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.
What was it that they didn’t like? Was it just the fact that you were closer to the customer, closer to the edge, as we said before?
Yes, because we were closer to the edge and we were stealing customers. They said we were only focused on price, that we were just taking the low-price customers. That was baloney. We had filters and they didn’t. You could filter on price, you could filter on time, you could filter on carrier. You could do all that stuff, which was very hard to do, for the OTAs, at that time. They hadn’t done any of that. It was a brilliant idea from English and Hafner, to do that.
It was just a false argument, but it was the one they had, so they used it. They didn’t like us and travel agents groused about us. It’s just what happens when a good new idea comes on the market; the old-line companies bellyache, but that’s all right. It took time for us to build traffic and the other thing that was going on, at the time – and Steve was great at this – was Google Arbitrage. In those days, keywords didn’t cost anywhere near what they cost today, in travel. We could buy keywords, around airline and hotel searches and then take that traffic to the carrier and the cost of our search was less than what we obtained, so it was highly profitable, after a while.
How was KAYAK aggregating traffic, in those early days?
It was almost all search. As opposed to when we started with Travelocity, we had to get customers with TV and radio and banner ads, because that’s all there was, KAYAK was 100% search, in the beginning. Eventually, we did advertising, after a huge battle. The board wanted to do it and the guys didn’t. We thought it was important when we were going public, to build a bigger brand, against those huge brands of Expedia and Booking and so on. But in the beginning, it was all highly-tracked search. The OTAs were doing search, but not as effectively as KAYAK did. KAYAK was really smart at it.
How accretive do you think the KAYAK acquisition was, for Booking Holdings?
I think it’s been great for them. They’ve got a nice piece of revenue. Instead of fighting KAYAK, they own it. It’s been very effective and they continue to invest in it and grow it. They were smart, and left Steve in charge and now he’s picked up OpenTable, as well. They were smart, in that they are a house of brands, rather than a brand of house. I guess, you could say that Expedia is a house of brands, as well, since they’ve got Travelocity and Orbitz, but at Expedia, they made what I think is a critical mistake. They first decided to put everybody on the same technology backend; nothing wrong with that. But then they decided to make all the sites look identical, so there’s really no difference between Travelocity, Orbitz and Expedia. To me, that doesn’t make any sense at all. The customer figures out, pretty quickly, it’s three peas in a pod and, therefore, you’ve lost the leverage of investing in the second brand. So all you did was buy their customers.
Priceline went in the other direction. They do some common things there, as I understand it; certainly, there is common Google purchasing and they have certain economies of scale. But they don’t force the companies to operate in the same way and they really let them run as a conglomerate which, I think, makes a ton of sense.
Is the traffic materially different then, from KAYAK to the OTA, versus booking directly to Google, for example, in terms user or buy-in or the value, or whatever it may be?
No, I don’t believe so. I don’t know; I don’t have that data anymore because I’ve been gone a while. But I would doubt it. Obviously, lots of people start with Google, because it’s easy. But KAYAK has built a terrific brand and a lot of loyalty and 60 million plus mobile customers. It owns mobile; it’s done a very, very good job there. It’s fast and it’s easy to use. I think, if I were at all critical of KAYAK, and Steve and I never agreed on this, unlike Trivago, KAYAK did advertise, search one and done, but they never really said, we search everything and you buy direct, which was the concept behind it, but they have never advertised it that way.
So lots of people just search and then they leave. They don’t really understand that, when they click, they go to the airline. Today, you can also ‘book’ on KAYAK, which is mostly booking with Priceline, or Booking. Mostly, it’s still a search site and I think for the customers who do get it, it works perfectly for them. For the customers who think it’s an OTA, that’s okay too.