Acquired - Episode 41: Booking.com with Jetsetter & Room 77 CEO Drew Patterson

Episode Date: July 26, 2017

Acquired trains its lens on the “second or third best acquisition of all-time”, Priceline’s 2005 purchase of Booking.com. Our heroes are joined by friend-of-the-show and former Jetsetter & Room 77 CEO Drew Patterson to help understand how this little-known startup from The Netherlands grew into the largest travel company in the world, with nearly $8B in annual revenue. Was this deal even better than Instagram??? We debate, hotly.   Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Topics covered include: The biggest startup you’ve never heard of (in the US), Booking.com, and its parent company Priceline (yes, the William Shatner Priceline)Booking’s founding in Amsterdam in late 1996: by recent college graduate Geert-Jan BruinsmaSkift.com’s Definitive Oral History of Online Travel The travel industry's GDS's (“Global Distribution Systems”) and the development of Sabre How Bruinsma raised the initial money for Booking: by emailing anyone he know who had an email address OTAs ("Online Travel Agencies”) and how they operate; the "merchant model" versus the “agency model"The role of search in online travel Bill Gurley on  Conversion: The Most Important Internet Metric of AllExpedia’s early flirtation with Booking, and decision not to acquire the companyPriceline head of M&A Glenn Fogel’s vision for how powerful the agency model for OTAs could become in EuropePriceline and Glenn's 2004 acquisition of Active Hotels in the UK, followed by the 2005 acquisition of Booking for $133M and the combination of the two businesses into Booking.com Booking’s incredible growth in the decade since the acquisition, from less than 20M room-nights to over 500M, and $7.8B in revenue in 2016  The Carve Out: Ben: Scott Forstall talking about the original iPhone at the Computer History MuseumDavid: The Big SickDrew: Bloomberg’s Money Stuff by Matt Levine

Drew, I think you might be our most prepared guest ever. This is great. Drew has printed out notes and pen and paper here. This is awesome. Yeah, I mean, I'm a big fan. You know, I just want to blow my shot here. Your shot at stardom. Welcome back to episode 41 of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today, we are covering the 2005

Booking.com acquisition by the Priceline Group. Now, this acquisition is legendary, and there are tons and tons of sort of interesting nuances to understanding the industry. So we wanted to wait until we had a guest with deep travel experience and really industry domain knowledge to make sure that we did it right. So today, our guest and listener of the show is Drew Patterson, the CEO of Jet Setter and Room 77. So yeah, we are lucky to have Drew, who is a, quote, grizzled travel industry veteran, to help us unpack this one. So Drew started his career at Starwood Hotels, where he managed

distribution and pricing, and then jumped into the world of online travel at Kayak, where he was VP of marketing from 2004 to 2009. He left to found Jet Setter. And thank you for doing that, by the way, because you guys booked Jenny and my honeymoon. So very much appreciated. And he was CEO there at Jet Setter until 2012, when he moved to the West Coast

and founded another travel company that was quickly acquired by Room 77. And he served as CEO there at Room 77 until the beginning of this year. So thanks again, Drew, for coming on and sharing your travel industry knowledge. Guys, great to be here. Long time listener, first time talker. Don't wait for the show. We can't either. We are ready to dive in. We are. We are. And listeners, if you listen to last week's episode, you may know this.

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go to acquired.fm slash survey. It'll take about five to 10 minutes and we would really, really appreciate it. Okay, listeners, now is a great time to tell you about longtime friend of the show, ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation and they have some new news to share. ServiceNow is the AI platform for business transformation.

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Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. So David, are you ready to take us into the history and facts? Let's do it, as always. So many people, at least here in the US, I think, aren't totally aware of booking.com because it's very big in Europe, but not as big here yet in the States. And they probably also don't know that it's actually owned by Priceline. And if people in the US think about Priceline,

they often think about William Shatner and the Priceline negotiator, which is definitely a big part of Priceline and internet history. But that's a story for another day. But today, we're going to talk about how Priceline, of which Booking is by far the majority of it, is actually the largest travel company in the world. And after SAP, I think B. So just for some reference, that's equivalent to three Airbnbs. And it's bigger than Netflix. So, you know, it's not a company that a lot of people know about, but it is definitely, you know, top 10 most successful internet startups, probably of all time. Yeah. And when I was looking at the, you know, when I said legendary earlier, I mean, that stems from when we first started doing the research for this and you just start seeing some of the high level stats of, you know, what an enormous company this is and,

you know, what a behemoth in the travel industry. I think to Americans and even some Americans in tech, it's pretty, you know, we don't know much about this company. Yep. Well, and that's why we have Drew here today. So I'll start out with the history and facts. And Drew, please feel free to hop in at any point along the way. But the company was actually founded in Amsterdam in the Netherlands in late 1996 by Gert-Jan Brunssma. And major apologies to all of our Dutch listeners, and to Gert, because I'm sure I just butchered that. But he had just graduated from college. And this was late 1996. And he felt kind of in his core that the internet was going to

be a thing. And so he decided, rather than going kind of in his core that the internet was going to be a thing. And so he decided rather than going to work for, you know, a company like most of his classmates, he was going to become an internet entrepreneur. Uh, but there was just one problem. He didn't have an idea. So he starts casting about for an idea of what type of company he would start. And, um, apparently according to there's this great, great oral history of online travel that the website Skift published that we'll link to in the show notes. But according to an interview with him in this oral history, he was having dinner with some friends one night, and they were talking about problems that they had. And they realized that booking travel across

Europe was actually a really hard thing in those days because you had to call up the hotels that you wanted to stay at on the phone. And of course, in Europe, people speak all sorts of different languages. So if you didn't speak French and you wanted to book a hotel in Paris, you were kind of out of luck. And he thinks to himself, well, I bet this is something that the internet can solve. So he goes and starts doing some research and he thinks, well, it must be other folks out there that are already attacking this problem. But it turns out that there were no major online travel companies at that point. There were some of the hotels in the U.S. had started having their own online booking system.

So he went on the Hilton website. He actually looks at the code for Hilton.com and takes some quote unquote inspiration, according to him, from how they manage their online booking system. But he pretty quickly codes up an MVP for a multi-hotel booking website. And if David, you know, if only there were someone to aggregate these, uh, disparate one-off hotels that had their own e-commerce. Um, and he calls his little project bookings.nl, nl for the Netherlands. Um, and that is how bookings.com was born. Um, and, and, unsurprisingly, again, it was actually mostly Americans that used the site, Americans who were traveling to Europe and looking for a way to book online. Because in those days, it was only Americans that really had access to the consumer internet. There was AOL at the time. Lots of people in common people in the US were online, but in Europe, it was much more still of a kind of confined to academia type thing. And average Europeans didn't have access to the internet in the same way. So ironic, because booking ends up becoming such a

large company on the back of European customers. But the initial customers were Americans. Yeah, it's, it's, it's, and it's really easy to forget, too, sort of the roots of the internet in sort of American university and defense infrastructure. Like, of course, it's not elsewhere in the world yet. Like, it was brand new and it was invented in the U.S. And, you know, it's kind of shocking to imagine a world where, like, people are playing around with websites in the U.S., Amazon's being founded in the mid-90s, you know,90s, but it hasn't really made it everywhere else yet. Yep. It was a different time. So, and also a different time,

venture capital, and in particular, venture capital in Europe was a very, very different kind of proposition. And Gerd had a tough time getting funding. So what he decided to do, and again, he talks about this in the oral history, and I kind of proposition. And Gert had a tough time getting funding. So what he decided to do, and again, he talks about this in the oral history, and I just love this. He needed funding. So he decided that he was going to email everyone who he knew who had an email address, because he figured if they had an email address, they at least knew something

about the internet. That's a direct quote from him. I just love that. So he emails about 50 people and 18 of them end up investing. And he raises about 50,000 euros to get going, hire some early employees. And they start to get off to the races. And what they evolve into, and this is where we're going to spend the bulk of this episode and want to bring Drew in here, they really become one of the first online travel agencies. So the same general model as Expedia or Priceline or Orbitz or Travelocity here in the US. And they're kind of three pieces to the business that they start. One, they need to acquire the travelers. Two, they need to acquire the hotels, the supply and demand. And then three, they need to provide some form of customer service. So, Drew, for our listeners who aren't as familiar with the OTA world, how did all this evolve?

You got the basics of it, right? You know, all these businesses really are marketplaces about how they bring together supply and demand. And it's interesting to think back to where this industry was, as Booking.com was starting, you know, we were talking a little bit about who had email addresses and like, it was all AOL, it was MSN, it was, you know, all these kinds of dial-up services. You know, and we forget it now, but the real things that made the first generation of OTA businesses in the US were like portal tenancy deals. Do you remember these? It was like Travelocity got the deal on Yahoo and

therefore Travelocity was by far and away the leader in this category. And actually Travelocity managed to get a couple of those. I think it was AOL, it was Yahoo, I forget which the other ones were. And of course Expedia founded by Rich Barton up in Seattle, was part of Microsoft in the early days.

So they had MSN, of course. Exactly. So they had that as a pretty kind of healthy locked-in source of demand. Yeah. And the other side is, exactly as you said, was how do you start to get then

a supply base that fits with that, right? Again, early days, the internet, not that different than a newspaper, right? What are all the kind of categories of interest and how do we start to fill them out? Travel being one of those. And so what you saw with the first generation of these online travel agencies was they're basically just a front end to the GDS systems, the global distribution systems, which were used by travel agencies to make flight reservations, to make hotel reservations and the like. And so you had this kind of big supply base that was already in place, right? You know, travel agents always got commissions.

And these GDSs provided travel agents with rates and availability, the tools to go ahead and make a reservation on a consumer. Expedient Travelocity and the like were front end that the average consumer could use. And that's one thing actually I hadn't focused as much on. But maybe could you talk a little bit more for our listeners about this whole GDS system? Because it existed before the internet, right? Yeah, I mean, it goes back to, I think it was like 1973 when the first GDS was built. I mean, these were actually byproducts of the airlines.

So American Airlines, Bob Crandall famously realized they needed some computer system to tie all their travel agents together. That was the genesis for Sabre, which is the very first GDS. And of course, that then served as the underpinnings for all of these online travel agencies for a long time. Wow, the parallels to the real estate industry are amazing here, where you look at the MLS systems existed long before you had Zillow. But there's sort of this, David, you mentioned Rich Barton, this Barton style data to the people way where you can take these systems

that should just be queryable by the general public, but have been locked up by a professionalized industry for a long time. And it really makes you wonder what else is out there that has private databases

that are linking an industry together that really have the potential to be brought online yeah and so for booking and in europe um you know obviously there's the gds in america did the gds uh extend to european hotels as well yes an interesting point that kind of drives at the but the structure of the industry and i think part of what set booking up for success over time, uh, you know, if you think about like what kind of hotels were on the GDS, you know, it was a certain kind of hotel. So like rough and tough, there are, you know, 500,000 hotels in the world of that population of 500,000. Which is crazy, by the way, like, I think a lot of people in the travel industry don't realize that like 500,000 hotels in the world, that's a lot.

It's a huge number, you know, or at least that, you know, that that's what TripAdvisor would tell you they've got hotel reviews on. Right. So, you know, again, that's, that's the kind of the biggest sample of hotels. But the GDS only has about 75,000 hotels on it, you know, varies a little bit from GDS to GDS, but the kinds of hotels that are generally on the GDS are, well, going back to our example with Cure, you know, it's the Hilton's of the world. generally on the GDS are, well, going back to our example with Cure, you know, it's the Hiltons of the world. It's the Marriotts of the world. You know, it's the kind of hotels that get booked by travel agents, which tend to be stayed in by business travelers or folks that historically accessed travel agents. And so they were

franchised and more sophisticated and had better technology. You know, it wasn't a 20 room pension outside of Rome, which is much more commonly used by the European traveler. Yeah. And that really speaks to, we'll get into this throughout the episode, but the differentiation and the value that booking was able to build, while it was really hard in the beginning, and we'll get to, they end up getting acquired by Priceline in 2005 for $133 million. I mean, nobody recognized the value here. But because they were able to build this proprietary long tail marketplace of supply,

they really had something no one else could access. It reminds me in a lot of ways of, you know, the difference between Google and Yahoo, right? Like on Google, you could type a query on Google and they had access to the entire long tail of the internet, whereas Yahoo with the directory model, you know, only had the head. And so for people, you know, Drew, like you're saying, who are looking for something specific in Europe, it was booking or nothing. 100%. And it's a great analogy, right? And, you know, where that really becomes clear, and I guess we're kind of jumping ahead. Oh, we always jump ahead here. But, you know, if you think of like, what's the

advantage of having the tail? It's far greater relevancy, right? Like it's the things that you actually care about, you know, the consequence of that is conversion rate. So again, not to get too far ahead of ourselves, but the consequence of having all this kind of long tail inventory is far greater relevancy than those people who are relying on just the GDS might have enjoyed. Yeah. Yeah. And while we're sort of on this topic of discussing that the OTA is basically a marketplace, Drew, before we kind of get into the future evolution here, could you do some sort of definitions for us of online travel agency versus travel aggregator versus meta search? How do these things interact and how are they different?

Sure. So, you know, the lines are a little blurry between them, but in general terms, online travel agencies take reservations. They make bookings on behalf of consumers. And so they aggregate inventory from lots of different sources, you know, generally directly from hotels,

airlines, rental car companies, and the like. And again, they will enable the consumer to make a reservation. Whereas meta-se search engines or aggregators are a layer of abstraction above that. So that's Kayak. Exactly. Tribago.

Tribago, yep. What TripAdvisor has increasingly done, meta search where they're, Google is doing today, they're pulling rates and availability directly from suppliers, also from OTAs and intermediaries, showing you prices and letting consumers to decide what they want, and then

handing you off to an OTA or a supplier to complete the transaction. Got it. So let's go back. We'll finish out the history and facts, and then there's a bunch more to dive into here. So a couple years go by, booking starts to sort of slowly grow its supply base and its demand base in Europe, shifting as Europeans are coming online to actual European customers. And one thing that's actually another side note that I would just want to put a pin in to come back to on the demand side, this is really, we mentioned search engines as search engines start to rise in prominence as kind of the front door to the internet, um, travel and in particular OTAs become

one of, if not, I think the biggest category of spend in terms of search engine advertising. Um, because the, the link between searching, you know, Google or, or whatever search engine for a villa in Rome and an online travel agency is you're so far down the funnel. It's a perfect type of advertising for these companies. Yeah, travel is a really nice use case for search advertising for a couple of reasons. The two biggies are, number one, it has high purchase value. So they're relatively large transactions. the two biggies are, number one, it has high purchase value, right? So, you know,

they're relatively large transactions. And number two, it's a very close combination between search and transaction, right? So unlike searching for a home, unlike searching for a car, you know, all these are completed online. And so as a first case of direct response advertising, travel is a really good use case. And so again, you know, you saw the OTAs as the, you know, one of the biggest categories of spenders on Google. Yep. So Booking is growing slowly. They end up merging in the year 2000 with another group, also in the Netherlands, also called Booking, called Bookings Online. And that's when they changed the name to Booking.com.

A couple years go by. And then in 2002, Expedia actually decides that they want to enter Europe from the US. And they understand the European market's different. They need access to all this supply in Europe. And so they come over, they look at a bunch of players, and they get very, very close to acquiring the newbooking.com. They do six months of diligence. And then right at the end, right before they're about to close the deal, the US Expedia board ends up rejecting the deal, vetoing it. And the reason that they do so, and this is the next kind of topic we want to dive into with Drew, is they're really worried about Booking's model, which is different from the US OTAs,

their business model. Booking uses the quote agency model, which is different from the US OTAs, their business model, Booking uses the, quote, agency model, whereas in the US, Expedia, Priceline, Travelocity, and the like use the merchant model. So, Drew, can you kind of help our listeners understand what the difference is between the two and why the US guys might have been so spooked by this? Yeah, it's funny looking at it today because it seems so obvious. This agency model is great. But at the time, the merchant model was highly desirable and was leading to a lot of the success that the big players in the US had. So the big difference between the two,

the merchant model is effectively a wholesale model. In the merchant model, the online travel agency contracts for wholesale rates with a supplier. So Expedia would go to Hilton and say, we'll pay you $100 for this room, and we're going to market up 20%. We're going to sell it for $120. So this is the Amazon retail business analogy, where Amazon's taking inventory on the items, they're setting the price and selling it. And the merchant actually holds, in this scenario, the OTA actually holds the inventory risk, right?

No, this is why it's such a great model. As an OTA, I don't take any inventory risk. I'm just going to agree to what my net rate will be. If I don't sell the room, it's not my problem. It's your problem. I can market up at that point in time as much as I wanted. So again, you had instances where one of the leading practitioners of this at the time was HRN, which went on to become Hotels.com.

But there were instances where they would have in New York City, like on sold-out nights, they would contract for a $300 rate at a Holiday Inn and they would sell it for $900 because it was the only inventory left in the city. I was like, these guys are bandits. I mean, brilliant entrepreneurs. So this is like, if you can make this work,

this is an even better business model. It has the best of being a retailer in that you get to set the price and essentially control the inventory, but also the best of a marketplace where you don't take any risk on the inventory. Exactly. And actually, it's one even better than that,

which is it has a negative working capital cycle because I collect money from the consumer when I sell this, and then I remit funds to the hotel 30 days after you stay. And if it's a two-month average booking window, I'm holding everyone's cash for 90 days. Okay, so that's the merchant model. That's what Expedia and the US guys have.

Now, booking has the agency model. What's that? So the agency model was a kind of traditional travel agency model. That meant that they were going to take a commission. That commission was going to be paid not by the consumer. There wasn't any of this kind of markup. But the supplier, the hotelier in most cases,

would pay them a commission based on what they sold. And they would pay the commission after the booking took place. So if you don't show up, if there's cancellation, again, I don't get my commission against it. And the commission rates tended to be much lower. Booking.com started at 5%. Typical industry commissions were about 10%. And if you compare that to be much lower. You know, they were, Booking.com started at 5%. Typical industry commissions were about 10%. And as you compare that to the merchant model, which was 25, 30% margins at the time.

And negative working capital. And negative working capital. Yeah, exactly. So you can see why you're the Expedia board and you say, you know, this doesn't seem like the right model here. These crazy booking guys started by this college student, you know, they have no idea what they're doing. And to have some sympathy for them at the time, right? I mean, they were on top of the world. You know, Travelocity had been the leading player. Expedia displaced them. Expedia recognized, and I think one of the, you know, the interesting things about OTAs, when you look at their economics, what drives their business, it's really the hotel business that drives their

profitability. That's a much more profitable piece of business than flights. Expedia recognized that early. You know, bought a company called Travelscape, which was, you know, one of these kind of early merchant businesses. Then turned around and bought HRM, which became Hotels.com. Yep. Which as it happened was powering the hotel business on Travelocity. So this kind of master stroke, you know, they completely undermined their competitor. They got, you know, they identified what the most profitable and exciting part of the businesses and they controlled it all. This is like when Google bought Overture.

Yeah, exactly. This is great. And now you want me to turn around and go buy some rinky-dink thing in Europe that's much less attractive. So the Expedia board looks at all this and says, we've got the golden goose here. We've got the best business model.

People say Google's the best business model of all time. This might be even better. Why would we want to do the agency model? But in the long run, of course, it's the agency model that really wins here. What was it about that in the long run that ended up being better? So the agency model ultimately was superior in part because there's a better consumer proposition. You know, the merchant model wasn't so great for you, the consumer, because I had to pay you up front as opposed to the agency model where I could cancel if I wanted to. I had a lot more flexibility.

It also wasn't so great for the supplier. You know, from the standpoint of a hotelier, I don't really like this merchant model thing where I'm paying you 30 percent. You know, you have more control over setting price. You're keeping cash, not me. So, you know, that wasn't great. But again, you know, in fairness, the Expedia board, they kind of looked at the world and were like, you know, we're in a dominant position. Why do we need to move away from this? And I think what they failed to realize was just the size and magnitude of this market and the level of, you know, just the power and the potential of how quickly this was going to grow. That in combination with what we were talking earlier, the potential for AdWords. You know, a really kind of cost-effective tool that would allow a business, an online travel agency, to scale pretty quickly.

And where those things came together was, again, going back to the point we were making earlier, was the long tail. Because this agency model made it really easy for Booking.com to clean up the long tail very cost effectively and very quickly. It was a much lighter weight approach to contracting, got a lot more hotels on board quickly. They didn't have to go out and negotiate for net rates with an individual hotel. You could just fill out Gert's form, send it back, and away you go. And this is, I forgot to put it in our notes, but also in the oral history with Gert, when he started, the way he onboarded hotels is he sent them postcards, essentially, with a form to fill out on the card if they wanted to be included in the marketplace. And then they just mailed it back to them. You know, structured data.

It's really efficient. E-commerce at its best. Yeah, e-commerce at its best. MVP, bootstrapping. Well, the dirty secret behind the merchant model was for the longest time, I mean, literally, you know, up until probably five years ago, like a huge chunk of reservations were delivered by fax machine. Right. So, you know, you were making a reservation. Maybe it was 10 years ago. But yeah.

Well, I bet a lot of these hotels, you know, might not have had internet connections. So you had, it was kind of like, you it was kind of like the early days of the food market and Grubhub and Seamless. Those were all orders delivered by fax machine too. Yeah, totally. Internet, let alone having Wi-Fi marked on your booking.com reservation. Well, one point I want to make here before we move on

is that there's an incredible similarity to the ebook market here. I mean, when we talked with Brad Stone, I don't think we discussed this on the show since we were talking about the Uber Didi deal, but he talks so much in the, the everything store, um, about the struggle that Amazon went through with, uh, with ebook pricing and, um, the, the, the wholesale versus the agency model there where Amazon kind of prefers this wholesale model where they can, uh, pay a fixed price

for something and then they have all the pricing control and can market up and down however they want. And they have incredibly sophisticated variable pricing to do that. But the sort of, I think it was the European, some kind of EU book consortium that really had a lot of power in this industry and forced them to use the agency model. And it was a big concession they had to make when going to market. And I mean, that must have was a big concession they had to make when going to market. And I mean, that must have been a big piece that ultimately led to the development of marketplace within Amazon. Gotta be. Which is, you know, why Amazon is what it is today. Power of marketplaces.

It is. And that's truly one of my favorite things about this show is like seeing the patterns between different industries. They evolve at different speeds. They evolve, um, you know, with, with, uh, different waves of technology. But, um, at the end of the day, there's really only so many business models and there's really only, you know, a, a, a finite number of ways that, um, different players in an industry can interact with each other. And we kind of see the same playbook roll out over and over again. Are you, you know, making an apologist argument for venture capitalists, Ben? You might think. We're not self-serving on Acquired at all. So back to the history and facts. All this happens, Expedia ends up passing, leaves Booking and Gert at the altar. And then Gert

makes a decision, which probably when he talks about this, made the right sense forert at the altar. Um, and then Gert, uh, makes, makes a decision, which probably when he talks about this, you know, made the right sense for him at the time. They just, you know, had this deal fall through. He ends up selling booking.com, uh, not to Priceline, but to an investor group. Um, so, uh, a major European investor group, a consortium comes in and, and acquires a majority stake in, in booking. Um. This is in 2002, 2003. And then over the next couple of years, there's kind of one guy sort of in the US that starts to see what we were just talking about

with the power of the agency model and starts to wonder about the future of how long the music can keep playing with the merchant model. And that guy's name is Glenn Fogel, who is now the CEO of the Priceline Group, which includes booking, of course. But at the time, he was Priceline,

which was just Priceline. The Priceline Group also includes Kayak and OpenTable now, perhaps future shows. But at the time, Glenn was the head of M&A for Priceline. And he comes over to Europe and he starts digging in and realizes this dynamic with the agency model that it really does align interests better and incentives between the travelers and the hotels. And not only that, but people in Europe also travel a lot more than they do in the US because, you know, we're workaholics here and we don't take as much vacation. So you've got kind of a better product model, a more active customer base.

And he starts to argue within Priceline that they should really start by Glenn, is actually not booking, but a company in the UK, in Cambridge, England, called Active Hotels, which is very similar to booking, was larger in the UK than on the continent. They acquired that in 2004 for $165 million. And then later, in the summer of 2005, they do finally acquire booking for $133 million, as we mentioned. They merge it with active hotels in the UK, and they keep the Booking.com name. So the combined entity is Booking.com. And when they do that, in total, they now have 18,000 properties across all of Europe, 18,000 hotels on the system, which is way, way more than any other online travel agency in the whole world now. And so Priceline, this is kind of a masterstroke. They build through acquisition

the largest online travel agency in the world with two sub $200 million deals. Kind of amazing. Yeah. So question for Drew is, do you think that they needed to do the acquisitions to do this, to sort of like bring that agency model into the Priceline group? Or could they have taken their existing supply and demand, since they already had some scale, and really reinvent that and kind of copy that model themselves? I think it's tough to see, and I guess it particularly plays out when you look at sort of subsequent history. I think it's tough to see Priceline doing this on their own. In part, you also, I think, have to look at the context for Priceline to make this acquisition and why they're able to do it. Like Priceline, you know, made efforts to go to market in Europe. You know, again, remember, this is 2004.

You know, this is kind of the depths of the dot-com bust. Priceline had been one of the biggest success stories of Web 1.0. We all remember William Shatner. Delta made a billion dollars getting warrants in Priceline, selling them at the top of the market. It looked like a genius. And Priceline had moved into name-your-own-price. Dog food, name-your-own-price.

Groceries. Groceries, name-your-own groceries, name your own price, gasoline. I mean, it was just like all over the place. There's a great history or partial history of Priceline in the internet bubble in the book E-Boys, which is about the early days of Benchmark, the venture capital firm. They were the venture investors behind Priceline. And the initial Priceline, it was crazy. Drew, like you said, it evolved into travel because that was the only thing that made sense that they did. But originally, it was name your own price for anything.

So these guys didn't look like masters of the universe at the time, right? They looked like yesterday's news who were trying to figure out a plan B. Priceline had actually tried to go into Europe. They had hired, I heard the story once, they had hired a former marketer from Burger King to, you know, make Priceline, name your own price a big deal in Europe and like totally flopped, right?

So you can imagine, you know, Glenn sitting in Priceline, be like, no, no, we need to go back to Europe and we need to get big in travel. You know, it wasn't like they were coming from a position of strength where they had both the capabilities and position to do this.

And I think, again, it's, you know, it's absolutely to Glenn's credit to recognize what they did. And again, a common position for a lot of the US companies. Travelocity tried to go into Europe. Expedia tried to go into Europe. A lot of US companies have tried to go into Europe and really struggled.

And I think one of the reasons for that, and again, we kind of touched on it briefly earlier, it's the cultural issues. For big US companies, the US was this kind of dominant formative experience. Everyone speaks the same language. You have national advertising. You know, you are building a single, you know, monolithic brand that serves across U.S. as a market.

Europe doesn't really work that way. You know, U.K. is a different market than France, than Germany, than Spain, than Italy, than the Dutch. You know, they all have their own languages. They all have their own domains. Like, they all have their own marketing channels. You know, you have your own country managers. It's a much more complex and nuanced way to start to go to market. And so you can see why some of the US travel companies really struggled as they tried to build this on their own. And why from the standpoint of, you know, somebody like Glenn,

the thought of like hiring some Dutch who probably speak a bunch of different languages, you know, know how to work with all these different cultures, you know, great, go let them do their thing. Yeah. Well, and do their thing they did. You know, another kind of theme that we see on this show a lot is Glenn and the Priceline group, you know, let them alone to do their thing. And so they acquired them in 2005. They complete the merger with, you know, within Priceline of active hotels and booking.com. In 2005, they complete the merger within the price line of active hotels and booking.com. In 2005, they do collectively 18.7 million room nights booked. Or sorry, that was in 2006 after the merger. And that grows from 18.7 then over the next 10 years, such that last year, 2016, they did over half a billion room nights. So that's over 40% growth

per year for 10 years. And the financials on that are just pretty staggering. I mean, Priceline, the company, the group as a whole did $10.7 billion in revenue in 2016. And of that, Booking.com, which again, remember, they paid a combined, what is that, $290 million for active and booking. They did $7.8 billion of that. Pretty incredible. Yeah. Yeah. Amazing they break that out, too.

Because I think while they're separate properties, Drew, do you know if they cross-pollinate the supply between the front ends for Priceline.com and for Booking.com? No, they don't. They have their own supply teams. I think one of the things that has defined Priceline's management strategy is the group has let the businesses do their thing. So again, today, Priceline is Kayak, Agoda, Booking.com, the core Priceline brand, and I think it's car rentals, and then OpenTable. They have a car rentals business too, yep.

But each of those businesses has been largely left to fend for itself and make decisions that are right for its business. They don't really do a whole lot of corporate level cross-pollination. And especially at this point in time. More recently, they've done a little bit more, but certainly through these incredibly explosive years of growth, uh, the, each of the businesses are run autonomously. Um, well, and that's sort of, so, so that kind of,

you know, wraps up the history and facts here, but, but one just sort of fun side note in, in doing the research, uh, that Drew had wanted to ask your thoughts on, um, what's really crazy to me, this is such a big market. I mean, again, Priceline Group, we said at the top of the show, $90 billion market cap. That's three Airbnbs and more than Netflix. And it's not like Expedia is a small company either or any of these other companies. But the industry is so small, people-wise. it's a total cabal and like, you know, reading the skiffed oral history and, um, you know, all of these folks who are the major players, you know, bounce between company to company. I mean, even you, you've been at Jet Setter, you've been at Room 77. It's all such a small world. Why are there not, you know, why is this not flooded with entrepreneurs?

Gosh, I mean, I guess, great, great question. In part, I would say, um, there was a moment where it was flooded with a lot of entrepreneurs, right? You know, there's a lot of company formation that led to these businesses, you know? So if you look at, you know, take Expedia today. You know, Expedia is the sum of Expedia plus Travelocity plus Orbitz plus What If. Travelocity was a combination of Preview Travel

and Travelocity. And Hotwire's in there too. Yeah, Hotwire's in the mix. So you have a ton of businesses that were built, you know, that ultimately have consolidated to a relatively limited number of platforms. Two platforms, Expedia and Priceline. I guess you could look at Ctrip, you know, as a third one in Asia, you know, maybe TripAdvisor. Yeah. And I think also the number, the amount of required connectivity between all these different entities is kind of a high technical bar to get started. And I think that these businesses, you know, kind of aggregation theory in play here are scale businesses so that, you know, in order to provide a lot of people have new ideas for how to make the, you, the, the, you know, travel booking experience better and the trip planning experience better. And I think, you know, it's almost become a trope

that like, if you go to a startup weekend, you're going to see somebody pitching a better, a better way to, to plan trips and do something in that space. But it seems like it's just really hard to execute as the bar has gotten higher and higher with, uh, with these established businesses. Yeah, for sure. You know, I,'ve certainly seen a number of entrepreneurs want to pitch ideas for better startups. The question is, what does better mean in this category? And I think booking has been the illustration that better, as booking defined it, is higher converting. And one confuses consumer satisfaction with business model efficacy. If you can find a way to get more clicks, more bookings out of a given visitor, you've got a better mousetrap.

But that's a less sexy idea than helping people plan better honeymoons. Yeah. Well, one thing on this front on innovation and entrepreneurship and the entrepreneurialism in the travel industry I want to come back to, maybe in tech themes, is of course Airbnb, which is a wholly different approach to this industry, but is nonetheless still the travel industry. All right, listeners, our next sponsor is a new friend of the show, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today. It's purpose built for small to mid-sized businesses and provides enterprise-grade security with the technology, services, and expertise needed to protect you. They offer a revolutionary approach to managed cybersecurity that isn't only about tech, it's about real people providing real defense around the clock. So how does it work? Well, you probably already know this, but it has become

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Our huge thanks to Huntress. Do we want to jump into acquisition category? Yeah, let's do it. So for me, I have this down as business line. For new listeners to the show, we define that as people, technology, product, business line, asset, or other because we leave ourselves the right to do whatever the hell we want on this show. So, um, so in, in this one, you know, a lot of times we define a product as like, Hey, this is a new product. You can, um, you can sell to your existing customers. Like, uh, an Apple would come out with an iPhone after coming out with an iPod.

Um, this, this for, for, um, for me is really something where, you know, it's a new marketplace with new supply, new demand, um, a new business model, and it's completely separately broken out on the balance sheet that they bought a new business here and they happened to learn a lot from it and, and really make it the, the cornerstone of, uh, of the company and, and grow from there. But, um, that, you know, they, they bought a wholly separate line of business and they kept it pretty separate. Yep. I don't have much to argue with there. I mean, literally they reported it as a separate business line on their financials. So it's kind of hard to argue with that. I figured that's an easy one for me to jump in on. I got nothing here.

Yeah. No, no, no argument.. Our resident grizzled industry veteran agrees. Moving on. What would have happened otherwise? This is interesting. Yeah, I mean, what if Expedia had pulled the trigger? That's sort of the obvious one, right? I don't know. Drew, what do you think about that?

I mean, with deference to my friends at Expedia, I'm not sure they would have done as good a job managing this business as Priceline did, rather. And the good job was just leaving it alone, right? Exactly. I mean, this is effectively a VC play. I guess the better question is, why was Glenn Fogle the one who sniffed out this deal?

Where were all the great Silicon Valley... Yeah, greatest travel industry VC investor of all time. Um, yeah, it does seem, uh, who, who was the intermediary that they sold it to? It was like a private, private equity firm. No, I, I think I could be wrong on this, but I think it actually was just a, a group of, of private, um, individuals, uh, private investors in Europe. Um, that Gert knew. Yeah, I mean, it seems like their opportunity cost for them is the real story here. Why let it go? But I think this might be a good time. Drew, when we were preparing for this episode, you mentioned sort of a difference between Expedia's M&A strategy and Priceline's M&A strategy, and that Priceline sort of took these risks on early kind of subscale businesses that they saw potential in. And Expedia tends to buy more established things that have a very reasonable growth trajectory from there that they can add to their portfolio. Does it seem like I'm getting that right? And I'd love to hear your thoughts on that. Yeah, I think that definitely characterized a lot of the deals that made Priceline successful, active, booking, Agoda. And again, I think you saw the strategy we

just talked about from Priceline of buying these businesses and effectively being largely a passive investor, holding them accountable for growth, giving them capital to continue to grow, but not taking too active a role in the management and integration of those businesses. Expedia, by contrast, has built a single dominant scale platform. And we should give Expedia its due here, right? I mean, it's an almost $20 billion business. They do, what, 350 million room nights to the 500 that Booking.com did or Priceline did last year. So it is a real formidable player in this category. But their approach has been different. They bought Travelocity, they bought Orbitz, they bought What If in Australia, and they bought these players. And their strategy has largely been

to say, we have a tech platform that is incredibly mature, we put huge investments in, and we now want to start to get scale out of it. And so they buy effectively these storefronts, replace them with superior economics, superior technology, see some gains in terms of productivity, both click-through rate and their ability to monetize it, but have taken a much more active role in the management of the businesses. Yep.

And then another question is, did Priceline need a capital infusion? I'm sorry, did Booking need a capital infusion from Priceline? Or what if on their own, they just sort of continually reinvested their profits in the business in sort of this aggressive Amazon style way? Is there any way they could have grown to be the scale that they are today? Or would they have sort of lost out in the arms race of competition? It sure seems to me like Booking could have done this on its own.

Booking didn't need Priceline to achieve the scale that it did. And I think, again, it's a testament to Glenn's judgment and acumen in finding the company and seeing the opportunity here. But I think that's an opportunity that was available to any financial investor. Yeah. At the same time, I think this might be a good lead-in to tech themes. We're always just trying to get into tech themes on this show. You rename the show.

Yeah. Tech themes. I think that would be pretty boring. This is the thing about marketplaces, though. You'd have to have more than one tech theme. I'm just going to dive in. I mean, to me, um, this is such a wonderful illustration of, of everything that is both incredibly challenging and incredibly, you know, beautiful about marketplaces, which is they're a total slog to get started. I mean, thinking about those early days, bringing all this very fragmented, very disparate supply all across Europe, supply of hotels onto the booking.com platform and Gert sending out postcards to everybody.

You know, you can totally see why Expedia would look at that and say like, you know, that seems hard. And the business model doesn't seem as good as ours. But then the thing is, you know, once you get to a certain scale point, and I think this is the value of capital in building marketplaces, is accelerating to get to that scale point, then it tips, right? And then it's just the defensibility. We were talking about why you haven't seen more major companies built in travel online. I mean, the defensibility is so great in booking, like because everybody is on it on both sides of the marketplace, there's no incentive for either side to go anywhere else because the experience isn't going to be as good. Yep. And it really is an argument for, for consolidation too. I mean, I think we've said this before, but one of the reasons why we set out to do this show is understand when M&A works and when it doesn't. So that when we're involved in the earliest stages of companies, we can try and figure out how do we steer the ship if the goal is to get acquired by one of

these bigger companies? Where can we nicely fit? And it sure seems like marketplace businesses are so well-suited. Whether you combine the business lines or not, you can look at Zillow and Trulia or more recently and here locally, Rover and Dog Vacay. I mean, when you take a lot of supply and a lot of demand and the exact same value prop or a very similar value prop, and you can consolidate a lot of things onto a single platform and bring these things together, it seems like you take that flywheel that's already spinning so well. Do you have a counterpoint, a counterpoint though?

Oh, I was going to say, I mean, there, you know, I think there is certainly pressure. You know, if you talk to hoteliers,

right, suppliers in this world, they're not stoked about this marketplace. Yeah. Right. There's no hotelier in the world who's like, OTAs were a good thing. And,

you know, you're going to have some sympathy for them. You know, if you look at the stock chart of, you know, Hilton versus Priceline over this period of time, you can see why they might not be so excited. Well, I totally get that from Hilton and Marriott's perspective.

But what about the 20-room villa in Romania who had no way of acquiring customers otherwise? Or the dog sitter who wasn't yet dog sitting or the Airbnb-er who wasn't yet utilizing that spare bedroom, maybe I'm making an argument for unlocking value that was previously unlocked due to a lack of ability to find customers in the sharing economy. And it's certainly not as true if you're commoditizing suppliers who are already running a business. You guys are bringing a great point. Another way of framing this is,

this discussion we're having around OTAs shows, let's say, the challenges of the business model of these kind of legacy hotel brands. Because the perspective of Marriott looks really different than the perspective even of a Marriott franchisee who actually owns their hotel. The Marriott franchisee says, I used to have to pay, and just a slight digression, the way hotel economics work by and large at the brands is you have a brand like Marriott that is a franchisor that sells to somebody who owns real estate the rights to call their hotel a Marriott and then generate some demand. They'll take a franchise fee on that roughly between 6% and 15% based on their business. But they're taking that on all the reservations that happen at that hotel,

not just the ones that got generated by Marriott. And over time, those costs have gone up to the point where many hotel owners are saying, wait a minute, it costs as much money to sell through Marriott, my own quote-unquote direct channel, as it does to go to an OTA. Right. And Marriott.com is probably not doing much for me these days.

Exactly. Right. And Marriott.com is probably not doing much for me these days. Exactly. Interesting. Well, so what about, I feel like this is still on the marketplaces tech theme, so I'm going to take some more of your time.

Let's come back to Airbnb now. And HomeAway and others. To my mind, what they and Airbnb far more successfully than anyone else has done is taken this innovation, this marketplace innovation, and unlocked just a huge new amount of supply with it and brought many of the advantages

that we were talking about earlier in the show that were, I think, mostly enjoyed by the demand side, by consumers and the OTA model. As you were saying, even with the agency model, a lot of supply is like, mixed feelings at best about it. But Airbnb has brought this innovation to a whole new set of supply as well,

where if I own a home that has an extra bedroom, I'm just thrilled that Airbnb gets me an extra $1,000 a month, right? Totally. I think that's been Airbnb's real innovation in this category, right? There's a ton that we can find.

It's just amazing about that business. But to me, the thing that's truly distinguishing about it is the way they created this whole new class of supply. And supply that was really exciting. If I go stay in New York, I'd much rather stay in a cool apartment in the East Village than in a $900 restaurant and have a kitchen

than getting stuck in Times Square. Airbnb made all that possible in a way that wasn't true in the past. Or the $900 a night Holiday Inn. That's right. Jeez. Br's right. Jeez. Brutal. I mean, that's, to me, this acquisition and this whole industry really just is such a

good example and pure example of, you know, the power and dynamics of marketplaces. Yeah. That's what I got for tech themes. One of the things I was thinking about, and I wasn't, as I kind of tried to put this together and we prepared for this, was what would it take to challenge Booking.com?

If you think building this marketplace is about gathering enough demand to make this whole thing work, could you compete with them? So again, today, Booking.com has the advantage of having done this for, what, 20 years. They today generate half a billion room nights.

They spend $3.5 billion per year in marketing. But could somebody else go do that? You know, could you begin to compete with them to generate that level of demand? You know, and I guess the, you know, potential, the person I was able to identify who looks like they're at least making a run at it is Trivago. Today, Trivago is spending I think $800 million a year. And they're Expedia-owned, right? Expedia, I think, has a 40% stake in Trivago. It's got a public float

and the founder is still on part of it. But yeah, it's part of the Expedia portfolio. But taking the same playbook in the sense of can we get enough demand here to make this a platform

that gets them lock-in? Yep. But the following question, if you wanted to go spend $3.5 billion a year on marketing, could you do it? Could you find enough channels? Absolutely. It's funny that this works. Yeah, this is one tech theme I was thinking about too. After talking to a former Expedia marketing person, this person was mentioning that Trivago is absolutely exceptional at digital marketing and really understanding exactly when to be bidding, bidding on Google, understanding exactly how high value that traffic is, how high value that keyword is. super high fidelity and instrumenting it all the way from placing the ad all the way through the

end of the transaction and continuing to track that lifetime customer value over time. And it seems like the way that you kind of win on this is better and better digital marketing. And I think there was actually a lot of articles back around the time of this acquisition that booking had sort of been incredibly successful because of their mastery of being able to buy keywords on Google. And there's definitely an opportunity to do better than that now as Google's tools get more and more sophisticated for this. And I think that it goes to show that Google really does take a tax on e-commerce broadly. And with this as an enormous category, I'd love to see travel as a revenue driver for Google. And I think one way that Airbnb is disrupting here, and I wonder if somebody else can disrupt in the hotel world rather than just in the kind of specialized Airbnb world is, can you acquire supply? I'm sorry,

can you acquire demands of travelers and retain them as your customers without them going back to Google and you having to reacquire them? And Google being the central source of where people go to search for travel stuff all the time. Yeah, I think there's no doubt that Airbnb has played that role so far, right? And I think, to your point a moment ago, David, the fact that they have this unique access to supply has allowed them to take that kind of position. There's a question of can you do it in hotels, particularly given the fact that it's relatively commoditized. That hotel inventory now shows up on lots of different channels. Yep. But I think one other thing to understand, and it's worth getting in, thinking about the consequences for why it worked for Booking.com is what allows them

to spend at that level of scale. And the same for Trivago, right? What allows them to spend at that level of scale isn't simply the instrumentation or the fact, you know, they have three and a half billion dollars to spend.

It's that they get the conversion. Yeah. Right. The reason, because all these guys look at, what's my ROI? You know, and again, part of that is spend, but really the biggest driver and also commission rate, what's my take rate around an individual transaction? But the thing that has the greatest delta, the thing that really drives performance is when somebody came to the site, did they buy?

Booking.com's innovation wasn't that it looked better. I mean, frankly, you look at it and it's like, gosh, why are there so many things flashing? The thing flashing? Because that's what gets me to buy. Yeah. Well, and this is, I feel like this is such a powerful concept. Bill Gurley actually has a whole blog post about this, about conversion, especially for marketplace businesses. It is the biggest product that you're building when you're at a marketplace company is essentially the matching of supply and demand and the consummation of that match. And so your job is to maximize the rate of consummation of that match. And if you don't realize that, you can start investing in all sorts of things that are not going to be driving your business. And I guess going back to the Expedia, why did Expedia miss this?

In 2002, it wasn't obvious that this was a marketplace. In 2002, you had big portal tenancy deals that drove a lot of traffic. And I signed a $10 million deal with Yahoo or with AOL saying, I'm going to get this spot and it's going to be true for the next year. And I'm relatively indifferent, not indifferent, but have less pressure around what the performance of any individual session was. Right, because you were just getting

that stream of clicks no matter what. And you weren't paying on a variable basis for them. Right, got it. Interesting, interesting. So one thing, actually, Ben, were there any other tech themes you want to cover? Yeah, I got, I got one quick one before we move into grading.

Uh, so do that. Um, selfishly, like one of the things we do at Pioneer Square Labs is, is look around at other business models and try and figure out like, can this be done in a new space? And something that I think that, that I've been paying a lot of attention to recently is as this generation shifts toward a more on-demand, less committal life, this agency model makes a ton of sense. The idea that, yeah, I'll book that stuff, but if I don't want to go, I get a refund. My credit card doesn't get charged until I stay in that hotel. And there's policies of 24 hours, 48 hours, whatever it's going to be.

But you're afforded a bunch of flexibility, and you can sort of plan ahead. And then if you don't want to do it, whatever it's going to be. But like, you know, you're afforded a bunch of flexibility and you can sort of plan ahead. And then like, if you don't want to do it, you don't want to do it. So I think a super interesting lens to think about new company creation is, you know, what else can you take that people are like hamstrung into committing to right now and allow them much more flexibility and change the business model dynamics within the industry to allow them that. Because, as we talked about before, the best consumer experience will continue to win.

That's all I got for tech teams. Well, if we had some answers, we should start some. Can I challenge that slightly in this case, Ben? Absolutely. I don't think the best consumer experience is what won here. At the very least, we need to think broadly about what best consumer experience is. Because it wasn't like that Booking.com had the most attractive, best designed website in the sense of UX.

Lots of people would say it's not that attractive. But it was best in the sense that it delivered the most conversions. And the reason it delivered the most conversions was it had the most and best inventory. Which I'm, at least to me, that's the consumer experience, right? Like you're able to get what you want. And I think maybe a secondary thing here is probably the lack of commitment to it.

But to me, being matched with the correct supply is just a facet of the consumer experience. Sure. Point taken. So, you know, many levers to have at play here. Well, I think it's the same, you know, it's the same thing. We're quibbling over the definition of consumer experience, but it's, you know, in the same way, like, I don't think anybody, you know, apologies to our friends at Facebook, but,

and especially LinkedIn, but nobody would argue that those are like the best, most beautifully designed sites. Right. But you get as a consumer of them, you get your experience fulfilled best of what you're looking for, which is, you know, I'm looking for professional networking on LinkedIn and social networking on Facebook. What they look like is almost secondary, but it's what I get out of them. Yeah, so Drew, in thinking through this a little bit more, if consumer experience is the umbrella of things that enable you to win, I think you're right that being matched with the correct supply is far more important than your requirement to commit. Yeah.

Okay, one last one, sort of sidebar I wanted to cover before we grade it. And it might inform grading. Drew, I'm super curious. One thing we haven't really talked about on the episode thus far, we've talked about OTAs. We've talked about the various flavors of them. You've talked about Airbnb. What role does Metasearch play in this world? I mean, you were at Kayak for a long time. And Metasearch sort of takes a wholly different approach. It's a layer on top. It's not a marketplace itself. What is that role in the ecosystem here? Well, I think it comes down to actually the point we're talking about with Ben, what is that role in the ecosystem here? Well, I think it comes down to, um, actually the point that we were just talking about with Ben, which is how do I make a decision?

How do I find what I want? And what's the separation between that decision-making process? I E I want to stay at this hotel or take this flight on these dates and the transaction process. I'm going to complete this booking. Um, and you know, meta search, vertical search, you know, was an abstraction of, again, that decision-making process. One of the things that was really powerful about it, I think has allowed it to grow very quickly is it, you know, it limited its scope,

right? At Kayak, it was like, we have the most amazing website. It's two pages long, right? It's a front door. You ask a question and then it's a bunch of answers that you can find them when you want and you're out, you know, like, you know, things moving through a goose was the metaphor that we talked about. You know, I think you talk about... We're a friendly show here. You know, I know you have advertisers. Yeah.

Appreciate that. Trivago did it one better, right? You look at Trivago, you're like, it's a one-page website. You know, it's all JavaScript. You start typing in, you know, results start to render.

There's so few things that you have to interact with. And again, the benefit of that for them is, wow, how quickly can I move from a visitor to a revenue event? All that leads to really effective monetization. Really clear visibility too, right? I mean, the point you're making, Ben, on how well Trivago does at tracking

both initial monetization and the repeat visit rate, all that is possible because all those events happen within the same session. I don't know if I answered your question. No, no, no, that's great. And so I guess for the meta search layer, it does greatly improve the customer experience. And what the meta search folks have said is, we're not going to monetize at the transaction level, at the marketplace engine. We're going to get paid on a CPC basis, you know, and we're going to get paid by the

various marketplaces or by the bookings and the orbits and the Expedia's themselves. Yeah. Now that, that, you know, those lines have gotten blurry over time and the big driver that, or I think one of the big drivers that created that was, was mobile, you know, so you know, on the browser where you're in a desktop in the browser, you had a bunch of windows are open, you could do a search, you could then spawn separate windows to complete a transaction.

Most websites were pretty well designed from an e-commerce standpoint. You could look at what the conversions were from leads out of a meta search into an OTA. That broke down, especially early on in mobile, where folks had poorly designed mobile booking pages. And in an app,

that process going from one app to the next was much more convoluted. And so the consequence was meta search engines started to build what they described as instant book. Effectively, they would allow you to complete a transaction. They would use a book API.

So they were calling into the OTA or the marketplace to complete the transaction, but it happened within their environment. Within the environment. And are they actually getting paid on the transaction fee then rather than just sort of for the ad placement? Yeah, the reality of those transaction fees is that they've always been a little bit blurry. Like, you know, a lot of the CPC deals had some kind of performance guarantee, or, you know, you would get paid on a CPA and normalize that back to CPC. So, you know, a lot of the CPC deals had some kind of performance guarantee, or, you know, you would get paid on a CPA and normalize that back to CPC. So, you know, it wasn't all that different to go from, you know, the meta search type agreements to the instant book type agreements.

The thing that was harder about it, and I think instant book has had a relatively mixed track record. You know, if you look at TripAdvisor's stock performance, you can, you know, their financials, you can see the challenges that Instant Book has had. It has had a huge impact on TripAdvisor's monetization. You know, we played around with it at Room 77. You know, Kayak has done some of it, but it has not taken that much root

among meta-search agencies, right? Like it has not become that dominant. And I think one of the big reasons is it's actually pretty hard to complete these transactions, right? Like you think of sort of all the big reasons is it's actually pretty hard to complete these transactions. You think of all the edge cases that happen when you're going to complete a booking. The credit card fails.

The room's no longer available. All those kinds of issues. A packet gets lost. For whatever reason, the transaction doesn't complete. And it's such a considered purchase for the consumer too, right? I mean, you're spending hundreds of dollars here. Exactly, exactly. And it's much harder to deal with those edge cases if it's somebody else's

book API than if it's happening in your own environment. Interesting. Okay. I feel like we have the full picture now of the online travel industry. Should we grade it? Or at least as much as you can get in an hour. Yeah. Online travel industry in one hour or less. Yeah. Well, I mean, I don't think we need to spend a lot of time on grading, or at least I certainly don't. I'm not sure that there was something that was more successful that we've done other than Next.

Like this was a company that was- Oh, whoa. Are you going higher than Instagram? I think so. Wow. I think so. I know. I mean, to the, because I look at it this way, like, Instagram wasn't really company saving for Facebook. Like, Instagram has become an incredible boon. But would Facebook be, you know, completely irrelevant if it weren't for Instagram? I mean, Instagram helped them inform the mobile strategy and lots more

young people interact more per day on Instagram. In the way that I think that Apple would have been totally hosed without buying Next, I think that Priceline may have been totally hosed without buying Booking and Booking has turned into a gigantic business. Like if you look at, I mean, just comparing Priceline and Expedia, Priceline's market cap is $92 billion. Expedia's is about $22.6. Over two-thirds of that $92 billion comes from booking.com going from $130 million acquisition

to responsible for a market cap of $60 billion plus, A plus. Wow. You heard it here first. Booking.com, bigger than Instagram. I love it. Wow. I hadn't thought about that. We'll let Drew have the last word here. But do I think that this is better than Instagram? Yeah, I mean, you made a pretty compelling case there. And I haven't checked the latest Instagram financials. I mean, I guess, so here's my knee-jerk reaction to that, but I think is the wrong one, is I would say, well, yeah, that's true.

But think about market size. Instagram is everybody in the world. to that, but I think is the wrong one is I would say, well, yeah, that's true. But like, think about market size, like Instagram is everybody in the world. But then I'm like, wait a minute, travel is everybody in the world too. Well, you know, there are at least a huge portion of it and it's, and it is monetizable at a vastly higher rate than, you know, um, social networking apps. Um, so yeah. Wow. Um, I, I, uh, I don't know that I'm willing to go better than Instagram, but I'll go at least as good as Instagram. I think, I think, uh, you know, uh, I'm trying to think back through all of our episodes. We have so many at this point, but, um, and the ones that are popping to mind, I think I stack rank next. I mean, as we said on that show, it literally was a trillion dollars in, in, you know, revenue that was created by that acquisition. Um, and then, uh, and then I think Instagram and booking, you know, are both, uh, of a scale that, um, that are, are, you know, pretty incredible. Not a trillion dollars yet, but, um, maybe someday. What was the purchase price on Instagram?

A billion. One billion dollars. And what did you guys put as the current value of Instagram? Well, when we did the episode, which was about two years ago at this point, right, Ben? Yep. I think there was an analyst report. It was from Citibank. Yeah, from Citibank that valued at what, around $35 billion? Somewhere in there. I don't know why I remember the number 19 or 20, but it's that big.

Yeah. So sort of on the order of that big in a timeframe of, call it three years post-acquisition. And so here we have $60 billion after 10 years. So, all right, Drew, school us all. Well, no, I mean, I'm with Ben on this one. I guess it's a little bit of home team pride, right? You call it travel industry guy. Of course, I got to tell you, this is the best deal ever. Better than next? Okay. Hopefully rational as well. But yeah, I think it's just phenomenal, right? To think that Jeff Boyd had a 100x increase in the value of Priceline stock as a CEO. That is just breathtaking.

Going through the numbers and looking at the level of growth that these guys have been able to achieve over that duration, staggering. And yeah, I guess one of the things that to me is a little bit humbling. I remember talking to Jeff Boyd at one point in time. I don't remember when it was, but yeah. And Jeff was the CEO of Priceline Group until,

well, there was a long history, but CEO or chairman of Priceline Group until Glenn took over in the beginning of 2017. And I remember talking to him. I was like, what are you guys going to do next year?

Talk about your plans. This is a focus, right? The industry, big industry kind of confab. And he's like, yeah, we're going to do what we did last year kind of confab and it's like yeah we're gonna do what we did last year and a little bit more

that's what we're gonna go to booking's gonna grow 40% that's a pretty good plan just like last year you should keep doing that yeah you should keep doing that wow

well there we have it the history of either the second or third best acquisition of all time on the internet

so thanks for thanks for joining us, Drew. This has been awesome. Guys, thanks for having me. It was a lot of fun. Okay, real quick. Carbouts. Sweet.

So one thing I watched last week that was linked on Daring Fireball and was really awesome to kind of leave on in the background and do some stuff around the apartment was Scott Forrestal appearing publicly for the first time to talk about anything related to his old gig at Apple running the iPhone project when he was live at the Computer History Museum a few weeks ago. And there's a Facebook video that we'll link to here. But it starts with an hour of a super interesting panel with some of the folks that worked under Scott on the original iPhone project. This is all sort of commemorating the 10-year anniversary. And Scott just telling amazing stories of how the iPhone came to be, a lot of sort of never

been revealed stuff, personal interactions with Steve, Steve at time when Steve jobs in his words, uh, uh, saved his life quite literally from, from, uh, he was incredibly ill and, and, um, um, Steve and, and some incredible acupuncture sort of saved his life. And, uh, it's, it's really cool. Like if you're into, um, if you're into this podcast or you're into a internet history podcast, Brian McCullough's, um's show, you will really, really like this interview. It's been on my to watch list and it just sounds amazing. I mean, this is I think this is Scott's first public appearance since. Regarding technology. Yeah, he I think spoke extremely briefly when I think they won a Tony.

Oh, that's right. He produced a Broadway play. That's right. Yeah. Yeah. But never about any of this. Since the, you know, Apple keynote stage. And the funniest thing is it looks like he's wearing the same shirt.

They like make fun of that, but like the dude has a style. Love it. Hey, you gotta have a calling card. Yeah. Um, mine is, uh, so Jenny and, uh, and Jenny's dad, my father-in-law, Gary, and also shout out to Gary fan of the show, um, went to see the big sick in movie theaters last weekend. And, uh, it was great. If you haven't seen this movie yet, it was both the funniest and the most well done and most touching movie

I think I've seen in many, many years. Best movie I've seen since The Force Awakens, for sure. High praise. It deserves it. I think it's got like a 98 on Rotten Tomatoes or something like that. And it's it. I think it's got like a 98 on rotten tomatoes or something like that. And it's great.

And it's, and it's Camille, not, not Gianni. Apologies if I butchered that too, but who, who plays in Nash on Silicon Valley. And it's,

it's the, you know, mostly true story of him and his wife and how they met and their, their lives together. And it's just, it's wonderful. Wow. Cool. And it's just, it's wonderful. Wow, cool.

Drew, do you want to join in the fun? Sure, yeah. So I've been into, I like email newsletters, you know, Jetsetter, like can't get away from it. But I've been loving Money Stuff from Matt Levine. It's a little more kind of markets oriented than pure tech. But he is just an incredibly funny writer and super insightful on what's going on in the markets.

A lot of kind of blockchain commentary, what's moving on, going on in the VIX. People are worried about not being worried enough. He's got these great segments, so definitely worth checking out. Cool. Awesome. Will do.

Well, I mean I think that's it Drew where can our listeners find you on the internet my twitter handle is Drew Patz D-R-E-W

P-A-T-Z that's probably the best way to track me down great great well thank you so much we appreciate you coming on the show it's a pleasure

and I know our listeners will appreciate some actual domain expertise and insight for a change too. Rather than Ben and me speculating wildly. Well, thanks for having me, guys. Yeah, yeah. We want to thank our longtime friend of the show, Vanta, the leading trust management platform.

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