Game Changer or Gimmick?

For many people, the term blockchain goes hand in hand with bitcoin and other forms of cryptocurrency. And while the two are certainly related—blockchain is the technology that enables bitcoin—blockchain is no more synonymous with bitcoin than the internet is to, Wikipedia and the other websites it provides a platform for.

“The biggest misconception about blockchain is not separating cryptocurrency from the technology,” said Kelcey Gosserand, founder of Trellis, which is building a community of blockchain professionals and provides end-to-end strategy and support to companies and start-ups participating in token-generating events. “Right now, the world is waking up to the broader use case because it’s so nascent. As this becomes more mainstream and widely adopted, and more thought leadership is developed around this, people will wake up to the full potential of the technology in this industry.”

Maksim Izmaylov, CEO of Winding Tree, a nonprofit blockchain-based decentralized open-source travel distribution platform, agreed. “A lot of people think blockchain is only about trading tokens. That’s absolutely not the case. For our company, it’s about the technology that removes powerful third parties from different human-made networks, and it will increase security of those networks and resilience of those networks to all kinds of attacks.”

So, what exactly is blockchain technology? While there isn’t one standard definition, it’s typically considered to be a distributed ledger of transactions that’s cryptographically protected. “I would define it quite simply as a transparent, shared, distributed digital ledger whose value is consensus driven,” Gosserand said.

The name comes from the fact that blockchain is a growing set of data blocks, and each block contains a record of transactions or information. However, the appeal of blockchain is that this information is distributed across a group of computers, which means no single party controls the data.

Izmaylov explained it using the first decentralized blockchain-based project—bitcoin. “Blockchain is equal to decentralization, to removing intermediaries,” he said. “What bitcoin aimed to do is create a currency that was not owned or managed by one single entity. It’s completely decentralized. No one controls it, owns it or can stop it from being—even governments and powerful companies—due to the nature of the platform. Blockchain is equal to that type of philosophy.”

For his part, Srini Kasthoori, AVP of the travel, transportation and hospitality group for Mindtree, which delivers digital transformation and technology services from ideation to execution, said, “What makes blockchain special compared to other technologies we have is the ability to store any transaction in a secure manner, while at the same time having that available to every single party involved in a decentralized distributed manner. You make a transaction, and as part of the hub, I will know what kind of transactions you made on a near real-time basis.”

Kasthoori noted that all authenticated users can access the data, but none can change it. “I would have to
do a legal ‘undo’ transaction that will put another entry in the ledger,” he said. “It makes it much more secure.”

The decentralized architecture is what provides the security of data, Kasthoori continued. “When we think about why people worry when some sort of hack happens to a bank, etc., it’s because data is primarily stored in one place. When a hack occurs, that data is compromised. With blockchain, the fundamental idea is it’s a distributed platform,” he said. “If I make a transaction, if I’m part of a hub of providers, every single provider who is authenticated has access to it, they have looked at the data. Your data is not in one place. And since it’s in a distributed platform, even if something happens to one node, the other nodes are still intact and they’ll be able to rectify it in no time.”

Of course, there have been some highly publicized hacks of bitcoin, ethereum and other cryptocurrencies. However, in these cases, it was generally the exchanges and online wallets that were vulnerable. To overpower a blockchain network, the attacker would need to control a majority of the nodes, enabling a dishonest consensus to be made. While possible, this would also be expensive. Whether blockchain-based systems will be completely impenetrable remains to be seen, but even a mostly impenetrable system would be an upgrade from the current environment.

“We’re becoming completely desensitized to data breaches because they’re happening all the time,” Gosserand said. “We had one of the largest breaches recently with Equifax—pretty much everyone is affected by that—and I haven’t really heard from their end about how its planning to mitigate future breaches. It’s happening with our credit, with our healthcare—and the implications are huge. I see blockchain as the potential safeguard to our personal data.”

Izmaylov agreed. “With blockchain technology—if done right—that Equifax hack is impossible. You simply don’t have one repository of user data or bank accounts that hackers can attack. Of course, hackers can attack individuals, but hackers would not have access to a repository of information with 140 million identities in the United States because that technology is distributed.”

What are some of the potential applications for blockchain in hospitality? Data privacy is certainly one. “Today, everybody talks about personalization: How can I deliver a seamless, personalized experience? At the same time, we talk about data privacy,” Kasthoori said, pointing to more stringent data privacy regulations like the European Union’s recently enacted GDPR. These two ideas—both of which are important—can sometimes seem like opposing goals because hotels can only deliver a personalized experience if they have access to the customer’s data.

But blockchain can help, Kasthoori said. “Today, as a consumer, I don’t have control of who is using my data and how they are using my data. Every activity of mine, whether it’s digital or physical, will be captured and analyzed,” he said. “I don’t have any control. But imagine there’s a search platform, where with every single search that occurs, you control that data with a blockchain-based technology. Every search, every shopping purchase I’ve made, every transaction comes to me and I keep all of that the way I keep my checkbook carbon copies. Now, I have control of what data I want to share with different providers.”

This could help create a more personalized experience for guests since, as we know, each person could be a different traveler depending on the type of trip they’re planning. “As a consumer, you will hold on to your data, the searches, the metadata—everything—and you throttle access to the data to different providers based on what your needs are,” he explained. “By doing that, you’re able to get personalized service and, at the same time, you have complete control of the data. Providers are exploring this option; it’s one area where we are seeing a lot of interest because of GDPR and other things, and they feel this could solve this quagmire of personalization and data privacy.”

And, building on both data security and a well-executed experience, identity is another potential application for guests. “A use case that I like to use when explaining how this can be applied on a major level is this: Imagine the hotel industry has an industry-wide adoption of this technology and there’s one shared database everyone can access,” Gosserand said. “I, as a customer checking in, don’t have to supply my ID at a particular checkpoint or a credit card. I can use my biometrics, a thumbprint—which is something I already use to sign in to my phone—to verify who I am. This can reduce wait time, make the check-in process so much easier, and create a better experience for me. The reason I’m able to do this is because all of my information is decentralized, but accessible on this database, and I’m not concerned with that information being hacked or lost in space.”

Certainly, the area that piques the interest of most hospitality industry executives when it comes to blockchain and hotels is the potential to disrupt intermediaries. “Blockchain is more peer to peer, and when you break down those silos, it’s amazing the insight you gather,” Gosserand said. “Think of companies like Airbnb, Uber and Facebook—these are the most powerful and valuable companies in the world. Uber is the largest taxi provider and yet they don’t own any vehicles and they maintain they don’t have employees. Facebook is the largest content provider and it doesn’t create content. Airbnb is objectively the largest hotel provider in the world; they don’t own properties. The common denominator between these three companies is they are huge intermediaries to booking your next experience, booking a vehicle, sharing your content to the world. That is all going to be disrupted through blockchain, which creates a peer-to-peer experience.”

“The travel ecosystem is mostly intermediary businesses,” Kasthoori said. “Even though businesses have been encouraging direct booking, intermediaries still own a big chunk of the business. Imagine if you could put inventory on a blockchain-enabled data store. Obviously, you have to control how much inventory you want to expose, but whatever the transient business, you could put it on the blockchain-based system, and, as an end consumer, I know how many rooms you have and can go book mine without getting into any intermediaries—and I can get a better rate because the corporations don’t have to shell away money for commissions. That’s going to reduce the intermediaries over a period of time.”

It’s an application that Winding Tree is working on. “All we’re doing is creating a set of standards and smart contracts,” Izmaylov said. “Everything we do is open source; we don’t own any intellectual property around this. What we’re creating is an infrastructure for future travel companies to use where they can use a distribution network that is not controlled by a single party—such is the case today with and Expedia, GDS, and in the airline industry, Amadeus and Sabre. We’re creating a network like the internet that any travel company will be able to use without asking anyone.”

While this is certainly an attractive proposition for hoteliers that chafe at the cost of customer acquisition, Douglas Quinby, senior analyst for Phocuswright, noted that it will be even more important for travelers to see benefits for them. “Simply having a start-up based on new technology that’s going to make the distribution costs lower for hotels is not going to be the magic bullet that some hotels think it might be because those start-ups still have to get travelers to come to the website and that costs a lot of money,” he said. “The big online travel agencies aren’t gatekeepers. They don’t control distribution. Every year, they invest billions to get people to come to their websites and apps to book, to create online experiences that travelers like. There’s a reason people go there: They’ve got all of this supply, it’s easy to find, the search works, and they have all of this content to facilitate a booking. There’s a view from an industry perspective that all they see with OTAs is the 25% they take off the top, but it’s more layered than that.”

However, he said, that doesn’t mean this isn’t potentially a great use case for hospitality. “Having said that, it’s great to see these new innovations; all of this is important and they should definitely be watched closely. I think it’s a great thing for the industry that they’re trying it and investing in this,” Quinby said. “I’m not dismissive of these start-ups by any stretch—I think it’s fantastic—but let’s be realistic.”

“Intermediaries play an interesting role in the ecosystem,” Izmaylov agreed, noting that the point of Winding Tree’s proposition isn’t to be the death knell for OTAs, but to equalize the power dynamic. “Right now, we have a few big intermediaries in hospitality. What we want to see is a thousand companies creating all sorts of innovative products on top of the Winding Tree platform and network. And, therefore, we’re increasing the

competition. What we’re preventing current intermediaries to do is consolidate all the power in one hand.”

Another area where experts see a lot of potential is with loyalty. “Right now, loyalty is something that is pretty siloed,” Gosserand said. “As a consumer, you’re signed up for multiple programs and you’re not seeing cost benefits or incentives. With blockchain, loyalty programs can be distributed through one ledger and rewards can be tokenized.”

While many hotel loyalty programs have partnerships with various companies that their travelers frequent, blockchain would enable a seamless relationship between those companies. “When the providers come on the blockchain in the form of a hub, customers can take points, take an Uber trip back, buy something on Amazon, etc.,” Kasthoori said. “That loyalty ecosystem will evolve and because of the distributed nature of blockchain, the secure nature of the transactions, I’m able to expose and let my consumers consume other providers for a holistic experience.”

“If you’re tokenizing these rewards, imagine being able to use these points anywhere at any time,” Gosserand added. “They don’t expire, you have a reduction of fraud because the system is impermeable to hacks, and you can redeem points through various programs. You can decide how you’d like to utilize the points. As a result, you’re more loyal to whatever platform it is you have these points on. That creates a better experience.”

It’s also better for the hotel companies, she said. “As a provider, you can actually use the data you’re collecting to optimize the experience for users and reduce churn and get more customers,” Gosserand noted. “It’s creating this ecosystem wherein the incentive structure benefits everyone involved. It’s more of a two-way conversation. That’s the future we’re moving into where everyone is incentivized to be good agents.”

While blockchain technology is still nascent, there are companies developing ways to apply it to the travel industry. However, even those who are believers in blockchain’s ability to revolutionize the hospitality industry know that it will be a while yet. “The infrastructure isn’t there,” Gosserand said.

“We’re five to 10 years out before you really see an industry-wide adoption. And it’s not just hospitality, but anything like healthcare, the supply chain, etc. It has to be built out.

“As we move forward, we’re going to need to understand the technology better,” she said. “That’s the biggest barrier now. What you have now is a lot of companies developing proof of work to get the vision out there and create this roadmap, but it will take a further investment of resources and time before we see this implemented on a wider scale.”

“There are still some
questions about the speed of the technology, there
are still technical hurdles to be addressed, and there are also usability hurdles to be addressed as well,” Quinby said.

Kasthoori pointed out

that it will also take collaboration. “As an individual corporation, you have limited things you can do with blockchain, unlike innovations like IoT, artificial intelligence, big data. With those, you can figure out what business use case makes sense and go ahead and implement. With respect to blockchain, it has to come together as a consortium,” he said, noting that the International Air Transport Association has approached Mindtree with regard to its blockchain solution for loyalty. “Once one consortium emerges, it’ll be quick and fast, and you’ll see several different consortiums coming together. But that’s the immediate challenge.”

So how should hoteliers be thinking about blockchain now? Gosserand said that she gets a lot of questions from hospitality companies. “They ask what are some companies disrupting this space? Is this being used currently? What does my roadmap look like if I were to implement a blockchain solution? Is it expensive?” she said. “As we see this technology mature—and, again, it’s in very early stages—[the focus will be] how do we make this into a seamless experience for our guest from start to finish, how do we provide a seamless check-in and anticipate their needs, how do we capture insights that will make the experience better for future guests, how do we create loyalty amongst guests so they’re going to want to stay at a Marriott? We’re not competing with other companies because we know our guests and what they like, and we cater to those needs. It’s going to be a very individual experience and they’re going to have the data points to provide that. That’s the potential and what companies are looking for—richer insights and how to take that information and build meaningful experiences for customers and for new potential customers.”

“We live in a technological world,” Izmaylov said. “The world is completely dominated by technology. And technology will have more and more influence on all sorts of areas of human life the further we go. Hotels, airlines, car rentals, all sorts of travel companies will have to become technology companies.”

The key to this, he said, is education. “Is blockchain an answer to everything? Will it cure cancer? Absolutely not,” he said. “We’re testing it, we’re playing with it, but I’m convinced, knowing what I know, and seeing what I see—a very vibrant community of developers in the blockchain space, the amount of money being poured into the blockchain space—that technology is here to stay. As a hotelier, if you’re not learning about it, trying to understand it, you’re going to lose. It’s dangerous that right now the word blockchain is overused and a buzzword, but if you keep in mind it means decentralization, then everything is going to make sense.”

“I think it’s still pretty early days for the technology,” Quinby said, pointing to the rise of community-sourced free software and operating systems 15 years ago. “There was this idea that the free platforms would eventually supplant platforms like Unix and Microsoft because it was free, community driven, nonprofit and the best code would win,” he said. “What we’ve instead seen is that all platforms have flourished and that underlying technology, rather than replacing other platforms, has become one of the tools.” Essentially, the path technology takes isn’t always clear at the beginning of the journey.

Quinby also pointed to the Gartner Hype Cycle, which defines the lifecycle of emerging technologies. First,
a new innovation is triggered and
early publicity helps launch it to the peak of inflated expectations; then, interest wanes as projects fail to deliver, landing in the trough of disillusionment; the emerging technology then enters the slope of enlightenment and finally reaches the plateau of productivity—when mainstream adoption starts to take off.

“At the peak of inflated expectations, a lot of early investors or adopters claim this technology will change world, and then you go into the trough of disillusionment when there’s a realization that it won’t solve all of the world’s problems. Once that bubble bursts, people get to work and you begin to see the emergence of practical applications,” he said. “I think we’re still on the peak of inflated expectations around blockchain, and once everything settles down, we’ll see what the actual practical applications are.”

Certainly, he said, “In theory, the idea of a lower-cost solution or platform that enables that type of trust to allow people to engage in commerce, conduct transactions, that’s quite interesting. It’s appealing. What’s less clear is if blockchain technology is truly the solution to enable that or not.”

Kasthoori, for his part, believes. “What blockchain is going to do to the entire ecosystem, customer ecosystem, the omni-channel experience ecosystem is going to be very different from other hype we have seen in the past. That’s why blockchain is more real than some of the other technologies we talk about,” he said. “It may take some time because companies are innovating, there are a lot of new concepts coming, they’re trying to figure out the financial model, how this ecosystem works, but the technology has matured so much, and there is more and more interest in the marketplace because this technology is so different from what we have seen in the past.”

“The potential is immense and it’s applicable across every industry,” Gosserand said. “Right now, we are in the very early stages of realizing the full potential of this technology platform and how it can be used across a wider scale. My forecast for the next five to 10 years—and that’s being rather conservative—is that we are going to interact with this technology very much the same as we do with the internet. We don’t use a modifier to use the internet. As part of our everyday lives, we carry devices that can access the web, and in the very near future there’s going to be this seamless use for us as well.” HB