Big travel sites like Expedia and Priceline have been around since the dawn of the Internet age, but a local startup with a lot of venture backing is offering something different.
HotelTonight allows users to snag unsold, discounted hotel rooms at the last minute, starting at 9 am the day they want to book. Instead of catering to people planning travel far in advance, the company is offering a handy, mobile solution for road-trippers who aren’t exactly sure where they want to stop for the night, or parents who got a last-minute babysitter and some freedom to head out of town.
The company doesn’t actually require hotels to discount their rooms, but users of the app only see the 10 best deals for them, so the higher the discount, the higher the visibility. “That ensures hotels are giving us best possible deals,” says co-founder and CEO Sam Shank.
The app is free for customers, and hotels pay a commission to the company in the 20 percent range, though it’s not a flat rate; it varies based on volume and partner, and the mechanics of it are proprietary.
HotelTonight isn’t Shank’s first travel startup. The first, TravelPost , a hotel review site, was acquired by a company called SideStep in October of 2006, and eventually became a part of Kayak.com. After he sold it, Shank still saw a lot of room for new products in the sector. “It was a very large market with very attractive margins,” he says. “I wasn’t seeing a lot of innovation and new ideas in travel versus other categories. I saw a very ripe area I could build companies in.”
But there were challenges to building a new travel company. Plane tickets and hotel rooms were some of the first things people felt comfortable buying online, and a lot of potential users already had allegiance to specific sites. Frequency of use is low—people tend to travel only a certain number of times per year—hotel prices are high, and there are “pretty high switching costs for customers,” Shank says. At the same time, HotelTonight could offer something new: an original model and a completely mobile experience. “That’s what excited me more than anything,” Shank says. “An opportunity to build something new that had never existed because the platform had never existed before.”
Once the app was on the market in January of 2011, it got good reviews and a fair amount of positive press. Some of the most iconic hotels in its first three cities—New York, Los Angeles and San Francisco—had signed up. But there was a problem. They didn’t have
