FAW #26: Stephen Kaufer of Trip Advisor
Origin of the idea
Trip Advisor spawned out of co-founder Stephen Kaufer’s frustration in trying to research a potential vacation spot that he and his wife were entertaining in ‘98. In spite of the proliferation of travel web sites where you could book a hotel, none existed that gave you a window into unbiased third-party opinions on the quality of the accommodations. Visits with multiple travel agents produced suggestions that later proved to be terrible only after hours of wading through scattered chat rooms and message boards. Kaufer realized this was a major deficiency (and therefore opportunity) but he was employed at the time. He back-burnered the idea for a year and came to a point where he was ready to leave his job. He connected with co-founder Langley Steinert and together they assembled the funding and team to tackle the opportunity. They opened their office in February of 2000.
Their goal was to create the world’s best travel-related search engine. They explored the idea of doing an automated crawler of sites known to focus on travel but it still produced too much noise v. signal. They ultimately decided to hire people that would read every travel article that was publicly available and write a short synopsis and tag it with relevant keywords. Naysayers told them “you guys are crazy- that’s an impossibly large task” and it did take them a few years to index all the articles but once they were caught up, they found it was relatively easy to keep current with all the travel publications and the net result was that they had a small yet highly relevant database of travel information. Kaufer says, “Your experience on TripAdvisor - again, this was initially, when we launched the site - was very fulfilling, because the information we found was always spot-on. We didn’t always have something, but what we had was always a match.”
They launched the site in October 2000 focusing exclusively on the United States and gradually rolled out the rest of the world by geographic region over the next two years. Their service was wildly popular with visitors and they were getting expansion questions requesting that they cover more locations but the reality was their business model was flawed. They had a licensing deal with Lycos and were getting a share of the revenue generated through advertising on their travel portal but it was peanuts. “The joke was the quarterly revenue check wouldn’t buy the weekly free lunch that we offered to our employees,” says Kaufer. They were stagnating through 2001 feeling the effects of the dotcom bubble and then when 9/11 hit, the travel industry collapsed and they doubly paralyzed at the intersection of the dotcom implosion and the non-existent market for travel.
The model that saved them
They slimmed down from 11 to 8 employees, took pay cuts and managed to raise a small amount of funding in a third round in spite of paltry revenues. Their own TripAdvisor.com site was starting to get a small amount of traffic directly and they experimented with running banner ads but only generated a few clicks. The thought occurred to them that what they had were highly-qualified visitors reading about a certain hotel in a certain city ready to book a stay. If they could just deep link to a reservation page on a site like Expedia and take a cut of the booking, it would be new-found money for Expedia and they would only pay for the leads that converted. They did a month’s free trial and sure enough it worked. Expedia re-upped and Trip Advisor traffic was growing so they were able to send more leads. Kaufer says, “We went from no revenue to break-even in the course of about 4 months. That part was a testament to finding a model that worked. To break even, I had to do $75,000 in revenue for the month, something like that.”
The effect they had on the travel industry
As Trip Advisor became more popular it came under fire from hotel owners that discovered poor reviews on their page. A couple of times hotels had threatened to sue if the bad review was not removed from the site but Trip Advisor cited the same precedent AT&T used in their defense for not being sued for hate speech that occurred over the phone lines they owned. By sticking to their guns and hosting both the good and horrible reviews, they had a material effect on business for the poorly-rated hotels and forced the owners to shape up and deliver better service to stay in business. Kaufer says, “The hotel owner that wants to run this crappy place, preying off of the brand that they’re under, and maybe their location as being near to something, that person has to kind of shape up, maybe take something out of their profits and put it back into providing a good service for the customers, because word is spreading.”
On Hiring
Kaufer esentially echoes Joe Kraus’ advice on hiring: “”Getting the right people - especially in that first dozen - is so much more important than getting the req filled. Unfortunately that slows down the hiring process a lot, which slows your growth a lot, which is how I circle back to say, ‘In the next company, I’d hope to have a recruiter on board within the first half a dozen people to help get the right next 12 people… [hiring the best] actually makes recruiting a little easier, because you come in, you meet the people, ‘Man, you’ve got a bunch of sharp people here.’”
Trip Advisor was acquired by InterActiveCorp in 2004 for $200MM and runs as a profitable division of that company today.