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News In Review

April 27, 1998

Hilton Hotels
Reservations Online

By Bob Violino

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ROI In The Real World

A t Hilton Hotels Corp., senior managers view the Internet as a strategic place to be. Though they're quite familiar with building in prime locations, when Hilton's marketing executives pitched a plan to build a sophisticated Web site that would provide online reservations and other services, the business managers wanted more than just vague promises about the Web's potential as a business tool. "We wanted to be leading, but not bleeding," says Dieter Huckestein, president of Hilton's hotel division.

Huckestein, who closely watches every Hilton IT investment, says he expected the investment in the Web would be "easily justified, if for no other reason than to better communicate our products and services to customers." Nevertheless, it had to be justified.

"It was very clear that if we didn't have a financial model that made sense and showed expected returns, we would not get any serious funding," says Bruce Rosenberg, VP of marketing and distribution at Hilton, in Beverly Hills, Calif. Rosenberg helped develop the Web-site plan and was responsible for developing the project's ROI analysis.

When plans for the site were first discussed nearly two years ago, some of Hilton's managers were skeptical that a Web site could be profitable. For that reason, they wanted the project to begin modestly. To demonstrate that an Internet venture could bring in revenue, representatives from the hotel division's marketing and distribution groups first set up a preliminary Web site.

One early project, completed with help from the reservations group, was an E-mail reservation service. "The general consensus was that people would not make hotel reservations electronically," Rosenberg remembers. "But on the first day, we got five reservations from different parts of the world. All the senior VPs said, `You've got to be kidding.'"

The payba ck got attention. The marketing group, which had reallocated money from some of its other projects to start the E-mail reservation service, was next given a $500,000 budget to build an infrastructure, hire a Web-development firm, and develop online pages.

Over the next six months, the marketing team assembled a payback model based on a traditional cost/benefit analysis. Outlining costs was straightforward: Web development and maintenance, personnel, training, and telecommunications. But getting a handle on the benefits side was a challenge. "We knew it would be difficult to measure returns on the Web because there were no benchmarks," says Joe Durocher, Hilton's CIO, whowas among the senior managers who reviewed the plan and financial model for the Web site.

Crucial to measuring the expected benefits, says Rosenberg, was the ability to track usage data on the site. This needed to include not only the Hilton home page, but also multiple pages from hotels around the world.

Synapse Group Inc., a Dallas consulting firm hired by Hilton to design and maintain the Web site, provided the answer. Synapse built software "tracking modules" that give Hilton daily and monthly reports on hotel reservations made over the Internet. The software also records how many people view the pages and the number of people who sign up for the frequent-stayer program and other customer services. "We'd know exactly where we were with the site every day," says Rosenberg. "At the end of the day, I could find out how many people visited the site, how many made reservations, and how much money those reservations would bring in." Using this data, marketing was able to estimate how much revenue the site would generate.

Hilton management then gave the go-ahead for a more extensive development of the Web site. Today Rosenberg says that for every dollar the company spends on www.hilton.com , the site generates about $10 in revenue. That's based in part on an average $2 millio n worth of online room reservations a month, as measured by Synapse. Hilton expects the number of online reservations to rise as more people become comfortable booking hotel rooms on the Net.

Click And Assign
Hilton leads its competition and many other Web operators in both online options and its ability to measure usage in detail. "We've put in all kinds of real-time reports like tracking how many reservations are generated by clicking through Yahoo!, and assigning values to all those," says Ben McLemore, president and CEO of Synapse. Hilton and its worldwide hotels now operate some 7,000 pages on the Internet, some with links into legacy databases that let frequent guests look up account balances, he adds.

In March, the company unveiled the latest, upgraded version of its home page. Over the next several months, it will boost bandwidth, upgrade servers, and add more functionality to its online sites, including increasingly personalized features for guests.

Letting us ers sign up for the company's HHonors frequent-stayer program by E-mail should save money because "the cost [to Hilton] of signing people up on the Web is pennies, compared with dollars when we have to print paper and use regular mail," says Rosenberg.

Hilton is also working to measure the indirect benefits of its Web sites, such as fewer calls to the company's 800 number. "We can say we have hundreds of thousands of visitors a month, and we know that they're getting information from the site that they [otherwise] would be getting by calling," Rosenberg says. "But as yet we only have anecdotal evidence that we're saving money."

To determine if the hotel chain is getting repeat business because customers regard the Web as a more efficient way to get information and reserve rooms, Hilton will survey customers. But Rosenberg--who predicts that the Internet will someday be a $200 million business for Hilton--knows his senior managers are mainly interested in hard evidence. "We must show value," he says.

Yet CIO Durocher says Hilton's decision to build its Web site was not based purely on financial returns, but also "on the belief that we were on the cusp of a whole new method of marketing." Still, he's a believer in ROI, and approves of Hilton's practice of conducting ROI analyses for virtually all IT projects. "To the extent that a quantitative component exists, ROI is now a significant part of the analysis we do for all our work," Durocher says.

In fact, Hilton uses different metrics for projects of different sizes and complexity. For example, a relatively simple project such as a minor revision in a mainframe reservation system with a $20,000 price tag would require only a simple payback analysis. But for more complex projects, Durocher says, "we'll use methods such as net present value and internal rate of return, which account for discounted cash flow over the life of the project."

Looking ahead, Durocher expects even more scrutiny of IT spending from Hilton execs. " We realize that the decision to do an IT project is a business decision, just like buying a hotel or some machinery," he says, "and it needs to be put to the same test."


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