Always on the lookout for incremental revenue, hoteliers have experimented with “technologies” ranging from in-room movies to vibrating beds. Thinking larger, French hotel chain Accor (www.accor.com) developed a slick Web-based reservation service that has been a stunning success.

Although Accor (pronounced ahCORE) didn’t begin rolling out its service until 2000, it sold two million overnight stays online in 2001. That put it second only to Marriott International Inc. (www.marriott.com), which sold four million. Accor, which runs economy and midmarket hotels, generated $90 million of revenue through online bookings in 2001, double its online revenue in 2000. Online sales so far this year are running at 31/2 times last year’s level, the company says. Within three or four years, Accor predicts, a quarter of all its revenue—which totaled $6.4 billion last year—will come from online bookings.

“You are going to see Internet usage by travelers increase massively over the next few years,” says Udo Rosendahl, portfolio manager and leisure sector specialist at DWS, the asset-management arm of Deutsche Bank (www.deutsche-bank.com) and Germany’s largest money-management house. “Accor is in the pole position to win.”

At a time when e-commerce is in disrepute, Accor says two-thirds of the online bookings are sales it wouldn’t have generated without its Web service. Because a room costs a hotel chain roughly the same whether it’s occupied or unoccupied, almost all the incremental revenue drops straight to the bottom line. That means the Web-based system generated profit on the order of $60 million last year—more than accounting for Accor’s entire 6% increase in net income, to $426 million in 2001 from $402 million in 2000.

Perhaps not since the mini-bar has a hotel innovation created such pure profit.

In many ways, Accor was an unlikely candidate to make a bold move into online travel services. Although conventional wisdom about real estate is that the three most important things are location, location, and location, Accor employees say that Chairman and Chief Executive Jean-Marc Espalioux thinks the three most important things are cost, cost, and cost. Formerly the chief financial officer of sprawling Paris-based utility Cie. Generale des Eaux and before that a senior official within the French government’s finance ministry, Espalioux has earned a reputation as a ferocious bean counter who questions every penny of expenditure. Even when thinking about developing its online presence, Espalioux emphasized the need to avoid the kind of massive investments in technology that helped bank- rupt many e-commerce start-ups.

Still, the company had recently spent tens of millions of dollars developing a corporate intranet and customer-reservation system—absolute necessities for a 21st-century international hotel group. Espalioux and his team realized they already had built the basis for a global e-business platform.

“We’d already made virtually all the investments we needed,” says Thierry Gaches, the ebullient, fast-talking head of Accor’s Internet travel business. “All we needed was a front end to make it work for consumers.”

Gaches went scurrying all over the planet, giving dozens of presentations to regional managers, listening to their suggestions, commissioning market research, and analyzing the content of existing travel and hotel Web sites. He decided they were mostly dreadful.

“We were surprised at how bad the service was,” Gaches recalls. “You could spend 20 minutes registering, agreeing to receive a site’s advertising, and trying to book a hotel room only to find out there were no more vacancies. It is enough to drive customers away.”

Gaches says he also learned that customers would buy online only if offered a very easy, two-click reservation process. Yet they wanted access to a lot of information.

Gathering that information proved to be a daunting task. Paris-based Accor is the world’s third-largest hotel operator after the U.S.’s Cendant Corp. (which owns both Day’s Inn Worldwide Inc. and Choice Hotels International Inc.) and Britain’s Bass Hotels & Resorts. Accor has grown through more than a decade of mergers and now owns and manages 11 major hotel chains, including France’s Etap and Hotel Formule 1, the pan-European Ibis and Novotel chains, the global Sofitel chain, and the U.S.’s Motel 6 and Red Roof Inns. The group manages 3,700 hotels and 390,000 rooms in 90 countries, and Gaches believed that he needed to provide in-depth online local information and booking facilities for every single one of those hotels.

Research and early feedback at the Accor Web site had found that visitors wanted a broad “travel experience.” They wanted a feel not just for the hotel but also for the city and region where it is situated and for activities going on during the season when they plan to be there. So Gaches asked local managers at each hotel to provide photographs as well as detailed information regarding hotel facilities, nearby businesses, conferences and events, sightseeing, communications, transportation, dining, and shopping.

The local managers took some convincing. They needed to know how the Web initiative would increase revenue at their individual properties.

So executives at the Paris headquarters made many promises of marketing support. They began providing it by, for instance, placing banner ads at big travel sites such as Expedia Inc. (www.expedia.com) and Travelocity.com LP (www.travelocity.com) and by making special offers through those sites. The executives also cajoled, prodded, and pushed any way they could imagine.

Eventually, managers flooded headquarters with tens of thousands of pages of information—so much, in fact, that they temporarily overwhelmed Gaches’s staff.

“Getting buy-in from individual hotel managers was everything,” Gaches says. “Once we won their commitment and got them to believe that this venture would create new business for them, then we knew we could make it work.”

It took almost two years to link Accor’s 11 distinct chains and brands in a single global portal. But, today, travelers can access every Accor hotel through sites dedicated to a specific chain, such as Motel6.com or Sofitel.com. Or users can go through the main Accor site to book online anywhere in the world, check room availability, and receive real-time pricing information before making the decision where to stay. In either case, users can check all the information that Gaches compiled with such care—such as how far away airports are and what sports stadiums are nearby. If one chain’s hotel is full in a particular city, the nearest similarly priced Accor hotel is automatically suggested as an alternative.

If you’re planning a trip from London through the French countryside to the wine region of Bergerac, you can use a new online planning tool called “find your hotel.” The portal will provide you with electronic maps and construct an itinerary with stopovers and suggested hotels. It also provides road directions and information on points of interest along the way.

As the portal took shape, Gaches became more and more convinced that Accor had the right products to market online. “One-, two-, and three-star hotels are perfect for the Web,” he says. After all, economy and midmarket hotels are more likely to be booked by the traveler directly, rather than through a secretary or agency. The rooms also tend to be more standardized, so they are easy to visualize.

“There is a growing mass of self-employed people and smaller companies that want to make their own travel arrangements,” agrees Augusto Huescar, head of research for the World Tourism Organization (www.worldtourism.org), an international body monitoring travel and leisure trends. “These people are economy-minded and are happy to use the Internet rather than rely on the traditional travel agency or department.”

With more women working these days, vacationers have become less likely to book inflexible, weeklong or 10-day package deals offered by travel agents. Instead, travelers are taking shorter and more frequent breaks, which are a good fit for Accor’s direct booking service.

The French hotelier has also enjoyed some unforeseen benefits that may turn out to be temporary. Since the Sept. 11 terrorist attacks, travelers have tended to stay away from urban areas, where Accor has less of a presence, and go to suburban or rural areas. That shift fits perfectly with Accor’s Web-based service. In the past, Accor hotels in rural locations could never afford to market themselves outside their home regions or provide such detailed information and advice. Now they can. But travel may switch back to the major cities over time.

In addition, while the uncertain global economy makes discount hotels like Accor’s especially attractive at the moment, travelers may book more expensive rooms once the economy strengthens.

Still, many of the gains seem likely to be permanent. For instance, as more of Accor’s sales move online, its costs will keep dropping. The cost of processing an online booking is 40% less than through a call center and 60% less than through an independent travel agent, the company says.

There also seems to be a structural shift, in Accor’s favor, in the mix of travel services that customers use online. According to WTO research, while air tickets accounted for 80% of all online travel sales in 1998, that percentage will drop to less than 60% at the end of 2003. Last year, a full 78% of U.S. travelers who used the Internet made a hotel reservation online. Hotels offering the $40 to $90 rooms that are Accor’s specialty are the main beneficiaries of the change.

Accor believes that its online presence will help it build the Accor brand, which isn’t nearly as well-known as might be expected based on the company’s size. Although Accor is the No. 1 hotelier in both France and Germany and is a major player in much of Western Europe, more than 75% of its Internet customers come from countries where the group is not the market leader.

Growing Web usage and bookings have already created a broader awareness of the overarching Accor brand. Two years ago, 80% of all online bookings came in through the individual chains’ sites, with only 20% coming from the Accorhotels.com portal. Today, the ratio is more like 60/40, and that is expected to fall to 50/50 within the next few years.

“The Web is probably the most cost-effective way of educating travelers about the Accor brand,” says Fraser Ramzan, Lehman Brothers Inc.’s (www.lehman.com) senior European hotels’ analyst. “The idea is to use it to attract travelers crossing the Atlantic both ways.” In other words, a European with experience of the midmarket Novotel chain may be encouraged to try out Red Roof Inns while visiting the U.S., provided that Accor lives up to its promise of offering the same standard of accommodation.

The Accor Web-based system is thus becoming the 21st-century equivalent of what the old Holiday Inn sign came to symbolize a generation ago.

Evans is a London-based writer and consultant specializing in the strategic and financial implications of the New Economy. He has written for a wide range of magazines and journals on both sides of the Atlantic and can be reached at vision@evansnet.demon.co.uk.

MONEY MAKERS Accor isn’t the only company finding success on the Web. Although e-commerce has had a bad name since the dot-com stock-market bubble burst 21/2 years ago, a review of 500 U.S. companies with a Web presence by Ziff Davis Media Inc. (www.ziffdavis.com) shows that the group generated $378 billion in e-commerce revenue in 2001. That is up 35% from $281 billion in 2000. To put it another way, the 500 companies’ e-commerce revenue jumped from almost 3% of U.S. gross domestic product, or the value of all goods and services produced in the nation, to nearly 4%.

Many companies are profitable, too. For instance, more than 50% of retailers reported operating profits for online businesses in 2001, according to a study commissioned by Shop.org, an association of online retailers. Catalog companies showed the most strength, with nearly three-quarters of them reporting earnings before interest and taxes in 2001. As a whole, catalog companies posted operating profit of 6% of revenue.

With companies gaining experience about how to use the online channel, the study found that the retailers’ marketing costs per order fell 40% to $12 in 2001 from $20 in 2000. The cost of finding a new customer fell 52% to $14 in 2001 from $29 in 2000. Continued improvement in operating efficiency is expected to be reported for 2002.

With sales rising and costs falling, some companies are finding the Internet incredibly profitable. Dennis Uniform Manufacturing Co. (www.dennisuniform.com), which makes uniforms for elementary and high-school students, reports that its online profit margin is a whopping 56%, twice the margin for its offline business, according to the Ziff Davis report.

The successes online shouldn’t really be surprising. After all, as of April, market researcher Nielsen//NetRatings (www.nielsennetratings.com) found that nearly 166 million Americans were using the Internet on a regular basis. That is fully 59% of the U.S. population. — by Craig Elderkin