The Travel Giant Built on Billions of Reviews | Steve Kaufer on TripAdvisor

0:00So we started TripAdvisor in 2000. We tried a bunch of different stuff and literally turned the company from a can't see anything here to real revenue in December of 2001 and profitable in March of 2002. We got an offer for$200 million cash in 2004. And then I see spun out all of their travel assets into a group called Expedia Inc. And then we continued to grow and grow as a pure media company under Expedia. Let's just say there was a bizarro world where they bought you for$200 million and they said, Steve, we don't actually even need you as the CEO anymore. Would you still have taken that deal?

0:56Welcome to Grit. I'm Jubin, partner at Kleiner Perkins, a show where we go beyond the highlight reel and explore the personal and professional challenges of building history-making companies. Today on the show, we have Steve Koffer, co-founder and longtime CEO of TripAdvisor. Steve spent 22 years as the CEO, and we taped this episode of Grit in Boston, not far from where the company started. Before TripAdvisor, Steve started a company that went up, then ultimately went down, had a crazy journey along the way, and now he's actually doing his third startup. Enjoy the episode. Probably most in vogue job in all of AI and startups right now is what's called the forward deployed engineer.

1:39and the forward deployed engineer was made Vogue by Palantir. And basically the reason they did that was because Palantir would like go into a customer and say, we have this technology, but we don't have a use case yet. So we'll come in and figure that out. And now that's being used everywhere because the technology is seemingly so nascent that you need kind of a little squad of people that go in with your technology to help the customer put some elbow grease into it to make it work because it's just not totally there yet. You've always saw this when you're in the early days of building TripAdvisor, no?

2:21So we started TripAdvisor in 2000. The dot-com had gone boom at that point. So we started as a B2B company, and we were just going to build the world's coolest search engine for travel and license it to other travel players, the ones that already had the eyeballs. And in 2000, when you were building the company, like what was the state of the underlying technology like? Well, it was from the ground up an internet-based company. So browser, and then we had to decide, was it a single server replicated or a two, three-tier architecture, et cetera. And I can't even remember those discussions. I wasn't the CTO of the company.

3:10And again, we were B2B. It took us a year and a half or so to pivot to the B2C. And by that time, the technology had changed a fair amount. So I was always in the, as an engineer, an engineering manager background, I was always in the camp of like, hey, let's get it working. it doesn't have to scale infinitely now because we don't know if this is the architecture that we're gonna stick with we don't know if this is the uh the the right pivot for the company as we were trying to pivot so it was a uh get a lot of stuff out there type mentality and in 2000 what was the state of the travel industry like if you so expedia has survived since 2000 in, but Preview Travel and Travelocity and, you know, a bunch of other names, they had taken airline bookings and hotel bookings online.

4:12And so, you know, if you were interested, you could avoid the travel agent and go online and actually book your own air tickets and book your own hotel. And it generally worked. There wasn't a lot of inventory and it generally worked for Western destinations first. And was there resistance to the motion of not going through a travel agent and just booking something directly online? Or did that quickly become normal? It pretty quickly and fairly steadily became, yeah, of course I'm booking this online because there wasn't much of a benefit to going through a travel agent to book the airline ticket other than the convenience and you know travel agents generally didn't make all that much money on the airline tickets unless you were flying first class or something uh they made the money on hotel and it was a more cumbersome process in general as the generations moved up and in 2000 And like, I had used a travel agent before.

5:27And in fact, the origin story of TripAdvisor came from me using a travel agent and being pretty frustrated with the process. Oh, we were taking this great vacation and we went to a travel agent. The internet was there, but, you know, there wasn't a TripAdvisor. There were a couple of booking sites. And so I wanted to go somewhere nice, went to a travel agent, got a great brochure, a recommendation for a location south of Cancun, a couple of beautiful brochures, different price points. And I'm like, I have no freaking idea how to make this decision other than to trust the travel agent and manage my budget according to the three choices.

6:10And that was nuts. And so we went online to go see if we could find some information about which of these hotels I wanted to stay at. And, you know, their brochures were all gorgeous looking. But when I found, after a lot of searching, the blog post that featured, you'd call it, pictures of the back of the hotel, not the front. That was the, oh yeah, no, we don't want to stay there. Let's look at this other hotel. And we finally found a spot and had a great time. And I thought to myself, like, well, this was a multi-thousand dollar purchase that moved from one hotel to another based upon the content, based upon, you know, a better recommendation than what I was getting through that old travel agent system.

7:06Okay. Can the internet solve this? and that was basically like well let's let's build something called trip advisor and see if we can do a take a stab at that and had you decided like while you're in cancun like when you're on the plane home like like uh how quickly did that happen uh it's a funny uh side story so i you know i i'd done all the research i was otherwise gainfully employed uh and uh on the way home my wife had said uh hey you know that was great trip i but i remember you referring to me had put in a lot of work researching where we should stay hey maybe that's the next business you want to start and i said nah i don't think so and literally that was 1998 and by the end of 1999 i hadn't come up with any better idea and it was now time to leave my my current job so uh uh that was the best one that was there and we went off and uh uh and raised money on it and it uh pretty much uh didn't work according to the business plan.

8:26We pivoted. It worked. The first business plan. Yeah. Which was? Which was build this search engine that would find all this incredible opinionated travel content on the web. Okay. Pull it together in, you know, a big database. Think Ink, tell me if you want to go way back. And then we would in turn license that information to Yahoo, Expedia, Travelocity, all of the travel players that were never going to bother to do all of that. And we would basically provide their search results for that. So anyone on Expedia could search for a name of a hotel and get a wealth of content. That did not work in a spectacular fashion.

9:16So we really couldn't get anyone interested in that product. And when we did finally land one customer, it was Lycos and we served up a bunch of page views and made no money out of it. So our pivot came from a failed first business plan. And then like, what are we going to try next? And we tried a bunch of things. We tried advertising. We tried a listing fee and we eventually settled on what we see now as mostly the cost per click advertising. We find the hotel you're looking for on TripAdvisor. You read the great reviews. You click over to see how much is it and is the hotel available for the dates I want.

10:04And TripAdvisor, it's not we anymore, gets paid for that click. I, uh, but we never intended to build a B2C company, but we were willing to try it. So when you decided to start it, had you raised money at that point? So we raised, uh, uh, 1.2 million in February of 2000 on a business plan that said, we're going to build this search engine. Right. That's it. Uh, it took another 2 million later that summer, mostly as kind of buffer money. Uh, and then, uh, in October of 2000, we launched our demo.tripadvisor.com just so we could showcase to our potential partners what this search engine could do type of content.

10:56I ran around trying to chase deals, got our first deal in the summer of 2001. As the search engine. as the, you know, behind the scenes search engine. So again, the TripAdvisor brand, we were not trying to build that brand. It was a license deal. And by the end of the summer, 2001, you know, the business had literally gained just no traction. We had made$500 in our, the history of the company at that point. Over a year or so? In the history of the company. So the deal that paid us$500 had run for about three months. And so it's like, didn't pay for the free Monday lunches we had offered everyone, all 10 of us in the company.

11:47And then September 11th happened, September 11, 2001. And you're in the travel industry. I'm like, oh, all shits hit the fan. No one's traveling anywhere, period, full stop. How long is it going to last? Don't know. a lot of the travel industry lives on pretty thin margins so if you cut out travel for a couple of weeks that's that's hard uh big changes and our pipeline dried up and we said okay and i actually went to the board at the time and said uh i hey not looking good business model not working camp even if we found 10 more clients that were as big as lycos as a client it's not going to do it so uh i can kind of give you 10 cents back on your invested dollar and close up shop it's kind of how much we had left or you can tell me to keep pivoting and trying or pivot and try some new stuff.

12:51And they candidly said 10 cents back on the dollars and isn't worth it. Don't go bankrupt, close up shop nicely. But in the meantime, see if you can figure something out. And we were more than willing to give it more than the college try. And we tried a bunch of different stuff and literally turned the company from a, yeah, can't see anything here. to real revenue in December of 2001 and profitable in March of 2002. While you're pivoting into other ideas, this is also coming off of the heels of your previous startup, right? Which also had this like crazy boom that went up and then eventually a bust that kind of like a precipitous fall yep um and so you're probably not feeling king of the hill coming off of the heels of that right but you still had the energy to take another kind of like a couple to the chin and keep trying different things you know the the first company it was a blast and it taught me so much, you know, ultimately very unsuccessful, but taught me so much.

14:16I, I had no shit about business. I was an engineer from school. We grew the company. It was a good product that mostly worked. Uh, and then we missed a market turn. Then we missed another market turn. And then, yeah, we were left selling something that not enough people wanted and a couple of layoffs. And then company was sold, you know, at, uh, for a little bit, but, you know, nothing to the common shareholders and employees. So a great learning experience, but, you know, wholly unsuccessful at, at the end of the day. And, uh, uh, but it had given me the entrepreneurial bug, like, okay, I'm going to go do this again.

15:06It didn't discourage you. Uh, far from it. I'm like, wow, I was such, I mean, I wasn't running the company, but I was on the management team and the company made so many phenomenally bad choices along with a bunch of good ones along the way. I'm like, great. I get to go do this again and avoid all of those mistakes, apply all of the learnings that I felt I had got. And, you know, made the vow when starting TripAdvisor. I'm like, hey, here's a whole lot of stuff I'm not going to do. uh i'm gonna do my damnedest not to make the same mistake twice i'll make new ones i'm gonna uh apply some more careful management as as we grew uh uh but absolutely i was i was in it and even when i genuinely thought trip advisor was going to be another failure i had i i wasn't at the point where I was starting to think about what was next because I'm a very focused individual on what my task at hand is but in the back of my mind I'm like okay I'll go figure out another startup to do travel was not in my blood it was just the best opportunity that came along at that time isn't it funny how that happens like catching the startup bug independent of the outcome like Like when my first job out of school was a startup raised 130 million from all the fancy venture capital firms.

16:43And I think we did maybe no more than a million dollars of revenue max off the back of like one customer with 130 people. and like then you know the layoffs came and i remember thinking like on the one hand like this is miserable like like this is uh this is not a fun way like it'd be much more fun if this company worked yeah you know but then on the other hand i'm like this is magic like we're just trying to invent something that just doesn't exist and you go talk to customers and then you come back and then you try and build something else and then you go it's like it was almost like is this real like i can just send an email to anybody pitch what i was thinking they respond and say they like it then they get on the phone then they talk to us and then we go build something after a couple meeting you know it's like i was like is this how this go like this is how you can just do this in the world and there is something very yeah magical about that i i also somewhat rare to be able to have that first opportunity with that type of funding but that's a lot of money most of the entrepreneurs i talk to are in the hey uh side hustle want to invest their full time in it looking for a way to raise a million, two million, you know, something to get started so they can literally quit their day job and focus on it 100 % of the time.

18:23And hey, they're creators too. They're trying to figure it out. They love doing that market feedback, but they also have the bills to pay. Yeah, yeah, I was a low on the totem pole guy, but we raised too much money. I actually think it would have helped us if we raised much less money. When you did the fourth pivot into what ultimately became TripAdvisor, how quickly did that start to work? That worked pretty instantly. So, you know, the first pivot we tried was like, hey, we're going to do some banner advertising. And mind you, the company is now seven or eight people. and revenue is the only thing we're caring about because we're about to go out of business.

19:13So like, how do you see whether banner advertising would work? I just copied a travel banner ad from that I found online, put it on our site. Because I just needed to see whether, since we were a travel site, the thesis was a travel banner ad would get a much better click-through rate and then we'd be able to sell it. Turns out it didn't matter. People even back then were blind to banner ads. That whole, hey, let's try banner advertising to it didn't work, was probably less than one week. And because we didn't let anything get in our way. The next one was, you know, a permanent listing. So, hey, hotels, restaurants, come and pay us$100 a year, and you'll get a lifetime or a one-year listing of your business with your phone number and URL.

20:08We already had the business, but it would give users a direct way to contact. The thesis was reasonable. There were other listing businesses around. uh and uh we you know one of our 10x engineers built a way to collect the money in a day uh or or two before stripe before it was really easy i called up hotels and restaurants and yeah couldn't get any traction again maybe that was a one week or a two week exercise and so uh i'll credit our success kind of not to the fourth idea working because we actually ranked them and that was the fourth best or fifth best uh but to the speed at which we were able to just try new stuff in a realistic manner to see whether it would work the last idea was hey we were picking up some search engine traffic.

21:13So it was free customer acquisition. They were looking at the Boston Park Plaza Hotel as an example. And you could see some of the reviews that we had links on the site for. And so it was a decent customer experience. They got more information than if they went to a travel agent. And we thought, well, what's the next thing that the customer would like to have it's really pricing and availability like i don't care how nice the hotel is if it's a thousand bucks a night i'm not staying there so uh we put a link on that page to xpedia and sure people clicked it i mean we deep linked it to the part positive page on xpedia when people clicked it so i'm like okay but we didn't know if anyone was going to buy it Right.

22:08So I had to call up Expedia and like get passed around like, hey, I'm a site you've never heard of, but I have some traffic that I want to send to you. And I'd like to get paid for it because they're going to book hotels because we're a travel review site. And the guy was, I remember, very nice, very polite, saying, sure, I'm happy to run a free test. If you send me, I think it was, you know, 10 ,000 leads or referrals, I'll tell you, I'll look and see whether they booked anything or not. And then we can talk from there. Being rather desperate, the answer was, great, can I get the tracking code?

22:54and he put the tracking code on, put it on all the hotels on our site. Free trial was over, gave him a call. He looked it up because he was clearly not paying any attention to us whatsoever and said, oh, the leads look pretty good. How much do you charge? And I'm in the position of, well, how much will you pay? And I would have accepted 10 cents, would have been thrilled with the quarter. and he says uh have a 50 cents per per lead uh and all they were doing was calculating how much profit they were making from these leads that had actually bought hotels and how much he wanted to keep himself so being a tough negotiator when he said 50 cents i said deal and away we went and we had a insertion order for, you know, 20 ,000 leads at, you know, for$10 ,000.

23:53And then he said the magic words to us, which were, and hey, look, if it looks like you have more traffic available at this price, presuming the leads continue to convert well, let me know and I can add dollars to the insertion order. And what I heard was, wow, they're not on a budget. They're on a all-you-can-eat so long as it meets this performance objective. And we basically turned profitable on the basis of Expedia as that one client. December, we did$10 ,000 worth and was up to, you know,$25 ,000 in January. And it just kept growing as we figured out how to grow more traffic. And Expedia was the only customer for a while.

24:42As soon as we found a model, we decided, okay, I am a crappy salesperson. I need to hire a salesperson who will actually spend time going around all the different travel sites because they were all interested in as many eyeballs as they could. So long as the eyeballs were booking hotels or air flights. So I think in the first quarter, we added two or three more clients. Expedia was the biggest for a while. And in the meantime, is traffic just continuing to grow? Yeah. So here's where luck and timing, which are usually part of every successful story, come into play. So we had a site that was genuinely valuable to users.

25:30Like you could find a lot of hotels and read a lot about what made this hotel good or bad or good for one and bad for another. It was also a site that Google could crawl. And if you think about back in 2001, 2002, 2003, the big travel sites were all database driven and Google was not adept at crawling through all those funky looking URLs. else so we were a site that was updated frequently where people when they landed they stayed and looked around a while and was crawlable to the tune of you know we probably had a hundred thousand hotels at that point a hundred thousand pages and so we were exactly what the search engines were looking for.

26:29Fresh, up-to-date, long-dwell time, crawlable, structured content. And, you know, we mastered the SEO game early on when our competitors didn't. And so Google kept saying, as Google continued to grow, we both rose in the rankings and Google continued to send us everyone as travel was moving online. So Google would push travel to TripAdvisor, TripAdvisor would push them to Expedia or another booking site. And then at some point, all of these things start to converge, meaning Expedia starts to do the, you know, ranking and reviews. TripAdvisor starts to do the booking natively. Google starts to try and eat the world.

27:20Like all these things start to happen altogether. together. How long before that, like how long before you had your own, you didn't have your own little segment? You know, we saw that it was working in 2002 and now it's just scale. We got an offer for$200 million cash in 2004. Only two years later. Uh, two years after it was working, right? Four years of existence for the company and it was 200 million life-changing money for everyone. So we took that offer. From who? That was from Interactive Corporation, Barry Diller's company. More of a holding company, and we stayed within that for one year.

28:03And then I see spun out all of their travel assets, Hotels.com, Expedia, Classic Vacations, Hotwire, and TripAdvisor into a group called Expedia Inc. and now we were running as a division of Expedia travel company. And that was going to be interesting. From my perspective, could I keep my relationships with all the other travel companies now that we were part of Expedia? Right. The answer was, yeah, we were able to. And then we continued to grow and grow as a pure media company under Expedia, doing a bunch of acquisitions. And then we eventually spun out or Expedia spun us out to be an independent public company in 2011.

28:58Not much had changed from when we were acquired to when we were spun out. TripAdvisor wasn't in the booking business in any category. Expedia had started to collect reviews but it took them a long time to like uh catch on to that hey they could be a transaction site and have reviews but they were starting we had such a massive head start i and most of the other competitors that were trying to do reviews kind of gave up because we had such a big advantage i then as trip advisor grew i and you know now we're talking hundreds of millions of users a month so we're actually bigger in volume than than expedient i think at that point well but they were way ahead revenue to be clear we were very profitable when they bought us and we were, you know, throwing off a couple of hundred million in profit each year as, uh, as we were spun out independently.

30:06So it was still, you know, up into the right growth wise. And then one of the decisions that, uh, we wanted to do was, hey, being a media site, our incentive, unfortunately, fortunately, unfortunately, it was great business was like, hey, get someone in, help them figure out what they want to do, and then get them off our site because that was our paid link to Expedia. We'd like to get them as a member along the way to remind them of all the stuff that we have to offer. But we thought, hey, what if we also started to do some of the booking? And so we would let people go off to Expedia if they want.

30:52but especially if you're on the app wouldn't you just rather press the book now but totally and stay on trip and so we built that in partnership with Expedia and booking.com and Hilton kind of the other uh hotel chains so that at the end of the day they were kind of responsible for the booking they got to count it as a direct booking for them yeah if you will but the user we hoped would be trained to come back to book on TripAdvisor. And that was a partial success, but it was a revenue hit, and we didn't see as fast of a pickup as we had hoped in terms of repeat bookings. So maybe we should have stuck with that for longer, but we ended up kind of discontinuing that effort after a while.

31:48What scale was the company at when you sold it for 200 million? I don't remember the exact numbers. I'm going to guess in the 50 million revenue, 20 million EBITDA, something like that. My gut tells me even back then you sold early. Absolutely. Because, I mean, I guess you have the tapes. You can look 10 years later. The business was... Yeah, hands down. Was there a financial decision? Like what you had said, oh, it's 200 million. It's going to be life-changing money. Was it a money decision? It was a combo of money and risk. So none of the founders were kind of independently wealthy. The notion of venture buying out X percent of founder shares wasn't common back then.

32:37It was more seen as, oh, founders becoming risk adverse or founder isn't all in if they've sold some of their shares. Truly ridiculous. Glad that's changed. If I could have sold, you know, half my shares, we would, you know, to pull that money off the table, of course I would have been as much all in and we would have stayed independent. You think so? Yeah, because we were on a tear. But, uh, this was, uh, you know, uh, uh, a 10 to 20 X return in four years for investors. It was life changing kids through college retirement, all set for founders. So it was, uh, a risk. and I had seen in my past company, the grow, grow, grow, grow until you don't down, down, down, down because the market turns or something changes.

33:36So I had already tasted the notion of, hey, my shares at the prior company centerline are worth millions. Well, actually they're worth zero. So I had, you know, there's some of that scar tissue left, but the biggest reason was probably, I don't know if it was the biggest, a major reason was that Expedia was our biggest client. And if Expedia decided at the time to say, you know, we're going to pause our traffic acquisition because our contracts were all, you know, 48 hour out, right? Expedia wouldn't have noticed anything. They were growing at X percent a year. We were a teeny tiny part of their traffic because we were a teeny tiny company, right?

34:26We would have gone from massively profitable to barely break even. Okay. So the acquiring company has the ability to say, Hey, Expedia, can you turn off TripAdvisor for the next year? We want to make them sweat. Yeah. They have a ton even company. Right. And not out of business. We had diversified enough, but that was a lot less exciting than the growth trajectory we were on. Yeah. And at that point you had kids at home? Oh, yeah. Let's just say there was a bizarro world where they bought you for 200 million, then they rolled you up into Expedia proper. And they said, Steve, like, we don't actually even need you as the CEO anymore.

35:17Would you still have taken that deal? That was actually my assumption of what was going to happen. Oh, really? We were being bought and folded into Interactive Corp as a big holding company. And I just assume the bureaucracy, the, hey, we need the three-year plan, the five-year plan. We're calling you to corporate every other weekend. We're blah, blah, blah, blah, blah. micromanaging was like, I will absolutely committed to staying for at least a year. I'd love to stay forever. I think the company is doing awesome. I promise you I'll stay for, or I promised myself I would stay for a year for reputational reasons, but I was pretty convinced I was not going to like working in a big company.

36:06And I would have had the same opinion if it was into IAC or into Expedia. I can absolutely$200 million. Great. I could retire if I want to never cross my mind, of course. And then it would be off to the next adventure. That was my expectation. That was fine. Very worthwhile trade off financially. eventually and when i got to be part of expedia they basically said hey one of our principles is we buy companies and we let the management team run them because we found that that works the best and i'm like really let me do anything you want anything i want uh and they say not anything you can't settle litigation for more than five million dollars you can't you know rent real estate for more than X dollars.

36:58I'm like, none of the shit I was ever going to be doing. So like, I really got to run the company independently. And then when, uh, uh, we got folded into Expedia, I had a, a single boss as opposed to, uh, more of a board structure at IAC, but nothing changed. Was it Dara? It became Dara in, in, uh, in another year or so. Okay. Who now runs Uber? Yeah. Yeah. So, I mean, I worked for Dark or almost all of when, uh, uh, TripAdvisor was part of Expedia and then he was on our board for a little, on the trip board for a little while. Obviously, you said, obviously I wouldn't retire and then I would go move on to my next adventure.