"What CEO is going to say no to profit optimization?"
This rhetorical question, posed by Henry Harteveldt, principal airline and travel industry analyst at Forrester Research, sums up the wisdom behind SAS's acquisition of IDeaS, a specialized analytics firm that helps some 1,300 hotels optimize pricing using its software-as-a-service-based revenue-management application. The acquisition gives SAS an online application-delivery platform while IDeaS, which will now operate as a unit of SAS, will gain access to deeper analytic capabilities that will help drive the technology into new industries. The terms of the deal, closed last week between the two private companies, were not disclosed.
Analytics-driven price optimization is nothing new, but IDeaS, which was founded in 1989, has been a pioneer in supporting dynamic pricing via SaaS for an industry that is now driven largely by Internet-based bookings.
"Internet travel sites dragged hotels online kicking and screaming, and they didn't have the technology to deal with a new environment," says Ed Booth, CEO and Chairman of IDeaS, "We made an early call that [Internet bookings] would dominate the market, so we turned the technology inside out by going from client-server to an annual SaaS subscription, and we focused on making the service very easy to use."
The IDeaS system works by way of an applet placed into the property management, reservation system or primary data warehouse of customers such as Hilton, Hyatt and Intercontinental Hotels. The applet uploads transactional information to IDeaS each night, and its analytic forecasting engine then discerns booking trends and sets pricing to maximize profitability.
While most airlines and major hotel chains have developed in-house price optimization capabilities, Harteveldt says there's still huge untapped potential for the technology within the hospitality industry.
"Most hotels in the U.S. are independently owned and operated franchises," Harteveldt explains. "The hotel chains can provide franchisees with a certain amount of expertise, but then there's another layer of opportunity at the property level. IDeaS' SaaS model has a scalability that can work with single-property on up to hotel chains with hundreds or thousands of properties."
Competitors to IDeaS include JDA Software Group as well as business units owned by Sabre and Amadeus in the travel industry. There's no shortage of ideas for applying price optimization technology outside of the travel industry. Thus, SAS is rolling out a new Profit Optimization Global Practice to better capitalize on the combination of IDeaS' technology and SAS analytics.
"Media is one area where we think there's a good fit," says Steve Pinchuk, SAS' newly appointed leader of the Global Profit Optimization Practice. "A lot of the advertising networks and cable companies have come to us and said, 'help us use this to figure out what we should charge for advertising.' Any industry in which you have demand at different price points and, particularly, more demand than you have supply or a product that might perish, you can use different models to forecast the demand at different price points."
Sport and entertainment event ticketing, equipment leasing and shipping are a few of the other industries mentioned as target markets.