Gary Patrick, a marketing man, and Steve Dobbe, an electrical contractor, were good friends through their children when one of them picked up a copy of Entrepreneur magazine back in 2003 and found an article about Internet kiosks. “We thought ‘Hey, this would be a great little side business and our wives could help out,’” Dobbe said. “It was new and exciting and we could see it would grow really fast.” Eight years later, those Internet kiosks are shelved in a dark storage room of Simi Valley-based Hotel Internet Services. But the business these clunky units sparked is going strong with estimated 2011 revenues of $8.5 million, up 13 percent from 2010. Revenues grew 55 percent from 2009 to 2010, according to the company. Hotel Internet Services outfits about 85,000 hotel rooms throughout the country with Wi-Fi access. The partners and their 28 employees install and service the systems and provide 24/7 tech support to the hotel guests who use it. Now the company is expanding into Internet television, helping hotels make the transition to Internet-enabled flat screen televisions. That transition allows hotel guests to do anything on a large-screen, high-definition TV that they can do on their smartphones or laptop screens — from ordering room service to watching Netflix. And the installations make sense for hotels, too; many see their restaurant bookings, spa treatments and in-room movie sales soar after putting in Internet Protocol TV (IPTV), or television that is delivered via the Internet versus traditional terrestrial, satellite signal and cable formats. Dobbe believes the opportunity is big enough to expand their business ten-fold within five years. The company is finishing its first IPTV contract at the LAX Radisson and is starting on a 150-room hotel in New York City this month. HIS is a medium-sized player in a market dominated by the likes of AT&T, Cox Communications and iBahn. As such, the company— a family business with 10 family members involved in the company — competes on service, which has to be superior to anything offered by the dominant companies. Hilton Sher, information technology director for the Southern California properties of Chicago-based Portfolio Hotels and Resorts, used the company to install Wi-Fi at its two Los Angeles International Airport properties, the 580-room Radisson and the 800-room Sheraton Gateway. “These guys do business old school,” Sher said. “With the big guys, getting someone here if there is a problem is like pulling teeth. These guys monitor my network every 15 minutes. If there is a problem, they call me and the truck is already on its way.” Clients: Casinos and more For some companies, getting into a business late in the game is a problem. Patrick and Dobbe used it to their advantage to stake out a niche that was itself a late-comer to hooking up guestrooms to the Internet: casinos. “They wanted to avoid putting it in at all cost,” Dobbe said. “They wanted their customers out on the floor, not in their rooms.” By the time HIS was up and running and going after the hotel business, casinos were ready to jump in. The company’s first client was Edgewater Casino Resort in Laughlin, Nev., a 1,500-room installation. “It snowballed from there,” Patrick said. “With casinos, it’s about who you know.” One client led to the next, and within a short span, the partners knew they had a solid business. Other clients today include the Imperial Palace, with 2,700 rooms, the Silver Legacy in Reno with 1,760 rooms, and Circus Circus with 3,770 rooms. The Queen Mary, docked in Long Beach, is another client. Getting Wi-Fi through the ship’s steel walls was no small task, Patrick said, but that’s just the kind of challenge HIS is up for, he said. “This business has become pretty commoditized,” he added. “There are a lot of ‘two guys and a truck’ type businesses out there. We wind up replacing a lot of things they don’t know how to install.” Today, almost all hotels offer free Wi-Fi. But it remains a growing market as hotels find themselves needing to constantly upgrade older equipment to accommodate the demand for more bandwidth in rooms. “The older solutions don’t work as guests want to use their laptops and mobiles and stream video in their rooms,” said Jeremy Rock of ROCKIT Group, an information technology consultant to the hospitality industry based in Anaheim. “Not only is this market not saturated, it needs to be modernized.” Startup challenges While business is now chugging along, it wasn’t always the case and the partners faced multiple challenges upon startup. It’s one reason they kept their old businesses for a few years until the new venture started to make money. “We were like the monkeys in ‘2001 Space Odyssey,’” Dobbe said. “We knew nothing about this business. We bought these kiosks and we said, ‘Oh my god, what have we done?’” While they knew nothing about the Internet kiosk business, the two partners certainly had the skills to figure it out. Patrick ran his own marketing firm doing research for Fortune 500 companies. Dobbe had his own electrical contracting business. Both were about ready to move on when they found the Entrepreneur magazine article that changed their lives. Their first move was to buy 22 kiosks from a Connecticut entrepreneur whose idea was to install the machines at 7-Eleven stores, cover them with advertising and charge a minimal fee for the service. Dobbe said he realized quickly that the idea would not work. “Who’d want to access the Internet from a 7-Eleven?” The partners quickly pulled out of those locations and installed the kiosks in what they thought was a much better market: hotels. In those early days, Patrick and Dobbe did everything. With his background in marketing, Patrick traveled the country to sell to hotels while Dobbe did practically all the installations himself. Their wives were also involved. (Patrick’s wife still runs human resources.) When wireless connectivity started to take off, they turned the kiosks into Internet hotspots, allowing hotel guests within vicinity of the kiosk to connect. From there, hotel customers started asking about Wi-Fi and the business was off and running. Six years ago, the two partners brought in another friend, Camarillo Dentist Bruce Settle, who like the other two men, was tired of his first profession. He sold his dental practice and became a partner in HIS and chief financial officer. Patrick and Dobbe each owns 35 percent of the business and Settle has 30 percent. FOUNDED: 2003 HEADQUARTERS: Simi Valley CORE OF BUSINESS: Install, monitor and maintain Wi-Fi systems and Internet TV systems in hotels. NUmber of Employees 2010: 23* NUmber of Employees 2011: 28 (not including call center staff) Revenues in 2010: $7.5 million Estimated 2011Revenues: $8.5 million Changing business model The business model has changed over the years. In its early days, the business was almost all exclusively revenue sharing. HIS installed the Wi-Fi system at no cost to the property. Customers were charged between $10 and $20 to go online and HIS split the revenue 50/50 with the hotel. More recently, as less pricy hotels have tried to compete with more elite properties by giving away Internet connectivity, HIS has had to adapt. Hotels that want to give away the service have to pay HIS upfront for the installation and pay an ongoing maintenance cost. Either way, HIS does well, but Dobbe said the revenue share model worked better. “We ended up making more in the long run because the equipment pays off after a while and we were still getting the revenue,” he said. The recession has also been a source of stress, added Patrick. “The hospitality industry was hard hit, and budgets have come under pressure.” The one thing Patrick said helped HIS thrive was a decision to not cut the company’s marketing budget through the lean years. “My background is in marketing,” he said, “and if there is one thing I’ve learned it is that you don’t cut marketing when times get tough. We pushed through and made ourselves visible when others cut back.” In fact, he said, HIS doubled down, increasing its marketing budget 50 percent to 100 percent between 2007 and 2009. IPTV represents a whole new business opportunity and challenge. It’s much less of a commodity than Wi-Fi, said Patrick, and this time, HIS is ahead of the competition rather than playing catch-up. But it’s a whole new technology with a different set of vendors and equipment to support. What’s more, the upfront cost for hotels is huge and many are simply not sure the investment will pay. “The jury is still out on IPTV,” said Rock, the IT consultant. “A lot of solutions are expensive and difficult to deploy because of the infrastructure. The cabling that exists in most hotels doesn’t support it and the conversion can be very expensive.” As a result, Rock believes only the most elite, upscale and modernized hotels are likely to make the investment — roughly the top 10 to 20 percent. Still, Dobbe thinks it’s a huge new market. Based on the opportunity he sees, he thinks HIS could be an $80 million company in five years — 10 times its current size. Sher of Portfolio Hotels and Resorts said he would not be surprised to see this family business thrive in the market. IPTV is still new with very few vendors in the space, said Sher said, who investigated a number of vendors before choosing HIS. “We did our first phase, which was 250 rooms and now we’re moving into phase two with 600 rooms,” he said. “I have to say they’ve done exceedingly well. Other companies provide cookie-cutter service. These guys give you a solution and they deliver on what they promise.”
Hotel Connections
