Hotels.ng Business Model final cover

(Author of this post & Steward of jaraCake.com)

The truth of the matter is that everyone loves a seamless travel experience, from taxi & takeoff to landing. When people like me hear the word “travel”, we first think “transportation”. However, ‘accommodation’ is a very big part of travel, and it is also big business. Take Airbnb, an American startup in the online accommodation industry; founded in 2008, as at June 2015 it was valued at $25.5billion.

There are a few startups in Nigeria that have also entered the online Accommodation space, and one of those players is Hotels.ng.

What is Hotels.ng?

Hotels.ng is an online travel agency specializing in hotel bookings within Nigeria. It is a multi-sided platform that connects travelers and accommodation providers (mainly hotels) through the web. The word ‘multi-sided platform’ means that it enables direct interaction between at least two sides of the platform. Since this is a post on Hotels.ng’s business model and not on multi-sided platforms, you will have to stay tuned for a future post mainly about ‘Multi-sided platforms’.

Facts, Funds, Founders & Figures

  • Founder: Mark Essien
  • Founded: 2012
  • Headquarters: Lagos
  • Staff: 54
  • Coverage: 7,164 hotels in 320 cities across Nigeria
  • Bookings made so far: 1,000,000+
  • Social media: Twitter (23.4k) Facebook (112,542 likes) Instagram (12.5k)
  • Figures:

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The Business Model Canvas

Hotels.ng’s business model shall be laid out using Alex Osterwalder’s 9 blocks Business Model Generation Canvas. See the diagram below.

1
Hotels.ng’s Business Model Breakdown by Startupdemands.com

Each block in the canvas will be expanded upon below:

1. Customer Segment

Hotels.ng has two main customers as the canvas above shows:

⇒ Accommodation providers: hotels, motels, inns, apartments, suites, etc.:

  • who want more customers
  • who do not have their own websites but still want online visibility
  • who want a broader platform to advertise their premises

Right now, Hotels.ng’s primary focus is Hotels. But a brief look at their terms and conditions show that their services can extend towards events hall bookings. It is doubtful however if Hotels.ng will deviate from this hotels path anytime soon, especially as they begin to focus on expansion out of Nigeria. Also, services like events hall bookings might be a little difficult to incorporate into their existing services because of the name Hotels.ng. Customers might be confused with the name.

⇒Travelers:

  • who travel a lot on business
  • who travel for events and functions (event/party planners and attendees)
  • who travel for the holiday

I am going to hazard a guess here by saying that Nigerians do not have a culture of holiday travels to other parts of Nigeria that are not their hometown, (until we go to London or America we haven’t traveled …). When we do go to our hometowns, we are going to our family homes, or likely staying with a relative *sorry no opinion poll was taken to arrive at that conclusion. What the above therefore means is that these type of travelers will not make up a significant percentage of Hotels.ng’s customer segment.

2. Value Proposition

Hotels.ng offers great value propositions to both sides of its customer segments. Below are a few of these value:

⇒ Accommodation providers enjoy:

  • increased online visibility
  • an extended customer base
  •  an easy sign-up process

⇒ Travelers enjoy:

  • ease of booking their accommodation online
  • payment flexibility
  • the convenience of comparing various accommodation providers at once
  • travelers receive hotel recommendations and reviews

3. Customer Relationship

Hotels.ng establishes customer relationship in a few ways. One is through ‘personal assistance’ by her team of customer service personnel’s who handle customer inquiries and complaints, amongst other things; and the other is through her hotels.ng community forum .

4. Key Resources

Hotels.ng’s key resources are her Staff team totaling 54 Nigerians and her website. Her staff is responsible for everything including; sourcing accommodation providers, creating and updating online profiles of accommodation providers, payment verifications, payments to accommodation providers, customer service and so on.

5. Channel

Hotels.ng’s main distribution channels include:

  • Website
  • Social media
  •  Salesforce

6. Key Activities

I am sure there might be more activities Hotels.ng is involved in, but the ones I identified are the 4Ps:

PR

I will take each ‘P’ in turn:

  • Platform management: this is key, as the whole Hotels.ng operation lies on the platform. As more hotels join the platform, online profiles are created for them. Updates are also made on price changes on behalf of accommodation providers, amongst other things.
  • Promotions: the most recent promo I saw Hotels.ng do was a ‘story writing challenge’ with a prize win of N20, 000.00. Other promos include the funny travel stories competitions
  • PR: from Techpoint to BellaNaija, to Techcabal, to Nairaland, to name a few, it is clear that the Hotels.ng founder, Mark Essien believes visibility is important to his startup. While I will not go into this in any great detail in this post, I believe Hotels.ng enjoys ‘trust transference’ from customers through Marks PR duties.
  • Payment: this relates to the payments Hotels.ng makes to their accommodation providers after deducting their commission from the total amount paid by the traveler.

7. Key Partners

⇒ Hotel owners:

They are very important partners because they are the only side of the platform that pays a fee to Hotels.ng for her services. Hotel owners pay no listing fees on the platform, and this is obviously a great incentive for them to sign up with the platform.

Actions of hotel owners (price, quality of service, quality of rooms, etc) can, however, have a negative or a positive effect on Hotels.ng’s brand.

.⇒ 3rd party payment processors:

They process online payments made by travelers.

8. Cost Structure

Hotels.ng’s cost structure is not unlike most other startup companies. Her costs include legal fees (which include: one-off company registration fee, rent, legal/contractual agreements), office fixtures, utilities, and staff salaries (which is the biggest cost driver for Hotels.ng). The startup saved some tech development costs at her inception because of Marks tech skills

9. Revenue Stream

Hotels.ng’s main source of revenue is through a referral fee (commission), which she receives from hotels for referring travelers them. The exact percentage of earnings which hotels give to Hotels.ng as a thank you for connecting them to travelers is not stated on the website. With my little knowledge on Multi-sided platform startups in other parts of the world, my guess was that their commission would not be above 25%. With some of my double07 moves, I later found out that their ‘percentage’ charge is a little complicated. The percentage is not a set figure applicable to all the hotels equally. The percentage figure that Hotels.ng charges an accommodation provider is subject to a major factor in the charge of the accommodation provider: ‘PPR-Price Per Room’

Simply put, the better the discount given on ‘PPR’ to Hotels.ng travelers, the lower the commission Hotels.ng might charge the hotel.

Hotels.ng does not charge hotels a fee to feature their rooms on the home page, however, the hotels that give the best discounts to customers get the privilege of being featured on the home page, specifically under the “today’s top deals”.

In spite of this, however, according to a Hotels.ng staff, Hotels.ng does not receive any commission less than 10% for each room booked through her.

Recommendations

  1. One of the biggest risks that multi-sided platforms like Hotels.ng faces is the risk of intermediation. To significantly reduce this risk, I recommend a few things:

⇒Have a point-based system for both hotels and travelers to encourage them to interact with the platform beyond their first transaction. This point system should have a financial implication for the hotels. The more repeat travelers they have, the less discount they pay. For travelers, their accumulated points can be used for future bookings.

  1. The ‘date of last update/amendment’ to the Hotels.ng’s ‘terms of service’ needs to be clearly started on their platform for many reasons including legal.
  2. Show the number of people that have booked each hotel. Why? The strange ‘social proof’ phenomenon.
  3. Hotels.ng has to insist that every accommodation provider provides pictures of their facility before they become active on the platform. Those pictures should be used instead of the pictures of the folded white sheets. Accommodation providers are listing for free, so, this demand is the least they can do.
  4. Honestly, many more customers tend to rant than rave, so, for the select few who actually take the time to write a review, whether ranting or raving, there should be a system in place that rewards them. In the event of either a rant or a rave (especially a rant), the hotel in question should make a statement, apologize and promise a better experience.
  5. Hotels.ng should ensure that her workforce is not fragmented. At this young stage of the startup’s life, basic questions like how to get my hotel on the home page of the platform should be easily answered by every staff member, whether they are directly involved in the process or not. See lesson 13 in the Sam Walton autobiography review .
  6. Lastly, Hotels.ng should uncomplicate her commission charges.

Conclusion

Hotels.ng does not run a perfect system yet (I don’t think any company ever really does). There are many things that still can be improved upon, but with continued great leadership and team, She has just begun to scratch the surface of  greatness

I speak on behalf of Nigeria when I say that we are proud to have had Hotels.ng begin in Nigeria, and I wish her the very best as she expands to other parts of Africa and attains world domination.

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Sources

Click here for:  How OmoAlata works: Business Model Insights

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Comments

  1. Thanks a lot for your comment PatientlyBe. I am glad you liked the post. Our next post will be out by Friday. Pls follow us (click the ‘follow’ button by the top right corner of the screen) to get an email alert when we upload our next post. Cheers and stay insightful

  2. Great example of what is possible by the new generation of Nigerians. Knowledge sharing of this nature will help to lay a good foundation for our young cadre of business owners.
    Good luck with the blog.

  3. Well written and informative piece.

    I found the “Money Tree” particularly interesting. Considering how much investment they got, how long do you reckon it would take for them to break-even and go into profit?
    And what’s the implication for the company in terms of control, considering how much has been injected in by independent investors.

    Please respond, we young entrepreneurs need to know when to seek for funds in business and when to just hang in there. With huge investment, there’s an artificial boom, but what’s the long term implication?

    I commend you ladies for this innovative blog and look forward to reading more of your write-ups.

    1. Thanks a lot for your comment Adekunle, I’m glad you liked the post.
      I appreciate your questions as well and will do my best to answer each one in order

      1. Regarding the break-even question, according to many interviews given by the founder Mark Essien (you can find them online), “Hotels.ng is already profitable”.

      2. Regarding the control question, The beautiful thing about getting investments is that there are no hard and fast rules. No matter how much is invested, it’s up to the parties concerned to draw up their own terms. The level of control investors would want over the business would vary among investors
      Note however that it is unreasonable to collect money from someone and except they will not have an opinion about major decisions the company makes or should make. That’s the reason why you have to be every careful when choosing an investor. Many investors bring years of experience to the table as well as money. Don’t think about the money alone. In the end, it’s like a marriage

      3. When to seek funds varies depending on the idea, the business and the vision of the founders for the business. A great rule of thumb however is that founders should validate their ideas and the market first before seeking funding. Do an MVP (a post on this will be coming soon). The stats from the MVP can give you a strong footing in front of possible investors.

      Don’t look at the investment like an artificial boom, look at it as investment that allows you to accelerate the growth of your business and do things you couldn’t have done with the money you had before. If you play your cards right, and you are ready for the growth, the long term implication of an injection of capital could be to move a founder closer to actualisation of his/her vision for the startup. However if you are not ready for growth, an injection of huge capital can actually cripple the company.

      I hope you I have been able to answer your questions.

      Pls subscribe, so that you can be notified about our future posts. Watch out for an insight post on a Nigerian startup in the food and beverage industry coming soon 😉

      Thanks.

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