How They Started (19 page)

“I wanted a single place where I could get the real scoop on a hotel, not just the official blurb from the property or a travel agent.”

Stephen says he had a site he liked, but he wasn’t able to figure out how it could make money. “When we first started out, our business model was entirely different to what it is today,” he says. “We’d planned to sell TripAdvisor as a rich database to travel portals, online travel businesses, etc. We’d hoped to offer such high quality content that simply being in the travel business necessitated access to the TripAdvisor database, which we would then license out and/or get a share of the revenue generated on the page views from that. All the major players would have it, and no one would try to build it themselves because we’d be so far ahead of the game—that was our planned business model.”

But after a year, he had only one licensing deal, and Stephen says he often joked that the quarterly revenue check he received from this wouldn’t even cover the weekly free lunch he offered to his employees. “We found ourselves in the midst of a pretty fundamental problem—we wanted to be paid to have our content featured, but everyone else wanted
us
to pay
them
to have our content featured,” Stephen says.

“We came across more trouble when 9/11 hit,” he adds. “It was a hugely traumatic time, particularly for the travel industry. Everything we had in the pipeline was stalled and we were struggling to move ahead and looking at going out of business within the year.”

In the post-9/11 days, TripAdvisor wasn’t making any money at all, and Stephen was running through cash quickly. To avoid going bust, he slimmed down the team, took a pay cut, and carried on as best he could in the difficult conditions.

“Getting further investment was a tough sell—we were asking for more money, but couldn’t show how we’d ever make any,” Stephen explains. “We did manage to get a bit more funding, and it was about this time that we took on Expedia as a client and changed our game plan—we started targeting our content at the end user, rather than travel businesses, and making money through cost-per-click (CPC) advertising.”

Discovering a new business model was quite serendipitous for him, as Stephen admits that by fall 2001 the company was just months away from folding. Luckily, around this time Stephen noticed something interesting in his traffic figures: when TripAdvisor placed more relevant ads next to its search results, click rates on the ads soared to 15 percent—way more than the industry average of 0.2 percent. As this trend continued, Stephen found his elusive money-making potential and adopted a strategy of providing other companies within the travel industry access to its growing number of members via these targeted ads.

When users searched for localized travel information, TripAdvisor began selling keyword-based text ads for companies that offered services within those markets. In essence, the company used the gravitas of its user-generated reviews as a lead through which it fed readers on to other industry sites to complete their transactions.

“It proved very effective—we abandoned some of our original ideas and saw great success starting with Expedia, and then moving on to other big players and maintaining our growth to become what we are today,” he says. “Finding a way to make this content profitable wasn’t the easiest ride, though, and our business model underwent a few changes, with our biggest early success coming when we discovered TripAdvisor’s unique capabilities in CPC advertising.”

When he first started out, Stephen never intended to appeal to the end user, but instead planned on selling TripAdvisor’s content to travel companies. When he realized the test site was getting 5,000 hits a day without any effort, he started looking for ways to monetize this traffic. When banner ads didn’t prove too successful, he focused on sending extremely qualified traffic to hotels and online travel agents, and then charging them for this traffic.

With users searching for specific destinations on the website, they qualified themselves as interested in those specific destinations, and subsequently hotels in those places. Stephen saw there was huge potential here—if a user was looking at a hotel in Paris, and TripAdvisor surfaced a deep link that took that user straight into an online tour agent’s booking pages for that hotel, the company could make some money.

“We approached Expedia and told them we’d like to advertise their hotels on our website in front of a highly targeted audience,” Stephen recalls. “We’d only charge them for the traffic we sent them, and we explained how highly qualified our traffic was. At the time, Expedia had no idea who we were, but we’d piqued their interest and they granted us a trial period.

“After the first month they were sold—10 percent of the people who saw the Expedia links advertised were clicking through, when at the time click-through rates averaged about a quarter of a percent to half a percent. They started off paying us $10,000 a month, then $20,000, and soon enough we were into hundreds of thousands each month. We’d found ourselves a profitable business model and went from no revenue to breakeven within four months.”

“When we first started out, we’d never intended to appeal to the end user, but instead planned on selling our content to travel companies. When we realized our test site was getting 5,000 hits a day without any effort on our part, we started looking into ways we could monetize this traffic.”

It was perfect. But as even Stephen admits, while the company was now on the right course, it didn’t yet appreciate how valuable its user reviews really were. “People told us that they loved the information they found on TripAdvisor and that they’d like to post their own comments. So we added a ‘write a review’ button,” he says.

As this functionality was introduced, the number of reviews grew tenfold. But in what he now admits was an error, Stephen didn’t foresee the full potential of these “user reviews” and buried its user-generated content at the bottom of its pages, beneath links to reviews by outside organizations.

Luckily someone noticed the traffic patterns among the site’s visitors, and the trend was clear: the majority were ignoring the outside links and going straight to the database of user reviews.

In March 2002, TripAdvisor turned a $70,000 profit, and from that point Stephen began thinking about the company with a view toward global expansion, he says. TripAdvisor began expanding its existing content into Spanish, German and Italian to find new audiences—and today it offers content for users in 15 different languages.

But as TripAdvisor grew into a top online destination for honest user reviews, it also experienced the first significant challenges to its commercial growth. As greater numbers of disappointed travelers felt free to post their comments, a number of hotel and restaurant owners became annoyed by the open forum TripAdvisor was providing.

“We’d found ourselves a profitable business model and went from no revenue to breakeven within four months.”

Again, this was still in the pre-Web 2.0 days of the early 2000s, and the blogs and social media we now take for granted weren’t yet around. A site like TripAdvisor, which was one of the first truly global forums for sharing opinions, was liberating for its users, but a cold shower for those in the hospitality industry.

Stephen’s belief in sharing honest opinions works both ways, however: “Our policy is, the customer stayed there, so they get a chance to voice their opinion. But that’s why we have always offered the management a response capability, so they can tell their side of the story.”

What’s more, the company claims that reviews are systematically screened by TripAdvisor’s proprietary site tools, which are regularly upgraded. And the site’s community of (now) more than 60 million monthly visitors also helps report any suspicious content, while a team of quality assurance specialists investigates suspicious reviews.

A screenshot of TripAdvisor’s website today.

What’s happened, Stephen says, is that the growth of TripAdvisor’s user reviews and online visibility has motivated the travel industry to up its game. Hotels, restaurants and other services have increased their quality, and in a Darwinian sense, the best businesses in the hospitality industry have thrived.

“I still meet hotel owners who don’t like to shake hands with me because I’ve hurt their business, but far more often I get people thanking me for helping their brand shine,” Stephen has said.

Though he knew he had an innovative idea, Stephen admits the timing of TripAdvisor’s launch proved to be another significant obstacle. By the time TripAdvisor arrived in 2000, the dot-com bubble was bursting and plenty of free-spending Internet firms had either gone bust or were well on their way. What’s more, investors were growing cautious of handing money over to yet another startup.

“In our early days, we cut costs wherever we could—my wife owned a small software company that gave TripAdvisor free rent, equipment and supplies in our first year,” Stephen says. “Our office was little more than an attic over a pizza shop, but it was free and it worked. We eventually got too big for this space—it comfortably fit eight people and we moved out when we hit 15—but even then we were careful to keep our overhead low. This was in the dot-com days, and even though it was commonplace to spend freely, we never did anything lavish.”

“The company I started out of university was originally self-funded, and although this worked out well, I only briefly considered replicating that strategy with TripAdvisor,” he adds. “By this time I had more responsibilities and a family to support, so we chose to raise money rather than self-fund. We went through three rounds of investment, raising $1.2 million in February 2000, another $2 million that summer, and a final round toward the end of 2001, which was around the same time the business really started to take off.”

And when the company took off, it soared into uncharted territory for its time. There has always been a wealth of travel information out there, but before TripAdvisor it was difficult to find the most relevant information for one’s needs. What Stephen had done was set a successful model for many other industries beyond travel and hospitality.

“I still meet hotel owners who don’t like to shake hands with me because I’ve hurt their business, but far more often I get people thanking me for helping their brand shine.”

“We looked at all kinds of published travel information in newspapers, guidebooks and magazines,” Stephen recalls. “We had staff members who read every single one of these articles, then tagged and indexed them in a way that was easily searchable, providing an incredibly relevant and thorough database that allowed users to search for, and immediately find, only what they were looking for.

“Over time, the focus of our content changed—eventually our travel editorial content was dwarfed by our user review content and users discovered how useful the ‘wisdom of the crowds’ could be in their holiday planning. Instead of listening to one source—a guidebook or an article that may be two years old—they could read 20 reviews, all posted in the last three weeks. It’s fresher information that tends to be more detailed and, for many people, more reliable.”

It’s this combination of fresh content and targeted advertising that has given the company its incredible run over the past 10 years. TripAdvisor’s traffic grew steadily and the company expanded its client set beyond Expedia.com to Hotels.com, Travelocity.com, Orbitz.com and many others.

What’s more, as TripAdvisor expanded into new markets, the company that was once just weeks from going bust was suddenly attractive to potential buyers. In 2004, InterActive Corporation acquired the company and made it a unit of Seattle-based Expedia, which was TripAdvisor’s first client. Under terms of the deal, TripAdvisor was allowed to operate almost autonomously, with Stephen still at the helm.