Disney's NextGen Initiative: An Analysis

At an investor's conference Thursday in Anaheim, Walt Disney Parks and Resorts Chairman Tom Staggs announced a new billion-dollar initiative called the Next Generation Experience (NextGen).

The impact upon the average park guest could be enormous.

As it's currently envisioned, NextGen will enable park guests to obtain their room keys in advance, to book park rides in advance, and to experience perhaps the ultimate in Disney interactivity: characters who recognize you by name in the parks (or rather, recognize the radio frequency transmitted by your personal, Disney-programmed wristband).

Disney, of course, isn't spending a billion dollars just to make sure Mickey gives you a shout-out.

Disney wants a return on its investment. It's gambling that people will perceive the new technology as fair and non-intrusive. But is it? To help frame the issue, I spoke with Scott Smith, a former Disney employee who now teaches theme park management at the University of Central Florida.

Is Disney's NextGen initiative proof that they're 'leading the pack' in terms of theme park management and customer service?

SCOTT: Well, I wouldn't say that they're leading the pack.

Some hotel chains, especially those in Vegas, are truly cutting edge. I'd say that Disney is 'ahead of the average'.

The hospitality and theme park industries are focused on people. They tend to adopt technology late - unlike, say, airports which were the first to use online reservations and ticketless travel. Hotels and theme parks are more about people contact whereas the airlines are more about getting people from one point to another.

You can always look to the airlines to see leading edge technology, followed by the hotels, and then finally the theme parks.

Is it feasible for Disney to accept on-line ride reservations - and if it is, do they really want to micro-manage the theme park experience to that extent?

SCOTT: That's an interesting question. As of right now, I think that Disney's FASTPASS service is the fairest system of its kind. At Universal, by contrast, you have to pay for front-of-the-line access, and at an Ohio amusement park called Cedar Point it costs guests up to $200 for participation in the park's 'Red Carpet Program'. Disney gives it away for free.

When Disney came up with FASTPASS, they were thinking about guest service but their underlying motivation was profit: if you're not standing in line, you'll be in a gift shop or buying ice cream or eating a meal. FASTPASS lets you do more shopping and spending while waiting for your turn on the ride. It's not an altruistic system, by any means, but it does improve guest service and makes most people happy.

What truly makes FASTPASS fair is that everyone has equal access to it. That's not the case with the 'pay-per-place' systems at Universal and elsewhere. With FASTPASS, you're not paying for your place in line.

With NextGen, the unanswered question is whether all park guests will have access to online ride reservations. If not, then the balance between a fair versus unfair (at least perceptually) system tips the wrong way.

Allowing only resort guests to make online ride reservations gives them, exclusively, an unlimited FASTPASS that works from home, thus depriving most Florida residents or other guests who stay off-property with equal access to the rides.

Even if NextGen does favor resort hotel guests, doesn't it also reward those who get their act together more quickly and more efficiently?

SCOTT: We're taught from kindergarten that first come, first served is a fair system. So, yes, NextGen is still fair because the person who makes his ride reservations six months in advance is 'first come' and should be 'first served'. Most customers will perceive that as fair. If NextGen is available to everyone, then even nearby Florida residents have the opportunity to make their ride reservations in advance and shouldn't complain about having failed to do so.

Where it becomes unfair - and this is the key point - is if Disney tells one group of people they can't make advance ride reservations and another group (resort hotel guests) that they can. Now Disney has created a class system with the people who stay off-property the second class citizens.

Disney's Extra Magic Hours are an example of resort guest favoritism, but few people complain about it. There's no uproar. But if Disney offers even more special privileges to its resort guests, such as an unlimited, from-home FASTPASS, then the 'second class citizens' will see it as unfair, boycott Disney, speak ill of Disney, and create a public relations problem that Disney would like to avoid.

So the technology is secondary; it's the implementation that matters. Disney has to do it just right.

I'm a Florida resident, for example. Disney depends upon Florida residents for a good percentage of their business. During slow times, such as the fall, when there are fewer out-of-state visitors, Disney counts on Florida residents to fill the parks. If Disney alienates us, it will hurt their bottom line.

Disney is rumored to be considering wrist band technology: park guests would wear wrist bands embedded with their personal information that would trigger new interactive features in the ride queues and elsewhere. Any privacy concerns?

SCOTT: It depends on what information Disney asks its guests to provide. I don't think they have a nefarious plot to steal guest information. They'll only want general information like name, birthday (just month and day), and so forth.

A small percentage will inevitably look upon it as a violation of their privacy rights. But only a small percentage.

The wrist bands, like FASTPASS and everything else Disney does, aren't merely about improving the guest experience, are they?

SCOTT: Disney is a business, bottom line driven, and what they want to do with the wrist bands is make it easier for resort guests to spend money. It's almost like a Club Med situation: it's easier for you to spend money if you don't actually have to take the cash out of your wallet. All you have to do is swipe your wrist - I don't know that this is what Disney plans to do with the wristbands, but I do know how Disney thinks. Their rationale is likely this: "How can we get people to spend more money in the parks? We can give them a magic wristband so that all they have to do is swipe it to pay for meals and souvenirs."

For example, if you're a resort guest, you can purchase a souvenir in the park but have it delivered back to your room, free of charge. On the face, that looks like a great service that Disney is providing, but really what they're trying to do is remove any objections that people may have about buying merchandise in the parks, for instance, "I don't want to buy it because I don't want to carry it around with me". Remove the objection, and people will spend money more freely.

Another example is the Magical Express. It's a free service that improves the guest experience, but Disney's primary motivation is to 'capture' guests right off the plane, restrict their movements to Disney property, and then 'release' guests back at the airport when their vacation is over. Without a car of their own, guests can spend money only at Disney World.

In both these examples, guest service and the bottom line converge, and I think that's how Disney will approach NextGen. The wristband will improve the park experience for most, but it will also improve Disney's bottom line. That's how Disney evaluates all new technology.

Most guests focus on what makes their lives easier, not how Disney profits from it.

SCOTT: Absolutely! My degrees are in hospitality management and theme park management, and I've worked for Disney twice. But my primary research is how technology can improve guest services and how consumers perceive fairness - both key elements in the success or failure of NextGen.

Disney must be careful not to alienate the segment of its customer base that stays off-property. I know how Disney thinks and what motivates them, and I know they're aware of the difficulties with any new technology that changes the park experience.

Years ago, during my first job with Disney, I worked in the parks alongside Jim MacPhee who is now Senior Vice-President - Next Generation Experience. He doesn't give me any insider information, but I know he's very excited about NextGen and fully aware of its potential and its pitfalls.

But when Disney says they're rolling out new technology to improve guest service, they're only partly right. The other part left unsaid is profit. It will be extremely interesting to see how NextGen unfolds.

Thanks very much, Scott!

Stuff Not to Skip

• Tom Staggs' NextGen Announcement (in full)
  http://corporate.disney.go.com/news/parks_resorts/WDPR%20-%20Tom%20Staggs%20-%20Investor%20Conference.pdf
• Scott Smith: University of Central Florida