Fidelio Property Management Systems (PMS) co-founder, Keith Gruen, presented a luncheon speech at Hospitality Financial & Technology Professionals’ (HFTP) inaugural European Hospitality Technology Education Conference (EHTEC) on February 20, 2007 at the Hilton Amsterdam in Amsterdam, the Netherlands. Gruen’s speech "PMS: Yesterday, Today and Tomorrow" covered the recent history of PMS development. He also discussed why the industry has lost its edge and how it might gain it back again. Below is the transcript of Mr. Gruen's speech...

Before I start, I’d like to make a short pitch for the HITEC show in June. Let me quote from a press release:

The session lineup for this year appears to have gone a step further than the previous conference, with topics on the bill that reflect the changing perception of the value of technology to the hospitality industry. Sessions will address multi-application integration, Intranet development, security technology, and a project that is working to standardize interface development for vendor systems. Afternoon sessions explore human resources automation, Virtual Private Networks (VPNs) and Web-based training. This is just on day one. Wednesday’s opening session is an annual favorite -- “Sales & Marketing Executives Talk Technology.” This year’s session will highlight some of the ways that technology improves marketing in a “real world” setting. Other sessions will discuss data warehousing, systems centralization, the lifecycle of the PC, communications convergence, and the training and education that will constitute the future executive’s toolbox.

These are all current topics in the hotel technology industry. It sounds like a great show and I hope you all go. There’s only one problem: this press release I just quoted is from the HITEC show in 1999.

Ladies and Gentlemen, this industry is moving very, very slowly.

I can say this with some authority, having been away from this industry for 10 years. I was away, in fact, until yesterday, when I came to this conference as a guest to see what’s going on in the industry. It’s been a fun and interesting one-and-a-half days – seeing so many people and so many companies I haven’t seen in ten years. Never mind that almost none of these people are with the same company they were ten years ago. Some left hotel companies to work for vendors. Others left vendors to work for hotel companies. This industry is like a family and that’s part of what made it a fun industry to be involved in.

On the other hand, maybe this is one of the reasons that this industry hasn’t progressed much in ten years.

Perhaps this industry needs a jolt from the outside from time to time.

The Origins of Fidelio

I certainly was an outsider when I entered this industry. In fact, it all happened by accident. You see, my initial intention was to write software for opera companies. But my partner in the business, Dietmar Mueller-Elmau, whom some of you know, convinced a luxury resort in the Black Forest of Germany to buy our hotel software. The only problem was that we hadn’t written the software yet.

So I changed my focus from opera software to hotel software. When we officially founded the company a few months later, we named the company Fidelio, after the opera, thinking that we would continue to sell opera software. We sold that opera software a total of one time. The hotel software….well it was somewhat more successful.

Needless to say, I knew nothing about hotels when I started, but somehow I had to make a piece of software that worked. So I went to the hotel and spent several days watching over the shoulder of the people working in the front office. My German was terrible those days so I had to learn hotel operations mainly by watching, rather than having someone explain it to me.

Having never seen another hotel software program, I started with my own design, my own screens, my own database structures, my own processes. It wasn’t until much later when I realized that what I had created looked and worked like nothing else on the market.

Recipe for Success

Fast forwarding to about eight years later, Fidelio was already market leader. People asked us then – and still do – what our recipe for success was. Well, we didn’t have a recipe. But in retrospect, there were indeed a few things that we did right.

  1. As I already mentioned, we never looked at the competition. We didn’t copy anyone’s features or screens. But we did develop features early on that no one else had ever heard of. Our second customer – another resort in the Black Forest – was slightly different from the first. They wanted to save different information from the first hotel on guest profiles. Rather than try to find common ground between these two hotels, I just made the guest profile screen easily customizable. The customer could use a screen painter to define that screen. This single feature turned out to be perhaps our most valuable feature. We didn’t have package codes, rate availability, group allotments and all that fancy stuff, but we did have a screen painter. And people thought: if Fidelio can make a screen painter, we could do anything else too.

  2. Our first few hotels were in Germany. But hotels number five and six were in Switzerland. The next customer was in Austria. And I think the tenth hotel was in Holland. So we were multi-national, multi-lingual and multi-tax from the very beginning. This was fortunate, because it sure is hard to become international later on. By the way, Hilton’s investment to internationalize their OnQueue system today is about five times higher than the entire Fidelio R&D budget from the inception until becoming market leader.Again, these are things which were not planned, but happened more or less by chance. Perhaps we were fortunate that we really were outsiders and didn’t know how things were supposed to be done.

  3. Programmers at Fidelio were VIPs. Maybe it’s because I was a software developer as well as a founder. But by no means was it only me – we managed to find several excellent programmers who were also excellent business analysts. They really understood the business and the clients and could translate their wishes into real products. Sometimes even their “wild wishes”. So we frequently had our best programmers interacting directly with our best customers.

    I remember when we were competing to win a contract with Hilton International. We had already won some smaller chains but Hilton International was a big fish. Anyway, I recall going to Watford, England for a two-day meeting. At the time, we were one of - I believe - three vendors under consideration. And Hilton was putting them all through their paces. We spent the first day getting grilled by Hilton. It was sort of a live RFP with immediate proof required. Of course there were a number of things we couldn’t do. We couldn’t even fake them.

    So anyway, I made notes of these items. Then I spent most of that night with one of our top programmers and completed about half of the items on that list. Not just mock-ups – but the real thing.

    So the next day, Hilton wanted to continue the grilling. But I said I’d like to revisit a few of the items from the day before and I proceeded to show them the work we did the night before.

    Now those people at Hilton are real professionals and they don’t like to show their emotions. But all of a sudden they started smoking about twice as many cigarettes as before. I think they were rather excited. Of course we only did the easy things on the list. But they looked hard.

    Needless to say, we got the deal.

    Of course there was still a long list of items we needed to develop even after closing the deal. It took us another year or so to finish. But just last night at this conference a gentleman who was at Hilton at the time confirmed that we found more elegant solutions to Hilton’s requests than even Hilton thought possible.

The PMS Legacy

I was asked by the organizers of this conference to speak on the PMS legacy. In all honestly, the only PMS legacy I can speak of with any kind of authority is the Fidelio legacy. It seems to be quite a strong legacy. When Micros bought the company over ten years ago, Micros made an effort to re-brand Fidelio as Micros – as is their right. And yet just walking around this conference, I hear the name Fidelio much more often than Micros.

Listening to other PMS vendors and seeing their demos, I realized that certain terminology that we invented has become part of the PMS vernacular. For example: rate grid, day type, and folio style. Even charging for the PMS based on number of rooms was something we pioneered.

We may have invented the term guest profile as well, though I’m not 100% certain about that. I am quite sure, however, that we made the first guest-centric PMS. Those original resort hotel customers of ours were fanatic about their guest profiles and guest history. They stored everything about every visit of every guest. Not only such basic data as the names and birthdates of the kids, but each room the family stayed in and which wines they ordered in the restaurant. Guest history was not optional, it was mandatory. I’m glad we didn’t know that this was not the way one was supposed to design a PMS. Everyone else based their system on a PNR, whatever that was. Thank goodness we were outsiders.

Perhaps most remarkable for Fidelio’s legacy is how many other PMS vendors copied our screens, our user-interface, our terminology. We were usually a few steps ahead, but it was amazing how our screens regularly showed up again at so many competitors. It was quite flattering, really. Most of these other vendors at least made some attempt at altering these screens so they didn’t look identical to Fidelio’s, such as rotating a table by 90 degrees.

But at least one competitor apparently decompiled our source code, changed some names and colors, recompiled it, and sold it as their own system. We could prove that it was ours because it had the same availability errors as Fidelio. You see, we put those availability errors in there on purpose – it was our copy protection!

Golden Age of PMS

I was fortunate to have worked in what I would now call the Golden Age of PMS.

When I started, PMS was in about 20% of all hotels over 50 rooms in Europe. When I left the industry, PMS was in about 90% of all hotels over 50 rooms.

When I started, interfacing meant connecting to a PBX – sometimes. Perhaps even a POS interface. And that was it. When I left, hotels had about 10 interfaces each. Not many interfaces have been added since then. Once noticeable exception being in-room internet access.

When I started, hotels of up to 150 rooms sometimes shared a single stand-alone computer at the front desk. When I left, that same hotel might have a network of 20 computers, most of which were running the PMS.

When I started, many of the largest hotel chains were using a PMS which they developed in-house, possibly after buying the source code from one of their vendors. When I left, virtually none of these in-house PMS were in use.

Quite simply, PMS was King. PMS was where the action was.

The choice of a PMS was the most strategic IT decision that a hotel company made. Once they established their PMS strategy, the other vendor decisions would fall into place. The rule was that on all the RFPs for vendors of other hotel technology, there was a question such as “Do you interface to Fidelio?”

Choosing between, say, Fidelio and HIS was like choosing between Apple and Sony or choosing between BMW and Lexus. People were passionate about these decisions. Emotions clearly played a role.

At these hotel technology shows, PMS companies had the big stands in the front and attracted the biggest crowds. PMS vendors spoke on all the panels. PMS vendors threw the biggest parties. PMS vendors were the biggest sponsors.

PMS now a Commodity

The times have certainly changed!

I can’t tell you everything that’s happened in the last 10 years because I wasn’t here to witness it first hand, but I can quote from several of my fellow speakers these last two days.

  1. Michael Levie said yesterday that the CRS will be his main system in his new chain and he intends to use only a very small percentage of the PMS functionality.

  2. Peter O’Connor reported that CIOs say that PMS vendors are simply rolling out the same product with more expensive features

  3. Ted Horner said PMS is like a commodity. Everyone does check-in and checkout. (Of course you have to ask yourself the question why Ted still writes 85-page RFPs for the PMS vendors if they’re selling commodities. I don’t think he writes 85-page RFPs for hardware, which is also a commodity!)

  4. Someone said that PMS has been pushed aside, just like PBX was pushed aside 15 years ago. Hotels are running on 30-year-old PBXs because there’s no strategic value in upgrading them. Have we reached the stage of 30 year old PMS yet? Well, Fidelio version 6 is based on 20-year old technology and – from what I heard – is still going strong.

  5. Decision makers – often the owners - don’t believe in a strong ROI of PMS. That certainly sounds like a death knell for PMS.

  6. Hotel companies are knocking off about 70% of the price from vendors like Micros-Fidelio, because the hotel companies only want check-in, check-out, and housekeeping.

If you don’t yet agree with me that PMS is a commodity, then ask a PMS vendor what their USP – unique selling proposition - is. I would be surprised if you get a satisfactory answer. In fact, you’ll probably get more or less the same answer from all the PMS vendors. That’s hardly what I’d call unique.

So what happened? How did PMS, which was king just ten years ago, turn into a mere commodity today?

People tell me that it’s due to the internet. You know first hand all the statistics about the number of bookings coming over the web. So of course hotel reservation departments are simply not as important as they once were. Instead, channel management, distribution management – these are the areas that became important. So what did you PMS vendors do about it? Nothing! You continued to roll out more expensive features while the world was changing around you. You sat back and watched all these other systems become more critical and more strategic. The companies growing now are all in channel management, distribution management, and revenue management. PMS vendors – this should have been YOU! You could even have moved into distribution itself. You could have become a company worth $7 billion like Expedia, instead of struggling to meet your monthly payroll of a dozen people.

You could have moved more aggressively into becoming an ASP vendor or an On- Demand, as I prefer to call it. You could have educated your customers on the value of ASP. Better yet, you could have simply made a really good ASP system that everyone wanted to have. Yes I know – you all say you have a great ASP solution. But when I press you for a bit more information, you admit that about 80% of your new customers still choose your client-server version. Or you say that actually, your ASP product is running at only three beta sites. Or, I may find out that your product is running only on Citrix, which is only ASP if you call terminals from the 60’s ASP as well.

I’m not really here to talk about ASP, but I would like to tell you briefly what the rest of the world has to say on ASP. By “rest of the world” I mean other industries. The two main reasons why hotel companies choose against ASP are:

  1. Security
  2. Potential Downtime

The 2 main reasons why other industries do choose ASP are:

  1. Security
  2. Potential Downtime

Yes, you understood me correctly. The rest of the world is adapting ASP systems for the very same reasons that hotel companies avoid them.

You could have added functionality to evolve into a CRM. Or at the very least a Sales & Catering system. After all, it’s a natural expansion of the product. But you didn’t. You all said: “oh, that’s not our area.” Well, it could have been! You might say that hotel companies prefer best of breed anyway. Well, looking outside this industry, this is not exactly the case. Other companies in other industries also need software to manage their operations. They don’t buy best of breed; they buy huge software applications called ERP from companies such as SAP or Oracle. An ERP includes everything from financial accounting, inventory, payroll, supply chain management, production planning, CRM and so on. Where’s the hotel ERP?

I realize I’m bringing up some soft facts here – but I think that the passion is gone from PMS. The passion is gone from PMS vendors and PMS users alike. Is there anyone here who is passionate about PMS? Anyone at all? Well, let me tell you. At Fidelio, we were passionate about PMS. Our users were passionate about it. That “I love Fidelio” logo really meant something. We had customers who really truly loved working with our products.

Today, I see revenue management vendors who are passionate, excited, and thrilled. Their customers are as well. The same applies to channel management and distribution management.

How about some of those new kids on the block, such as Expedia, Travelocity, Travelclick, or Opodo? They’re too busy reinventing the world, hiring the best people, and counting their money. They’re even too busy to come to these conferences. Still, you can be sure they’re excited. So there’s still passion left in hospitality technology. Just not with PMS.

So PMS - once king, now just a commodity. What can you, as PMS vendors, do to regain that royal status?

Hope for the Future of PMS

I see some hope. Let me explain why.

Whether you believe it or not - whether you like it or not - ASP is here to stay. It will be the only way we deliver software in the future. So assuming you’ve finally become an ASP vendor, the split between CRS and PMS must disappear. There will be no point in having separate systems.

So PMS and CRS – and likely CRM as well - will merge and this new system will be the most critical piece of technology that hotel companies use. Think of all that functionality which has to be in this central system. It will have to include all the typical PMS features such as check-in, check-out, guest invoices, housekeeping, night audit.

Now who is going to develop this? Who is going to deliver this software? Well, it’s easier (not easy, but easier) for PMS companies to add CRS functionality to their system, than for CRS companies to add PMS functionality. Just think of room numbers. You PMS people know all about room numbers. CRS’s generally don’t even have a field for room number.

So that’s the chance for you PMS vendors. If you want to get back in the game big time, if you want to take on Pegasus and Micros, you better start thinking of this ASPbased combined PMS and CRS, because you can do it better than anyone else out there. Yes, it will take some guts, it might take some financing, and it will take some hard work. But this is how you can become king again.

The thing is, you can’t do it alone. Even with the best technology, you need some pioneers among the hotel companies. You need some customers out there willing to take risks. You need some people willing to believe in this future and go for it.

Looking back at the Fidelio success, we didn’t do this in a vacuum. We needed some hotel groups and hotel managers to take big risks. Some virtually risked their career on us. Early adaptors such as Mövenpick, Swissotel, Steigenberger chose Fidelio when we were quite unknown. Famous properties such as Peninsula Hong Kong, the Ritz in Paris, Victoria Jungfrau in Switzerland gambled on Fidelio as well. These hoteliers made daring decisions by choosing Fidelio, knowing that we didn’t cover all their requirements. Yet they believed that we would be able to deliver. And we did our best not to disappoint any of them.

So is there any hotelier out here willing to bet his or her future on a small and unknown vendor with a revolutionary but unproven solution? People used to say “nobody every got fired for buying IBM.” Well here, it’s more like: “nobody ever got fired for buying Micros.” But then again, nobody makes a difference by buying Micros.

So let’s see some more daring hotel companies. Let’s see some daring consultants. How about you HFTP Hall of Famers? Come on people, show us that you’re still willing to make a difference!

Hotel business is real estate business

Before I close here, I’d like to talk for just a few minutes on what I’m doing now, since so many of you have asked.

Most of my time these days is involved with my latest company, conject. We develop and sell software for the real estate and construction industries. We call it real estate lifecycle management. It’s an on-demand system, of course, and it covers all the phases of real estate, from planning and construction to operation and facility management. So our customers, which now number over 3,000, are generally real estate owners.

One of the other speakers said that it’s hard to talk to hotel owners. You don’t know where they are or who they are. They might be sitting in some foreign office, in some off-shore fund. Perhaps they are Arab sheiks. Well, these are the people WE talk to. But we typically talk to them at the point they are thinking of building a hotel, or perhaps a whole complex including a hotel. Or maybe they are contemplating buying or selling a group of hotels.

However, our customers are not just hotel owners, but owners and developers of office towers, shopping centers, airports and factories. So if there are hotel owners out here looking at the really big picture, like optimizing the value of your real estate over the next 20 years, or if you plan to buy or sell portfolios of hotels, we’re probably the people to talk to.

Closing Remarks

Still, I must admit, it’s very nice to come back to this industry, even if it’s just for a couple of days. It brings back many good memories for me. There’s something else that became clear to me only after having left this industry: this is, after all, the hospitality industry and you are all very hospitable people. It was always a pleasure doing business with you.

And let me tell you: it’s hard to beat making a client visit at, say, the Mandarin Oriental in Hong Kong, especially compared to visiting a construction site in Eastern Europe. It may move slowly, but this industry has a lot of perks indeed.

Please enjoy the rest of your lunch, good luck, and I hope to be back again.