The mobile internet takes shape

Megabuyte, July 2012. Original article here (£).

mobile webLetter from the West Coast
The mobile internet takes shape

HotelTonight is a mobile business with its eye on a future. Specifically, the future where we will all have fast internet available on clever gadgets in our pockets. HotelTonight, which is just this summer launching in London, provides an app where users can book same-day discounted hotel rooms using their iPhone, iPad or Android device. It is a great example of a service that is made specifically to take advantage of the main benefit of the mobile device: solving a problem at the last minute, while on the go.

Keen to try the service ahead of my meeting with CEO and co-founder Sam Shank in San Francisco, I found myself in something of a “the cobbler’s children have no shoes” moment; this technology journalist’s phone is too old for apps, and HotelTonight’s services cannot be used on a regular computer. Shank takes this in good spirits, pulls up the app on his iPhone and hands it to me. It turns out there is no need to spend time familiarising yourself with this app, because the interface is so sleek and the options so self-explanatory that you would be hard pressed to struggle. The app is designed to enable users to move quickly through the options, with minimum fuss on the small screen.

But, I ask as we sit down to talk, would it really detract from the mobile app to just have a basic website that people can access from their computers? This was what I tried to do in a cafe earlier that day, using my very mobile laptop. “There is a reason why we have stayed mobile-only,” says Shank. “As a start-up you have to focus to be the best at something. And the bottom line is that online travel is growing at single digits a year, whereas mobile bookings are growing at 100% per year. So if you had to choose which one to be in, it is very obvious where to go.”

A mobile focus
Shank believes a web portal would distract the team, now at 45 people and counting, as they would have to support another platform: “Our message is very clean, it is mobile-only and that is why the deals are great. You are getting people when they are already out. It is a better message on the brand, and it is a better message for the hotels. It has been working really well.”

In addition to streamlining the focus, the mobile-only focus also has other benefits: “Being entirely based around mobile means we have a different way of thinking. The approach to the market is different, the marketing channels are very different,” says Shank, adding that the customer service also sits within the app. “If we were trying to do a website, we would be doing things very differently in terms of all the other aspects of the company as well. We want to be really good at mobile because that is where the future is.”

It is hard to argue with this argument, as Shank is betting on a future trend – the spread of the mobile internet – that looks pretty certain. Financially the company is no slouch either, having just secured $23m in a fundraising round led by US Venture Partners, which includes participation from Accel Partners, Battery Ventures and First Round Capital. The group has now raised a total of $35.8m since its establishment in December 2010. Shank, who was also the founder of DealBase.com, a travel deals search engine, has a lot of travel sector expertise with him; his co-founders are COO Jared Simon, previously online-video production and distribution outfit TurnHere, and CTO Chris Bailey, formerly of DealBase.com and Adobe Systems.

Shank, Simon and Bailey are up against some big names in the travel industry though, including Expedia, Priceline, TripAdvisor and Orbitz. The CEO says he actually waited a few months after having the idea for his business before going ahead, because he thought, surely something similar must already be in the works. It is such a simple, obvious product idea. “But then I realised: no one [else] is going to do this. And if no one else is going to do it, I want to be the company that does it.”

Poised for expansion
HotelTonight takes a 20% cut of each transaction, an amount Shank says is standard in the industry. With over 2.3m customer downloads under its belt, the group is now pushing hard to include more cities, both in the US and internationally, a process that is labour-intensive. HotelTonight has great traction, says Shank, but admits there is some work involved in explaining the benefit of this new business model to hotels: “The message we have for hotels is very friendly and very complementary to what they already do. We say: ‘Only use HotelTonight if you have rooms available on that same day that you know you are not going to sell otherwise. Give them to us and provide a discount to consumers, and we will help you fill those rooms.’ It is a very different message to what is being sent by the bigger online travel agencies that are competing with the hotels for advance purchase bookings.”

HotelTonight customers can book up to five nights, but the first night must be the same day. The app only shows three of hotels at any one time, meaning there is a level of unpredictability. Half the users are business people, explains Shank, using the app on last-minute trips or maybe after a delayed flight; “The other group of people are what we call ‘impulse bookers’. These are people that would otherwise not stay in a hotel at all. […] For the hotel industry [this means] it is not cannibalising, but it is growing the entire audience.” Another advantage for HotelTonight over the competition, according to Shank, is having the best booking process, the best merchandising, the best bargains and the ability to deliver the best quality guests to the hotels.

Bigger, better, faster

Unlike in the UK, 4G mobile internet rollout is well underway in the US. Spirent CEO Bill Burns, whose company is a leader in testing the newest networks and gadgets for manufacturers, says the coverage is still patchy even in big US cities, but AT&T and Verizon are working on it consistently. What this means for people is that soon the internet in our pockets will be as good as broadband at home.

“There is a significant difference in speed from 3G to 4G, maybe around four times faster. This all depends on coverage though: what aerial you have, what is your connectivity, how close you are to cell towers,” says Burns, adding that 4G phones will fall back on 3G when the former is not available. “4G will roll out over the next 10 years. But there will be many years where we will also continue to go to faster data rates for 3G. There is lots of hype around 4G and LTE (long-term evolution), which is just in its infancy.”

Today, most people would be thrilled to get a broadband-level internet service on their mobile phones, and it seems a bit greedy to ask for more. But we will – increasingly better gadgets, expanding social networks, online phone calls and better video streaming services mean that soon we will ‘need’ faster data, and we will ‘need’ it not only at home but at our fingertips. Verizon and AT&T in the US are the furthest along with 4G, with progress also made by DoCoMo in Japan and providers in the Nordic countries. “In the UK, if one of the operators moves ahead with 4G the others will follow. They need to compete with those faster data rates,” asserts Burns. After all, the technology is already being developed to take things to the next level beyond 4G: LTE Advanced.

“Early adopters will move to LTE Advanced in three years from now, but the ones that are just adopting now will get to LTE Advanced in about 10 years. […] The capacity to push data from the devices, out to the wireless network, to the core network and back to the data centres are all evolving at the same time, and that is the opportunity for anyone inside technology and IT,” says Burns, adding that the reason this is so exciting now is that the demand is already there: “If you look back to the year 2000, you saw a lot of networks being built without a lot of users demanding that bandwidth. Today the demand is really coming from people who want to use these devices like you and me, and they are demanding all of this, and truly pushing the use and demand from everything from social networking to video.”

Right here, right now
HotelTonight is sitting pretty in the middle of a big trend, with founders wasting no time trying to pander to more dated models with lesser growth. Starting out as a purely mobile company means the likes of HotelTonight can create a product that is ideally fitted to mobile. This goes beyond designing the product to fit on the small screen, to truly taking into account the unique needs of a user who will be in different situations than those using a desktop computer: in the street, in a rush, maybe on a slow connection, and in need of something specific to their exact location.

HotelTonight covers all these bases, but there are lots of others who have done well: the Uber app offers on-demand car service to US customers; Hailo is a UK black cab app launched by three cabbies and three tech entrepreneurs; Trover is an app similar to Instagram, but the photos are organised according to geographic locations. “Beyond that, there is a lot of personal expression apps and companies, whether that is finding people that are close to you, or photo-sharing or local discovery,” says Shank. “This is a very natural fit for mobile: ‘I am out, I need to get around.’”

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