Founder of Travelocity, Former Chairman at Kayak.com and Former CIO at Sabre
Terry was part of the founding teams of Sabre, Travelocity, and Kayak.com, all multi-billion dollar travel companies. He started his career with 24 years at American Airlines in marketing and IT, capping his career as Chief Information Officer of its SABRE division from 1998-02. While at SABRE he led a team of six working on a project that became Travelocity.com. Terry served as CEO of Travelocity for seven years transforming it to a public company with $3bn sales. Travelocity was taken private in 2002 and Terry moved to become a founding member of Kayak.com. He served as Chairman of the company from its founding until it was sold to Priceline for $1.8 billion dollars in 2013. He is a venture capitalist with General Catalyst and Sierra Angels.Read moreView Profile Page
Terry, can you walk us through the founding story of KAYAK?
It’s an interesting story. After I left Travelocity, when it went private, I started to work part-time, at a venture capital firm, in Boston, General Catalyst Partners. They had me looking at various travel opportunities. There was a company that was doing, sort of meta, with a plug-in. So if you searched one site, they would search a couple of others. We liked the concept but we didn’t think it was correctly executed and we didn’t like the idea of plug-ins. I had also been working at Overture, which was really the original paid search company. We eventually had a patent settlement with Google, over that. I knew something about search and we started talking about it and Joel Cutler, who was the partner, got excited about it and he knew Steve Hafner and Paul English and he brought them in, as well as a guy named Greg Slyngstad, who had worked at Expedia, right at the beginning.
We had a dinner one night and we talked about it. The idea was, we’re converting about 6% of arrivals, into sales, at Travelocity, Orbitz and Expedia – who were all represented at the table – so 94% of our customers are going somewhere else. We knew, from tracking, that most of them were going directly to suppliers, because they felt they got better customer service or they got better points or they just trusted them more, whatever the reason was.
We said, why don’t we build a search site that does that. It searches everybody and when you click, you buy direct. We took that idea, first of all, to the airlines, and the pitch was, this is a much more effective use of your search dollars than Google, because you will only pay on a click through, but the click through is not to the home page, it’s to the last page. The customer will already have selected you and your flight and your airline and all they have to do is put in their credit card and their name and they’re done. It’s very high converting.
They all liked it, but they said they wouldn’t pay for it. We decided to start, anyway. A few people paid; most people didn’t. We raised money from General Catalyst; they funded the start-up, they incubated it. That was unusual for them because they didn’t usually incubate start-ups. After several months of traffic, one day, we began, selectively, turning it off. The airlines would call and say, where did all my traffic go? We’d say, same place your money did; nowhere. That was that.
That’s how we started and then we went into hotels and cars and cruises and tours and the rest.
In the early days, how did the airlines versus the hotels, approach meta?
Nobody was quite sure about it, until they saw how well it worked. They liked it much better than a travel agent, because they weren’t paying commission. At the beginning, they only paid click. Later, we went into different arrangements. Some people wanted to pay – or we wanted them to pay – commission. Or they only paid on a sale, not on a click. We had two or three different models, but most of it was a click-through auction, just like Google. They saw that it worked, it was less expensive than paying a travel agent, either an OTA or a physical travel agent, and it was more effective than Google. They liked it. We didn’t really have a lot of pushback. Once they saw the model was working, they thought it was pretty cool.
The OTAs figured out, right away, that they didn’t like it, because we were closer the customer than they were. In the early days, none of the OTAs accepted traffic from metas; they wanted to kill us, for a long time and they talked us trash in the press. But Hafner was pretty good at talking trash back, so that was okay.