New technology is changing business models in the Tourism sector

I co-authored this article on Digital Transformation in the Tourism industry, for publishing in Mauritius.

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New technology is changing business models in the Tourism sector

Nowadays technology is all about convergence, about making different technologies work together for a business goal. For the last decade, a number of technologies have emerged and, most importantly, have combined -and are still combining- among them to form an increasingly powerful ecosystem. Some trends like social technologies, mobile smart devices, high-speed connectivity (4G, WiFi offloading, etc.), big data, Internet of things, smart cities, or micro-geolocation (<10 m), are creating a huge room for innovation, which must be tackled by incumbent touristic companies should they want to remain competitive, and survive in the medium-term.

Tourism is an especially susceptible industry to this new ecosystem. Tourism is social by nature, has a substantial geographical component, and for travelers presents the challenge of connectivity away from home. Also, due to the standardization of services and the perishability of them, a significant percentage of tourism-related sales is originated online, and the number keeps growing. We have lived this increasingly disrupting influence of technology since we experienced the creation of the first dynamic pricing IT programs of a major airline, since we saw the conception of Amadeus, or the moment Miguel got involved, around 15 years ago, in the launch of one of the first online travel agencies in Europe. More recently, with the study of business models of museums or Francisco’s role in the design and implementation of social media and online strategies of global brands such as Real Madrid or Spain (Tourism Spain).

Grounded on our experience, for the next decade we foresee the tourism industry being significantly changed by technology in the following ways:

• Increased competition based on innovative business models. Ever-cheap access to technology paves the way to new start-ups. Incumbents will compete against clusters of ultra-innovating projects (eg: AirBnB), working in a very competitive, Darwinist environment (survival of the fittest).
• Co-opetition. Cooperative competition will deepen further. Rather than internally replicate successful business technologies, touristic companies would buy them and quickly move forward, thus avoiding the risk of losing innovation momentum.
• Brands will understand the power of people, opening-up to create business-aligned social communities, instead of only looking at fighting against negative reviews and comments.
• Public administrations will take active part in this transformation. Hard to determine how, the industry shall be aware and take the lead to ensure public policies support the innovation cycle and do not distort competition, even under the intended goal of “promoting innovation and competitiveness”.

Actually, the future is already here. For instance, some hotel chains are experimenting with micro-geolocated apps that help cross-sell to customers. Others, like Melia Hotels, are using social technologies to add a social layer to guests’ interactions. Also, some shopping centers in NYC are beginning to use low-frictional wireless connectivity in conjunction with the latest geosocial technologies to provide a better, community-based customer experience, and to make sure visitors do not miss a product or offer that may interest them.

The question is then, “how could my business create value in such a dynamic and evolving ecosystem?” It is not an easy task. For achieving success we believe in leading the innovation change top-down, using technology wisely, with a purpose. Also we advise to patiently test «technobiz» concepts in small, controlled environments, before escalating them, and to integrate technology with internal processes and the organization, seamlessly.

The challenge is now posed. How is your organization going to win it?

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Miguel Palacios is Professor in Entrepreneurship at ESCP Europe, as well as the Executive Education Academic Dean on the Madrid Campus. After his MBA at MIT he was involved with DiamondCluster (now Oliver Wyman) in the launch of one of the first online travel agencies and since then his research focuses on technology and new business models. Email: mpalacios@escpeurope.eu

Francisco Hernández is a Partner at 11 Goals & Associates, a Digital Business Consultancy Firm with clients in the Tourism sector, among them TourSpain, Spain’s Tourism Board. He is also Adjunct Professor in the Master in Tourism and Hospitality of ESCP Europe. MBA at London Business School / University of Chicago, he worked for McKinsey&Co as Business Analyst, and for Real Madrid CF, as Director of Online Strategy. Email: francisco.hernandez@11goals.com