational interface would be great for just doing price checks. What is the price of this hotel today? Just keeping track of it that way so instead of opening it up and scanning through selections, you can query it and say you know you're going to watch that hotel and just ask it day after day. Or even set up alerts.

Wouldn't it be even better if it was like, 'Hey Siri I want to stay at the Zetta next week, can you tell me the right time to book'? If Zetta knew how many people were watching or waiting to be told...they could figure out the right pricing scheme for them to maximize their sellout. It's a huge opportunity.

So why can't the Zetta do that on their own? Why do they need Hotel Tonight?

They don't. I mean they can hire a development team and go through the app store and try to build up the partnership with Apple and Google and the Play Store and it's all possible. I think it goes back to what I was talking about earlier where you have a GM whose responsible for a million different things and just constrained. Given money, is that person going to develop and maintain the app versus partnering with us?

There have been a lot of studies that look at the cost of acquisition for the hotels. What does it take to acquire a new guest between the marketing they do, the email systems they pay for, the Google AdWords they buy, and all the things they do to try to attract direct guest or what they call direct bookings versus using the third-party tools.

My point of view is each hotel has something different. There may be some hotels where they've just got so much cache and it's so important to them to be directed, that's how they work and then there are some hotels that just realize they're going to do what they do best, which is probably hopefully a hospitality experience and leave the marketing of that hospitality experience to other people.

What technological trend most concerns you, what keeps you up at night?

Well I have a one-year-old so a lot of things keep me up at night.

That is only one thing that keeps you up at night.

I do think about voice a lot. Not necessarily what we talked about, specifically, but I think what's really hard is thinking about keyword search as it applies to voice. So when you type into Google, 'give me a Hotel Tonight,' there are always 10 to 12 results that show up.

And the first four are Google ads.

Right, when I ask my phone and say, 'Hey, can you get me a Hotel Tonight,' if Siri came back to me and said, 'Number one is this, number two is this,' that would be a terrible experience, so how do you make sure you're number one and how do you get to be number one and how do you think about having the mind share and how do you deal with users who may say, 'I just want a hotel,' and they don't name a specific brand?

Working through what that voice experience is keeps me up at night and sometimes I'm super excited to figure that out and sometimes I'm like, 'oh crap in a world where half of our team is dedicated to making great pixels on phone, pixels go away, what does that future look like for us.'

And you've also got Google in the market. They're a somewhat formidable competitor.

Right, they do search really well. And they bring back results really, really well. I remember I was having a debate with a gentleman who worked on the team. I was saying, 'Our keyword is Hotel Tonight,' and he's like, 'Well you can't have Hotel Tonight as your keyword,' and I was like, 'But that's our company,' and what do you do?

You have a logo.

I know, exactly we can't rebrand because you won't give me the keyword.

They're going to move from the search box to voice, but also all of their services are going to be Assistant-driven. They don't want to give you a list, they want to give you one answer.

And it may be conversational to figure out what that one answer is, but how do you make sure you're in all those branches? What does that mean to the user? And what value does Hotel Tonight provide then?

I think that's the other thing I think about is what is that experience? Because I know people who stand in the checkout line at Whole Foods on a Saturday, because it's forever long, and they are just thumbing through all the places they could be instead, like 'oh look at that pool in Napa I could be at.' And if you lose that experience, what does that look like longer term?

People don't flip through web pages when they're waiting in line, but they do flip through Instagram, they'll flip through Facebook. It isn't transactional.

Right and that goes back to this meta search conversation and this rise where it's like give me the cheapest rate at the Axiom hotel. Okay the cheapest rate is $175 on this channel, do you want to book it? And then all of a sudden you've paid with Apple Pay and what does that mean for apps?

Absolutely.

Now I know I'm not going to sleep tonight.

We got the negative out of the way, now we're going to move to positive. What technology do you use every day that inspires wonder?

Inspiring wonder…I do spend a lot of time browsing through Instagram. I think I made the mistake early on in my social media life of accepting and adopting everything and now I really try to spend time curating, I think that's a lot of fun.

Why does Instagram inspire wonder? Because you're not alone, it's probably my favorite social network, the one I get the most joy from.

That's funny, I don't think of it as a social network so much as I think of it as like a magazine of what's going on around me. The visuals are an incredible way to communicate, a picture's worth 1,000 words, and I think it makes untalented photographers, like me, look really great. It's just very consumable and easy. I still get paper magazines sent to my house and some of my favorite sections are actually the ads. This is nerdy, but I kind of love couture ads for big designers and the first 50 pages of my Vanity Fair, I love that stuff. It's inspiring, and I wonder what it would be like to wear that crazy outfit.

So, it's aspirational.

It's totally aspirational, totally escapism, you know what I mean? I tend to find myself looking at it, it being Instagram or any of these photography situations where I'm commuting or doing something that's a grind or truth be told sometimes at my desk when I'm like I just need a minute, let me pretend I'm sailing the seas, let me pretend.

#vanlife is a great hashtag. You should follow that if you really want to be transported to a different world. But also you made a good point about the ads, the ads on Instagram at the moment there are not too many of them, and I find them incredibly compelling.

I think that team has done a really nice job trying to make sure that it's both contextually relevant as well as high quality. We've worked with their ad team, and I have been super impressed by both their editorial quality and trying to keep it above board. It's a hard thing to do with images because the clickbait problem is real. We've seen that in other social networks. You have to be careful to make sure that you keep your aesthetic while also working with your advertiser's aesthetic; it's not an easy problem to solve but they so far are doing great.

I've clicked on more Instagram ads in the last month than any other ads. And I never click on ads.

True story, I bought these shoes off of an Instagram ad. I'd never even heard of the brand, now of course they won't stop retargeting me, which is kind of annoying. I want to write back and be like, 'I already got the shoes, like stop! It worked, okay, stop and leave me alone.' My husband's going to kill me if I buy another pair of shoes.

So, in terms of productivity tips or suggestions?

Have a baby.

Have a baby, that makes you more efficient?

It makes you so much more efficient because you lose all this time in your day. I'm still a big user of Evernote. I love Evernote. I'm a big fan of multiple calendars actually, so I have a lot of calendars, my personal calendar, my work calendar, we have a team calendar, I find that's a good way to just communicate. I use Slack, I don't know that I love Slack, I find it's another place for just getting a lot of noise sometimes.

Slack, it's also just for work.

Oh no, I'm on like seven different Slack channels like groups, which it just becomes overwhelming, it's just a whole other pile of threads to read so that is my anti-productivity tip.

So, avoid non-work Slack.

Exactly.

So how can people find you online, how can they catch up with what Hotel Tonight's doing?

I tweet occasionally so you can find me on the Twitterverse on @amandarich01 or my email address here at Hotel Tonight is amanda@hoteltonight.com so I'm always around, love to catch up.

For more Fast Forward with Dan Costa, subscribe to the podcast. On iOS, download Apple's Podcasts app, search for "Fast Forward" and subscribe. On Android, download the Stitcher Radio for Podcasts app via Google Play.

This article originally appeared on PCMag.com.