contributed by:Spending Millions to be a Pin: I Get It
Robert O’Leary, Managing Director – Client Engagement

If you’re like me, there are certain events in your life that you look back on and realize that they completely changed your perspective.  Your first week at college. Your first job. The day you first became a parent, and so on.  In the few months since Chris Surdak wrote Jerk – Twelve Steps to Rule the World I’ve listened as he has shared his concepts from the book with thousands of people.  At the conclusion of almost every presentation, I found the majority of audiences staring back in stunned silence as they absorbed his perspectives.

One backbone of Jerk is a notion that information is now more valuable than capital. Initially, this concept felt like a strange leap of faith that I had a hard time truly embracing; like ‘The pen is mightier than the sword’. I kind of get that one too, but I never really bought it. In my life I’ve watched many more people hurt by sword induced events than those induced by pens so I guess I’ve been more of a ‘sword guy’.

So, when I started reading Chris’ first book, Data Crush, it took me a while to really buy into the “information is value” thing. But as I read statements such as “Capital is now like oxygen. Its availability is assumed and not appreciated or noticed – until you don’t have any”, it made me tilt my head slightly, like a dog hearing a high-pitched whistle, and wonder how this new concept really makes sense. I thought that I must be missing something. It sounded good, and seemed to have some  reasonable basis like ‘The pen is mightier than the sword’, but it just didn’t push it in my soul like most concepts the way it must in order to really ‘get it’.

When I Finally Got It

The moment when it all came together and I ‘got it’ remains crystal clear in my mind. I can remember what I was wearing, where I was, and the time of day. I was in the backyard of a friend’s house, overlooking the Los Angeles basin.  I was watching the traffic on the 405 thinking about how happy I was to not be in it. I was enjoying a glass of wine and talking to Chris about Jerk. It was March 25, 2016 at 5:15PM Pacific Time.

Yes, I remember it with that level of detail. As I walked around listening to these new ideas I randomly focused on a nearby building. Suddenly, it all gelled.  It suddenly made sense.  In that moment, I swallowed the ‘red pill’ and my world view changed forever.  I’m surprised I didn’t drop the glass in my hand like you see in movies. That building was a Courtyard by Marriott, one of many hotels in that area frequented by business travelers. It has been there for many years and while I noted its presence there many times I never really noticed it.

But this time was different.

As I looked the building up and down, I thought, “Marriott spent millions on that building. They invested in point-of-sale systems, back-end integration with dozens of business information systems, an enormous HVAC system was installed and maintained as well as WiFi, cable TV, utilities, and all of the other amenities expected by guests. Huge sums of capital were invested in branding, loyalty programs, and on and on.  Marriott spent years of effort and millions of dollars to create that capital asset and to maximize their returns on their investment. They put enormous capital wealth into this building with the expectation of creating still more capital wealth.  After all, that’s how investing works, isn’t it? Ten years ago if you‘d asked me if I’d wanted to own a hotel, I’d scream ‘of course!’ It would mean that suddenly I’d have incredible wealth.

But in that moment, I literally and figuratively stepped back and realized: That hotel, and all it took to create it, are just a pin on my app.  Nothing more.

Just a Pin on an App

More and more, when travelers go on a trip and decide where to stay, they jump on some aggregator mobile app such as, Trivago or Expedia.  While they may have memberships in one or more loyalty programs, they are likely to shop around for the best possible deal, with loyalty points being only one input to their decision.  In minimal time, and with minimal effort, the aggregator provides a customized map of properties correlated to ‘our needs’ at ‘this time’ within ‘this budget’ and ‘in this area’ with ‘these amenities’. And after a quick review of user feedback and comments to confirm our choice, we press a button and send money to a lucky winner.

So, what really happened here?

Information was proven to be more valuable than capital. As long as there was at least one hotel that met my need, my decision was based on something more than just availability. This conclusion does not mean that capital has no value. To the contrary: I still need land and I still need capital.  They each have value and are required to successfully build and run a hotel. But, here the availability of both land and capital was assumed, and neither important to my decision.

The real value was the information about the hotel aggregated within an app. The app controlled my choice at that moment through the use of contextual information. The app inverted the laws of supply and demand, ignoring mass appeal to addressed my specific needs at that exact point in time. The app gave me the hotel I wanted, when I wanted, at the price I wanted, where I wanted it and with all the amenities I needed.

Despite branding, marketing, advertising and promotion, in that moment all of the hotels that met my requirements were commoditized.  They were either ‘in’ my search criteria or they were ‘out.’ Beyond that, they won my business either on price, customer ratings owned by the aggregator, or both.

Capital-Centric No Longer Makes Sense

When you view value created in this entire exchange using traditional capital-centric perspectives and metrics, it doesn’t make sense. How does the entity that invested all of the capital, raw material and labor in such a tangible asset become the commodity in the equation? Marriott should be rewarded for making the whole thing work so well. They did all the hard work. Right?
But that’s the point of this whole transition. Capital (in this case, a hotel) is like oxygen. Only the absence of a hotel – with the location, amenity list and price I want –  makes me concerned. Assuming that this is available, I now expect to just pick one that works for me.  And at the end of the day, I don’t really care about which one gets my money. I just want a convenient and cost effective place to stay that meets my needs. The tools that provide this experience are easily available and produce better results. They also capture most of the value in the transaction, turning traditional capitalism on its head.

So to the actual hotel owners and operators, I applaud your commitment to building and maintaining these costly assets. I really appreciate it. I also know it’s tough to accept that my selection was based upon the efforts of a company that owns none of it, and invested little or no ‘Capital in the entire process.

In the end, that translates into  ‘Congratulations on becoming another $20 million pin on my free app’.

Welcome to the value of Jerks in our new world.