Hotels can double their profitability by successfully marking up rooms just 10 percent. That’s why Accel Partners is betting hotels will pay for Duetto, a price optimization SaaS that uses big data to dynamically surge or discount rates for rooms. Duetto can help hotels drop prices if no one is visiting their website, or charge more if it detects a conference in town or beautiful weather.
Duetto faces the tough challenge of selling into a stubborn, corporate industry. But with the revenue managers of the Las Vegas Wynn hotel and the former CTO of Salesforce as founders, this new funding could help Duetto bring Uber-style responsive pricing to hospitality.
Because really, if a hotel sells out more than a day or so ahead of time, it left money on the table. And if it ever has rooms unfilled, it priced them too high. To maximize profit, hotels should be steadily raising prices as they allocate more and more of their rooms for a night, and dropping them if the date is approaching and it has too many.
Duetto makes this process automatic for hotels by plugging a big data-crunching algorithm into its pricing system. It looks at a ton of variables, including demand, traffic to a hotel’s site, holidays, weather, and what’s going on in town. It also factors in multi-night stays so it can give people better rates if they’re staying for a while and will make the hotel more money in aggregate. Hotel revenue managers can also write in their own rules, such as making sure their prices are always higher than the crappy motel across the street. In exchange, Duetto takes a yearly SaaS subscription fee based on a hotel’s quality and the number of rooms it’s managing.
If it sounds like Duetto is basically price-gouging-as-a-service, you might not have dealt with the annoyance of not being able to get a hotel room anywhere near where you’re supposed to be since they all sold out months ago. (*ahem, SXSW*) Sometimes you just need a ride immediately and are willing to pay Uber surge pricing; the same is likely true for hotels. And Duetto could help you get a cheaper rate, too, if you’re trying to get a last-minute spot when demand is low and there are empty rooms all over town.
Right now, some hotels are essentially outsourcing this price optimization to third parties like HotelTonight and Kayak (which are also Accel portfolio companies) because the hospitality industry has historically been slow to integrate new technologies internally. But by bringing this optimization in-house with a SaaS that’s relatively easy to integrate, hotels can keep those boosted margins for themselves.
Accel partner Brian O’Malley describes the company as leveraging big data behind the scenes so hotels and customers don’t have to think about it and just get “an app that actually functions.” He tells me the hotel industry started with simple on-peak and off-peak rates, then had a flexible rate they’d manually push up or down, but that now it’s time to let the computers take over.
Duetto will have to compete with inefficient homegrown software built by the big hotel chains, as well as older companies like IDeaS and Rainmaker, which started well before the big data age. Hotels can be reluctant to fiddle with their pricing systems since it’s so directly tied to their financial success. But Duetto hopes it can overcome this barrier with a combination of technological prowess and industry contacts.
First, it has Craig Weissman, the co-founder and former Salesforce CTO. If he can build and scale the right algorithm, Duetto should be able to demonstrate concrete return on investment — earning hotels much more in improved margins than they pay for its software. Then there’s Patrick Bosworth and Marco Benvenuti, who ran revenue management for the prestigious Las Vegas Wynn. They’ll use their inside connections and those of the startup’s hospitality industry investors to get a foot in the door and convince the revenue managers, general managers, and owners of the hotels to adopt Duetto.
Both the tech and business sides of the company will get a boost from the funding. Along with Accel Partners, the round includes previous investors Battery Ventures, Altimeter Capital, Co-Chairman and CEO of Thayer Lodging Leland Pillsbury, and Salesforce founder and CEO Marc Benioff. Combined with its Series A and seed, the new funding brings Duetto to $33.2 million.
Duetto plans to hire more engineers, as well as a bigger sales team to push in the U.S. and expand more abroad. Duetto has mostly been targeting smaller hotel chains with 10 to 100 properties, but will eventually try to seduce the big chains like Starwood, Hilton and Marriott. Duetto already has about 20 chains aboard since it launched in 2012.
If Duetto succeeds, it will be further proof of the trend of big data SaaS becoming verticalized. Pharmaceuticals, retail, travel, and more industries are ripe for their own specialized tools. Rather than hosting clunky, outdated software, companies can just plug in cloud-based services that are constantly improving. For hotels, that means getting just enough heads to fill all their beds.