It happens to all of us. We plan a vacation, book a hotel and then have to cancel because of a last-minute glitch. In addition to the disappointment of a canceled holiday, there is often a financial loss – sometimes a sizeable one – due to the cancellation of our hotel reservation. If we cancel close to the start of our planned vacation, the cancellation fee the hotel demands can sometimes be equal to the cost of the reservation. Startup Roomer has identified the opportunity that such a situation presents and has created a market in which people with nonrefundable hotel reservations can sell them if they can’t use them.
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The proposed price for the room is determined by the accommodation-cancellers, in accordance with the level of risk they are willing to take. The goal is to create a win-win situation. The people who have been forced to cancel their hotel reservation do not lose all of the money they paid out for the reservation and can at least recoup some of the amount, even in the case of a nonrefundable booking. At the same time, those who buy such a reservation obtain a vacation for a relatively low price.
According to Roomer’s figures, the hotel accommodations on its website are sold, on average, for 40% of the price that can be obtained at the same time through an Internet order for rooms at the very same hotel.
And what do the hotels have to say about this? Gon Ben-David, Roomer’s chief executive officer and one of the company’s founders, claims the hotels profit from this arrangement. “Food, beverages, mini-bar and Wi-Fi account for 30% of a hotel’s profits,” Ben-David says. “In other words, an occupied room is worth more to the hotel than a cancellation fee. In addition, the average occupancy rate at American hotels is 60%; therefore, 40% of the rooms are empty and the hotel will consequently try to sell them wherever it can.” Moreover, clients who purchase their hotel accommodations through Roomer often increase the number of nights they want to stay in the hotel. That is why the company works in collaboration with hotel associations and travel agencies.
Each month, Roomer offers hundreds of hotel rooms around the world and manages to sell a quarter of them. Initially, the service was confined to three American cities – New York, San Francisco and Las Vegas – but has now expanded to other cities in the United States as well as in Israel and Europe. In order to advertise a room for sale, all that’s needed is the hotel’s confirmation of the reservation.
The system Roomer has developed automatically creates a webpage for each reservation, that includes a photo of the hotel, a map and recommendations for that hotel from TripAdvisor (a site featuring travelers’ reviews).
Roomer was established in September 2012 by Ben-David and Ben Froumine; both founders love traveling and have turned that love into a business. They first met as undergraduates at the Interdisciplinary Center in Herzliya. The company, which raised $2 million from the BRM Group (founded by Eli Barkat and his brother, Nir, who is mayor of Jerusalem), has a staff of 12; its mentor is Uri Levine, founder of Waze, the Israeli company that was recently purchased by Google for $1 billion. Levine has become a serial investor in startups whose business model includes crowdsourcing as an integral element. At Waze, the target group consists of drivers; at Roomer, it consists of people looking to unload nonrefundable hotel reservations.
Roomer is part of one of the most interesting trends of recent years: the sharing economy, where a company’s model creates a market of supply and demand for a resource that is owned by individuals and which has not been used or has not yet generated any profit.
The most prominent example of the sharing economy is also in the tourism field: Airbnb. This American company has created a website that connects home owners who are interested in renting their home for short periods with tourists looking for a low-cost, attractive alternative to hotel room accommodation. In 2012, 10 million overnight stays were booked through the website and this volume continues to grow. Companies that create a new market have an as-yet untapped potential for shaking up market sectors, as Airbnb has done to the hotel industry.
“If I had told you 15 years ago that you would be sleeping in someone else’s house and that you would find that accommodation on the Internet, you would have thought I was joking,” says Ben-David. “On the one hand this is shaking up the tourist industry, while, on the other, it is opening up the potential in many new directions.”