An Interview with Stephen Kaufer, Co-Founder & CEO of TripAdvisor

On March 8th, we caught up with the CEO of TripAdvisor, Steve Kaufer, who co-founded the company in 2000 after graduating from Harvard College with a degree in Computer Science. Under Kaufer’s leadership, TripAdvisor has grown into the world’s largest travel site, with more than 50 million unique monthly visitors, 20 million members, and over 60 million reviews and opinions. Kaufer will be at HBS on March 30th as a keynote speaker for the Hospitality & Travel Club’s annual conference; to attend his presentation, and hear from several other industry leaders, please register: http://www.hbshospitalityconference.com/register.

 

What’s the story behind TripAdvisor? What inspired you to create the company? What market opportunity did you see, and how did you execute on that opportunity?

 

In 1999, I was planning a vacation with my wife. We went to a travel agency and came home with three brochures for three gorgeous resorts in Mexico. One was inexpensive, one was moderately priced, and one was luxury. I was interested in the inexpensive one, and my wife (who is an HBS grad), said “Why don’t you check out the reputation of that place on the Internet first?” I hunted around the Internet and found thousands of websites that talked about this particular property, but unfortunately, they all talked about the property with the exact same language that I found in the brochure, and used the same two photos. Being a Computer Science major makes me stubborn sometimes, so I applied Boolean logic into the search engines, allowing me to view only websites without a listed fax or telephone number (because these would be travel agency websites). Eventually, I found someone’s personal home page (back when people had those things), that was a trip report talking about the hotel. The pictures taken from the back of the resort were a heck of a lot different from the pictures taken of the front of the resort! So we decided to stay at the moderately priced option, and on the way home, my wife said, “You should think about starting a company that would make that type of a search easier. This really impacted our vacation decision; we decided based on what you had found, not what the travel agency recommended.” So in February 2000, I started a seven-person company dedicated to building a vertical search engine for travel. The business plan was a PowerPoint presentation at best, and it said “Hey, travel is online, and is going online even further.” I raised $1.3 million in seed funding, took an extra $2 million over the summer, and launched the website in October 2000. At the time, the model was actually B2B, licensing our technology to other portals like AOL, who would pay a per query fee. The product worked really well—we searched the web for all this great content—but the part about licensing the vertical search engine didn’t work out at all. After September 11th, we experienced 18 months of making no money, and were six months away from bankruptcy when we decided to make the site consumer-facing. With a modest amount of word-of-mouth, PR, and search traffic, we realized that if we linked our content to the respective webpages on Expedia.com, Expedia would pay us for that click. We were profitable by March 2002 and closed last year with $763 million in revenue.

 

TripAdvisor has gone through a unique journey, from being acquired by InterActive Corporation and spun off under Expedia, launching internationally, acquiring several other travel brands, and going public in December 2011. Please tell us about how you faced these big decisions.

The most meaningful decision point was deciding to sell in 2004. We had a small company and we had a couple of big clients (Expedia, Travelocity, a few others), so when InterActive Corporation (which owned Expedia) came along, a couple things ran through my head. Is now a good time to sell? This is a function of price, confidence, and stage of life. We were offered $210 million in cash for a company that had less than $4.5m of investment in it. This represented a fantastic return for all of our investors, and certainly gave the founders enough money to never work again if they didn’t want to. None of the founders were previously wealthy – this was a life-changing event. In hindsight, this was the stupidest move I ever made! We sold a little early, but at the time, it was life-changing. If you sell for a billion dollars or $200 million, it’s still life-changing. Plus, there was still meaningful downside; Expedia could have said “We’re not going to buy your traffic anymore.” If they had pulled their entire spend, it would have been life-changing as a business. With the wisdom of my years, it wasn’t the wrong decision, I’ve loved staying with and building the company. There’s something magical about continuing to live your product dream without interference from the parent company. IAC was fantastic in completely leaving us alone. Aside from payroll and taxes, we continued to run as a separate company, such that when we spun out in 2011 it was pretty easy to do.

 

Who’s your biggest competitor? What’s your strategy for gaining market share?

TripAdvisor is in a number of different verticals: hotels, flights, vacation rentals, etc. We make almost all our money in the hotel vertical. I know lots of people who rely on Yelp for local and TripAdvisor for trips, even though both have local and travel. We’re firmly travel, and Yelp is firmly local.

When I think of competitors, I think upstream: What’s the site most people go to when they start to plan a trip? Google. This works well for us, because we appear in the search results, but I’d like people to start right at TripAdvisor, because there’s always a chance they’ll find another page. Or, you might find whatever Google decides to build to help a traveler plan a trip to Cancun; they’ve been building out their places product, as well as their hotel and flight products. I think of Google as a future competitor, even though it’s tough to find evidence of their success at the moment (despite the fact that they’ve spent billions of dollars on travel).

Next up: Expedia in bookings, because they have a ton of reviews. We like to think their reviews aren’t as good as ours, but if all you’re looking for is the comfort that 100 people already stayed somewhere and rated it 4 stars, that might be enough. The wild cards could be Apple, Samsung, or Facebook. We’re already partnered with Facebook, so of the set, that’s the one I least worry about. OpenTable is not a competitor (they are actually a client of ours), and Yelp is close from a what-they-do perspective, but it’s hard to see them extending their brand into travel, just like it’s hard to see me extending my brand into hair salons.

 

How do you perceive TripAdvisor’s disruptive impact on the hotel industry?

The transparency that TripAdvisor has brought to the hotel industry is one of the things I’m proudest of. Before TripAdvisor, travelers were at the mercy of travel agents, or the brochures produced by hotels themselves, or, for the select group who purchased a guidebook, an author who published something about a hotel years ago. You go someplace and have a bad time, because the food was bad, or the room had a view of the trash cans, or the staff was rude, and none of this stuff had a chance of surfacing in any of these other channels. There was nothing you could do but file a complaint with the Better Business Bureau. Now, you can go write a review on TripAdvisor, and if the hotel you’re researching has three reviews in a row saying how noisy it was, or how surly the pool staff was, as a hotel you’d better do something to fix this or you’ll lose customers. That’s the power of democracy and transparency. Hoteliers know where they need to improve their service, and travelers benefit from it.

The other aspect is the number of fan letters I get from hoteliers, who say “We’re so thankful for TripAdvisor because we get a ton of traffic from you. The ratings show that our guests are having an awesome time, and since we don’t have the big TV budgets to compete with other larger brands, TripAdvisor really adds value to us.” The consumer is also happy because we pointed out a property that they likely wouldn’t have found otherwise. That makes travel better too.

 

What do you see as the next great innovation in travel? How do you see TripAdvisor being positioned in the next 10 years?

I think there is opportunity for a company—and I do hope it’s TripAdvisor—to be able to leverage the fact that you’ve got an always-on, incredibly powerful computer in your pocket, to turn the in-destination experience into something that is meaningfully better than it is today. There are some folks who love landing in a new city and wandering around, not knowing anything. But when I land in a city, I’d love to talk to my phone and hear intelligent information about what I’m looking at right now, even in the taxi from the airport to the hotel. Where am I? What’s that thing I see in the distance? What restaurants are near to me, that would be good for young kids, and how long is the line to get in? The technology already exists for all this stuff, but no one is actually delivering it. No company today delivers a fantastic in-destination site that leverages all the advice that friends and experts can give you in your pocket, in a timely basis. In ten years, we should!

 

What advice would you give entrepreneurially minded students to help them achieve the goal of creating new advancements in technology, media, travel, or any segment?

To a graduating class, I would say “take risks.” Do not be afraid of joining a company that may fail. It’s not like anyone wants to see failure on a resumé, but the notion that you should get a couple years of experience at an established company—why?? If you want to get a couple years of experience at an absolute leading-edge company in the category you have an interest in, cool. That’s fine. Go in, learn and absorb as much as you can, and you’ll come out a smarter entrepreneur at your next gig. But leaving school and joining a startup or a young company that only has a year left of funding and may go under, don’t worry about it! Having failure on your resumé just doesn’t matter these days, at least in my view.

My second point would be, when you go into a company, evaluate it by what you hope to learn and from whom. So it’s perfectly reasonable to ask, “Who’s going to be my initial boss?” Some companies say, join us and trust us, it’ll be fine. But not all people are good managers or teachers, and if you can spend the first few years learning best practices (and worst practices), it’s all valuable as long as you can look back and say “I learned a ton every week I went to work.”

 

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2 thoughts on “An Interview with Stephen Kaufer, Co-Founder & CEO of TripAdvisor

  1. Russell Rothstein

    Great read. Shows that Steve’s a master storyteller as well as a successful businessman. Inspring to us entrepreneurs!

    Reply
  2. sherri c

    I have written some reviews of hotels, etc. for trip advisor and lately have found this travel website disappointing in that they seem to only print articles which favor the hotels, etc. So if you had a bad experience somewhere and write a review they don’t always print it. This is not fair to the public and it sounds kind of corrupt on the side of Trip Advisor. What is going on? Do these hotels offer trip advisor bribes so that they won’t print bad things about their hotels, etc? That is what is sounds like. And really, trip advisor does not give much to people who write reviews on their website that are published. They offer patsy “senior” reviewer badges and the like. Big deal. If it was not for the public’s reviews, trip advisor and Stephen Kaufer would not be in business. Just a suggestion: time for trip advisor to do an overhaul of the services they provide.

    Reply