How Marriott and Hilton Stopped Owning Hotels and Started Selling Software

In 1990, Marriott Corporation owned the buildings, beds, and operations of most of its hotels. By 2024, Marriott International owns or operates approximately 8,500 properties globally, but it owns only about 1 percent of them outright. The remaining 99 percent are owned by various real estate investors and operated under franchise or management contracts with Marriott. Hilton Worldwide Holdings has executed a similar transformation, with under 1 percent of its 7,500-plus properties directly owned. The companies that consumers know as "Marriott" and "Hilton" are essentially software-and-loyalty-program companies that license their brands to real-estate-owning operators.

This transformation has produced one of the most successful business-model pivots in modern corporate history. Marriott and Hilton stocks have substantially outperformed the underlying hotel real estate, the broader S&P 500, and most other hospitality alternatives over the past 30 years.

The Mechanics of the Asset-Light Model. When a Marriott-branded hotel opens in any city in the world, the franchise operator (typically a real estate investment company or wealthy individual investor) provides the capital for the building, the land, and the initial furnishings. Marriott provides the brand, the reservation system, the loyalty program (Marriott Bonvoy), the operating standards, and the management consulting. The operator pays Marriott franchise fees (typically 5-7 percent of room revenue), royalty fees for use of the brand, and various transaction fees for the central reservation system.

Marriott's revenue is therefore a fixed-percentage take from each franchised hotel rather than the more volatile direct-ownership revenue. The company has minimal exposure to property-value fluctuations, real estate cycles, or operational risk on individual properties. The franchise structure is similar in many ways to McDonald's restaurant model, which similarly transformed from owned-and-operated to predominantly franchised over decades.

The Capital Returns. What this model produces is exceptional capital returns. Marriott's return on invested capital has typically run 25-35 percent — substantially higher than would be achievable with direct property ownership. The company's operating margin runs roughly 25-30 percent. The cash flow conversion is high. Marriott has been one of the most consistent dividend-and-buyback companies in the S&P 500.

Hilton's metrics are similar. The two companies — combined market capitalization approximately 200 billion dollars — have demonstrated that hotel-brand operators are substantially more valuable as standalone businesses than as integrated property-and-operating companies.

The Loyalty Program Power. The strategic asset that justifies the Marriott and Hilton premium positions is the loyalty program. Marriott Bonvoy has approximately 200 million members. Hilton Honors has roughly 175 million. These programs produce substantial customer lock-in: members preferentially book Marriott or Hilton properties even when alternatives are available, because of points-based reward systems that reward continued patronage.

The loyalty programs also provide enormous customer-acquisition advantages for new property openings. When a new Marriott opens in any city, the global Marriott Bonvoy member base immediately has reasons to book the new property — because they want to earn points, redeem benefits, or maintain elite-tier status. New independent hotels have no equivalent customer-acquisition mechanism and must build their reputations through reviews, advertising, and gradual word-of-mouth.

This loyalty program advantage is what enables Marriott and Hilton to charge meaningful franchise fees. Property owners pay Marriott or Hilton fees because the brand-and-loyalty advantages produce occupancy and rate premiums that more than offset the fee costs.

The Independent and Boutique Pressures. The asset-light major chains have faced competitive pressures from various independent and boutique alternatives. The Airbnb home-rental disruption was the most prominent. Various independent boutique hotels and brand collectives (Small Luxury Hotels of the World, Leading Hotels of the World) have built share among premium travelers who want differentiated experiences.

The major chains have responded by acquiring or launching their own boutique-feeling brands. Marriott's Autograph Collection, Tribute Portfolio, and EDITION; Hilton's Curio Collection and Tapestry Collection — these brands provide independent-feeling experiences while maintaining the loyalty-program integration. The cumulative effect has been that the major chains have absorbed much of the boutique competition rather than being eroded by it.

The Asian and Middle Eastern Expansion. Beyond the U.S. and European markets, Marriott and Hilton have expanded aggressively in Asia and the Middle East. China alone now has hundreds of Marriott and Hilton properties. The Middle East — particularly Saudi Arabia, the UAE, and Qatar — has been a major growth area as those countries develop tourism and business-travel infrastructure.

The international expansion has been particularly successful for the asset-light model because the brand owners do not have to deploy the substantial capital required to build hotels in expensive new markets. The brand-and-loyalty value creates demand from local property investors who provide the capital.

The Larger Pattern. What Marriott and Hilton represent is a category of companies that have successfully separated brand and operational value from real estate value. The same pattern has played out in restaurant chains (McDonald's, Yum Brands), apparel companies (most major brands now license to manufacturers rather than owning them), and various other consumer-facing industries. The "asset-light" model has been one of the most consistent strategic transformations of the past 30 years.

For investors, the asset-light hotel companies have produced returns that the underlying real estate has not. The brand-and-loyalty value has compounded faster than property values. This pattern likely continues as long as the loyalty programs maintain their customer-acquisition advantages and as long as property investors continue to value brand-licensing.

The Larger Lesson. Real estate is rarely the most valuable component of a real-estate-related business. The brand, customer relationships, and software systems that operate on top of the real estate often generate more durable returns than the underlying physical assets. For finance professionals analyzing real-estate-related industries, this insight has applications well beyond hotels — to retail, restaurants, fitness centers, healthcare facilities, and various other categories where the operating brand and the underlying real estate can be commercially separated.

Now go enjoy your Saturday. From whichever hotel.

Sources: - Marriott International, Hilton Worldwide Holdings 10-K filings - Industry coverage: Hotel News Now, Skift, Bloomberg - STR Global hotel performance data