John Davis III

2016 BTN Hall of Fame inductee John Davis III founded Pegasus, the first switch for hotel content distribution and it continues to operate today. Here’s how Davis described the early days of Pegasus and his outlook on the today’s increasingly complex distribution environment.

BTN: Accessing hotel content through the GDS is a given for an agency and corporate online booking tool at this point. What was the situation when you introduced Pegasus?

Davis: In 1989, when we started, it was not in there. They had 16 hotel companies all looking to get an interface to seven GDSs. Seven GDSs had not really thought through the process of how they get the hotels. What did exist was a situation where it was a one-on-one relationship. Marriott would have to spend one year and pick a number, several million dollars to connect to Sabre. Then Hilton would get in line so it was going to go one by one. With 16 hoteliers, it was going to take years and a lot of money. The hoteliers got together, decided that maybe there was another solution, there was another way out.

BTN: You were leading 800-FLOWERS at the time, so how did you enter the picture?

Davis: I had just left 800-FLOWERS. I had been doing business with the hoteliers. They came to me and said, we are looking for an entrepreneur, we're all corporate guys. We don't know how to start a company. We have an idea to start a company, we've got the money, but we need the leadership. That's how I got recruited. The ideas was “how do we build an interface that would allow the hotels to have access, let their inventory be sold to travel agents electronically to get rid of the reservationist?” That's the situation we had in 1989, got hired, started it. As expected, there was push back on one side and difficulties on the other side.

BTN: You had difficulties getting the hoteliers to work together and GDS players who probably felt like they weregetting hijacked. That must have been fun.

Davis: I had 16 shareholders, 16 hoteliers, 16 competitors. Once a quarter, I had to get them in a room and they all had to agree on how we were going to move forward to help the industry. They all had to put on the same color jersey so the push back was there. The next question was how were we going to charge? What was the fee structure going to be that made it fair for a Marriott versus a La Quinta? Marriott had millions and millions of reservations. Obviously, La Quinta didn't.

BTN: What about the GDSs?

Davis: The push back from the GDS was immediate, coming in the form of another member of the BTN Hall of Fame, Max Hopper. I went to meet with Max when we first started the idea of the switch, sat down with him at Sabre and said here's what we're going do Max. We're going build this switch, we're going interface with Sabre and you're going to get access the inventory of 16 hotel companies.

His response was, “over my dead body,” and I said “Max, that's odd, why?” He said, “Because you're going to get between me and my largest customers. You're going to get between and all the hoteliers, Sabre and hoteliers.” He goes, “I don't need an intermediary, that's not a good solution for us.” 20/20 hindsight, he was absolutely correct. He was spot on. So what I did was go out and start calling on the other six GDSs and explained to them that they were going to be able to have a product that could give their travel agents something they couldn't get with Sabre, with the rest of them.

I got agreement from Apollo and Veriphone. I finally went back to Max in the last meeting and said, “Max here it is, your last and final chance. Jump in. Your competitors are going to have an advantage on you. I know you don't want this. It's not the best solution but it will give you a product that's equal to your competitors day one and in fact, if you agree now, we'll do Sabre first.” Had to do Sabre first, they were the biggest. If I didn't get Sabre, we weren't going to have a product. So Max hemmed and hawed and he finally said fine Davis, we'll do this but I'm not happy and he never was but it worked.

BTN: After Sabre in 1989, how long did it take you to get the rest of the shareholders up and running?

Davis: By middle of 1990, we had all 16 hotels up and it was operating and travel agents were able to go electronically to get a hotel room instead of picking up the phone and calling. Net result is some of the large call centers in Omaha were reduced significantly. For a while, I was the most hated man in Omaha, not anymore, but it worked and it still works today. Most of the companies around the world still use the switch so it's still up and operating.

BTN: And yet hotel distribution is arguably more fragmented today than ever. Hotels are courting travelers to go through their direct websites to get discounted rates, precisely to avoid distribution costs. They are investing a lot here and part of it is about getting the customer loyalty and data, which has great value. Where do you see that headed?

Davis: I think the direct bookers will grow. For the first time ever, they've been able to create fences around the rates to give them a competitive advantage to go direct that did not exist for years. [Because of] the parity agreements that were in place with OTA, you could not really have a competitive advantage. Why go direct? I can get the same rate at Expedia. I can get the same rate at any of the OTAs. Now, they can get access to a different rate, doing the frequent guest rates and stuff. They now have an economic advantage which will draw the consumer to come direct. The OTAs will not go away. It's not a zero sum game so 100 percent of the people leaving the OTAs won't go direct, [but] I do believe that will see a decline in market share from the OTAs by people going direct.

BTN: What about the loyalty factor—will that continue to influence how content is distributed and the product is delivered?

Davis: You're going to get better [and] more customer satisfaction by the direct booking, of knowing who the consumer is rather than just a name. I know who he is. I know through his frequent guest program what he likes, what amenities he likes and those type of things which will continue to draw the consumer.

BTN: Where’s the next move in hotel content distribution?

Davis: Go up the Internet food chain, go up, not down. Go to Google. Go to an Amazon. They will start, as Google has made it very clear they intend to get in the travel business. Amazon has gotten a toe wet and I suspect they will continue to look at that as a market share so I think they will grow and start getting very involved in travel. Next generation, looking down. Start looking at the big retailers that are out there. They're looking for products to add to their websites, whether it's Walmart or Target or Costco. [They want] to draw loyal customers to come to their site and hotels and travel are a natural add for it. They don't have to put the inventory in so it's low cost. They don't have to inventory any of it so it's a nice product to add. Then you've got the fun group called social media that are all trying to figure out how they monetize their customer base. Whether it's Facebook or any of the rest of them, they're all going to be looking at what other products can we sell, can we provide our customers that will allow us to generate additional revenue? I think the day is coming where the social media is going to trying to figure out how they get in the travel business. All of those have to come at the expense of the OTA so that's why I think [that traffic will] go down.

BTN: All of this makes things very hard for corporate travel managers who just want their travelers to book through the agency or corporate online booking tools.

Davis: Only more alternatives and the poor corporate travel buyers are going to have to listen to the employees come in and go well, I found this rate at Costco. Doesn't make it any easier for the hotelier, either. I'm sorry. It just complicates it further. But those are interesting times [and] that's a good opportunity. It's a good time for people to get in and figure out what we can do next. You got a whole mass of little companies out there whether they're SiteMinder or DerbySoft or a bunch of companies out there trying to help the property owner. The challenge all of those companies have is finding a property owner that understands it because there are not a lot of people out there who understand what's going on right now and as I said, it's getting more complicated by the day.