Episode 41: Booking.com with Jetsetter & Room 77 CEO Drew Patterson

[0] Jew, I think you might be our most prepared guest ever.

[1] This is great.

[2] Drew has printed out notes and pen and paper here.

[3] This is awesome.

[4] Yeah, I mean, I'm a big fan.

[5] You know, I'm going to blow my shot here.

[6] Your shot at startup.

[7] Welcome back to episode 41 of Acquired, the podcast about technology acquisitions and IPOs.

[8] I'm Ben Gilbert.

[9] I'm David Rosenthal.

[10] And we are your hosts.

[11] Today we are covering the 2005 booking .com acquisition by the Priceline Group.

[12] Now, this acquisition is legendary and there are tons and tons of sort of interesting nuances to understanding the industry.

[13] So we wanted to wait until we had a guest with deep travel experience and really industry domain knowledge to make sure that we did it right.

[14] So today, our guest and listener of the show is Drew Patterson, the CEO of Jet Setter and Room 77.

[15] So yeah, we are lucky to have Drew, who is a, quote, grizzled travel industry veteran to help us unpack this one.

[16] So Drew started his career at Starwood Hotels, where he managed distribution and pricing, and then jumped into the world of online travel at Kayak, where he was VP of marketing from 2004 to 2009.

[17] He left to found Jet Setter.

[18] And thank you for doing that, by the way, because you guys booked Jenny and my honeymoon, so very much appreciated.

[19] And he was CEO there at JetSetter until 2012.

[20] When he moved to the West Coast and founded another travel company that was quickly acquired by Room 77, and he served as CEO there at Room 77 until the beginning of this year.

[21] So thanks again, Drew, for coming on and sharing your travel industry knowledge.

[22] Guys, great to be here, longtime listener, first time talker.

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[59] So David, are you ready to take us into the history and facts?

[60] Let's do it, as always.

[61] So many people, at least here in the U .S., I think, aren't totally aware of booking .com because it's very big in Europe, but not as big here yet in the states.

[62] And they probably also don't know that it's actually owned by price line.

[63] And if people in the US think about price line, they often think about William Shatner and the price line negotiator, which is definitely a big part of price line and internet history.

[64] But that's a story for another day.

[65] But today, we're going to talk about how price line of which booking is by far the majority of it is actually the largest travel company in the world.

[66] And after SAP, I think it's actually the second largest tech company that's ever been built in Europe.

[67] And has a $91 billion market cap.

[68] That's billion with a B. So just for some reference, that's equivalent to three Airbnbs.

[69] And it's bigger than Netflix.

[70] So it's not a company that a lot of people know about, but it is definitely, you know, top 10 most successful internet startups, probably of all time.

[71] Yeah, and when I was looking at the, you know, when I said legendary earlier, I mean, that stems from when we first started doing the research for this and you just start seeing some of the high level stats of, you know, what an enormous company this is and, you know, what a behemoth in the travel industry.

[72] I think to Americans and even some Americans in tech, it's pretty, you know, we don't know much about this company.

[73] Yep.

[74] Well, and that's why we have Drew here today.

[75] So I'll start out with the history and facts, and Drew, please feel free to hop in at any point along the way.

[76] But the company was actually founded in Amsterdam in the Netherlands in late 1996 by Gert Jan Brunzma and major apologies to all of our Dutch listeners, because I'm sure I, and to Gert because I'm sure I just butchered that.

[77] but he had just graduated from college and he this was late 1996 and he felt you know kind of in his core that the internet was going to be a thing and so he decided rather than going to work for you know a company like most of his classmates he was going to become an internet entrepreneur but there was just one problem he didn't have an idea so he starts casting about for an idea of what type of company he would start and apparently according to there's this great, great oral history of online travel that the website Skift published that we'll link to in the show notes.

[78] But according to an interview with him in this oral history, he was having dinner with some friends one night, and they were talking about problems that they had, and they realized that booking travel across Europe was actually a really hard thing in those days because you had to call up the hotels that you wanted to stay at on the phone.

[79] And of course, in Europe, people speak all sorts of different languages.

[80] So if you didn't speak French and you wanted to book a hotel in Paris, you know, you were kind of out of luck.

[81] And he thinks to himself, well, I bet this is something that the internet can solve.

[82] So he goes and starts doing some research and he thinks, well, it must be other folks out there that are already attacking this problem.

[83] But it some of the hotels in the U .S. had started having their own online booking system.

[84] So he went on the Hilton website.

[85] He actually looks at the code for Hilton .com and takes some quote -unquote inspiration, according to him, from how they manage their online booking system.

[86] But he pretty quickly codes up an MVP for a multi -hotel booking website.

[87] And if David, you know, if only there were someone to aggregate these disparate one -off hotels that had their own e -commerce system.

[88] And he calls his little project, bookings .nL, nL for the Netherlands.

[89] And that is how bookings .com was born.

[90] And in the early days, unsurprisingly, again, it was actually mostly Americans that used the site, Americans who were traveling to Europe and looking for a way to book online.

[91] Because in those days, it was only Americans that really had access to the consumer internet.

[92] There was AOL at the time, lots of people in common people in the U .S. were online, but in Europe, it was much more still of a kind of confined to academia type thing.

[93] And average Europeans didn't have access to the Internet in the same way.

[94] So ironic, because booking ends up becoming such a large company on the back of European customers, but the initial customers were Americans.

[95] Yeah, and it's really easy to forget to sort of the roots of the Internet in sort of American University and defense infrastructure, like, of course it's not elsewhere in the world yet.

[96] Like, it was brand new and it was invented in the U .S. And, you know, it's kind of shocking to imagine a world where, like, people are playing around with websites in the U .S., Amazon's being founded in the mid -90s, you know.

[97] But, like, it hasn't really made it everywhere else yet.

[98] Yep.

[99] It was a different time.

[100] So, and also a different time, you know, venture capital, and in particular, venture capital in Europe was a very, very different kind of proposition.

[101] And Gert had had a tough time getting funding.

[102] So what he decided to do, and again, he talks about this in the oral history, and I just love this, he needed funding.

[103] So he decided that he was going to email everyone who he knew who had an email address, because he figured if they had an email address, they at least knew something about the internet.

[104] That's a direct quote from him.

[105] I just love that.

[106] So he emails about 50 people and 18 of them end up investing.

[107] And he raises about 50 ,000, 50 ,000 euros to get going, hire some early employees.

[108] And they start to get off to the races.

[109] And what they evolve into, and this is where we're going to spend the bulk of this episode and want to bring Drew in here, they really become one of the first online travel agencies.

[110] So the same general model as Expedia or price line or orbits or Travelocity here in the US.

[111] And they're kind of three pieces to the business that they start.

[112] One, they need to acquire the travelers.

[113] Two, they need to acquire the hotels, the supplies, the supply and demand.

[114] And then three, they need to provide some form of customer service.

[115] So, you know, Drew, how does, you know, for our listeners, you aren't as familiar with the OTA world, you know, how did all this evolve?

[116] You got the basics of it, right?

[117] You know, all these businesses.

[118] is really our marketplaces about how they bring together supply and demand.

[119] And it's interesting to think back to where this industry was, is booking .com was starting.

[120] You know, we were talking a little bit about who had email addresses.

[121] And like, it was all AOL.

[122] It was MSN.

[123] It was, you know, all these kind of dial -up services.

[124] You know, and we forget it now.

[125] But the real things that made the first generation of OTA businesses in the U .S. were like portal tenancy deals.

[126] Yeah.

[127] Do you remember these?

[128] It was like Travelocity got the deal on Yahoo. And therefore, Travelocity was by far in a way the leader in this category.

[129] actually, you know, Travelocity managed to get a couple of those.

[130] I think it was AOL.

[131] It was Yahoo. I forget which the other ones were.

[132] And of course, Expedia, you know, founded by Rich Barton up in Seattle, was part of Microsoft in the early days.

[133] So they had MSN, of course.

[134] Exactly.

[135] So they had that as a pretty kind of healthy locked -in source of demand.

[136] Yeah.

[137] And the other side is, exactly as you said, was how do you start to get then a supply base that fits with that, right?

[138] You know, again, early days the internet, you know, it looked not that different than a newspaper, right?

[139] What are all the kind of categories of interest and how do we start to fill them out?

[140] Travel being one of those.

[141] And so what you saw with the first generation of these online travel agencies was they were basically just a front end to the GDS systems, the global distribution systems, which were used by travel agencies to make flight reservations, to make hotel reservations and the like.

[142] And so you had this kind of big supply base that was already in place, right?

[143] You know, travel agents always got commissions and these GDSs provided travel agents with rates and availability, the tools to go ahead and make a reservation on a consumer.

[144] Expediting travelosity and the life were front end that the average consumer could use.

[145] And that's one thing, actually, I hadn't focused as much on, but maybe could you talk a little bit more for our listeners about this whole GDS system?

[146] Because it existed before the Internet, right?

[147] Yeah, I mean, it goes back to, I think it was like 1973 when the first GDS was built.

[148] I mean, these were actually byproducts of the airlines.

[149] So American Airlines, yeah, Bob Crandall.

[150] famously realized they needed some computer system to tie all their travel agents together.

[151] That was a genesis for Sabre, which is the very first GDS.

[152] And of course, that then served as the underpinnings for all of these online travel agencies for a long time.

[153] Wow, the parallels to the real estate industry are amazing here, where you look at, you know, the MLS systems existed long before you had Zillow, but there's sort of this, David, you mentioned Rich Barton, this, you know, Barton -style data to the people way where you can take these systems that, you know, should just be quarreable by the general public, but have been locked up by a professionalized industry for a long time.

[154] And it really makes you wonder, like, what else is out there that has, you know, private databases that are linking an industry together that really have the potential to be brought online.

[155] Yeah.

[156] And so for booking and in Europe, you know, obviously there's the GDS in America.

[157] Did the GDS extend to European hotels as well?

[158] Yeah, it's an interesting point that kind of drives at the, both the structure of the industry, and I think part of what's set booking up for success over time, you know, if you think about like what kind of hotels were on the GDS, you know, it was a certain kind of hotel.

[159] So like rough and tough, there are, you know, 500 ,000 hotels in the world of that population which is crazy, by the way, like I think a lot of people in the travel industry don't realize that like 500 ,000 hotels in the world.

[160] That's a lot.

[161] It's a huge number, you know, at least that, you know, that's what TripAdvisor would tell you they've got hotel reviews on, right?

[162] So, you know, again, that's the kind of the biggest sample of hotels.

[163] But the GDS only has about 75 ,000 hotels on it, you know, varies a little bit from GDS to GDS.

[164] But the kinds of hotels that are generally on the GDS are, well, going back to our example with cured, you know, it's the Hilton's of the world.

[165] It's the Marriottes of the world.

[166] You know, it's the kind of hotels that get booked by travel agents, which tend to be stayed in by business travelers or folks that historically accessed travel agents.

[167] And so they were franchised and more sophisticated and had better technology.

[168] You know, it wasn't a 20 -room pension outside of Rome, which is much more commonly used by the European traveler.

[169] Yeah.

[170] And that really speaks to, you know, we'll get into this throughout the episode, but the differentiation and the value that booking was able to build while it was really hard in the beginning.

[171] And we'll get to, you know, they end up getting acquired by price line in 2005 for $133 million.

[172] I mean, nobody recognized the value here.

[173] But because they were able to build this performance.

[174] proprietary long -tail marketplace of supply, they really had something no one else could access.

[175] It reminds me in a lot of ways of, you know, the difference between Google and Yahoo, right?

[176] Like, on Google, you could type a query on Google and they had access to the entire long -tail of the Internet, whereas Yahoo with the directory model, you know, only had the head.

[177] And so for people, you know, drew like you're saying, who are looking for something specific in Europe, it was booking or nothing.

[178] 100%.

[179] And that's a great analogy, right?

[180] And, you know, where that really becomes clear, and I guess we're kind of jumping ahead.

[181] Oh, we always jump ahead here.

[182] But, you know, if you think of like, what's the advantage of having the tail?

[183] It's far greater relevancy, right?

[184] Like, it's the things that you actually care about.

[185] You know, the consequence of that is conversion rate.

[186] So, again, not to get too far ahead of ourselves, but the consequence of having all this kind of long -tail inventory is far greater relevancy than those people who are relying on just the GDS might have enjoyed.

[187] Yeah.

[188] Yeah.

[189] And what we're, what we're sort of on this topic of discussing, you know, the OTA is basically a marketplace.

[190] Drew, before we kind of get into the future evolution here, could you do some sort of definitions for us of online travel agency versus travel aggregator versus meta -search?

[191] Like, how do these things interact and how are they different?

[192] Sure.

[193] So, you know, the lines are a little blurry between them, but in general terms, online travel agencies take reservations.

[194] They make bookings on behalf of consumers.

[195] And so they aggregate inventory from lots of different sources, you know, generally directly from hotels, airlines, rental car companies, and the like.

[196] And again, they will enable a consumer to make a reservation.

[197] Whereas meta search engines or aggregators are a layer of abstraction above that, you know, so they search.

[198] Exactly.

[199] Chibago.

[200] Chibago, yep.

[201] What TripAdvisor has increasingly done, you know, meta search where they're, Google is doing today.

[202] They're pulling rates and availability from directly from suppliers, also for.

[203] from OTAs and intermediaries, showing you prices and letting consumers to decide what they want and then handing you off to an OTA or a supplier to complete the transaction.

[204] Got it.

[205] So let's go back.

[206] We'll kind of finish out the history and facts, and then there's a bunch more to dive into here.

[207] So a couple years go by, booking starts to sort of slowly grow, it's supply base and its demand base in Europe, shifting as Europeans are coming online to actual European customers.

[208] And one thing that's actually another side note that I would just want to put opinion to come back to.

[209] On the demand side, this is really, we mentioned search engines.

[210] As search engines start to rise in prominence as kind of the front door to the internet, travel, and in particular, OTAs become one of if not, I think, the biggest category of spend in terms of search engine advertising because the link between searching, you know, Google or whatever search engine for, you know, a villa in Rome and an online travel agency is you're so far down the funnel.

[211] It's a perfect type of advertising for these companies.

[212] Yeah, travel is a really nice use case for search advertising for a couple of reasons.

[213] The two biggies are, number one, it has high purchase value, right?

[214] So, you know, the relatively large transactions.

[215] And number two, two, it's a very close combination between search and transaction, right?

[216] So unlike searching for home, unlike searching for a car, you know, all these are completed online.

[217] And so as a first case of direct response advertising, travel is a really good use case.

[218] Yeah.

[219] And so again, you know, you saw the OTAs as, as the, you know, one of the biggest categories of spenders on Google.

[220] Yep.

[221] Um, so booking is, is growing slowly.

[222] Uh, they end up merging in the year 2000 with another group, um, also in the Netherlands, also called booking, uh, called bookings online.

[223] Um, and that's when they changed the name to booking .com, a couple years go by.

[224] And then in 2002, Expedia actually decides that they want to enter Europe from the U .S. And they understand the European market's different.

[225] They need access to all this supply in Europe.

[226] And so they come over, they look at a bunch of players, and they get very, very close to acquiring the new booking .com.

[227] They do six months of diligence.

[228] And then right at the end, right before they're about to close the deal, the U .S. Expedia board ends up rejecting the deal, vetoing it.

[229] And the reason that they do so, and this is the next kind of topic we want to dive into with Drew, is they're really worried about Booking's model, which is different from the U .S .OTAs, their business model.

[230] Booking uses the quote, agency model, whereas in the U .S., you know, Expedia price line, travelosity, and the like, use the merchant model.

[231] So, Drew, can you kind of help our listeners understand?

[232] what the difference is between the two and why the U .S. guys might have been so spooked by this.

[233] Yeah, it's funny looking at it today because it seems so obvious.

[234] This agency model is great.

[235] But at the time, the merchant model was highly desirable and was leading to a lot of the success that, you know, the big players in the U .S. had.

[236] So the big difference between the two, the merchant model is effectively a wholesale model.

[237] In the merchant model, the online travel agency contracts for wholesale rates with a supplier.

[238] You know, so Expedia would go to Hilton and say, we'll pay you $100.

[239] for this room, and we're going to market up 20%.

[240] We're going to sell it for $120.

[241] So this is the Amazon retail business analogy, where Amazon's taking inventory on the items, they're setting the price and selling it.

[242] And the merchant actually holds, in this scenario, the OTA actually holds the inventory risk, right?

[243] No, this is why it such a great model.

[244] I don't have to, you know, as an OTA, I don't take any inventory risk.

[245] I'm just going to agree to what my net rate will be.

[246] If I don't sell the room, it's not my problem.

[247] it's your problem.

[248] I can market up at that point in time as much as I wanted.

[249] So again, you had instances where, you know, one of the leading practitioners of this at the time was, was HRN, which went on to become Hotels .com.

[250] Yep.

[251] You know, but there were instances where, you know, they would have in New York City, like on sold out nights, they would contract for a $300 rate at a holiday inn, and they would sell it for $900 because it was the only inventory left in the city.

[252] That's like, these guys are bandits.

[253] I mean, you know, brilliant entrepreneurs.

[254] But this is like, if you can make this work, this is even better business.

[255] model, like, it has the best of being a retailer in that you get to set the price and essentially control the inventory, but also the best of a marketplace where you don't take any risk on the inventory.

[256] Exactly.

[257] And actually, one even better than that, which is it has a negative working capital cycle because I collect money from the consumer when I sell this, and then I remit funds to the hotel 30 days after you stay.

[258] And, you know, if it's a two -month average booking window, I'm holding everyone's cash for 90 days.

[259] Okay, so that's the merger model.

[260] That's what Expedia and the U .S. guys have.

[261] Now, booking has the agency model.

[262] What's that?

[263] So the agency model was a kind of traditional travel agency model.

[264] That meant that they were going to take a commission.

[265] That commission was going to be paid not by the consumer.

[266] There wasn't any of this kind of markup, but the supplier, the hotelier in most cases would pay them a commission based on what they sold.

[267] And they would pay the commission after the booking took place, right?

[268] So if you don't show up, but there's cancellation, you know, again, I don't get my commission against it.

[269] And the commission rates tended to be much lower.

[270] You know, they were, booking .com started at 5%.

[271] Typical industry commissions were about 10%.

[272] And as you compare that to the merchant model, which was 25, 30 % margins at the time.

[273] And negative working capital.

[274] And negative working capital.

[275] Yeah, exactly.

[276] So you can see why you're the Expedia board and you say, you know, this doesn't seem like the right model here.

[277] These crazy booking guys started by this college student, you know, they have no idea what they're doing.

[278] And to have some sympathy for them at the time, right?

[279] I mean, they were on top of the world.

[280] You know, they travel law city had been the leading player Expedia, place them.

[281] Expedia recognized, and I think one of the, you know, the interesting things about OTA is when you look at their economics, what drives their business, it's really the hotel business that drives their profitability.

[282] It's a much more profitable piece of business than flights.

[283] Expedia recognized that early.

[284] You know, bought a company called TravelScape, which was, you know, one of these kind of early merchant businesses, then turned around and bought HRM, which became Hotels .com, which as it happened, was powering the hotel business on Travelocity.

[285] So this kind of masterstroke, you know, they completely undermine their competitor.

[286] They identified with the most profitable and exciting part of the businesses, and they controlled it all.

[287] This is like when Google bought overture.

[288] Yeah.

[289] Exactly.

[290] This is great.

[291] And now you want me to turn around and like, you know, go buy some rinky thing in Europe.

[292] That's so much less attractive.

[293] So the Expedia board looks at all this and says, we've got the golden goose here.

[294] We've got the best business model.

[295] You know, people say Google's the best business model of all time.

[296] This might be even better.

[297] Why would we want to do the agency model?

[298] But in the long run, of course, it's the agency model.

[299] that really wins here.

[300] What was it about that in the long run that ended up being better?

[301] So the agency model ultimately was superior in part because there was a better consumer proposition.

[302] The merchant model wasn't so great for you the consumer because I had to pay you up front as opposed to the agency model where I could cancel if I wanted to.

[303] I had a lot more flexibility.

[304] It also wasn't so great for the supplier.

[305] From the standpoint of a hotelier, I don't really like this merchant model thing where I'm paying you 30%, you know, you have more control over setting price.

[306] You're keeping cash, not me. So, you know, that wasn't great.

[307] But again, you know, in fairness, the Expedia board, they kind of looked at the world and we're like, you know, we're in the dominant position.

[308] Why do we need to move away from this?

[309] And I think what they failed to realize was just the size and magnitude of this market.

[310] Yeah.

[311] And the level, you know, just the power and the potential of how quickly this was going to grow, that in combination with what we were talking earlier, the potential for AdWords, you know, a really kind of cost effective tool that would allow a business and only travel agency to scale pretty quickly.

[312] And where those things came together was, again, going back to the point we're making earlier, was the long tail because this agency model made it really easy for booking .com to clean up the long tail very cost -effectively and very quickly.

[313] It was a much lighter way to approach to contracting, got a lot more hotels on board quickly.

[314] You know, they didn't have to go out and negotiate for net rates with an individual hotel.

[315] You could just fill out Gert's form, send it back, you know, and away you go.

[316] And this is, I forgot.

[317] to put it in our notes, but also in the oral history with Gert, when he, when he started, the way he onboarded hotels is he sent them postcards, essentially, with like a form to fill out on the card if they wanted to be included in the, in the marketplace, and then they just, you know, mailed it back to them.

[318] You know, infrastructure data, it's really efficient.

[319] E -commerce had its best.

[320] Yeah, e -commerce had its best.

[321] MVP, bootstrapping.

[322] Well, the dirty secret behind the, you know, the merchant model was for the longest time, I mean, literally, you know, up until probably five years ago, like a huge chunk of reservations were delivered by fax machine, right?

[323] So, you know, you were, you're making a reservation on, maybe it was 10 years ago, but yeah, you know, well, I bet a lot of these hotels, you know, might not have had internet connections.

[324] Um, so you had, it was kind of like, you know, kind of like the early days of the food market and Grubhub and Seamless, you know, those were all orders delivered by fax machine too.

[325] Yeah, totally.

[326] Right, right.

[327] Internet, let alone having Wi -Fi marked on your booking .com reservation.

[328] Well, one point I want to make here before we move on is that there's an incredible similarity to the ebook market here.

[329] I mean, when we talked with Brad Stone, I don't think we discussed this on the show since we were talking about the Uber Diti deal.

[330] But he talks so much in the Everything store about the struggle that Amazon went through with ebook pricing and the wholesale versus the agency model there, where Amazon kind of prefers this wholesale model where they can pay a fixed price for something.

[331] they have all the pricing control and can market up and down however they want, and they have incredibly sophisticated variable pricing to do that.

[332] But the sort of, I think it was the European some kind of EU book consortium that really had a lot of power in this industry and forced them to use the agency model.

[333] And it was a big concession they had to make when going to market.

[334] And I wonder, I mean, that must have been a big piece that ultimately led to the development of marketplace within Amazon.

[335] Got to be.

[336] Which is, you know, why Amazon is what it is today.

[337] Power of marketplaces.

[338] It is.

[339] And that's truly one of my favorite things about this show is like seeing the patterns between different industries.

[340] They evolve at different speeds.

[341] They evolve, you know, with different waves of technology.

[342] But at the end of the day, there's really only so many business models.

[343] And there's really only, you know, a finite number of ways that different players in an industry can interact with each other.

[344] And we kind of see the same playbook roll out over and over again.

[345] Are you, you know, making an apologist argument for venture capitalists, Ben?

[346] you might think we're not self -serving unacquired at all um so back to the history and facts um all this happens expedia ends up passing leaves booking and girt at the altar um and then gert uh makes makes a decision which probably when he talks about this you know made the right sense for him at the time they just you know had this deal fall through he ends up selling booking dot com not to price line but to an investor group.

[347] So a major European investor group, a consortium comes in and acquires a majority stake in booking.

[348] This is in 2002, 2003.

[349] And then over the next couple years, there's kind of one guy sort of in the U .S. that starts to see what we were just talking about with the power of the agency model and starts to wonder about the future of how long kind of the music can keep playing with the merchant model.

[350] And that guy's name is Glenn Fogel, who is now the CEO of the Priceline group, which includes booking, of course.

[351] But at the time, he was Priceline, which was just Priceline.

[352] The Priceline group also includes kayak and Open Table now, perhaps future shows.

[353] But at the time, Glenn was the head of M &A for Priceline.

[354] And he comes over to Europe and he starts digging in and realizes this dynamic with the agency model that it really does.

[355] align interests better and incentives between the travelers and the hotels.

[356] And not only that, but people in Europe also travel a lot more than they do in the U .S. because we're workaholics here and we don't take as much vacation.

[357] So you've got kind of a better product model, a more active customer base.

[358] And he starts to argue within price line that they should really start acquiring some of these companies.

[359] So the first acquisition that they make, led by Glenn, is actually not booking, but a company in the UK in Cambridge, England, called Active Hotels, which is very similar to booking, was larger in the UK than on the continent.

[360] They acquire that in 2004 for $165 million.

[361] And then later, in the summer of 2005, they do finally acquire booking for $133 million, as we mentioned.

[362] They merge it with active hotels in the UK, and they keep the booking .com name, so the combined entity is booking .com.

[363] And when they do that, in total, they now have 18 ,000 properties across all of Europe, 18 ,000 hotels on the system, which is way, way more than any other online travel agency in the whole world now.

[364] And so Priceline, this is kind of a master's trope.

[365] They build, through acquisition, the largest online travel agency in the world with two, you know, sub -200 million -dollar deals.

[366] Kind of amazing.

[367] Yeah, so question for Drew, is do you think that they needed to do the acquisitions to do this to sort of like bring that agency model into the price line group, or could they have taken their existing supply and demand since they already had some scale and really reinvent that and kind of copy that model themselves?

[368] I think it's tough to see, and I guess it particularly plays out when you look at the sort of subsequent history.

[369] I think it's tough to see price line doing this on their own.

[370] In part, you also, I think, have to look at the context for Priceline to make this acquisition and why they're able to do it.

[371] Like, price line, you know, made efforts to go to market in Europe.

[372] You know, again, remember, this is 2004.

[373] You know, this is kind of the depths of the dot -com bust.

[374] You know, Priceline had been one of the biggest success stories of, you know, Web 1 .0, right?

[375] Like, we all remember William Chattner, you know, Delta made a billion dollars, you know, getting warrants in, in price line, selling them at the top of the market, you know, looked like a genius.

[376] And price line, you know, price line had moved into.

[377] to name your own price.

[378] Dog food, name your own price.

[379] Groceries.

[380] Name your own price.

[381] Gasoline.

[382] I mean, it was just like all over the place.

[383] There's a great history or partial history of price line, you know, in the internet bubble in the book E -boys, which is about the early days of benchmark the venture capital firm.

[384] They were the venture investors behind price line.

[385] And you know, the initial price line, like it was crazy.

[386] Drew, like you said, I mean, it evolved into travel because that was the only thing that made sense that they did.

[387] But originally it was name your own price for anything.

[388] So these guys didn't look like Masters of the Universe at the time, right?

[389] I mean, they looked like yesterday's news who were trying to figure out a plan B. You know, Priceline had actually tried to go into Europe.

[390] You know, they had hired, I heard the story once that, you know, they had hired like former marketer from Burger King to, you know, make price line, name your own price a big deal in Europe and like totally flopped, right?

[391] So you can imagine, you know, Glenn's sitting in price line, be like, no, no, we need to go back to Europe, but we need to get big in travel.

[392] You know, it wasn't like they were coming from a position of strength where they had both the capabilities and position to do this.

[393] I mean, I think, again, it's absolutely to cleanse credit to recognize what they did.

[394] And, you know, again, common position for a lot of the U .S. companies, you know, Travelocity tried to go into Europe, Expedia tried to go into Europe, a lot of U .S. companies that tried to go into Europe and really struggled.

[395] And I think one of the reasons for that, and again, you know, we kind of touched on up briefly earlier.

[396] It's a cultural issue.

[397] You know, for big U .S. companies, you know, the U .S. was this kind of dominant formative experience.

[398] Everyone speaks the same language.

[399] You have national advertising.

[400] You know, you are building a single, you know, monolithic brand that serves across U .S. as a market.

[401] Europe doesn't really work that way.

[402] You know, UK is a different market than France, the Germany, then Spain, then Italy, than the Dutch, you know, they all have their own languages.

[403] They all have their own domains.

[404] Like, they all have their own marketing channels.

[405] You know, you have your own country managers.

[406] It's a much more complex and nuanced way to start to go to market.

[407] And so you can see why some of the U .S. travel companies really struggled as they tried to build this on their own.

[408] and why from the standpoint somebody like Glenn the thought of hiring some Dutch who probably speak a bunch of different languages know how to work with all these different cultures you know great go let them do their thing yeah well and do their thing they did you know another kind of theme that we see on this show a lot is Glenn and the price line group you know let them alone to do their thing and so they acquire them in 2005 they complete the merger with you know within price line of active hotels and booking .com in 2005, they do collectively 18 .7 million room nights booked, or sorry, that was in 2006 after the merger.

[409] And that grows from 18 .7 then over the next 10 years, such that last year at 2016, they did over half a billion room nights.

[410] So that's over 40 % growth per year for 10 years.

[411] And the financials on that are just pretty staggering.

[412] I mean, price line, the company, the group as a whole did $10 .7 billion in revenue, billion dollars in revenue in 2016.

[413] And of that, booking .com, which again, remember, they paid a combined, you know, what is that, $290 million for active in booking.

[414] They did $7 .8 billion of that.

[415] Pretty incredible.

[416] Yeah.

[417] Yeah.

[418] Amazing they break that out, too, because I think, you know, while they're separate properties, Drew, do you know if they cross -pollinate the supply between the front?

[419] ends for for priceline .com and for for booking .com?

[420] No, they don't.

[421] They have their own supply teams.

[422] You know, I think one of the things that has defined priceline's management strategies is the group has let the businesses do their thing.

[423] You know, so again, today price line is is kayak, go to booking .com, you know, the core priceline brand and I think it's car rentals and then open table.

[424] They have a car rentals business too, yep.

[425] But each of those businesses has been largely left to, you know, fend for itself and make decisions that right for their business.

[426] They don't really do a whole lot of kind of corporate level cross -pollination, and especially at this point in time.

[427] More recently, they've done a little bit more, but certainly through these incredibly explosive years of growth, each of the businesses are run autonomously.

[428] Well, and that's sort of, so that kind of wraps up the history and facts here, but one, just sort of fun side note in doing the research that Drew had wanted to ask your thoughts on.

[429] What's really crazy to me, this is such a a big market.

[430] I mean, again, price line group, you know, we said at the top of the show, $90 billion market cap, you know, that's three Airbnbs and more than Netflix.

[431] And it's not like Expedia is a small company either or any of these other companies.

[432] But the industry is so small, people -wise.

[433] Like, it's a total cabal and like, you know, reading the skiff to oral history.

[434] And, you know, all of these folks who are the major players, you know, bounce between company to company.

[435] I mean, even you, you've been at Jet Setter, you've been at Room 77.

[436] It's all such a small world.

[437] Why are they not, you know, why is this not flooded with entrepreneurs?

[438] Gosh, I mean, I guess great, great question.

[439] In part, I would say there was a moment where it was flooded with a lot of entrepreneurs, right?

[440] You know, there's a lot of company formation that led to these businesses, you know, so if you look at, you know, take Expedia today, you know, Expedia is the sum of Expedia plus Travelocity, plus Orbitz, plus what if?

[441] Travelocity was a combination of preview travel and Travelocity.

[442] And hot wires in there too.

[443] Yeah, hot wires in the mix.

[444] So you have a ton of businesses that were built, you know, that ultimately have consolidated to a relatively limited number of platforms, two platforms, Expedia and Price Line.

[445] I guess you go look at C -Trip, you know, as a third one in Asia, you know, maybe TripAdvisor.

[446] Yeah.

[447] Yeah, and I think also the number, the amount of required connectivity between all these different entities is kind of a high technical bar to get started.

[448] And I think that these businesses, you know, kind of aggregation theory in play here, are scale businesses so that, you know, in order to provide a lot of people have new ideas for how to make the, you know, travel booking experience better and the trip planning experience better.

[449] And I think, you know, it's almost become a trope that, like, if you go to a startup weekend, you're going to see somebody pitching a better, a better way to plan trips and do something in that space.

[450] but it seems like it's just really hard to execute as the bar has gotten higher and higher with these established businesses.

[451] Yeah, for sure.

[452] I've certainly seen a number of entrepreneurs want to pitch ideas for better startups.

[453] The question is, what does better mean in this category?

[454] And I think booking has been, you know, the illustration that better as booking defined it is higher converting.

[455] And, you know, one confuses, you know, consumer satisfaction with, you know, business model efficacy.

[456] You know, if you can find a way to get more clicks and more bookings out of a given visitor, you've got a better mousetrap.

[457] But, you know, that's a less sexy idea than helping people plan better honeymoons.

[458] Yeah.

[459] Well, one thing on this front on innovation and entrepreneurship in the entrepreneurialism in the travel industry I want to come back to, maybe in tech themes, is of course Airbnb, which is a wholly different approach to this industry, but is nonetheless still the travel industry.

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[479] Do we want to jump into acquisition category?

[480] Yeah, let's do it.

[481] So for me, I have this down as business line.

[482] For new listeners to the show, we define that as people, technology, product, business line, asset, or other, because we leave ourselves the right to do whatever the hell we want on this show.

[483] So in this one, you know, a lot of times we define a product as like, hey, this is a new product you can sell to your existing customers.

[484] Like an Apple would come out with an iPhone after coming out with an iPod.

[485] This for me is really something where, you know, it's a new marketplace with new supply, new demand, a new business model, and it's completely separately broken out on the balance sheet.

[486] They bought a new business here, and they happen to learn a lot from it and really make it the cornerstone of the company and grow from there.

[487] But they bought a wholly separate line of business, and they kept it pretty separate.

[488] Yep.

[489] I don't have much to argue with there.

[490] I mean, literally they reported it as a separate business line on their financials.

[491] So it's kind of hard to argue with that.

[492] I figure that's an easy one for me to jump in on.

[493] I got nothing here.

[494] Yeah, no, no argument.

[495] If our resident, grizzled industry veteran agrees.

[496] Moving on.

[497] What would have happened otherwise?

[498] This is interesting.

[499] Yeah, I mean, what if Expedia had pulled the trigger?

[500] Yeah.

[501] That's sort of the obvious one, right?

[502] I don't know.

[503] Drew, what do you think about that?

[504] I mean, with deference to my friends at Expedia, I'm not sure they would have done as good job managing this business as booking did.

[505] as price line did, rather.

[506] And the good job was just leaving it alone, right?

[507] Exactly.

[508] I mean, this is effectively a VC play.

[509] You know, I guess the better question is, you know, why was Glenn Fogel, the one who sniffed out this deal?

[510] You know, where were all the great Silicon Valley?

[511] Yeah, the greatest travel industry VC investor of all time.

[512] Yeah, it does seem, who was the intermediary that they sold it to?

[513] It was like a private equity firm?

[514] No, I think, I could be wrong on this, but I think it actually was just a group of private individuals, private investors in Europe that Gert knew.

[515] Yeah, I mean, it seems like their opportunity cost for them is the real story here.

[516] You know, why let it go?

[517] But I think this might be a good time.

[518] Drew, when we were preparing for this episode, you mentioned sort of a difference between Expedia's M &A strategy and Priceline's MNA strategy and that Priceline sort of took these risks on early kind of subscale businesses that they saw potential in.

[519] And Expedia tends to buy more established things that have a very reasonable growth trajectory from there that they can add to their portfolio.

[520] Does it seem like I'm getting that right?

[521] And I'd love to hear your thoughts on that.

[522] Yeah, I think that definitely characterized a lot of the deals that made Priceline successful, active booking, a Gota.

[523] And again, I think you saw the strategy we just talked about from Priceline of buying these businesses and effectively, you know, being a largely passive investor, holding them accountable for growth, giving them capital to continue to grow, but not taking too active a role in the management and integration of those businesses.

[524] Expedia, by contrast, has built a single dominant scale platform.

[525] And we should give expedients to here, right?

[526] I mean, it's an almost $20 billion business.

[527] You know, they do, what, 350 million room nights to the, you know, 500 that booking .com did, or price line did last year.

[528] So it is a, you know, a real formidable player in this category.

[529] But their approach has been different.

[530] they bought travelosity, they bought orbits, they bought what if in Australia, you know, and they bought these players and their strategy has largely been to say, we have a, you know, a tech platform that is incredibly mature.

[531] We put huge investments in, and we now want to start to get scale out of it.

[532] And so they buy effectively these storefronts, you know, replace them with superior economics, superior technology, you know, see some gains in terms of productivity, both click the rate and their ability to monetize it, but have taken a much more active role in the management of the businesses.

[533] And then another question is, did price line need a capital infusion?

[534] I'm sorry, did booking need a capital infusion from price line?

[535] Or what if on their own they just sort of continually reinvested their profits into business in sort of this aggressive Amazon -style way?

[536] Is there any way they could have grown to be the scale that they are today or would they have sort of lost out in the arms race of competition?

[537] You know, it sure seems to me like booking could have done this on its own.

[538] Booking didn't need price line to achieve the scale that it did.

[539] And I think, again, it's a testament to, you know, Glenn's judgment and acumen and finding the company and seeing the opportunity here.

[540] But I think that's an opportunity that was available to any financial investor.

[541] Yeah.

[542] At the same time, I think this might be a good lead -in to tech themes.

[543] We're always just trying to get into tech themes on this show.

[544] You rename the show.

[545] tech themes that I think that would be pretty boring the you know this is the thing about marketplaces though and well I'm just I'm just gonna have more than what tech theme yeah I'm just gonna dive in I mean to me this is such a wonderful illustration of everything that is both incredibly challenging and incredibly you know beautiful about marketplaces which is they're a total slog to get started I mean thinking about those early days, bringing all this very fragmented, very disparate supply all across Europe, supply of hotels, onto the booking .com platform and Gertz sending out postcards to everybody.

[546] You know, you can totally see why Expedia would look at that and say like, you know, that seems hard.

[547] And the business model doesn't seem as good as ours.

[548] But then the thing is, you know, once you get to a certain scale point, and I think this is the value of capital in, building marketplaces is accelerating to get to that scale point.

[549] Then it tips, right?

[550] And then it's just the defensibility.

[551] We're talking about why you haven't seen more major companies built in travel online.

[552] I mean, the defensibility is so great in booking.

[553] Like, because everybody is on it, on both sides of the marketplace, there's no incentive for either side to go anywhere else because the experience isn't going to be as good.

[554] Yep.

[555] And it really is an argument for consolidation, too.

[556] I mean, I think we've said this before, but one of the reasons why we set out to do this show is understand when M &A works and when it doesn't, so that when we're involved in the earliest stages of companies, like, we can try and figure out how do we steer the ship if the goal is to get acquired by one of these bigger companies, like where can we nicely fit?

[557] And it sure seems like marketplace businesses are so well suited.

[558] Like, whether you combine the business lines or not, you can look at Zillow and Trulia or more recently and here locally Rover and Dog Vacay.

[559] I mean, when you take a lot of supply and a lot of demand and the exact same value prop or a very similar value prop, and you can consolidate a lot of things onto a single platform and bring these things together, it seems like there's, there's, you know, you take that flywheel that's already spinning so well.

[560] And yeah.

[561] Do you had a counterpoint, a counterpoint, though.

[562] Oh, I was going to say, I mean, there, you know, I think there is certainly pressure, you know, if you talk to hoteliers, right, suppliers in this world, they're not stoked about this marketplace, right?

[563] Right.

[564] There's no hotel here in the world who's like OTAs were a good thing.

[565] And it's good to have some sympathy for them.

[566] If you look at the stock chart of Hilton versus Priceline over this period of time, you can see why they might not be so excited.

[567] Well, I totally get that from Hilton and Marriott's perspective.

[568] But what about the 20 -room villa in Romania who had no way of acquiring customers otherwise?

[569] Or the dog sitter who wasn't yet dog -sitting or the Airbnb who wasn't yet utilizing that spare bedroom.

[570] Maybe I'm making an argument for unlocking, you know, unlocking value that was previously unlocked due to a lack of ability to find customers in the sharing economy.

[571] And it's, you know, certainly not as true if you're commoditizing suppliers who are already running a business.

[572] It's, you know, you guys are bringing a great point, right?

[573] And, you know, another way of framing this is, you know, this discussion we're having around OTAs shows, let's say, the challenges of the business model of these kind of legacy hotel brands, right?

[574] Because the perspective of Marriott looks really different than the perspective.

[575] even of a Marriott franchisee who actually owns their hotel.

[576] The Marriott franchisee says, I used to have to pay, and just a slight digression, you know, the way hotel economics work by and large at the brands is, you know, you have a brand like Marriott that is a franchisor, you know, that sells to somebody who owns real estate the rights to call their hotel a Marriott and then generate some demand.

[577] You know, they'll take a commission, a franchise fee on that, roughly, you know, between, call it, you know, six and 15 percent based on their business, But they're taking that on all the reservations that happened at that hotel, not just the ones that got generated by Marriott.

[578] And over time, those costs have gone up to the point where many hotel owners are saying, wait a minute, it costs as much money to sell through Marriott, my own quote -unquote direct channel as it does to go to an OTA.

[579] Right.

[580] And Marriott .com is probably not doing much for me these days.

[581] Exactly.

[582] Interesting.

[583] Well, so what about, I feel like this is still on the marketplace's tech theme, so I'm going to take some more airtime.

[584] Let's come back to Airbnb now.

[585] And Homeway and others.

[586] To my mind, what they and Airbnb far more successfully than anyone else has done is taking this innovation, this marketplace innovation, and unlocked just a huge new amount of supply with it and brought many of the advantages that we were talking about earlier in the show that were I think mostly enjoyed by the demand side by consumers and the OTA model.

[587] As you were saying, even with the agency model, a lot of supply is like, you know, mixed feelings at best about it.

[588] But Airbnb has brought this innovation to a whole new set of supply as well, where if I own a home that has an extra bedroom, I'm just thrilled that Airbnb, you know, gets me an extra $1 ,000 a month, right?

[589] Totally.

[590] I think that's been Airbnb's real innovation in this category, right?

[591] There's a ton that we can, you know, can find, like, it's just amazing about that business.

[592] But to me, the thing that's, you know, truly distinguishing about it is the way they created this whole new class supply.

[593] And supply that was really exciting.

[594] Like, if I go stay in New York, I'd much rather stay in a cool apartment in the East Village, you know, in a 900 -d restaurant and have a kitchen, you know, then getting stuck in Times Square.

[595] Airbnb made all that possible in a way that wasn't true in the past.

[596] Or the $900 a night holiday in.

[597] That's right.

[598] Brutal.

[599] I mean, that's, to me, this acquisition and this whole industry really just is such a good example and pure example of, you know, the power and dynamics of marketplaces.

[600] Yeah.

[601] That's what I got for tech themes.

[602] One of the things I was thinking about, and I wasn't, you know, as I kind of tried to put this together and we prepared for this, was what would it take to challenge booking .com?

[603] You know, if you think, you know, building's marketplace is about gathering enough demand to make this whole thing work, could you compete with them?

[604] Right?

[605] So, you know, again, today, booking .com is the advantage of having done this for, what, 20 years.

[606] You know, they today generate half a billion room nights.

[607] They spend $3 .5 billion per year in marketing because somebody else could do that?

[608] You know, could you begin to compete with them to generate that level of demand?

[609] You know, and I guess the, you know, potential, the person I was able to identify who looks like they're at least making a run at it is Trevago.

[610] Today, Travago is spending $800, I think, $800 million.

[611] And they're Expedia owned, right?

[612] Expedia is, I think, has a 40 % stake in Travago.

[613] It's got a public float, and the founder's still owned part of it.

[614] But, yeah, it's part of the Expedia portfolio.

[615] But taking the same playbook in the sense of, can we get enough demand here to make this, you know, a platform that gets them lock in?

[616] Yep.

[617] But the following question, you know, if you wanted to go spend $3 .5 billion a year on marketing, could you do it?

[618] Could you find enough channels?

[619] Absolutely.

[620] It's funny that this works in, yeah, this is one tech theme I was thinking about, too.

[621] After talking to a former Expedia marketing person, this person was mentioning that the Trevago is like absolutely exceptional at digital marketing and really understanding exactly when to be bidding, bidding on Google, understanding exactly, you know, how high value that traffic is, how high value that keyword is, it's super high fidelity and instrumenting it all the way from placing the ad all the way through the the end of the um the transaction and continuing to track that lifetime uh lifetime customer value over time and it seems like the way that you kind of win on this is better and better digital marketing and i think the um there was actually a lot of articles back around the time of this acquisition that um booking had had sort of been incredibly successful because of their mastery of being able to buy keywords on google and we're we're we're we're there's definitely an opportunity to do better than that now as Google's tools get more and more sophisticated for this.

[622] And I think that it goes to show that Google really does take a tax on e -commerce broadly.

[623] And with this as an enormous category, I'd love to see travel as a revenue driver for Google.

[624] And I think one way that Airbnb is disrupting here, and I wonder if somebody else can disrupt in the hotel world rather than just in the kind of special AirbnB world is, can you acquire supply, I'm sorry, can you acquire demand, so travelers, and retain them as your customers without them going back to Google and you having to reacquire them?

[625] And Google being the central source of where people go to search for travel stuff all the time.

[626] Yeah, I think there's no doubt that Airbnb has played that role so far, right?

[627] And I think, you know, to your point, a moment ago, David, you know, the fact that they have this unique access to supply has allowed them to take that kind of position.

[628] there's a question of can you do it in hotels, particularly given the fact that, you know, it's relatively commoditized.

[629] That hotel inventory now shows up on lots of different channels.

[630] Yep.

[631] But I think one other thing to understand, and it's worth getting in, thinking about the consequences for why it worked for booking .com is what allows them to spend at that level of scale.

[632] And the same for Trevago, right?

[633] What allows them to spend at that level of scale isn't simply the instrumentation or the fact, you know, they have $3 .5 billion they spend.

[634] It's that they get the conversion, right?

[635] The reason, because all these guys look at, What's my ROI?

[636] And again, part of that is spend, but really the biggest driver, and also a commission rate, what's my take rate around an individual transaction?

[637] But the thing that has the greatest delta, the thing that really drives performance is when somebody came to the site, did they buy?

[638] Yep.

[639] You know, booking .com's innovation wasn't that it looked better.

[640] I mean, frankly, you look at it and it's like, gosh, why are there so many things flashing?

[641] The things flashing because, like, that's what gets me to buy.

[642] Yeah.

[643] Well, and this is, I feel like this is such a powerful concept.

[644] Bill Gurley actually has a whole blog post about this, about conversion, especially for marketplace businesses, it is the biggest lever that you have.

[645] I mean, we learn this lesson at Rover in that the product that you're building when you're at a marketplace company is essentially, you know, the matching of supply and demand and the consummation of that match.

[646] And so your job is to maximize the rate of consummation of that match.

[647] And if you don't realize that, you can start investing in all sorts of things that are not going to be driving your business.

[648] And I guess going back to the Expedia, why did Expedia miss this?

[649] In 2002, it wasn't obvious that this is a marketplace.

[650] In 2002, you had big portal tenancy deals that drove a lot of traffic.

[651] And I signed a $10 million deal with Yahoo or with AOL saying, I'm going to get this spot.

[652] And it's going to be true for the next year.

[653] And I'm relatively indifferent, not indifferent, but had less pressure around what the performance of any individual session was.

[654] Right, because you were just getting that stream of clicks, no matter what, and you weren't paying on a variable basis for them.

[655] Right.

[656] Got it.

[657] Interesting.

[658] Interesting.

[659] So one thing, actually, Ben, were there any other tech themes you want to cover?

[660] Yeah, I got one quick one before we move into grading.

[661] So, selfishly, like one of the things we do at Pioneer Square Labs is look around at other business models and try and figure out, like, can this be done in a new space?

[662] something that I think that I've been paying a lot of attention to recently is as as this generation shifts toward a more on -demand, less committal life, you know, this agency model makes a ton of sense.

[663] The idea that, yeah, I'll book that stuff, but like, if I don't want to go, like, I get a refund.

[664] You know, my credit card doesn't get charged until I stay in that hotel.

[665] And there's policies of 24 hours, 48 hours, whatever it's going to be.

[666] But, like, you're, you're afforded a bunch of flexibility and you can sort of plan ahead.

[667] And then, like, if you don't want to do it, you don't want to do it.

[668] So I think a super interesting lens to think about new company creation is, you know, what else can you take that people are like hamstrung into committing to right now and allow them much more flexibility and change the business model dynamics within the industry to allow them that?

[669] Because, you know, as we talked about before, the best consumer experience will continue to win.

[670] Yep.

[671] So that's all I got for tech teams.

[672] Well, if, if we had some answers, we should, you know, we could start some companies.

[673] Can I challenge that slightly in this case?

[674] Ben?

[675] Oh, I don't think the best consumer experience is what won here.

[676] At the very least, we need to think broadly about what best consumer experience is.

[677] Because it wasn't like that booking .com had the most attractive best designed website in the sense of U .S. Lots of people would say it's not that attractive.

[678] Yep.

[679] But it was best in the sense that it delivered the most conversions.

[680] Yeah.

[681] And the reason it delivered the most conversions was it had the most invest inventory.

[682] you know and so um which which i'm at least to me that's that's the consumer experience right like you're you're able to get what you want um and i think maybe a secondary thing here is probably the the lack of commitment to it but um to me being able being matched with the correct supply is is just a um you know a facet of of the consumer experience sure point take so so you know many levers to have it play here to um well i think it's the it's the it's the same, you know, it's the same thing, it's a, we're quibbling over the definition of consumer experience, but it's, you know, in the same way, like, I don't think anybody, you know, apologies to our friends at Facebook, but especially LinkedIn, but nobody would argue that those are like the best, most beautifully designed sites, right?

[683] But you get, as a consumer of them, you get your experience fulfilled best of what you're looking for, which is, you know, I'm looking for professional networking on LinkedIn and social networking on Facebook, it kind of, you know, what they look like is almost secondary, but it's what I get out of them.

[684] Yeah, so, Drew, I, in thinking through is a little bit more, if consumer experience is the umbrella of things that enable you to win, I think you're right that being matched with the correct supply is far more important than, you know, your, your requirement to commit.

[685] Yeah.

[686] Okay, one last one, sort of sidebar I wanted to cover before we grade it, and it might inform grading.

[687] Drew, I'm super curious.

[688] One thing we haven't really talked about on the episode thus far, we've talked about OTAs, we've talked about the various flavors of them, you've talked about Airbnb.

[689] What role does MetaSearch play in this world?

[690] I mean, you were at Kayak for a long time, and MetaSurch sort of takes a wholly different approach.

[691] It's a layer on top.

[692] It's not a marketplace itself.

[693] What What is that role in the ecosystem here?

[694] Well, I think it comes down to, actually, the point that we're just talking about with Ben, which is how do I make a decision?

[695] How do I find what I want?

[696] And what's the separation between that decision -making process, i .e., I want to stay at this hotel or take this flight on these dates, and the transaction process.

[697] I'm going to complete this booking.

[698] And, you know, meta -search, vertical search, you know, was an abstraction of, again, that decision -making process.

[699] One of the thing that was really powerful about it, I think, has allowed it to grow very quickly, is it, you know, it limited its scope, right?

[700] At kayak, it was like, we have the most amazing website.

[701] It's two pages long, right?

[702] It's a front door where you ask a question, and then it's a bunch of answers that you can find them when you want, and you're out.

[703] You know, like, you know, things moving through a goose was the metaphor that we talked about.

[704] You know, I think you talk about...

[705] We're a friendly friend, friendly show here.

[706] You know, I know you have advertisers.

[707] Yeah, I appreciate that.

[708] Chavago did it one better, right?

[709] You look at Chavago.

[710] like, it's a one -page website, you know, it's all JavaScript.

[711] You start typing in, you know, results start to render.

[712] You know, there's so few things that you have to interact with.

[713] And again, the benefit of that for them is, wow, how quickly can I move from a visitor to a revenue event?

[714] Yeah.

[715] All that leads to really effective monetization, really clear visibility, too, right?

[716] I mean, the point you're making, Ben, on how well Trevago does it tracking both initial monetization and the repeat visit rate, all that is possible because, because all those events happen within the same session.

[717] I don't know if I answered your question.

[718] No, no, no, that's great.

[719] And so I guess for the meta search layer, it does greatly improve the customer experience.

[720] And what the meta search folks have said is we're not going to monetize at the transaction level, at the marketplace level.

[721] We're going to take essentially an advertising, you know, a customer acquisition fee from the marketplaces themselves.

[722] Yeah.

[723] Yeah, so it's, you know, all of the kind of mental model, if you will, for meta, was Google.

[724] You know, we're going to be a vertical search engine.

[725] We're going to get paid on a CPC basis, you know, and we're going to get paid by the various marketplaces or...

[726] By the bookings and the orbits and the expedias themselves.

[727] Yeah, now, that, you know, those lines have gotten blurry over time.

[728] And the big driver that, or I think one of the big drivers that that created that was mobile.

[729] You know, so, you know, on the browser, where, you know, a desktop in the browser, you had a bunch of windows are open.

[730] And you could do a search.

[731] You know, you could then spawn separate windows to complete a transaction.

[732] You know, most websites had, were pretty well designed from an e -commerce standpoint.

[733] You know, you could look at what the conversions were from leads out of a meta -search into an OTA.

[734] That broke down, especially early on in mobile, where folks had poorly designed mobile booking pages.

[735] And in an app, you know, that process was going from one app to the next was one more convoluted.

[736] Yeah.

[737] And so the consequence was meta -search engines started to build what they described as instant book.

[738] You know, effectively, they would allow you to complete a transaction.

[739] They would use a book API.

[740] So they were calling into the OTA or the marketplace to complete the transaction, but it happened within their environment.

[741] Within the amount.

[742] And are they actually getting paid on the transaction fee then rather than just sort of for the ad placement?

[743] Yeah, the reality of those transaction fees is they've always been a little bit blurry.

[744] Like, you know, a lot of the CPC deals had some kind of performance guarantee or, you know, you would get paid on a CPA and normalize that back to CPC.

[745] So, you know, it wasn't all that different to go from, you know, the meta -search type agreements to the Instant Book type agreements.

[746] The thing that was harder about it, and I think Instant Book has had a relatively mixed track record.

[747] You know, if you look at TripAdvisor's stock performance, you know, the financials, you can see the challenges that Instant Book has had.

[748] It has had a huge impact on TripAdvisor's monetization.

[749] You know, we played around with it in Room 77.

[750] You know, Kayak has done some of it.

[751] But it has not taken that much root among MetaSarch agencies, right?

[752] Like, it has not become that dominant.

[753] And I think one of the big reasons is it's actually pretty hard to complete these transactions, right?

[754] Like, you think of sort of all the edge cases that happen when you're going to complete a booking.

[755] You know, the credit card fails.

[756] The room's no longer available.

[757] You know, all those kinds of issue, you know, but a packet gets lost.

[758] Like, for whatever reason, you know, the transaction doesn't complete.

[759] And it's such a considered purchase for the consumer, too, right?

[760] I mean, you're spending hundreds of dollars here.

[761] Exactly.

[762] Exactly.

[763] And it's much harder to deal with those edge.

[764] cases, if it's, you know, somebody else's book API, then if it's happening in your own environment.

[765] Interesting.

[766] Okay.

[767] I feel like we have the full picture now of the online travel industry.

[768] Should we grade it?

[769] Or at least as much as you can get in an hour.

[770] Yeah.

[771] Online travel industry and one hour or less.

[772] Yeah.

[773] Well, I mean, I don't think we need to spend a lot of time on grading, or at least I certainly don't.

[774] I'm not sure that there was something that was more successful that we've done other than next.

[775] Like, this was a company that was...

[776] Oh, whoa.

[777] Are you going higher than Instagram?

[778] I think so.

[779] Wow.

[780] I know.

[781] I mean, to the...

[782] Because I look at it this way.

[783] Like, Instagram wasn't really company saving for Facebook.

[784] Like, Instagram has become an incredible boon, but would Facebook be, you know, completely irrelevant if it weren't for Instagram?

[785] I mean, Instagram helped them inform the mobile strategy and like lots more young people interact more per day on Instagram.

[786] But in the way that I think that Apple would have been totally hosed without buying next, I think that price line may have been totally hosed without buying booking.

[787] And booking has turned into a gigantic business.

[788] Like if you look at, I mean, just comparing priceline and Expedia, price lines market cap is $92 billion.

[789] Expedia is about $22 .6.

[790] over two -thirds of that $92 billion comes from booking .com going from $130 million acquisition to responsible for a market cap of $60 billion plus A -plus.

[791] Wow.

[792] You heard it here first.

[793] Booking .com bigger than Instagram.

[794] I love it.

[795] Wow.

[796] I hadn't thought about that.

[797] We'll let Drew have the last word here.

[798] do I think that this is better than Instagram?

[799] Yeah, I mean, you made a pretty compelling case there.

[800] And I haven't checked the latest Instagram financials.

[801] I mean, I guess so here's my knee -jerk reaction to that, but I think is the wrong one, is I would say, well, yeah, that's true.

[802] But like, think about market size.

[803] Like Instagram is everybody in the world.

[804] But then I'm like, wait a minute, travel is everybody in the world, too.

[805] Well, you know, at least a huge portion of it and it's and it is monetizable at a vastly higher rate than, you know, social networking apps.

[806] So, yeah, wow.

[807] I don't know that I'm willing to go better than Instagram, but I'll go at least as good as Instagram.

[808] I think, I think, you know, I'm trying to think back through all of our episodes.

[809] We have so many at this point.

[810] But in the ones that are popping to mind, I think I stab.

[811] rank next.

[812] I mean, as we said on that show, it literally was a trillion dollars in, you know, revenue that was created by that acquisition.

[813] And then, and then I think Instagram and booking, you know, are both of a scale that, that are, you know, pretty incredible.

[814] Not a trillion dollars yet, but maybe someday.

[815] What was the purchase price on Instagram?

[816] Was it a billion?

[817] $1 billion.

[818] And what did you guys put as the current value of Instagram?

[819] Well, when we did the episode, which was about two years ago at this point, right, Ben?

[820] I think there was an analyst report.

[821] It was from Citibank.

[822] Yeah, from Citibank.

[823] That valued it, what, around $35 billion?

[824] Somewhere in there.

[825] I don't know why I remember the number 19 or 20, but it's, you know, that big.

[826] So sort of on the order of that big in a time frame of, call it, three years post -acquisition.

[827] And so here we have $60 billion after 10 years.

[828] So, all right, Drew, school us all.

[829] Well, no, I mean, I'm with Ben on this one.

[830] I guess it's a little bit of, you know, home team pride, right?

[831] You call the travel industry guy.

[832] Of course, I got to tell you, this is the best deal ever.

[833] Better than next?

[834] Okay, and I'm hopefully rational as well.

[835] Yeah, I think like it's just phenomenal, right?

[836] You know, to think that Jeff Boyd had a, you know, 100x increase in the value of price -line stock as the CEO, like that is just breathtaking.

[837] You know, going through the numbers and looking at the level of growth that these guys have been able to achieve over that duration, staggering.

[838] And, yeah, I guess one of the things that, to me, you know, just is a little bit humbling.

[839] I remember talking to Jeff Boyd at one point in time.

[840] I don't remember when it was, but yeah.

[841] And Jeff was the CEO of Price Line Group until, well, there was a long history, but CEO or chairman of Priceland Group until, until Glenn took over in the beginning of 2017.

[842] And I remember talking to him.

[843] What are you guys going to do next year?

[844] talk about your plans.

[845] This is a focus right, the industry, big industry kind of confound.

[846] It's like, yeah, we're going to do what we did last year in a little bit more.

[847] That's what we're going to go to.

[848] Booking's going to grow 40%.

[849] That's a pretty good plan.

[850] Just like last year.

[851] You should keep doing that.

[852] you should keep doing that.

[853] Wow.

[854] Well, there we have it.

[855] The history of either the second or third best acquisition of all time on the internet.

[856] Thanks for joining us, Drew.

[857] This has been awesome.

[858] Guys, thank you for having me. A lot of fun.

[859] Okay, real quick.

[860] Carbats.

[861] Sweet.

[862] So one thing I watched last week that was linked on Daring Fireball and was really awesome to kind of leave on in the background and do some stuff around the apartment was Scott Forrestall appearing publicly for the first time to talk about anything related to his old gig at Apple running the iPhone project when he, He was live at the Computer History Museum a few weeks ago.

[863] And there's a Facebook video that we'll link to here.

[864] But it starts with an hour of a super interesting panel with some of the folks that worked under Scott on the original iPhone project.

[865] This is all sort of commemorating the 10 -year anniversary.

[866] And Scott just telling amazing stories of how the iPhone came to be, a lot of sort of never been revealed stuff, personal interactions with Steve, at time when Steve Jobs, in his words, saved his life, quite literally, from, from, he was incredibly ill and, um, um, um, Steve and and some incredible acupuncture sort of saved his life.

[867] And, uh, it's, it's really cool.

[868] Like, if you're into, um, if you're into, um, if you're into, uh, internet history podcast, Brian McCullough's, um, show, you will really, really like this interview.

[869] I, it's been on my to watch list and, uh, um, yeah, it just sounds amazing.

[870] I mean, this is, I think this is Scott's first public appearance since regarding technology yeah he I think spoke extremely briefly when I think they won a Tony he produced a Broadway play that's right yeah yeah but never about about any of this since since the you know Apple keynote stage and the funniest thing is it looks like he's wearing the same shirt they like make fun of that but like the dude has a style love it hey you gotta have a calling card Mine is, so Jenny and Jenny's dad, my father -in -law, Gary, and also shout out to Gary, fan of the show, went to see The Big Sick in movie theaters last weekend, and it was great.

[871] If you haven't seen this movie yet, it was both the funniest and the best, most well done, and, you know, most touching movie, you know, I think I've seen in many, many years.

[872] Best movie I've seen since The Force Awakens, for sure.

[873] Wow.

[874] High praise.

[875] It deserves it.

[876] I think it's got like a 98 on Rotten Tomatoes or something like that.

[877] And it's great.

[878] And it's Camille Najiani.

[879] Apologies if I butchid that too.

[880] But who plays in Nashville and Silicon Valley.

[881] And it's the mostly true story of him and his wife and how they met and their lives together.

[882] And it's just, it's wonderful.

[883] Wow, cool.

[884] Do you want to join in the phone?

[885] Sure, yeah.

[886] So I've been into, I like email newsletters, you know, Jetsetter, like can't get away.

[887] But I've been loving money stuff from Matt Levine.

[888] It's a little more kind of markets oriented than pure tech.

[889] But he is just an incredibly funny writer and super insightful on, you know, what's going on in the markets.

[890] You know, a lot of kind of blockchain commentary, you know, what's moving on with going on in the VIX.

[891] people are worried about not being worried enough.

[892] He's got these great segments, so definitely we're checking out.

[893] Cool.

[894] Awesome.

[895] We'll do.

[896] Well, I mean, I think that's it.

[897] Drew, where can our listeners find you on the internet?

[898] My Twitter handle is Drew Pats, D -R -E -W, P -A -T -S.

[899] That's probably the best way to track me down.

[900] Great.

[901] Great.

[902] Well, thank you so much.

[903] We appreciate you coming on the show.

[904] It's a pleasure, and I know our listeners will appreciate some actual domain expertise and insight for a change, too.

[905] Rather than Ben and me speculating wildly.

[906] Well, thanks for having me, guys.

[907] Yeah, yeah.

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