by Terence Ronson, ISHC 
August 1, 2011

Staring out of the window from my air-conditioned room during this hot and sticky monsoon season, I glance across Hong Kong's magnificent harbor and witness an amazing spectacle. All I can see are clouds - clouds in shades of white, black and grey, moving in and dominating the landscape. This remarkable act of nature immediately brings to mind a shift taking place in the Hospitality industry. And I cannot help but wonder about the true implications of moving the Hospitality industry into The Cloud.

Will the Sun in all its magnificence and awesome power break through and shine - turning the clouds into beautiful white and friendly fluffy masses? Will the grey ones morph into something much more sinister - a doom and gloom of black, ready to unleash their hidden horrors of torrential rain, ear-shattering thunder claps and electrifying lightening bolts?

Without doubt, the latest trend to grip the global technology industry is The Cloud - you read about it, you hear about it - but in all honesty, do you, a Hotel Industry Executive, really understand it and the associated implications? Do YOU even care?

 

Let me demystify this subject - because it is in this Hospitality Industry Executive's point of view that YOU must absolutely care.

 

So what is The Cloud?

Simply put, if on a personal level you are using a web-based email service like Gmail, Hotmail or Yahoo, then you are already using The Cloud. If you perform web searches through Bing, Google, Wikipedia or Yahoo - you are using The Cloud. If you use applications like Google Apps or Office 365, you are using The Cloud. And if you shop via Amazon or iTunes, you are using The Cloud.

 

This means you access a service usually through a Web Browser (such as Internet Explorer, Safari or Firefox) - sometimes referred to as a 'Thin-Client' - a low-end computer with very little localized software needed to perform that task. Some of us can cast our minds back and see some kind of similarity to the bygone era days of Mini-computers where we used something called Dumb Terminals - those boxes with green or amber characters on black screens.

 

Today, chances are high that we might use an app on a Smartphone or Tablet that performs a similar function - also connecting via the Internet. 

  

So let's try and understand more about The Cloud, and how it relates to YOU, the Hotelier

Traditionally, a Hotel has housed all of its technology on-property - in the building, or on campus. You may know this as the local Data Center - a.k.a. the Computer Room or Server Room.

 

This space, however large or small, has grown in importance, sophistication and size as well as cost and demand for it's day to day management. Energy consumption has also exponentially increased.

 

Hotels, depending on size and complexity, can have anywhere from 10 to 50+ systems to manage and maintain, an increasing cost burden to the business. Many predict, and I concur, that this burden will only worsen as we embrace more and more tech in our day-to-day existence.

 

Moving to The Cloud is supposed to help alleviate these problems - But how?

 

First, systems (that includes Applications and Data) will be moved off-property and housed in an external DC (Data Center). This is known as "above-property" - hence the association with The Cloud. This will quickly free up increasingly expensive manpower resources, much-needed physical space as well as reduce energy consumption and costs. I will explain more about the types of Cloud later in this BLOG.

 

Second, since these systems will be DC based, your connection to them will be via the fragility of the Internet - either through a public line or some form of private leased line like MPLS - the latter being more secure and robust, yet operationally more costly.

 

The DC will 'host' these systems in an environmentally controlled space, either one that is just for you, or more likely, in a shared environment - meaning that just not your business will operate from there. The applications and data may reside on your own (Computer) Servers, or on shared Servers using what is termed as 'virtualization' - meaning a single Server can be dissected to operate as though it were many Servers without any degradation to the QOS (Quality of Service) it provides.

 

These DCs are spaces - they could be entire buildings as in the case of what Apple has just constructed in preparation for their upcoming iCloud launch, or they could be whole floors in a building or just rooms.

Whatever shape or size they come in, they are supposed to be:

• Environmentally controlled - Temperature and Humidity
• Equipped with redundant and clean electrical supplies
• Equipped with redundant hardware for auto failover 
• Designed with spare capacity for your future expansion to include cabling and raised flooring etc. 
• Super energy efficient and therefore cost efficient
• Secure from physical and virtual attack
• Equipped with Fire protection services 
• Manned with 7x24x365 on-site personnel to handle 'situations'
• Connected to the outside world via robust and failsafe connections

As an end user you may be privileged to know where the DC is located, or quite commonly, just advised of a general location such as the country or maybe a city. In the case of Public Clouds like I mentioned earlier such as Gmail, Amazon etc., you will only know they are in cyberspace and have no idea of a real physical location - this is because they may form part of a Cloud Federation or Intercloud - an interconnected group of Clouds (Data Centers) - cloaking their real physical location for additional security and resilience.
 
Is there just one type of Cloud?  
No, in fact there are commonly three types of Cloud. For simplicity, let's relate these to the clouds and colors we all see in the sky.

1. White = Private Cloud
2. Grey = Hosted Cloud
3. Black = Public Cloud

What do these mean?
   
Private (White) 
This is a dedicated Cloud that you, or your Company exclusively owns. It is in a fixed location - known to some, and managed/operated by your own people with your own dedicated hardware and software inside - controlling your own data.
 
Those systems will likely interact with data and systems outside of this Cloud and not just other BU's (Business Units) within your organization. Don't lose sight of the fact that this Cloud is the nerve center and potential sole repository for all your Company's business interactions - a single point of failure. Additional security could take place through co-location facilities - meaning a second or additional DC setup in another location to mirror (back-up) the main DC in the event of failure.
 
Hosted  (Grey) 
This is a physical location where your systems and data share space with others - hence my reasons for naming it 'grey' - neither black or white.
 
Likelihood is that you will have a dedicated Computer rack (space) where your equipment operates from, and this is physically secure, accessible only by authorized personnel - such as the hosting company or solution vendor (the company providing the service).  
 
However, you may be renting shared capacity on the same system as other businesses (a virtualized environment), and the vendor will try and offer you peace of mind through some form of guarantee for the security of your data.
  
Public  (Black) 
This is a shared environment - a public service that you and numerous others access/use - like the names I previously mentioned. You don't know where it is - nor do you need to - all you know is that it exists and functions.
 
Why do we need the Cloud, and what does it have to offer?
Businesses constantly strive to increase efficiencies, streamline costs, have continuity in systems, while at the same time factor in growth requirements - and IT strategists believe that moving data processing off-property to The Cloud will help with all of these. To some extent, that's true.
 
One benefit of centralizing the enterprise with Cloud services is to simplify the process of increasing end users through something called elastic demand, and this, in theory, can give you extra processing capacity in a matter of minutes when you know or forecast that your business demands require it. A bit like extra Housekeeping staff if  occupancy suddenly peaks and you outsource these services. 
 
Also, when computing requirements escalate, the Cloud service providers can balance your processing needs by tapping into additional computing resources. Both of these help control costs.
 
Proponents of Cloud claim you have the ability to deploy company standards quickly and easily across the enterprise, thereby benefitting branding and marketing.
 
This means that as properties are acquired (flagged) they could simply plug n play into the Network with little fuss or hardship to the operation.
 
What about enhancing The Guest Experience? 
I've read copious amounts of articles, attended many conference presentations and watched various Podcasts about potential benefits of The Cloud, yet none claim it will enhance the Guest Experience or help drive brand loyalty - even though many of these papers and presentations have been specifically Hospitality focused. Why?
 
All discussions heavily focus on the technology and cost benefits. As a Hotelier or Marketer; does it bother you that the Technologists and Finance people are driving this initiative and not the Front Line Business?
 
Sure, like many things - cost is a key driver - but is this a false economy especially as some of the associated costs will now be shifted away from [Owners] Capex to [Operator's] Opex?
 
Reflecting back - an indulgence 
Before I did what I do now, some of you will know that I was involved in Hong Kong with a leading PMS provider - in a Business Development role. During my time with that company, in 1997 Asia went through a Financial Crisis and not only did people stop buying, but they also stopped talking about buying. Do you recall those dark and cloudy days?
 
Well, for a Salesperson, that's disastrous, and so in order to try and stimulate the market I dreamed up with a sales model (which today would be referred to as SaaS - Software as a Service), whereby we would charge users a transaction fee versus an upfront License fee and recurring annual fees.  
 
The model would have a base monthly cost to get Users into the system, and then we (the Company) would charge a transaction fee based on Occupied Room nights - I exercised great imagination over the naming of this concept - finally calling it "PAYS" - Pay as you Sell.
 
It was a simple model - the Customer absorbed the hardware costs - although we could have arranged leasing via a major manufacturer, and then they (the Customer) paid a small upfront amount for getting into the system, which included implementation and training, and then they (the Customer) would be Live. A transaction fee could have been US$1 per occupied room night and billed monthly, or deducted from a credit balance, whichever was more suitable. Control for us to know what was sold, and in turn needed to be billed, was straightforward since we controlled the software, and could generate the billings, turning off the software if the Client failed to pay within a contractual time period.
 
Potentially, it was a WIN-WIN for both sides.
 
For the Customer - it meant reduced upfront costs, only really having to pay for what they used/sold - and the associated materialized revenue - a kind of demand-based billing system. If their business was good - so was ours, if it dipped, then we would be at one with them through that quiet period - as partners, but still assured of a monthly service fee to keep them on the system - and cover our basic costs.
 
For Hotels it was a paradigm shift. Moving some of the costs from Capex to Opex - much appreciated by Owners - and at the same time allowing them to better control the performance and related costs of their Operators - The Hotel Management Company.
 
For the Business - it would have allowed us to grow market share, show empathy with our clients, and be assured of a recurring revenue model over a long-term contract.
 
Sadly, it never got off the ground - Why?
 
Well, after making a detailed business case and presenting it to my Line Manager at the time, it was rejected on the basis that "we were not setup like a mobile phone company, and were more in the business of generating License fees, and not recurring revenue..."
 
You can only imagine how I felt then, and the grudge I still bear up until now at this shortsightedness. I actually think this decision was more personal in nature - being made on the basis of personal compensation for achieved targets. Not recognizing License fee revenue under the traditional model, would have meant a decrease in personal earnings - again, how grossly shortsighted was that?
 
Why do I raise this now?  
Moving to The Cloud exhibits several similarities to the PAYS model I conceived back in 1997, and the business models some providers are now putting in place today.
 
In fact, because of The Cloud, many new tech terms have entered our daily vocabulary - and here are three more you should get to know:

1. SaaS - Software as a Service
2. IaaS - Infrastructure as a Service
3. PaaS - Platform as a Service

SaaS - Software as a Service
This removes the need to own software - you just pay for it as you use it - a kind of demand-based billing - a utility.
 
IaaS - Infrastructure as a Service
This is where you place your systems in to DC - and pay rental for the associated services.
 
PaaS - Platform as a Service 
Mostly used by Developers - these are development systems for creating Applications.
 
Moving Forwards 
Now you know these systems will be outside of your physical property and handled by others - potentially, you will surrender some direct day-to-day control over them, and you will likely be concerned over the following business issues:

• Data Security and Ownership
• Reliability and Availability of the system
• Day-to-Day Management of the system
• Costs for this service

Data Security and Ownership
Let's not fool ourselves - all systems and therefore by default - data, are vulnerable to attack. Being off-site does not necessarily change this critical fact and suitable precautions need to be put into place. There are as many experts out there to advise on this, as there are un-desirables lurking in the shadows waiting to pounce on your systems and steal the data, which includes the private transactional information of your clients.
 
Also to be considered are jurisdictional rules about data transfer cross-border (Data Protection Act) and local data privacy issues. Add to these concerns over ownership of the data - and (long-term) Hotel Management Contracts will have to be amended in order that this issue is fully transparent to all parties - Owner and Operator. Oh yes, don't also forget Incentive agreements based on amended Opex costs and ultimate profitability.
 
It's often a sticky issue that when a brand pulls out of a property - who actually owns the data held on the systems? This was an issue when systems were on-property, and now with them going off-property, the data may have to be extracted from a Central system, or cluster of systems, and repatriated in-house. Lawyers will love this conundrum and be more than happy to charge for their services.
 
Reliability and Availability 
When you have your Systems (Computers) on-property you will have a natural sense of security that if something untoward happens, like a power failure, data corruption or hardware crash, your local IT Team can jump in and hopefully quickly, and painlessly fix it. With Cloud based systems - that particular feeling will be traded off to others to handle - and you are at their mercy. Likely, contrasting to your local trained and managed team - they will not be Hoteliers (in mindset) - but technicians without that unique embedded Hospitality service culture you so painfully try to embed into employees.
 
Sure, Data Centers/Hosting Companies will give you all the assurances in the world - but what do you do when a Guest is in the Lobby and you can't print a folio, or check them into a room or unlock various services because your Internet connection is down, or 'something' has happened at the Data Center.
 
I'm not so naive to know that similar circumstances can't happen even with on-property based systems, but a quick walk to the Computer Room will allow you to see at first hand with your very own eyes the people trying to fix the particular issue - rather than frustratingly deal with them over a phone line - wherever they may be (different time zone),  and in whatever language they speak. Trust issues may ensue.
 
Business Continuity plans must be put into effect to mitigate these issues, when they occur. It's not a matter of if they will occur, because - it's just knowing that when they occur, that they can be dealt with swiftly and efficiently to allow you to continue your business and Guest Services in line with your Customer Service Guarantees.
 
Look very very carefully at the Terms and Conditions of your SLA (Service Level Agreement) - focus on the Service, Support and QOS (Quality of Service) these offer and compensation when they fail. Having a compensation of US$200 per hour that the system is not available is ludicrous, and more trouble to you than benefit, especially when running high occupancy, or when Guest Service and your business reputation is affected.
 
Not only do you need to concern yourself over the availability of the System in the Data Center (Cloud), but also how you connect to it - the Internet, and the relevant costs.
 
In some countries, the cost of Internet connectivity is prohibitive, and on top of that notoriously unreliable. If you have to spend many thousands of US$ per month just for this connection, then the value proposition does not make good business sense - even if Corporate mandates, since your bottom line and profitability - owner returns, will be severely affected. Perhaps that's why many of these Cloud based initiatives have sprung up from developed geographies (like USA and Europe) where Internet connectivity is both stable and affordable.
 
Consider also what can happen if there is a natural disaster, and Internet connectivity is lost such as an undersea cable gets cut, a Typhoon knocks out power, or your Local Government decides at a whim to turn-off the Internet. How will you operate then?
 
Day-to-Day Management  
With systems now being off-property, the traditional model of system management will change to one that is handled by others. Likely you will downsize your local IT team, and hand-off this responsibility either to a Team managing the DC, your Corporate IT team (via a Help Desk), or directly to a vendor if they are operating a SaaS model.
 
Changes to the system like rates, menu prices, codes, users etc., will be processed via The Center and your request placed in a job queue along with others from your company. Prioritization will take place based on severity, with system faults escalating to the top of the queue, and others falling behind. A Server failure will always carry a higher priority than changing a menu price.
 
Possibly, there will be different teams to handle different types of requests, depending on how the Center is managed and how large is the enterprise and Team.
 
Some of these activities have been around for a while, and have seen the Operation fighting with IT over prioritization and alignment with service levels...
 
Costs 
As mentioned earlier, Cloud based computing models will see a paradigm shift in the way these systems are paid for.
 
Under the traditional model, the Owner of your property will pay for all Hardware and Software, including Infrastructure (Capex). Service fees then fall under Opex. 
 
Under the Cloud-centric model, the Owner still pays for on-property hardware and software, but this is now much reduced since the Servers and Applications will be off-property. Computer rooms are scaled down in size and complexity, as could be the network infrastructure.
 
But who pays for the DC? You will of course - the Business, and out of Opex. OUCH!
 
Since it's unlikely that the majority of Hotel Groups will build and setup their own DC's, they will opt for the Grey version - Hosted Models, defraying costs across the Enterprise using some kind of pro-rated financial model. This equation will be company specific, and I'm not even going to speculate as to how this be sliced and diced, but suffice to say - you will be paying for it - and it will be a Cost Center - appearing as a recurring expense somewhere on your Financial Statement.
 
Now YOU know a bit more about The Cloud, what type of Hotel Systems do we see moving to The Cloud? 
Short answer: All, however, let's note some current favorites;

• PMS
• HR
• Sales and Catering
• Revenue Management and Optimization 
• CRM
• Accounting to include Payroll
• Menu and Recipe Engineering
• Telephone (PABX)
• Telephone Call accounting and Voicemail
• ERP (Enterprise Resource Planning) 
• IPTV to include content
• Service Tracking/Service Optimization
• Spa & Leisure
• Point of Sale
• Office Applications (such as Email and Microsoft Office)
• Access control
• Guest Internet access authentication

From a Vendor and Technologist perspective, virtually all Hotel based systems are destined to move to The Cloud.
 
What should be my Game Plan from here? 
Firstly, you need to mitigate risk. A Hotel in its entirety is a mission-critical operation, and really cannot afford for any of the working parts to go down or fail. As a well oiled machine the fact that the sum of its parts make up the business as a whole - the Guest Experience, means that if one of the systems fail, much the same as could happen if they were on-property, you need to know how to efficiently function without it.
 
Being off-site, and having a single connection to all of them via the Internet, logically means that the likelihood of some kind of failure is increased - so a well thought through Business Continuity plan is essential.
 
Secondly, you need to understand that there will be a cost, financially and operationally. Expenses move from Capex to Opex and all concerned need to be aware of the ramifications.
 
Thirdly, know that support and system management is now out of your-day-to-day control, and some would argue placed into the hands of experts, who are more adept at managing and fixing those systems. Those experts will also take care of upgrades and system patching, which were often burdensome to the operation.
 
The train has left the station as far as moving to The Cloud is concerned. But I predict Hotels will not go 100% into The Cloud - some systems and services will be left on-property - this due to cost, security and practicality.
 
And to echo this thought - I recall hearing someone recently say, "The Cloud is for everyone - not for everything", and I agree with this wholeheartedly.
 
Do YOU?
 
(C) Terence Ronson ISHC 
 

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