It’s been about five years since I covered a good, juicy court case live in a courtroom. Although we knew the embattled lawsuit between Starwood Hotels & Resorts Worldwide and Hilton Worldwide most likely wouldn’t make it that far, there was a sliver of hope that I’d be back in a New York courtroom scribbling notes and interviewing attorneys.
That hope ended this morning when it was announced that Hilton and Starwood have reached a settlement over allegations of corporate espionage. Certainly I don’t wish any hotel company to be dragged through the mud or face lengthy legal fees surrounding a trial, and I’m glad Starwood and Hilton came to an agreement so current and former employees can move on with their lives. But, admittedly, these allegations by Starwood were soap-opera worthy and, to us on the sidelines, it was more about the drama than the dollars.
Initially it was Ross Klein standing out like a sore thumb at investment conferences, a flamboyant style among straight-laced, balance-sheet-driven executives. Guerilla-marketing tactics stirred the pot and increased the buzz. The industry was eating it up, saying 2009 could be the “Year of Hilton.”
Then the first allegations arrived with details that seemed almost impossibly true: Former Starwood employees allegedly spent their last hours downloading databases and transferring private documents to thumb drives; Starwood had initially planned a “Zen Den” concept and Hilton’s new brand was “Denizen;” and a list of Starwood developers was targeted to build the first Denizens.
Later, we read more allegations that C-level employees at Hilton, including CEO Chris Nassetta, were aware of what was going on and waited months before informing Starwood of their knowledge.
For those not involved, this was the best water-cooler fodder about our industry we could remember.
But for those involved, particularly Hilton Worldwide, this lawsuit and the way it was settled could have profound effects on the company’s legacy and success in the industry. Nevermind the total cost of the settlement—if we’re talking millions and not billions, it won’t have any lasting effect on the company’s bottom line. But if we’re talking about impeding development moving forward, Hilton could find themselves left behind.
We’re emerging from the 2007-2009 downturn and preparing for unprecedented growth opportunities for hospitality. We’re gearing up to capitalize on increased demand, tweaking hotel brands to fit a new generation of traveler, learning to market hotel rooms in an age of advanced technology and staffing hotels with precise labor-management strategies.
Hilton can certainly continue perfecting its current portfolio, but will fall far behind in a lifestyle segment that has never had more promise. As Virgin Hotels, Edition by Marriott, Schrager Hotels and others begin saturating the market, Hilton will be hanging out, waiting for their imposed injunction to retire.
On the other hand, Hilton could spend the next few years researching and creating a brand that targets a segment the industry hasn’t tapped. Using their own internal research and creative juices this time, maybe they’ll do it right.
