Blockchain: What it is and why hotels should care

The word “blockchain” has been floating around industry conferences and technology suppliers' press releases for a few years now, but few hotel operators understand what the technology is, how it can be used or why they should even care. Blockchain has been heralded as the second coming in some domains—such as the world of cryptocurrency—and while its uses may not seem readily apparent today the technology already is impacting travel.

At its most basic level, blockchain creates a public or private ledger that is decentralized and encrypted. This allows users to track and record transactions spread across a number of devices in a way that prevents records from being retroactively altered. For this reason, some IT professionals refer to blockchain as Distributed Ledger Technology.

Jessica Stansbury, partner at consulting firm Oliver Wyman, said the technology’s path to prominence in business can be compared to the development of the internet in the 1970s. “Everyone who used the internet knew it was a game changer, but no one could imagine how it would invade so many places in our life and impact how we do business,” she said.

Blockchain technology was first developed in 1991 as a system to display documents without allowing timestamps to be altered. However, it came to prominence in 2008 when it was used as the foundation for bitcoin cryptocurrency. This development married the concepts of blockchain and cryptocurrency in the eyes of the public, but Stansbury said the technology has much more to offer. Airlines are making use of blockchain in their loyalty programs, and hotel companies are working to implement similar systems for the future.

“Blockchain allows two parties to come to terms with how a loyalty currency can be understood in predefined terms, and then recognize them in a quicker, automated fashion,” Stansbury said.

No Alterations

Thom Kozik, chief commercial officer for the Loyyal Corporation, said a successful blockchain implementation will result in an increase in efficiency and speed-to-market capability for a hotel company. These efficiencies will come in the form of fewer reconciliations on billings, for example, and he said the technology is already being used in supply-chain management because it can be used to build in processes and track information.

For hoteliers, Kozik said the most interesting and effective way to put blockchain to work is once again in loyalty programs as a means of tracking analytics, drilling down to how a single point is spent throughout its life cycle. Hotel companies want to understand how guests are using loyalty points, where loyalty points are most valuable and what the real value of a point is—and now they can.

“With the ability to track every point or mile down to the moment and location of its issuance, this may create a new asset class for lodging groups who own multiple properties, enabling them to trade program currency between their portfolio properties without paying a fee to the management company,” Kozik said.

If blockchain allows loyalty points to be traded between portfolios, will we ever see a world where Marriott Rewards points will be traded for Hilton Honors rewards? Kozik said this is not likely because hotel companies want to keep their points in house. The security risks of using such a system however, are low. Because blockchain technology is a closed ecosystem with elements that cannot be altered once created, there are few security risks. In fact, Kozik said the primary risks associated with blockchain have been observed in the cryptocurrency world at the exchange level. Hackers often hunt deposits made after currency transfers, so the currency, not the platform, holds the risk.

The Great Unknown

If the concepts behind blockchain still sound nebulous, that’s because developers still are figuring everything out as they go. Filip Karaicic, CFO of market research company Review Network, said hoteliers should start to care about the technology because it will save them money and help them more easily build connections with guests.

“Blockchain can help with market research, improve transparency and efficiency and also improve processes,” Karaicic said. “Today we are only starting to penetrate this industry. Some airlines use blockchain to track baggage in case it is lost, and the same mentality could be used for hotel guests’ items.”

Karaicic stressed that the most important aspect of blockchain is that the data can be made private or publicly viewable, but it can’t always be altered. Compared to centralized data systems, this is much less prone to errors and protects operators against the unexpected. It’s also more secure.

“Both hotels and guests benefit,” he said. “By building processes into a blockchain, hotels can remove middlemen and directly implement different phases of their loyalty programs without using expensive centralized platforms.”

Stansbury expanded on this concept. “For a customized, personalized loyalty package, such as a private golf weekend with a meet-the-pro moment, there are so many moving parts to keep track of,” she said. “Blockchain allows partners to set everything up easier and offer more diversified, curated options.”

Where and When

If blockchain can do so much so well, why isn’t it everywhere? Both Stansbury and Karaicic said the technology won’t see widespread implementation for five to 10 years, and Kozik attributes this to a few factors.

“If it’s not broke, don’t fix it,” he said. “To a large degree, hotels using legacy programs don’t feel that anything is fundamentally broken with what they do. Also, considering the backlog of IT projects that any given organization has will show you that blockchain is not at the top of their priorities.”

Even so, incremental adoption of this technology is expected to continue at a gradual pace, and once enough businesses are making use of blockchain Kozik said it will be easy to connect them.

“I think consortiums will rise up as blockchain is used more,” Kozik said. “At scale, it will only require a single business agreement for everyone to use the same blockchain.”