Atomize Founder Tells All: Paddling a Kayak from Norway to Finland, Automating Revenue Management and Going 'All In' on Life
There is a concept in Zen Buddhism called 'shoshin' which translates to 'beginners mind'. The concept of 'beginner's mind' refers to the idea that sometimes more experience can actually be a detriment to progress. The 'beginner's mindset' can actually be a competitive advantage as it frees one from the perceived limitations set by those that came before us.
Amazon is now the second to most valuable company in the world with a market cap of $850B (at the time of writing). Did you know that Jeff Bezos was a hedge fund analyst prior to founding Amazon? He never sold a single book in his life nor had worked at an ecommerce business.
Uber is the most valuable private company in the world having raised more than $25B in venture funding. Uber founder Travis Kalanick's previous work was in file sharing - Kalanick never thought he'd be in the taxi business. Kalanick applied the ideas of a peer-to-peer file sharing network to the taxi business and ignored the industry's preconcieved notions about medallions and car ownership. He applied beginners mind and the results have been nothing shy of incredible.
Today's story shines a light on the fact that the hotel tech industry is no exception to this rule. While we've all seen the 'for hoteliers by hoteliers' marketing mantra plague our newsfeeds since the beginning of [hotel tech] time--the story of Atomize's Leif Jaggerbrand shows just how much of a boon to creativity, innovation and progress coming from the outside can actually be.
Leif's impressive background in data science left him in utter shock when he heard how hotel managers were pricing their hotel rooms and he's built a talented team of experts around him that's modernizing the industry and bringing hotels into the 21st century.
What inspired you to create Atomize?
I have a computer science background and I've previously founded an Adtech company that did automatic optimization of online advertising. That company did pretty well, in fact we never lost an optimization benchmark, not even to Googles competing product so we were proven #1 in the world at solving that type of optimization problem. In 2014 we sold the company to an American company and at that point in time we managed about 30 billion ad impressions per month and no ad impression took longer than 50 milliseconds. So I'm a tech guy by education but an entrepreneur by heart whom just loves to solve complex business problems with technology.
The Chairman of the Board in my previous company gave me a call late one night about two years ago and said "Leif, you're not going to believe this, but the hotel industry sets the prices manually, we should fix that!". Coming from the Adtech industry, where everything is 100% automated, I simply could not imagine that it was true. To verify it I went out and interviewed about 20 hotels myself, and sure enough he was right, everyone was setting the prices manually. One of the hotel chains that I spoke with had 70 people working full time just shuffling numbers in Excel... It just blew me away how poorly the industry was solving the pricing problem. To me it was absolutely clear that something had to be done, it had to be fixed! The interesting thing is that selecting the right ad for a visitor to a homepage, or selecting the right price of a hotel room, is the same type of optimization problem. Both are about maximizing the outcome from a stream of opportunities within perishable goods. Considering our track record in the Adtech industry I felt we were very qualified to start Atomize and solve the pricing problem for the hotel industry, I never had to think twice about starting this company.
Why did your first customer take a bet on you?
Our very first customer was a Best Western hotel in Borås, Sweden. It was pretty straight forward to convince them. Setting the prices manually was very time consuming for the team and they understood the potential in artificial intelligence and automation. They also understood that our background would be a massive benefit when solving the problem, so they were willing to give us a shot. Once they saw the results they were blown away and became our first paying customer.
Hoteliers are signing up for Atomize's revenue management solutions in droves. Why is that?
Setting prices is a tedious work that cannot be properly done by any human. Our clients want to let Atomize's self-learning and automated system handle the pricing so they can increase RevPaR and ultimately make more money. They also save a ton of time by letting our algorithms handle all of the tedious work in their day to day which allows them to spend more time on strategic revenue management, differentiating their product in a hyper competitive market and improving the guest experience.
Learn more about Atomize revenue management solutions
Who is one mentor that has really helped you scale the business?
Before starting Atomize I invested in the first round of a fashion/e-commerce company called NA-KD. In the process leading to the investment I interviewed the founder, Jarno Vanhatapio, and one of my questions was "so what does the roll-out plan look like, which countries will you target first" to which he responded "countries? I don't give a sh*t about countries, we go global from day 1!". That answer stuck in my mind and we apply the same mindset at Atomize. When we look at the world we don't see different geographical territories, we see different segments that are more or less likely to use automatic pricing.
What's one commonly held belief that most hoteliers have got all wrong?
They believe they can do good or decent manual pricing... but in reality there is no way a human can do even a decent job at pricing a hotel. The math behind that statement is really simple, there are two main reasons why a human has absolutely zero chance versus an automated AI system:
1) The sheer scale of the problem. If you're a hotel with 5 room types, 4 variations on each room type (breakfast/cancellation), bookable 365 days in advance, and want to update each price once per hour then you have 0.49 seconds per price to do your analysis and set the price. Even if you simplify the problem drastically, let's say you have a fixed additional cost for breakfast & cancellation, that you just want to update the prices once every four hours, and that you only allow your guests to book in the last 30 days, then you still only have 96 seconds per price to do the calculations and set the price. The sheer scale of the problem makes it impossible for any human to keep up and do a good job.
2) The complexity of the problem. It's important to acknowledge that no price is an isolated island, if you change the price of one room type for a particular arrival date then it will have an effect on all the other room types for the same arrival day. But that's not enough, it will also have an effect on the adjacent days as many people stay more than one night and some one-nighters are flexible and price sensitive. There is this ripple effect and you need to present the optimal set of prices, not the price that is thought to be optimal for one specific room type. Quite often the optimal price for one room type will have a negative impact on the overall revenue, and to calculate the optimal set of prices is both hyper complex and very computationally intensive, it simply cannot be done by a human. Humans should focus on strategic revenue management, not at setting prices.
What's the most surprising thing you've learned about scaling technology into hotels since founding the business?
That so many hotels are on a Property Management System that is legacy either from a technological viewpoint, i.e. they lack API's, or from a business perspective, i.e. they have API's but charge massively if the hotel wants to use the API functionality. I would say that this is the biggest growth stopper for this industry. If all hotels used a PMS that had open API's that were free of charge, or close to free of charge, then this industry would see whole new ecosystem of startups that would all fight very hard to help the hotels, the level of innovation would be tremendously higher.
"I would say that this is the biggest growth stopper for this industry. If all hotels used a PMS that had open API's that were free of charge, or close to free of charge, then this industry would see whole new ecosystem of startups that would all fight very hard to help the hotels, the level of innovation would be tremendously higher."
Hotel tech is a small community and vendors are constantly developing partnerships with companies who have built complementary products. Is there one company who has been a particularly good partner for you?
Early on we met the CEO of Clock Software PMS, Krasimir Trapchev – who is an extremely likeable guy. He believed in Atomize at an early stage and through that partnership, Atomize had a chance to grow fast across their portfolio globally. Today we have a very strong relationship with the whole Clock team and considering they are the highest-ranking PMS on Hotel Tech Report and Atomize recently became #1 ranking RMS among Boutique and independent hotels – it obviously is a very strong package offering to the hotel market.
We also must mention two important clients, that both also early on believed in Atomize and our vision, that have had a profound impact on Atomize’s success. The first one being Best Western in Borås, Sweden and second one is Gothia Towers, which is one of the most luxurious and biggest hotels in the Nordics with its 1200 rooms. Both these clients have had the patience and stamina to test Atomize from its infancy and provide vital feedback, and very much is the reason why we today have such high acceptance rate (98.8%) of all rates we provide to our clients
If you could partner with any vendor in hotel tech, who would it be and why?
We'd love to enable true individual real-time pricing on the OTA's for our customers. In the Adtech industry there is this technology called Real Time Bidding which enables the advertisers to make a unique bid for each individual visitor. The same technology could be applied in this industry if the OTA's permitted it and it would open up a new world of interesting opportunities. If the OTA's allowed it we could within 50 milliseconds provide a unique price for each individual searching for a hotel on the OTA, and also a unique commission level per individual. This would create a much more dynamic market and alleviate tensions between OTAs and direct suppliers by facilitating more equitable share of value capture. In essence, dynamic commissions would end the direct booking war -it would be a huge win for both hotels and OTAs in the long run.
"If the OTA's allowed it we could within 50 milliseconds provide a unique price for each individual searching for a hotel on the OTA, and also a unique commission level per individual. This would create a much more dynamic market and alleviate tensions between OTAs and direct suppliers by facilitating more equitable share of value capture. In essence, dynamic commissions would end the direct booking war -it would be a huge win for both hotels and OTAs in the long run."
Where do you see Atomize in 5-years?
Atomize will be the world leader in automatically setting optimal rates for hotels. The Atomize core will always be around the optimization engine and we would argue this being possible due to our heritage. Our previous venture, which we sold in 2014, became the world leader in revenue optimization in the Adtech industry. We clearly see this as Atomize’s competitive advantage today and it will be so in the future as well – the barriers to entry are, and will be, too high for our competitors to keep up with what we have in store now and in our roadmap going forward.
How will hotel revenue management space evolve in the next 5-years?
I think we will see a clear split between strategic & tactical revenue management systems. Building a strategic revenue management system, and building a tactical revenue management system, are two VERY different skill sets. I deem it pretty close to impossible for any company to be #1 in both of those categories, the people that have the right skillset to build a tactical revenue management system won't be attracted to building a strategic revenue management system. As both strategic and tactical revenue management is utterly important hotels will have both type of systems.
Do you have any new feature launches that hotel revenue managers should be aware of?
In some weeks from now we are releasing our new version of a fully-fledged automated RMS solution, which will be quite a game changer for hotels. The cool thing is that even if it's 100% automated, it still comes with control features in place to ensure that revenue teams do not “lose control” so to speak.
Other than that, we are also working on the next generation of our real time optimization engine, that will enable us to start working on real time channel price optimization, segmentation price optimization and so on – we have a really aggressive road map to capture that category leader position.
For all the hotel techies reading this piece - is there anything that the community can do to be helpful for you?
We'd love to talk to the right people at Expedia, Booking, Hotels and the other OTA's about how the Real Time Bidding technology could change this industry to the better for all parties involved: the guest, the hotel & the OTA. I'll be forever grateful to anyone that can hook me up with the right person (CEO or Head of Strategy) at any of the major OTA's.
What advice do you have for entrepeneurs looking to get into the hotel tech space?
Think hard about what the hotel tech industry will look like in three to five years from now. This industry is undergoing a massive change and you need to make sure that you see a clear position for your idea in that future ecosystem and understand whom you need to partner up with. Another very important aspect is that the market is truly global, there won't be much space for local players, which means that you need to be pretty damn confident that you can become number one in the world in your niche. If you haven't done a start-up previously then I strongly recommend you to read the book Nail It Then Scale It, follow it from A to Z and you will have increased your chances of success by orders of magnitude. My final advice would be: go ahead, you won't regret it! I've never seen any other industry that is so super-friendly and service minded, I just LOVE to operate in this space and enjoy every single day of work.
What is the best book you've read lately and why?
Predictably Irrational by Dan Ariely. Read it for the first time 10 years ago and I still read it about once per year. Dan shows a huge number of situations where we humans are everything but rational, but the interesting thing is that we are predictably irrational. It's a very easy read about behavioral economics and I find it truly fascinating.
If you want to process information quickly then reading is way faster than listening, hence i'm not into podcasts at all. However, I've read some transcripts from Tim Ferris' podcasts and I love how he deconstructs complex problems in a very methodical way - he's very good and finding what moves the needle and what is irrelevant.
What is one thing that most people don't know about you?
About 10 years ago I paddled a sea kayak along all of the Swedish coast, from Norway to Finland. It was 2093 kilometers of paddling and took me 37 days & nights. When I commit to something it's 100%, I find no pleasure in doing things half-assed.