Former Starwood CEO Thinks Timing of Marriott Deal Wasn’t Best for Shareholders

It’s been 18 months since former Starwood CEO Frits van Paasschen left Starwood Hotels & Resorts, and a lot has happened since.

Today, Starwood as we knew it for the last two decades no longer exists. As of September 23, van Paasschen’s former company is now owned by its rival, Marriott International, who bought it for $13 billion.

So when van Paasschen walked onto the stage of the Skift Global Forum in New York City Wednesday, the same one where Marriott CEO Arne Sorenson spoke just the day before, many in the audience were surprised to see him, and no doubt wondering what he’s been up to since leaving Starwood. It was his first public appearance since leaving Starwood.

More importantly, they also wanted to know: What did he think of the Marriott deal?

Well, here’s what he had to say about that:

“I think not everybody would know that I thought this, but I thought that consolidation in the hotel industry was inevitable,” he said. “For a few reasons. If your competitive set now includes Airbnb and the OTAs [online travel agencies like Expedia and Booking.com], and in Starwood’s case, being the fourth largest hotel company with an admittedly great group of hotel brands and a high-end portfolio of upscale brands around the globe, you’re just not in the most defensible position.

 

“If you want to consolidate, you want to do that when your relative value is greater. Prior to 2014, the dollar was weaker and emerging markets were still ascending, that would have been a much better opportunity for Starwood shareholders and Starwood associates to combine forces with somebody else. Unfortunately, that didn’t happen. What’s happened now is a merger that was, in some way, it was inevitable. But it’s just not great timing. It’s just too bad.”

Van Paasschen’s comment on the deal echoed a larger theme he discussed throughout his on-stage interview: That to survive in a rapidly changing world, organizations need to be more agile, and to draw upon a diversity of perspectives to take a 30,000-foot look at what it is they’re really accomplishing. In other words, don’t do what you’ve always done. Be willing to change and to innovate.

Instead of sticking to silos and the way things have always been done, hospitality companies need to be willing to decentralize themselves. The key to success is not just about collecting Big Data; it’s knowing what to do with it, he said.

Disney, Nike and Coors

This is the view of someone who’s always possessed a bit of a different perspective on the travel and hospitality industry. When van Paasschen joined Starwood in 2008, he had arrived at the company having held executive positions at companies like Disney, Nike, and Coors.

“The real benefit of any business and best decisions you make are when you have a group of people at the table with different experiences and perspectives. The value isn’t so much in someone coming from outside the industry,” he said.

When van Paasschen joined Starwood, he was told: “Starwood has all these lifestyle brands,” van Paasschen said. “Quite honestly, I didn’t know what they meant by that. It occurred to me, luckily, because I had been at Nike for a long time, I thought all brands were lifestyle brands — that brands were not just about a guarantee of reliability and consistency. That’s where a good deal of the industry mindset was at that time.”

But having that outsider’s perspective, especially in an industry dominated by storied family brands that have been around for nearly 100 years, is crucial for dealing with change.

Underestimating the Threats

That’s why van Paasschen thinks the industry is underestimating the threat of disruptors like Airbnb and the online travel agencies.

“The reality is that incumbents always underestimate the strength and power of disruptors,” he said. “Part of that is cognitive bias … part of that is structural. In these large organizations, they are very focused on doing one thing very well. A lot of people have a vested interest in the world staying the way it was.”

He gave the example of the steel industry, which long ignored the threat of rebar, or a steel reinforcing rod that’s used in concrete. “They have eviscerated those larger steel companies,” he said. “There’s an object lesson in that.”

There are parallels, he said, between Airbnb and hotels, and rebar and steel. “More and more people of higher demographics and incomes are looking at peer-to-peer lodging experiences. I think people ignore the threat of Airbnb or the incursion of Airbnb where it is today. It’s hard to argue something isn’t going on.”

And what does he think of the eternal hotel frenemies, the online travel agencies?

“OTAs have done a phenomenal job,” van Paasschen said. “The fact of the matter is that, first of all, I don’t think the OTAs have finished their organic growth phase. The online travel booking business is a network business. They are natural anomalies. There’s a reason why there’s one great rail company. Only one Google. There’s a natural tendency for network businesses to get larger and to consolidate.”

If there’s one area where OTAs could do better, it’s that “they don’t control the on-property experience.” (Although, as Skift has reported before, that’s an area where they are trying to branch out into as well.)

Van Paasschen also said that the way today’s hotel soft-brand collections work, such as Tribute Portfolio or Autograph Collection, is very similar to the way OTAs do. “In many respects, there’s a real blurring of the business model.”

So what do today’s travel and hospitality companies need to do to succeed?

Know what to do with Big Data. “Travel, even in the 21st century is still inconvenient, anonymous, and uncertain. There are pain points all along the process,” he said. “There’s an extraordinary amount of information available, but a real dearth of information that’s potentially relevant to any one individual. A lot can still happen in the hospitality business. It’s a breeding ground for ever more innovation.”

Big data, he said, is the “interaction of people and technology” and the key is “how do you get that data into people’s hands who deliver service at the moment they do that?”

“Personalization is the next manifestation in the evolution of brands,” he added. “If you have this emergence of brands being reliable, then having a personality through media, and now you have personal access with mobile. Brands really can deliver personalization now. The expectation of people of brands is you should know me and know what I want.”

Lifestyle branding is harder than it seems. “Creating a lifestyle brand in hospitality is a lot more difficult than sneakers or beer. You change the packaging or the image. The hospitality business is so capital intensive that if you want to create a personality — a consistent personality across design, how associates are trained and interact with guest, and the digital interaction — it takes a lot of work.”

Obliterate the words “domestic” and “international” from your vocabulary. “I think that the fun part about global branding is navigating, exactly, that balance of global consistency and local relevance. That consistency piece has to be there. The real shift goes from being a company that thinks in terms of domestic and international — two words I want to obliterate from the lexicon.”

Learn from the “digital network companies.” Van Paaschen said, “If there’s a lesson to be learned from digital network companies, look at Google and Booking.com, there’s no difference between what’s centralized or decentralized.”