No Reservations: Now's the Time for Last-Minute Hotel Apps

Photograph by C. Taylor Crothers/Gallery Stock

It’s apparently zero hour for companies that specialize in last-minute hotel deals.

Groupon said on Monday that it had acquired Blink, a startup that offers travelers the chance to make same-day reservations from a rotating list of hotels via a mobile app. The company operates solely in Europe, where Groupon will continue to run it as a separate business.

It’s becoming clear that increasing ubiquity of mobile devices and the rise of last-minute hotel bookings are linked. In fact, Blink may have been pushed into Groupon’s arms in part by the success of Hotel Tonight, which makes a mobile app for last-minute booking and raised $45 million in funding last week. Armed with a pleasing user interface and a first-mover advantage, Hotel Tonight is the current darling of the travel-tech industry. And it’s looking to expand its European operations.

Priceline still hasn’t made a concerted push to compete in the last-minute-deals market, but that doesn’t mean the company isn’t doing any business there. It offers last-minute deals each day after 11 a.m. and has also set up a category specifically for people looking for hotel rooms between midnight and 4 a.m. A spokesman said about 70 percent of the hotel bookings on its mobile app are for reservations with less than 24 hours notice. Still, Priceline hasn’t used its long-standing relationships with hotels to push them to participate in a last-minute program, according to people familiar with the industry, and this business is really about which company can get the best hotels signed up.

“Having access to the inventory is what is going to determine the winners,” says Rocky Agrawal, a consultant to technology companies.

The hotel industry is torn over this last-minute booking trend. On the one hand, mobile booking is likely to make up a significant proportion of business, and last-minute deals also help rent out rooms that would otherwise sit empty. But the move to mobile also probably means that a greater proportion of sales will be filtered through an intermediary that will take a cut. The hotel industry will pay $7.5 billion in commissions (PDF) to businesses helping sell hotel rooms in 2015, up from $3.8 billion in 2010, according to a report done last year by the American Hotel & Lodging Association and Smith Travel Research. These dues are going largely to travel-tech companies.

At the most basic level, mobile devices are scary because everyone knows they’ll make a huge difference, but no one knows exactly how. “It is likely the single technology category that will most affect every aspect of distribution, and yet it is still largely in development,” said AHLA in its report. The trade group advises hotels to develop their own mobile strategies, rather than relying on outside companies, while predicting that apps will soon be about much more than dumping unused hotel rooms.

The main fear for hotels is that people will get used to paying less and start refusing to pay more. This is the same dynamic that has turned many other retailers against the daily deals on which Groupon built its original business. To ease these worries, online booking businesses use tricks to train people away from expecting a discounted room at any particular hotel. Priceline, for instance, doesn’t show the hotel’s name until someone has already agreed to stay there.

Hotel Tonight picks a small group of hotels to feature on any one day. That way, someone who stays in a particular hotel once will have to go to its own site if he decides to stay there again. “We’re not competing with the hotels’ own websites,” says Sam Shank, the company’s chief executive.

That’s fine for an individual hotel, but the industry as a whole runs a collective risk. If people get used to finding hotels at steep discount at a few hours’ notice, they could cut back on advance planning. Agrawal, who once spent seven consecutive months living in San Francisco hotels booked on Priceline, says that hotels probably have little to fear in the short term. Many travelers will only rarely book a room at the last minute, if at all. He cited as an example a friend who uses last-minute booking when traveling for work but books family vacations months in advance.

So while Hotel Tonight boasts of moving away from early adopters and into the mainstream, its discussions with hotels might be well-served by playing up the enduring lack of appeal its service will have to the giant mass of less-than-spontaneous travelers.

(Update: Adds details about Priceline’s last-minute hotel deals in the fourth paragraph.)