08/14/2009 05:12 am ET | Updated May 25, 2011

Free Vs. Four Seasons

Two books collided upon my bedside table this week: Free - The Future of a Radical Price, and, Four Seasons - The Story of a Business Philosophy. The first book, written by my friend Chris Anderson (who is the Editor of Wired magazine and authored the recent bestseller, The Long Tail), argues that giving things away, especially in the digital marketplace in which the marginal cost to produce a new product comes close to zero, is a great marketing tool for companies and provides the opportunity to sell the person who got the free product all kinds of other add-ons once they've been hooked with the free offer.

Free is probably giving Isadore Sharp a severe case of heartburn. Issy Sharp is the founder, chairman, and CEO of Four Seasons Hotels and Resorts, and the author of the other book that's wrestling for shelf space next to my bed. He is one of my heroes of the hotel biz as his authentic focus on corporate culture and the Golden Rule are legendary in our business. But Issy isn't very sharp these days.

Ironically, the hotel industry is taking the concept of Free to no lows (don't confuse that with Loews hotels). With the advent of online travel agencies like Expedia and Priceline, whenever there's a dip in the hospitality economy, the traveling world (a shrinking marketplace since travel is a discretionary expenditure in a recession) hightails it to their laptop to see which hotel chain will offer the closest thing to free. Average room rates at upscale hotels have plummeted by 25% in the past year, primarily due to this new more efficient digital marketplace. Hoteliers love efficient operations, but they loathe efficient markets.

For good reason, Four Seasons doesn't like this commoditized, "WalMart of travel" approach which is far from the kind of luxury pricing that Issy Sharp and his company have trailblazed for discerning world travelers over the past half-century. Yet, just last week, a friend of mine told me that he was able to book the Four Seasons San Francisco on Priceline for less than $100 per night on a weekend. No wonder this hotel recently went into default with its lender (although technically, it's the owner of the hotel, not Four Seasons -- the management company, that went into default). In fact, the poor Four Seasons has had its share of California woes as the owner of their Newport Beach hotel chose to end the relationship when the contract was up because they claimed that Four Seasons created a great customer and employee experience, but at the expense of the owner's bottom line. And, both the New York Times and Wall Street Journal have printed front page stories airing the dirty laundry this spring between the Four Seasons and the owners of their north San Diego county (Aviara) which has led to security guards, lawyers, and serious bad press.

I do feel for Issy as I've experienced my own set of spirited debates with the owners of the 38 hotels my company, Joie de Vivre, manages (we're partners on 14 of these hotels), but I'm wondering whether Four Seasons has strayed too far from their humble roots to be agile enough to play in today's boom and bust hospitality marketplace. One of my favorite stories is the fact that Issy's first Four Seasons (1961) was a dowdy Toronto motor hotel that "instantly became a popular hangout for the literati and glitterati." For those of you who know my hotelier history, 25 years later I started my hotel company acquiring a ghetto motor lodge that we remade into a rock 'n roll hotel. Issy admits in his book that he learned the hotel biz as an outsider through trial and error and I can certainly relate to that, too. But, the question is whether he and Four Seasons are still willing to learn in a changing marketplace. He recently was quoted in the Times saying, "We can't allow people to sort of run amok" in the context of talking about the owners of his hotels who are losing millions of dollars trying to live up to the Four Seasons rarified service and aesthetic standards in a recession. I might run amok, too, if I had a contractual gun to my head from a hotel brand which was more concerned about the effect of cost cuts on their reputation than they were on operating a sustainable business.

Maybe the Four Seasons has gotten the Free religion recently as they're now making an unprecedented third night free offer which puts them in the same category with the rest of us shameless price-cutters. The company has jumped on the "stay-cation" marketing bandwagon telling Californians who are apt to stay closer to home that they can still have a Four Seasons experience. But, the number of in-state Four Seasons experiences where I can stay for free is dwindling now that there's no longer a Four Seasons in Newport Beach, the north San Diego hotel may be leaving the flag, and the Four Seasons here in my backyard (San Francisco) may be going back to the lender if the owners can't work something out. If Issy doesn't make nice with his hotel owners soon, their idea of Free may be to free themselves of their Four Seasons management contracts.

Chip Conley is the Founder and CEO of Joie de Vivre Hospitality and the author of PEAK: How Great Companies Get Their Mojo From Maslow.