Blockchain comes to travel; disruption may ensue

Distributed ledgers via blockchain came to most people's attention as the underlying technology supporting bitcoin. But it's of interest to companies across industries, in part because it offers unprecedented levels of security.

I've been watching for unique blockchain applications in travel for some time and have come across a few examples that address relatively narrow operational issues.

But I recently sat down with David Brillembourg, an investor in hotels and hospitality technology, who is developing what he hopes will be a revolutionary platform employing blockchain technology and smart contracts to sell hotel rooms. His intention is to reduce costs for hotel owners and guests by disintermediating online travel agencies (OTAs) and possibly hotel brands.

Without getting into the weeds on the underlying technology, blockchain enables a community to formulate and implement its own economic rules, hence the rise of cryptocurrencies like bitcoin, which for the most part sidestep government regulations. This is done in part through the digital tokenization of a commodity, real or virtual, connected to a smart contract that defines when and how value is transferred or realized.

With cryptocurrencies, the commodity is a financial token whose value is typically measured against government-backed currencies. But Brillembourg wants to create a token and smart contract linked to a specific room in a specific hotel on a specific date and a platform marketplace where rooms can be bought and sold using an interface similar to what is currently displayed by OTAs.

Although the value will float, it would likely do so with more stability than bitcoin because it is backed by something tangible: a reservation.

Once the room is purchased on the platform, it can be occupied by the buyer or resold, either by a prospective guest whose plans have changed or by a speculator hoping to resell the room at a profit. The speculator can be, as examples, an individual, a meetings or wedding planner, an online or offline travel agency, a tour operator or a festival organizer.

The benefit for hotels, Brillembourg said, is that it frees them from dependency on OTAs and enables them to operate with the same benefits as a vacation club, with income guaranteed for a room that could later be traded, resold or even go unoccupied.

Brillembourg believes the platform, which he calls STEP (for Simple Travel Ecosystem Protocol) will be enormously disruptive to OTAs (and, I would guess, bed banks). He thinks it will free hotels from the temptation to sell inventory at significant discounts to OTAs and will provide flexibility to travelers who might otherwise face losses from cancellation penalties.

By creating a globally distributed, secure and decentralized system, STEP will be "democratizing the travel-tech space for all stakeholders currently competing with the OTAs' oligopoly," according to his PR agent's pitch. Brillembourg said he believes his system will reduce the cost to hotel owners from as high as 25% of a room's rate -- his estimate of OTA costs -- down to 2.5%, which is what he plans to charge.

But OTAs aren't the only ones in Brillembourg's sights. He thinks the platform has the potential to disrupt the hotel brands themselves, and possibly even home-sharing companies like Airbnb, by providing a cheaper form of third-party distribution for owners of hotels and homes/apartments/spare rooms. He estimates his potential market to be as much as 18 million traditional hotel rooms and another 4 to 5 million in alternative accommodations.

What he is creating is, in essence, a futures market for hotel rooms, with the contract taking the form of a "STEP coin" that can be exchanged for something of value, albeit value with a fixed expiration date.

The play, Brillembourg told me, will be in the peaks (periods of high demand) rather than in valleys.

But could peaks and valleys be manipulated? On one hand, for individual guests who have purchased a room but can't use it, STEP could serve as a Stubhub-like platform for resales. But one could also imagine that a new breed of companies will arise that purchase the entire inventory from a hotel or hotels in locations and at times when they speculate that the average daily rates (ADRs) will rise. A company akin to Live Nation Entertainment, but focused on controlling hotel rooms rather than show tickets, could even attempt to do so on a national or regional scale, using the STEP platform, or their own if they believe a rise in ADRs is likely.

In any case, should STEP be successful, hotel distribution, affected not only by "democratization" but by market forces free of regulatory control, could shapeshift in almost any direction. Sticking with the ticket analogy, scalping is a distinct possibility.

I would think, too, that should Brillembourg gain traction, he might find that GDSs could set up competing platforms or that hotel brands will attempt to set conditions for reselling, asserting that like airline tickets, it becomes a security concern when the person who shows up is not the same person who initially purchased the room.

As with all emerging technology platforms, its direction will be determined by a large set of ifs. But this is certainly an initiative worth keeping an eye on. We'll begin to know more after it launches on Sept. 1.