It’s a known fact many hotel owners and management companies prefer to capitalize their purchases and expenses. Paying for products and services as a budgeted capital expense allows goodies like depreciation of the asset and scheduling those cost allocations. “One-timing” the purchase also allows the property to increase or conserve that precious NOI (Net Operating Income), a key factor in increasing the value of the real estate/lodging asset (remember playing Monopoly as a kid?). Many hotel management companies negotiate their management fees and incentives around increasing this key NOI metric.
Conversely, most SaaS, UCaaS, and virtualized equipment models are built with a focus on the monthly service fees; i.e., a fixed pay-as-you-go, with an emphasis on rolling the installation, equipment, software licensing, support, etc. into the monthly payment, with the capital buried somewhere into the monthly operational charges. Managed network services, such as Windstream’s Virtual PBX for Hospitality solution, also use this model. Many other virtualized services, and the companies that distribute them, are focused on increasing the monthly recurring revenue (MRR) as more clients sign up and engage.
Moving to virtualized services in a capex focused environment
So how does today’s hotel IT manager, who likes the flexibility, centralized management, high availability, and reduced equipment footprint on-property that a centralized, hosted/cloud-based platform provides, take advantage of these services when it appears many of the commercial business models are setup in the exact opposite direction of how they prefer to buy?
Following are three primary options for making it happen:
1) Build Your Own – By creating your own server farm, the IT manager can capitalize most of the elements of equipment purchase, software licensing fees, applications running on it, installation, etc. This also allows the IT manager to completely customize the offering from the ground-up. It’s key to remember that there is typically a high level of expertise, effort, and resources needed to be able build your own hosted platform.
2) Prepaid Services – Another, and quite possibly less labor intensive route, would be to negotiate pre-paying (or perhaps annualizing) for the monthly service fees associated with the service. While you would need to consult a tax advisor on how to treat this expense for items such as depreciation, one could certainly shift this into a “one-time” expense/budget allocation for predictable annual and/or TCO (Total Cost of Ownership) budgeting.
3) Hybrid – If there are certain elements of the virtualized services, such as infrastructure hardware costs, cabling, or installation fees, negotiate with your integrator to capitalize as much of those fees as possible. Maximizing any of the elements of the capital purchase while still paying for any hosted subscription fees could create a win/win.
While there’s no single right answer for the above, we believe that hotel IT managers and the integrators who partner with them should stay flexible and look for solutions based upon their property’s particular fiscal objectives. In doing so, they will ultimately conquer this conundrum and be successful in their IT transformation initiatives by deploying their own stable of above property solutions.
With hotel networks, one size does not fit all
Even within a single hotel owner’s portfolio there may not be one single direction that is a fit for all properties. Hotel owners may have assets they want to move out of their portfolio and the investment decision for that property will differ from the investment decision for a property that the owner plans to maintain for the long term.
While there has been a shift in the technology, owners still rely on fundamentals like TCO, ROI, and the current tax code when making a buying decision. Furthermore, many of the owners are publicly traded equity REIT’s that have the added focus on corporate governance and increasing shareholder value.
Let’s connect at HITEC Houston
The Windstream Hospitality Team will be at HITEC this year in Houston, June 18-21. We’re going to be at booth 1427 if you want to make a note in your smart phone to stop by and discuss how to improve your network and manage your costs effectively. By working together with a knowledgeable network provider – one that offers a broad range of options that can be tailored to your needs – you will be sure to design the best possible solution for your unique goals and needs.
As Vice President, Windstream Hospitality, Don Jensen leads the organization’s focus on delivering customized network and technology solutions to the lodging industry. Don has spent nearly 30 years working in this space and holds the distinction of a lifetime-certified MHS (Master Hotel Supplier) designation from the American Hotel and Lodging Association. Jensen attributes his team’s consistent success to building trusted relationships, and to applying extensive knowledge of the lodging business to provide guidance and value to clients and staff. Don has been active in many IT trade groups and lodging associations, including leadership roles within HTNG (Hotel Technology Next Generation), and has been a guest lecturer at the Cornell University School of Hotel Administration. Before Windstream, Don held leadership positions in sales and operations at the Sprint Hospitality Group, Wayport (now AT&T Wireless), Assa Abloy/Vingcard, and Xeta Technologies. Don is a graduate of the State University College of New York at Buffalo, with a Bachelor of Science degree in Business.