How I Built This with Guy Raz - Tripadvisor: Steve Kaufer

Episode Date: October 31, 2022

Steve Kaufer got the idea for Tripadvisor in 1998 after spending way too many hours online, trying to figure out if a resort in Mexico was really as good as its brochure. When he launched a travel guidance site a few years later, his business plan failed spectacularly because he was trying to partner with other websites, rather than engaging directly with travelers. But Steve eventually arrived at a winning formula: make Tripadvisor available to everyone, aggregate tons of information about hotels and attractions, encourage travelers to add their reviews, and earn a fee from travel companies whenever users clicked to their sites. As the company grew, Steve remained at the helm, leading it through a $210 million sale to IAC, followed by a multi-billion dollar IPO in 2011. Today, Tripadvisor gets over 400 million visitors a month; and Steve—who just stepped down after 22 years—is already thinking about his next business. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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Airbnb.ca.ca. slash host. That first revenue check dot, dot, dot, dot was $500,000. $500,000? That's what I was, I thought like, is it, is the decimal point just in the wrong place? Is there a typo on this check? But for three months of web advertising. your 50% rev share. It was $500. Wow. We looked at this and said, oh, massive sigh.

We got a massive problem ahead of us because there's no other way to say it. We just had a failed business model. Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how Steve Koffer overhauled a disastrous business model to build TripAdvisor,

a travel website with over 400 million visitors a month. When I book a restaurant or a hotel, or even search for a product on Amazon, I almost never pay too much attention to the rating. What I do, though, is I read the reviews, because even if a hotel or a restaurant has five stars, you're obviously going to find out a lot more from the words, and descriptions of someone who's been there. A lot of times, the ratings have nothing to do with the food or the comfort of a hotel room.

People will ding you for stupid reasons. The parking lot was full. One star. They didn't refill my water. One star. The line for the bathroom was too long. One star. Which is why I have a love-hate relationship with most review sites.

But there's one that's actually been pretty reliable. TripAdvisor. I have literally changed a reservation because one reviewer thoughtfully pointed out how wonderful the hotel was, but also how it wasn't really a great place for kids. And I've left reviews of hotels that are amazing if you have kids, but horrible if you're looking for peace and quiet. But remarkably, what makes TripAdvisor so useful, the user-generated reviews, was an afterthought. It wasn't part of the plan. When Steve Koffer launched the site in the late 1990s, the idea was to aggregate a bunch of hotel reviews from the internet and then try and sell that information to other websites like Expedia and Yahoo. But that model didn't work.

It turns out Yahoo wasn't that interested. And so just months before TripAdvisor looked like it would become another casualty of the dot-com bust of the early 2000s, Steve Koffer came up with a new plan. Get hotels and airlines to pay a fee anytime someone booked through TripAdvisor and eventually get travelers to write reviews. That plan wouldn't just save TripAdvisor, it would turn it into a multi-billion dollar travel and review website. Steve Koffer grew up in Los Angeles and majored in computer science in college. When he graduated in 1985, he and a few friends decided to start a software company in Boston, And that turned out to be his first legitimate business. He stayed at that company for over 10 years.

I think we incorporated in 1985 or 86 and did the typical thing of, well, we're going to live together in the same apartment. And we're going to code in the night. And we went to our day jobs during the day as we tried to get it off the ground. Who did you do this with? So this was with Sessa Prattop and Russ Lopez, two classmates from school. And so the company that you started, tell me what did it, what did you make? Tell me understand. What was the problem that you were solving for?

You know, when you go through school and we were taught to program in C, every kid spends an inordinate amount of time up really late at night trying to find the darn bug or bugs that are in the software. So some of what our software did was automatically check for errors in the code. both when you first wrote it and then when it was running. So he sold a productivity tool and almost everyone that tried it found that to be pretty effective and sales did pretty well. So how quickly, I mean, this company, you ran this company, you were part of this company for, I think, what, 12, 13 years? Yes.

It grew. We grew up to 150, maybe 100. 160 people, 18 million in revenue. And then, you know, market changed a little bit. You know, the company grew up. And then it started having growth challenges. And then it started to contract. And so it finally sold to a company called Compuware in 98.

And the company was less than a dozen people at that time. Wow. I mean, it sounds like it was happening sort of in real time. Like you grow to 150, 150, 160 people. And then by the time you are sold, you've got 12 left. There must have been a point where the leadership sort of looked around and said, we've got to quickly make some decisions here because we're losing market share or, you know, we're losing business. Oh, yes.

And we had proverbial blinders on. We kept telling ourselves, if we just did one more thing with the product, sales would revive. And then when we invested in building a different product, we made the absolute classic mistake of, hey, we thought this was what our customers would want, but we neglected to find customers that would say, yeah, if you build that, we will buy it before we actually built it. So essentially, you didn't adapt quickly enough. you had this great product, $18 million in revenue at a certain point.

But there were clearly competitors who were focusing on a completely different market that began to dominate the sector, I guess. That's right. The big turning point, frankly, was when we had to do our first round of layoffs. Ironically, or perhaps not surprising to you, but I learned way more on the downhill trend of the, of that company than the upswing. Yeah. And so that stuck with me to, you know, to this very day as a like, wow, just like really messed up managing this company.

And I just really never wanted to have to go through that again. Hmm. So in 1998, you and the other founders sold, I think half of the assets of the company. Basically, it sounds like there was no choice. you wouldn't have survived. You had to sell. That's right. It was a fire sale or bankruptcy. Part of the sale to Compuware involved me staying with the company for a year for the transition. So you walked out of that 13, 12, 13 year experience, not a rich guy. Yeah, nothing there.

So you didn't walk out with like a $10 million payday. It was closer to a zero payday. Wow. So we get to a fateful moment in your life. And really, I mean, I think I'm probably oversimplifying it because I don't think it was so dramatic that it was like a light bulb and then the next thing you have this company. But you go on vacation to Mexico. This is 1998. And tell me about that vacation or what happens on that trip that actually sparks an idea.

Well, it was actually the planning of that trip. My wife and I walked into a travel agency. And they, you know, a nice, it's usually a lady. Lady says, you know, how about Mexico? We said, sounds good. And we settle on a place called Playa del Carmen, which is just south of Cancun. And she hands us three brochures of resorts. Yeah.

And said, well, this one is not very expensive. This one is moderately priced. This one is on the luxury side. Where would you like to stay? I laughed when I think about it because when we got home, I'm like, hey, so we're going to stay in the cheap one, right? And my wife was like, well, let's make sure that that is still up to our standards. I'm like, yeah, great idea. So I went online.

Super disappointing. I come to a travel agency site in Cincinnati, Ohio. It's got a low-res picture of the beautiful picture I already had. front of me from the brochure and a 1-800 number to call to make a reservation. This was not helpful to me. I wanted the pros, the cons, the people that loved it, that hated it. I wanted the candid photos, not what I suspected were touched-up photos that were in the brochure. Fast forward a few days later, because I can be pretty persistent.

I want to figure out how to find a site that wasn't a travel agency. So using it's called negative keywords. So I don't find me the pages that talk about this hotel that don't have the word facts or deal on it. Because that turned out to give me pages that weren't travel agencies because every travel agency had a fax and a telephone number. And it gave me a page. And eventually I found, you know, this person's a precursor. to a travel blog. They had wrote up their trip that stated this property, and they had actually posted a couple of photos that they had taken. And Lordy, the difference between those photos

and the ones in the brochure night and day, I showed them to my wife, we looked at each other, and like, wow, thank goodness, we didn't pick that place. Yeah. Went on the week vacation, had a great time, and kind of on the way home. She's like, like maybe you should start a company that could help make this easier for other people. And I remember saying, nah, but I did write it down. And a year later, that was still the founding story that got us off the ground. All right. So the idea was, hey, there's nothing out there.

And this is 98 when you first were planning a trip to Mexico. certainly there was almost nothing out there that, you know, I mean, travel agencies were how you booked your trips and, you know, you kind of trusted travel agents or I actually remember, I think in like 1996, I went on a Thomas Cook package holiday tour. I was living in England. It was a student. It was really cheap to Italy. And, you know, the hotel was, you know, was not so great. But, you know, you just had to kind of hope. that it was going to be good enough. And it really was no way of knowing at the time. That's right. There was huge information asymmetry. It was an incredibly important purchase, a vacation. It was a big purchase in your annual budget.

You couldn't return it like, hey, I bought a TV. I don't like it. I'm returning it. And, you know, Expedia had just launched maybe a couple of years earlier. So travel. I think was like the number three or number four industry on the internet at that time. And our goal was to become the best travel search engine. And technically the first name, again, my nerdy come out, was called Tripresearch.com.

That was the first URL registered. Tripresearch.com? Yes. Nice. As my co-founders and I soon discovered, that name did not excite people to go on vacation. Tripresearch.com. What are you going to do for? I'm going to tripresearch.com.

That's where I do all my research for my trips. It's very clear. Right. And it was a terrible name. Fortunately, we recognized that before we actually launched anything. And so by the time we had to print stationery and have a demo site up, we had changed the name to TripAdvisor. Which is a softer version, right? It's like you're a friend.

Yes. The Trip advisor, not the trip researcher. It did not convey, oh, my God, I have to go to the library. But what was the concept in your head? What would it do? What was it going to be a website? What was it going to be? So we were going to build, we were going to search the entire web for all this fantastic information that we figured was already out there.

Information about where to go. okay, I should go to Cancun or I should go to Aruba or Paris. What's great to do in all these places? Amazing experiences. Where should we stay? But if you think about the timing on this, this is very late 99, early 2000, we incorporated in February. And so like, hmm, around that time, all of the, or many of the dot com companies that

that were super high flying, had spent zillions of dollars acquiring eyeballs, as they were called back then. Many had gone up in flames. And so we decided a much better opportunity, we laugh at this to this day, would be a B2B or business-to-business type offering, where we would search the web, find all this incredibly valuable information, license it to all. the other travel sites or anyone else who wanted it that already had visitors. So a client could be Yahoo Travel or Expedia or American Airlines or any of the other folks that wanted a better travel search experience on their own site. All right. So this was the idea. And how would you, how would you make money from that? You would make money every time somebody used one of these

search engines to search for travel and it basically dug into your search engine full of travel information? That's right. Any client of ours would pay us a penny a query or a small amount. So our business would scale beautifully. Right. The Lycos, or let's take American Airlines as a potential client, they always want to get people who are already on their site to go plan more vacations. But if you were on American Airlines and you search for for Aruba, they'd tell you flight schedules, but they wouldn't give you any great content about why to go to Aruba or where to stay. And so we approach them and would say, like, hey, let us power a great destination service for you. So if someone searches on Aruba, you can give them a link to say, explore more about Aruba.

We'll do all the work for you. We'll build that part of your site. It'll be on your site. you'll sell more airline tickets and we promise or we hope you'll sell more airline tickets than it will cost you in fees to us for the for the service. All right. So you've got this business model. You've got this concept.

And I guess you eventually bring on three co-founders to launch this thing with you. That's right. And one of them is this guy Langley Steinerd who had worked at a VC fund and who I guess helped you raise some sort of the money to get started, right? Yes. We raised $1.2 million to begin with. And Langley gets a ton of the credit for that. But I immediately called up our two other co-founders.

Tom Pulka, Nick Shanney, and persuaded them to come on out. And I acted as kind of CEO and product guy. And away we went. All right. So you've got the four of you. And where do you start? I know you had, I mean, did you get office space? where you did you start working out of your home?

What was the first physical spot that you guys worked out? So conveniently, my wife was running a spinoff company of Centerline Software called Centerline Development Systems. And she had that office above the pizza parlor in Needham, Massachusetts. And there was enough room for six or eight people. And, you know, so we made, you know, several hires that worked out of that office. Help me understand. Was, I mean, you did not have a consumer-facing product, right?

I mean, if you went to tripadvisor.com, it would look like a, like a corporate website? Well, for the first six months, it just had a splash page coming soon. And then we did kind of launch a demo. Dot tripadvisor.com is the way I think about it. But yeah, it's a fair question. Your B2B company, what do you need a site for? And our answer was, well, when we would talk to the folks at American Airlines or whatever, they would want to like, well, I don't understand what content you have. Where can I see this thing?

And our answer was, hey, go to demo. DotripAdvisor.com. I'll give you the password to get in. And then you can see how everything's organized. I see. But it was not, there was no intention to build a consumer facing site initially. That was not the intention. Okay.

And where do you go? Who do you start to call to pitch your product to? It was everyone that we could wrangle a connection to in the travel space. It was Expedia. It was, you know, Yahoo Search. It was Lycos. It was American Airlines. It was anyone in anyone that could or would take the call.

And that was tough going. Why was it tough going? Because, I mean, you were basically saying, look, you know, people are going to search for this stuff. And we've got this content. Yeah, yeah. You know, what were some of these potential partners saying? Like when you, I guess AOL was a big one at the time. What were they saying when you offered your services?

So we could not get any sales for the first like nine months of trying. And, you know, Yahoo's response is etched in. my brain. They said, because, you know, we got to some fairly senior folks there and they said, hey, we love your search. You guys do a really good job of delivering travel specific results. And yeah, we'll put your, what do you call your company, TripAdvisor logo right next to the, we'll put powered by TripAdvisor right next to the search box. This would be on, it's on like Yahoo Travel, right? Right. And it just became very apparent that they wanted us to pay them.

a million dollars a year for our logo to be featured there to help us build our brand. And we're saying, no, no, no, guys, we need you to pay us a million dollars a year for the benefits of all this amazing content that we have. And when they realized that we weren't about to be a paying client to them and we realized that, yeah, this group was not remotely interested in improving their product using somebody else's search results. Yeah, forget it. So I imagine there was a lot of investor interest in this sector. When you pitched the idea to investors to raise money, what did they say? Yes, travel was a great category for the internet. You didn't have to worry about shipping something.

Your reservation was already electronic kind of before the internet. So that all fit pretty well. But, like, we had this business model of licensing search results. And so the proverbial nine out of ten venture firms that we went to said, yeah, thanks, but no thanks. I get the consumer value proposition, but just not sure that there's a company here versus it being a feature or something else. They just thought it was, this was not valuable. The money really was in booking travel. Right. Which was a fair thing to say.

I mean, I think fair enough, right? Absolutely. And all of the, they were 100% right because our B2B model did not work. So in the first nine months of TripAdvisor, you did not sign up a single client at all, not one. Yes. And we attributed that to the fact that, well, we didn't even have a cited database. So the first nine months, we're still building the product. Right.

When we launched in October, the next nine months, okay, now we're. launch. People can see what we have. Let's go get them. Ra, rah, ra. And, you know, we hopped on planes. I thought we did all the right things to try to land the client. And really, it wasn't until, I think, second quarter of 2001 that we got our first client. And, you know, it was a big client, but, you know, but one client was not going to make the company. That client, I believe, was Lycos, which was a I remember a big search engine at the time. I think it was like in the top three or four, this is right.

It was like Yahoo, AOL, Lycos. Yes. All of a sudden, on Lycos travel now, you could look for hotels in Boston. You could see a ranked list of which hotels were the best ones. You could click off to read why we thought they were the best ones. But it looked strikingly similar to demo. tripadvisor.com. But Lycos had the eyeballs. Their travel section was huge. At least we thought it was

huge. And we had a major marquee client that we had hoped would open the doors for many more. All right. Before I get into how that relationship worked, I want to ask you about the content again. You had no editorial team at TripAdvisor, right? I mean, because you say that you could now go to Lycos and search hotels in Boston get a ranking of the top 10. But who was making that ranking? How was it determined? So that was our software, our algorithms. We had a very small sort of editorial team in the sense that they were helping us to find all of the articles.

And then we would scrape the web. We would find reviews of the popular hotels on these other sites. And again, I named them, Lonely Planet. or Fedors or Frommers, those folks would have given them a score. We took that score. We aggregated it with some other information that we had and produced an overall rank it. So the idea was this was going to be like value-added content. That was the argument you were making to companies like Likos.

If you run this, if you use this, more people will come to your site because I'll know you've got this quality information available. Exactly. And Likos said, okay, well, we don't really want to pay you for this content on a per query basis, but we'll do a rev share with you. So for all the people that come to the page, you'll get half the revenue that we make from selling ads on those pages. And we thought that was a great deal, given how big Likos was. Sounds great. So 50-50 rev share, I mean. Yeah, I mean, we were high-fiving.

This was a quarterly revenue check. And, you know, we didn't know that Likos by themselves would pay all of our bills. But with them as a major client, hey, things were looking up. All right. So that first quarter ends with this deal and they send you a check. How much was it? Yeah. Can we, we'll digress for a minute because.

At that quarter, September of 2001 was 9-11. And so, like, who, thank goodness we had Likos. Because they are still getting advertising on their site, and you were going to get a cut of that. They're still getting advertisers, would enable us to weather the storm. And so to your question, that first revenue check, dot, dot, dot was $500. $500,000?

That's what I was, I thought like, is it, is the decimal point just in the wrong place? Is there a typo on this check? What the heck could be going on? But I looked at it. I showed it. I'm like, it was $500. $500. I actually, I did not panic.

I was not worried about this. Of course, this was just a mistake. Like they didn't have all the tracking codes, blah, blah, blah. So, you know, I called them up. I'm like, hey, something must be wrong here. Like, for a quarter, we got $500 check. What's going on? But for three months of web advertising, your 50% rev share with five, this must be a mistake.

Exactly. Poignant because the $500 wasn't even going to cover our, you know, free lunches on Mondays to the company. Yeah. But sure enough, I talked to the product manager, very nice lady, who, just kind of pointed out because I'm like, but I see ads on the LICO's travel site all the time. And she, you know, calmly pointed out, like we tried to lower your expectations a bit. But like most of those ads are what we call house ads. So light bulb goes off in my head.

Like, holy cow, I'm getting 50% of a $0 ad. How dumb is that? Wait, a zero-dollar ad? Wait, because they were using unsold inventory to just run what? They were advertised. All the ads that I was seeing when I looked at the side were ads for other Likos products, Likos games, Likos Finance. Oh, so they were running self-promotional ads, which they don't obviously pay for or make any money from because it's their own ads. Right.

And when they did have a paying client, in general, they ran those ads on a page that they got 100% of the revenue for. And they didn't have to share it with anyone. Wow. And so, like, the blindfold came off. We looked at this and said, oh, massive sigh. We got a massive problem ahead of us because travel industry is in total disarray. We have, you know, just a, there's a. There's no other way to say it.

We just had a failed business model. Yeah. And like, okay, what's next team? When we come back in just a moment, how Steve and his team figure out how to make the business work and why they walk away from a big deal with the company that once shunned them, Yahoo. Stay with us. I'm Guy Raz, and you're listening to How I Built This. Hey, welcome back to How I Built This. I'm Guy Raz.

So it's around 2001, and TripAdvisor is doing all the things that a startup does not want to be doing. It's burning through money. It only has one client. And so far, that client's biggest check is $500. And we went into a controlled panic mode. We were like, everything is all about how can we get a dollar? What new business models could we tried? and we tried three or four very, very different ones.

But it was touch and go. And the business model, you eventually arrived at, the one that, of course, wound up working, I guess kind of grew out of this really critical decision that you made around this time, which was to make the site public, right? You basically opened TripAdvisor up so that anyone could see it, right? Yes. And so search engines were finding us, and, you know, some folks were finding it. And, you know, and we had our web analytics.

Some people are coming to the site. And what we eventually did find leveraged the fact of, like, if you are a consumer, if you're a traveler on the site and you are looking at the Marriott Marquis Hotel in the middle of New York City. And we give you some reviews and some rankings and I'm like, hey, I might want to stay here. The Consumer Insight says the next thing that traveler wants is, is it available for when I'm going to be in New York? And how much is it going to cost? Yeah. So we created a text link that said, check price and availability.

And if you clicked on that link, we sent you to the Marriott Marquis page on Expedia. Right. And so we called up Expedia and said, hey, we just tested something. We got people over to your site. So would you be willing to buy some leads from us? And they said, never heard of you. We don't buy leads. But we'll essentially give you a rev share on reservations that you make.

Like, okay. So if somebody, in other words, if somebody clicked to a hotel that opened up the Expedia reservation page, they were willing to give you a cut of that reservation if the person made a reservation on the page. Exactly, if the person made the reservation. Right. And so no risk for Expedia. Right. And we were desperate.

What we eventually agreed to was 50 cents per click. 50 cents per click, even if the person did not make a reservation. Correct. Okay. And then they did the math on their end. Big top secret. Can't possibly share that information with you guys. So in November, we did a test, which since they had all the power, it was a free test.

We sent them 10,000 clicks and called them up at the end of the test. And they said, oh, looks like you got some conversions. We're willing to keep the test going. And we said, well, it's not a test anymore. It's a paid order now. And we sold our very first real revenue client, 20,000 clicks. for $10,000 in the month of December 2001. And you could actually track it because you could see when somebody clicked.

You didn't need to audit Expedia. You would know exactly how many people were going to their site. That's right. And at the end of the month, when we called them, because we're looking like, hey, can we do this again for January? And I vividly remember these like magic words at the end of that conversation, which was, hey, you know, the quality of your leads is pretty good. We're happy to continue the order. If you have more leads you can send, we're happy to spend more so long as the quality stays high.

The quality of the people who are going to hopefully book. Right. And that became a very beginning of a very long-term relationship with Expedia and eventually all of Expedia's competitors to form a business model that has us selling leads on a cost per click basis to people who want to make reservations. But here's the thing. You're now starting to send people to drive traffic to Expedia, right? But what you don't know is how many of those people are actually booking. I'm assuming Expedia wasn't sharing that information with you at the time. Right.

Because that's where the real money is. Yes. But, you know, we knew from just reading around that, you know, maybe 5% of our leads were actually booking something. So one out of 20. So we figured if we were getting 50 cents a click, the fast. his way to get Expedia to pay a dollar a click was to get another client on the site who would be positioned above Expedia in the list of places you could go make a reservation for this hotel. Oh, wait, so, okay, I see. So now what you're saying is that you had the 50 cents per click

from Expedia, but maybe there might be someone else out there. I don't know, who maybe Travelocity is also interested in. And maybe we will. put the Travelocity option higher up on the list. And maybe Travelocity will pay us a dollar a click instead. And so isn't this a great experience for a consumer who's looking at this hotel who says, all right, let me see how much costs on Expedia. Let me see how much it costs on Travelocity. That's a good like price comparison value proposition for a traveler. And, you know, if that user clicks on both links, I just got paid twice. So it's not that dissimilar from what travel agents traditionally were doing, right, which is, or anyone who's referring business to somebody else.

Right. That is essentially, it was just an updated model, an updated version of that business model. Exactly. All right. So you have this site and still collecting information from or aggregating information that was out there, professional reviews mainly. but you enabled people who are reading the reviews, I guess, to comment on the reviews, to react to the reviews on the website. Well, it was actually, we had, if you went to that hotel page, you could click off to a Fodor's or Lonely Planet or a travel blog somewhere to read. And somebody, and unfortunately, it's a bit lost in TripAdvisor lore, came up with the idea of like, Well, let's just let users write their own review on the site. I'm like, there was split opinion.

A couple of people said, like, why would anyone be interested in one random person's opinion? And other folks said, well, sure, but that's going to be their opinion from the stay they had last week. That's super relevant. I really want to hear that. So we said, sure, we'll test it. And sure enough, a lot of people wanted to do that. And obviously quickly grew and quickly took over. And our users on our site were skipping over the reviews of Fador's and Lonely Planet and the others

and going straight to the section that had reviews from their peers, essentially, just other travelers. And there was a book out at the time called, or came out a little bit later, I think, wisdom of the crowds. And it was examples of how the collective wisdom of a whole lot of people was going to end up being more accurate than even an expert.

I mean, I think shortly after September 11th, 2001, when you received $500 from Lycos, when you were really on the ropes, you kind of took this Hail Mary approach and came to an agreement with Expedia to get 50 cents for every referral. By March of 2002, you guys were making like 70 grand a month through these referral fees.

That's a very, very fast turnaround. Super fast turnaround. And that March marked our first month of profitability. Since we didn't know how long it would take to turn things around if we could turn things around, we had cut back on everything non-essential. And so our burn rate was about 70. and March we made it a profitable month. And we were literally profitable every quarter thereafter until the pandemic. But now you're a consumer brand.

Now you are a consumer-facing brand. You are not a business-to-business brand anymore. You bet. We now needed more traffic to our website. And we looked and said, hey, we don't have a lot of time because somebody else could copy us. And our answer we thought and was going to be, well, look, if we can build this massive marketplace of reviews globally, it's really hard for somebody else to catch up. But how did you attract more users? I mean, you did not have a significant marketing budget.

How are you getting more traffic? Because that your site now depended on two things. It depended on traffic. and then it depends on people writing reviews. So how did you do that? How did you get people into the door? For the former, getting more traffic to the site, well, we hadn't focused on that at all. So it was like learning a new skill.

And we looked around like, well, how are other sites? And oh, search engines. For the first couple of years, we worked really hard at making sure TripAdvisor would appear in as many different searches as possible. This was like the, let's be honest here, this was sort of like the golden age of search engine optimization. It was like, I mean, if you knew how to do it in 2002, 2003, it was like shooting fish in a barrel. You could do it fairly cheaply and you could get a lot of conversions if you understood how to make your listing come up on top. And we were very good at it.

Right? I mean, you can't do that today. Today it's much harder. Absolutely. Much harder. But there's also, there's a lot more great content on lots of websites out there. So, you know, again, wind the clock back. Nobody else that I can remember had a website that had all of the hotels in the United States,

let alone the world, that were crawlable or available for users to see without having to search for something. And of course, it was brand new in a category, and the category itself, travel was exploding. All right. So this was like, I mean, it was a combination of doing search engine optimization, but also, I guess you have to remember at this time, people loved seeing what they wrote on the internet. I mean, this is the story of Facebook. People were like, wait, you want to know my favorite music and books and my friends? Yeah, I'm going to tell you all about that because it's cool to see it up here. Now, I think people have a different view of it.

But reviews are different because it allows people to, it's like comment sections. It's like it gives people a chance to feel empowered. And I guess it was just a self-generating phenomenon. Right. You have to remember most people were still not of the contributor. mindset. Oh, I don't want to write a review. I don't know what to say. Because they were embarrassed that they weren't good enough or something. Embarrassed, good enough, too busy, lots and lots of reasons. Yeah. But if you just do the math, if you have 100,000 people coming in a month and

one percent of them will write a review, then you've got a thousand new reviews. And that happens all the time. And as you gather more traffic, you're getting more visitors. More visitors, more reviews, more reviews. And then, of course, we got, you know, much smarter about how to get somebody who is a contributor to write more reviews. The first thing you do is you thank them. The second thing you do is you thank them profusely. And then the third thing you do is you let them know how much other travelers really appreciate you. You. You know, you thank them profusely. their comments. And all of that's just like it's the dopamine. It's the extra little pat on the back that says, oh, I'm appreciated. Let me go write another review. When did you say, think to yourself, wait a minute. We could build a massive business on people's opinions.

The notion that we were onto something was really apparent by the time we got to 2003. 2002 was still like, oh, wow, we can make some money do this. 2003, I'm like, oh, we're scaling this. We're growing by like leaps and bounds here. I think we closed 2003 with over $20 million in annual revenue. $20 million in annual revenue from, and this is purely from clicks to other sites. Right. And that was off of nothing or a whopping $10,000 in 2001.

So that's a really like skyrocket approach. And at that point like, whoa, let's, let's harness this. Let's let's keep going. Let's expand geographically. Let's very much go global, go multi-language. Let's become the, well, we set our vision for the number one travel site in terms of traffic. And that we entertained some thoughts about, well, we did it for travel. could we also do it for other verticals?

Because this notion of UGC or user genital content was pretty darn powerful. How did you, I mean, clearly knowing that this was valuable and knowing that you, the more user reviews you had, the more valuable the site became, how did you encourage users to write reviews? We've done a bunch of things over the years, but one of the best things we did was literally, just thanking people. And we quickly discovered that people didn't want to thank you from Trip Advisor. They wanted to thank you from other travelers. So when we asked people, why did they write reviews in the first place? The answer in general was, we found the site so helpful we want to pay it forward. That traveler didn't give a hoot about whether Trip Advisor as a corporation succeeded, they wanted to help some other traveler the way previous reviewers had helped them.

All right. So now, I'm thinking if I'm in there, right, because you guys are doing $20 million by the end of 2003. I mean, I'm thinking, I'm coming to my fellow founders. I'm saying, all right, listen, we need a piece of this booking money. I mean, we're sending all these people to Expedia and to Travelocity and Priceline or whatever's out there. We got to get in in this game. We got to be a travel agency too. That's what I'd be thinking. Well, we didn't have that approach. We looked at it and said, you know, 2003, 2004, you know, we had, I think, 10 million unique users a month.

Yeah. Something like that. So decent size. But we were far from the biggest. And we already had a business model that had gone through more than one pivot that was phenomenally profitable. We had very few sales reps because we didn't have that many clients to generate that $23 million in revenue. So our magic ticket was taking the 12 million unique users a month to 120 million unique users a month. 10x growth in traffic and therefore 10x growth in revenue.

So our first goal for the first five, 10 years was like grow traffic. And the faster we could get to critical mass of enough reviews everywhere, the harder it was going to be for anyone else to come in and offer reviews as a major service. All right. Around 2003, maybe late 2003, from what I gather, you entered into talks with Yahoo about potentially getting acquiring you. Tell me what happened. Is that true? Did you guys start to talk to Yahoo about maybe acquiring you?

Yes. Yahoo had, you know, was investing in their travel section and they were Yahoo. Yahoo was big. They were the 800-pound gorilla. But, you know, we were growing fast, and we went through a fair amount of due diligence with them. This is just like 18 months after they said, or man, maybe two years after they told you we're not interested. If you want to work with us, you've got to pay us. Now they're coming to you to maybe acquire you.

The irony of that must have been quite delicious, I think. It was delicious, yes. That's a good way to phrase it. All right. So you go into an exclusive negotiating period of Yahoo. It's quiet. This is in 2003, which is pretty great. And it's just, you know, three years after you launch.

And they're going into your data. They're doing all the diligence. Were you, did you think it was going to go through that Yahoo was going to be the acquirer? We thought it had a good likelihood, but then they started kind of like pushing back on some of the price as steel negotiators do. And, yeah, at the end of the day, in January of 2004, our traffic just shot up because we didn't realize it at the time. But January was a really big traffic month. Everyone after they opened their Christmas presents, they hit the Internet and start planning to travel somewhere. And we saw a massive spike, which in our mind meant the company was meaningfully more valuable.

And that was too hard for Yahoo to swallow. So we took a very deep breath and walked away. In January of 2004, when you saw traffic spike, do you remember roughly how many employees you had at TripAdvisor? Probably around 30, something like that. God, wow. So this was like truly an efficient. I mean, it was like, I mean, I don't want to trivialize it. It was like, it was like printing money. And you had 30 people doing more than $30 million in revenue a year. That's, that's amazing. Yes. We were stunned ourselves. Well, okay, so let me let me ask you about this. So if you, when you decided not to work

with Yahoo, that you were going to walk away. Because I have to assume it was at least $100 million ever going to pay you. Okay, I don't know. You may not remember. You probably do, but you don't have to tell me. But you were going to walk away. You might have walked away with 20, 30 million bucks at that point, which is a lot of money. And that would totally change your life.

So you must have been really confident that you guys were going to own this space, that you were not, because a Yahoo at that point could have decided to just go all in and taken you on. We assumed that they would, if they didn't buy us, just go compete head to head. We knew Yahoo had a ton of free traffic that they could point at their own product. And to one degree, I'm like, okay, bring it on. There's a ton of competition. We also thought Yahoo is a pretty big company at that point. And like many big companies, it's hard to get something done.

So even though we were small, we thought we could truly outmaneuver them, outbuild them in innovations. And to the point of your question, yeah, it was a massive gulp choosing to walk away from a deal that was on the table for a hoped-for potential. deal down the road. Why don't we come back in just a moment, how another business buys TripAdvisor for a better price and how the site deals with a chronic problem, fake reviews. Stay with us, I'm Guy Raz, and you're listening to How I Built This. Hey, welcome back to how I built this. I'm Guy Raz. So it's around 2004, and TripAdvisor is in a pretty good place. Its traffic is growing, and it's turning a profit. But,

its business model is still kind of vulnerable. You were dependent. There were two things you were dependent on. You were dependent on these booking sites, and there were an infinite number of them. They were a limited number of them. So your client base was relatively limited, I think. And this was also, Google was now starting to become a much more important player.

and a lot of the search was connected to Google, right? Am I right about that? Yes. And like prices could fluctuate. It's not like we had these. Yeah. These were not year-long contracts. If we got a call from any client that says, you know, I'm out of budget this month. I'm going to turn you off next month. Boom, that could be half of our revenue could disappear. Yeah. And that could have happened. Yes, we recognized like what could interfere with this rocket ship we were on. And we didn't stay a 30 person company.

We were trying to grow as fast as we can. Our goal was not to be at a 50% profit margin. Our goal was to reinvest in scale the business. And maybe it was a year so later we started buying some search engine traffic as well because that at least was more in our control on the traffic side. So from what I gather, while you were in negotiations with Yahoo, clearly this is what happens in the industry as other potential competitors catch wind of this. And as in any industry, when someone is interested in you, then other people become interested in you. When no one's interested in you, then no one's interested. And this is what happened. Basically, IAC, Barry Diller's company, IAC, you know, they kind of catch wind of this. And, And they say, hey, can we talk? Right.

And we were a party that was interested enough in selling. We just wanted it to be a fair reflection of the value we had created. I see turned up with a number that everybody was super happy with. And it was truly life-changing money for all of the founders, the venture firm, you know, everyone that had put a dollar into the company. And they came with the message their game plan for us was, look, keep doing what you're doing. You think you're early on. Steve, we want your stay CEO.

Team, we want the entire team. You know, as an aside, I didn't necessarily believe them. But they were certainly saying the right things. Yeah. You know, I'm sometimes asked, hey, was that a good decision to sell or not? I'm like, well, financially, it was a crazy bad decision. Yeah. But given everything I knew at the time with the risks you outlined before, the fact that it was kind of a life-changing experience for everyone at the company, it was absolutely the right decision.

I mean, hindsight's always tricky because you say financially it was a bad decision. But you'd raised money at a $10 million valuation. From what I have read, you sold for $210 million. That is an incredible return. Right. I mean, $10 million valuation to a $2 million sale in three years is unbelievable. You've got a piece of that. Obviously, you know, TripAdvisor would go on to be a multi-billion dollar company,

but maybe not without the support of IAC. everything that came after, right? It's very possible that would not have happened. Yeah, there was always lots of forks in the road, and Expedia was our biggest client at the time. Expedia was owned by IAC. Yeah. So it would have been hardball negotiation tactics for IAC to say, Hey, Expedia, do you mind stopping your spend on TripAdvisor for the rest of the year? That'll help get the price down. or, you know, that'll make them into more of a negotiating mood. So, like, there's all sorts of factors going on. Yeah.

It was a, don't get me wrong, please, it was a wonderful story to be bought by IAC. They did a fabulous job. And then when, you know, fast forward, we were moved from IAC into the public company Expedia when that was formed about a year later. And again, we were division. within Expedia and to their infinite credit, they let us continue to operate on our own, even though we were selling our leads and our traffic to their direct competitors. Yeah.

I mean, I guess this is a little complicated because IAC bought Expedia, I think, from Microsoft, right? And then they bought you guys. Then they spun out Expedia as a separate company. And Expedia became the parent company of many brands, hotels.com, hotwire, and trip advisor. That's right. But I should also mention here, Steve, that are right around this time,

you were going through an extremely difficult time in your personal life. Because I think during this time, your wife Caroline was diagnosed with pancreatic cancer. You had, I think four kids at the that time and she she passed away in 2005 this was all happening all of this happening in the business was happening while you were dealing with this I can't even imagine how challenging that that was in your personal life how are you doing that how are you how are you dealing with that

and also everything we just talked about you know my wife and my kids came came first. We did the best we could by way of caring. It was a pancreatic neuroendocrine tumor. It's a really tough type of cancer to deal with. But yeah, that was my priority. Trip advisor was second. The board knew it. The company knew it. I also liked being able to put my head in work at times because I was, you know, that's all encompassing. That's all, I can do the context switch from when I'm home to when I'm at work. But, you know, for all the chemo appointments. And like, yeah, that was, of course, in my view, that was me at the hospital with her.

Just as I would expect the same for, and how I feel we've supported all of our employees that have gone through anything similar. You became a single dad at 42. And I know you had help, of course, including from family. Steve, I'm sorry to ask you this, but I think it's a really important question to ask because I think you can at least offer some insights on your experience. And I hesitate because, you know, I can't imagine how traumatic that time was. But how did you manage... Your own grief.

Yeah, a fair question. You know, when you first get a diagnosis, you're like, oh, my God, this upends your life. This changes everything. And you go into like, well, what am I going to do about it mode? And you try to find the best health care you can. You set things up so, you know, you disrupt the kids' lives as little as possible. And my late wife was a trooper about it in terms of. accepting what the outcome was likely to be and, you know, being part of the journey with the kids.

And grief is, in chatting with other people, you know, very individualized. Yeah. I found TripAdvisor to be much more of a blessing than a burden. Because, as I said before, I'm like, starting with, you know, Nick and Tom and Langley as co-founders, like, these were great. great people to work with. They could run the company without me. I really appreciate that level of confidence that my teammates provided during that time. So you now are founder, CEO, running TripAdvisor within Expedia, and thus begins, I think it's an understatement to say, a rapid, not rapid, a long march of acquisitions. I mean, this lasted, continues to happen. But starting in 2007, TripAdvisor really went on a buying spree, buying a bunch of different companies.

So let's talk about this strategy. Was it basically, we got to, we got to just grow, grow, grow, grow, buy, buy, buy, buy, buy, and just own, you know, create as much of a moat around our core business as possible? You know, the different companies that we acquired over the years, and you're right, we have bought, quite a few. There's the transformational, and I put Viator and La Forchette into those categories. Yeah, La Forchette's the, it's like open table in Europe or France mainly, I think, right? That's right, the four, which is the new name for Lafouchette. And Viator in the attraction space were like our two biggest acquisitions, fortunately our two most successful acquisitions, and they're really in the like transform the company.

over the next five to 10 year in terms of what it does for our audience. Now, some of these sites like The Fork or Vitor, I mean, they also rely on user reviews, right? Just like TripAdvisor does. And I mean, this kind of gets us into the subject of reviews, right? Because this is, I mean, we had Jeremy Stopplement of Yelp on the show several years ago, and we went down this rabbit hole. And it's important. You know, you are a rational player in this world.

I know what you probably think, which is don't look just at one review. Look at many reviews. Don't trust a site if it just has two or three reviews. You want to see if it has a lot of reviews, thousands of reviews. But I'm sympathetic to people who get angry about it because I'm also reviewed. If you go to any podcast website, their reviews of this show. And some of the reviews are just so infuriating because it's not about the content. It's not about what we do.

We give this show away for free. And you can pay to be a subscriber, which means you get this show a week early. And that's it. Otherwise, if you wait a week, it's free. But some people have written one-star reviews because they're mad about this. And over time, that does have an impact on this show. So I'm sympathetic to restaurants and get dinged for stupid things because it's their livelihood. I understand that quite well.

I was on the board of Glassdoor for many years. I'm Sawyer review site. And I would read the reviews about Steve Koffer. And I'd see the anonymous review and be frustrated that didn't have enough detail. I appreciate constructive criticism. I really do. I just want to know how I can go and fix this. And so, but having said that, if you are in the hospitality business,

this is your life. Don't be in the hospitality business if you can't take feedback and if you can't take feedback, some of which is good and some of which is not living up to expectations, however unreasonable they might be. You just shouldn't be in the hospitality business.

So we went through phases where businesses would like, how dare you even list me on your site? Yeah. I'm like, hey, sorry, we are at. We are squarely on the side of the traveler here. We want to help them avoid hotels, restaurants, whatever that are bad and stay at the great ones. Now, of course, what started to happen, and I know that there have been in many attempts to resolve this, and some successful, some less successful is there are content or there are farms that have turned this into a business, right?

or they've attempted to just write positive or negative reviews for a fee. And how do you, I mean, I can't, let's just start with this proposition. You cannot eliminate fake reviews. You can't eliminate them 100%, right? The beauty is you don't need to. You just have to deliver what the user expects. There's a whole bunch of ways that we've developed over the years. to catch this level of fraud.

We know where people are. They have to advertise their services. And then we go talk to a hotelier that we suspect is paid for the services. And we say, look, we have some strong evidence that you paid for this review. They will face a penalty from us because they've been trying to buy their way to the top. And the most extreme example is called a red badge where we're posting on their page and we drop them in the ranks as a penalty. And my evidence that it's been tremendously successful over the years is the fact that we

see on what you might consider the dark web, we see these review places offering to write fake reviews on Google and some other sites. And then they say except TripAdvisor. Because, like, yeah, if they try, we catch them, we shut them down. We viewed that as core to our success way back in 2002, 2003, 2004. Because if people came to TripAdvisor to get recommendations and the actual place didn't live up to the expectations, they wouldn't use her site again. I think in 2011, the company once again kind of spun out of Expedia and went public. What's the story behind that?

How and why did you become an independent company again? Yeah, the general answer was we were a fast-growing, successful, profitable media company. And Expedia was a traditional online travel agency. transaction company. And there was an opinion around that said, like, we're kind of probably looking at different types of investors. Yet we were one ticker. We were one stock.

And so eventually they said, hey, let's just make it easier for our investors. We will dividend a share of trip advisor to all Expedia shareholders. And they will be two completely separate, independently. run companies. Big change for me was all of a sudden I was the public company CEO and I had never done that before. And like it was never a goal of mind to be a public company CEO, but sounded like it would be interesting to say the least. So I was up for it. And that's how it happened. We talked about 9-11 earlier and how that almost sunk the company. And there would be Anything remotely like it until March of 2020, really.

And it hits you guys heart. I mean, you saw, I read in the second quarter of 2020, your revenue dropped 86% from the year before. I mean, that is, that's, I can't even imagine how, would you even absorb that? It was something that we never thought could happen. We had always been a company that had been wonderfully. profitable. I planned for contingencies. Look, there have been horrific terrorist events between 9-11 and here that caused bumps and blips, but, you know, travel was very elastic. And I got to admit, a pandemic was just not on our radar screen. I mean, you, you, like many companies, you had to do,

at the time, I remember many companies just just hoarded cash. They had to just hold on the cash. They cut back on marketing. They cut back on anything they could, including employees. There were a lot of layoffs. You had to lay off a lot of people very quickly. We did. Most painful chapter of TripAdvisor, period. And we just didn't know how long, how severe, how bad could it get.

And we didn't have a really big cash balance at that point. We had to go reach out to the financial markets, which fortunately were open, borrow some money, and it forces you to really be focused in what you are going to work on, because we wanted to come out of the pandemic a different looking company. The opportunity to come out, you know, leaner and meaner, was what we set our sights towards, and by and large, that's what we achieved. So, you know, you clearly travels back. But you also announced that you were going to step down.

And I should mention, because we talked a lot about the tragedy in your life, that you did actually, you got remarried almost 10 years ago, I think. Yes. To a woman who had, I think, three or four kids of her own. It's like, right? You had four kids. It was kind of like the Brady Bunch. I married to an absolutely lovely woman. She has four children.

I have four. We are entirely blessed that they all get along. And yes, we did move in together. The house does have a lot of bedrooms. We're now empty nesters. The kids are all off out of college or in medical school or whatever they're off to. Yes, things look good on that front. 22 years you lasted and thrived.

I mean, clearly, you know, you left on your own terms. Maybe not. Maybe somebody tapped you on the shoulder and they're like, Steve, it's time to go. I don't know. No, no. This was my choice. It's a long time. I mean, you sold this company in 2004.

You stayed until 2022. What do you think explains that? I mean, it's very unusual in my experience with people I've interviewed to stay at one place so long. Yeah, I fell in love with, like, being an entrepreneur and then skisks. scaling things. And then the thing that I crave personally the most was the level of impact that the company had. And like 400 million unique users a month with a lot of duplication, you're still counting of impacting the lives, the vacations of a couple of billion people. And that's with a B. And like, why was I ever going to, you know,

When it was 200 million unique users a month, and I could see how you could get it to 400, why was I going to walk away from that level of opportunity to impact people? When you think about, you know, all of this now, you know, first business, you walked away from that with zero equity, nothing. Start this business. I'm really not going. The business model is terrible. you're all on the ropes. And then three months later, you're doing $70,000 a month in fees and revenue, it's pretty great. You know, selling it in 2004 for $210 million, running it for 20 years, 22 years. When you think about all that, how much of that do you attribute to your intelligence and your work and your work ethic and your skills?

And how much do you think has to do with being lucky, getting lucky? Oh, it's a great question. So like 50-50 maybe, absolutely a ton of luck in there. But we had to make some good choices and work our tails off because very few businesses have a straight line to success. Yeah. But after 22 years, I want to do it again. I want to not travel, not in software tools. but I figure I have one more startup left in me

and as I turned 15 as I had turned 59 years old I look around and say okay better get moving and so I am just open for another adventure that can have something akin to the type of impact that trip advisors had if I could get that lucky so yeah because you're not yet 60 so you're looking now maybe to start the next thing indeed Indeed. Thinking about ideas.

Ping me on LinkedIn if any of your listeners have ideas. I got one for you. I'm all ears. A lot of people are talking about crypto. That's Steve Koffer, co-founder and former CEO of TripAdvisor. Included among the site's $1 billion-plus reviews, are these ones from disappointed travelers. The Golden Gate Bridge, one star.

It's covered in fog. It's pointless. buy a postcard, you'll see more. New York Central Park, one star. It's just grass and trees surrounded by buildings. And finally, three stars for Tumon Beach in Guam. It's a great beach, just too sandy. Hey, thanks so much for listening to the show this week.

If you enjoyed it, please help us spread the word. Tell someone about how I built this or post about it on social media. And thank you. If you want to contact the team, our email addresses 8.000. H-I-B-T at ID.wondry.com. If you want to follow us on Twitter, our account is at how I built this, and mine is at Guy Raz. And on Instagram, I'm at guy.org.

This episode was produced by Liz Metzger with music composed by Rumtin Ereble. It was edited by Neva Grant with research help from Sam Paulson. Our audio engineer was Ko Takasugi Chernevin. Our production staff also includes J.C. Howard, Carrie Thompson, Alex Chung, Josh Lash, Catherine Seifer, Elaine Coates, John Isabella, Chris Messini, and Carla Estevez. Our intern is Susanna Brown. I'm Guy Raz, and you've been listening to How I Built This.