This Week in Startups - Kayak CEO Steve Hafner on the state of travel, AI's place, hospitality trends, and more! | E1822

Episode Date: October 3, 2023

This Week in Startups is brought to you by… Roots. Invest in the only real estate investment trust that creates wealth for you and its residents at https://investwithroots.com/TWIST Squarespace. Turn your idea into a new website! Go to https://Squarespace.com/twist for a free trial. When you’re ready to launch, use offer code TWIST to save 10% off your first purchase of a website or domain. LinkSquares. Life for in-house legal just got a whole lot easier. From contract creation to execution and more, LinkSquares is the go-to for all your legal needs. Learn more at https://linksquares.com/twist * Today’s show: Kayak CEO Steve Hafner joins Jason to discuss the current landscape of the travel industry (1:56), its economic dynamics (17:40), emerging trends in hospitality (41:08), and much more! * Time stamps: (0:00) Kayak CEO Steve Hafner joins Jason (1:56) The state of the travel industry today and the adoption of AI (10:50) Roots - Head to https://investwithroots.com/TWIST to sign up and start investing today! (12:15) Navigating shifts in UI and building bulletproof features for at-scale companies (15:32) Kayak's response to the impact of Covid-19 on the industry (17:40) The economics of the travel industry (28:14) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://Squarespace.com/twist (29:36) OpenTable, diner ratings, and the advent of QR code ordering (34:29) The drive behind OpenTable's revenue stream and product adoption (39:54) LinkSquares - The go-to for all your legal needs; learn more at https://linksquares.com/twist (41:08) Hospitality trends in hotels (50:02) The impact of AI gains on Kayak’s operations * Follow Steve: https://twitter.com/shafner * Read LAUNCH Fund 4 Deal Memo: https://www.launch.co/four Apply for Funding: https://www.launch.co/apply Buy ANGEL: https://www.angelthebook.com Great recent interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland, PrayingForExits, Jenny Lefcourt Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow Jason: Twitter: https://twitter.com/jason Instagram: https://www.instagram.com/jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

I've been teaching people how to give matriety's tips for the last 20 years because my dad taught me. You take the $20 bill or $50, depending on where you're going. You fold it twice. Now you got it in your hand. You put it between your thumb and your palm. So now you're holding a 20 or a 50. You go up to the matriety station. There's 20 people around the table.

You put your hand on the matriety table behind the light, you know, where the book is. Say, I am so sorry. I may have made a reservation or I might have made a reservation or I might. have forgotten. If there's anything you can do for me, you're keeping eye contact, and you just turn over your hand halfway, person sees the 50, and you say, oh, what's your name? Oh, Susan, nice to meet you, Susan, I'm Jason, and you hand them the 50 or the 20. Boom, goes right in the pocket. Let me see what I can do for you. I've done this a hundred times. You know how many times they gave me the money back and didn't get me a table? Once. Yeah, you know, a quicker way to do

it is just go up to the, the, the, uh, the, the, uh, the, the, uh, the major D in your example and just say, reservation? Yes, Jackson party of two. Yeah. Or Franklin, if it's a nice place. Oh, oh. Oh, I didn't know that one. This weekend startups is brought to you by Roots. Invest in the only real estate investment trust that creates wealth for you and its residents at invest with roots.com slash twist.

Squarespace. Turn your idea into a new website. Go to Squarespace.com slash twist for a free trial. When you're ready to launch, use offer code twist to save 10% off your first purchase of a website or domain. And Link Squares. Life for in-house legal just got a whole lot easier. From contract creation to execution and more, Link Squares is the go-to for all your legal needs. Learn more at linksquares.com slash twist.

Hey everybody, welcome back. All-Star Summer continues into September. I gave my team explicit instructions as we went into the summer. I didn't want to phone it in like other podcasters. I said no. O contraire, Malfre. This summer, I want the greatest guests in the world on the pod in July and August. Why?

Because you entrepreneurs listening, you don't take a break. You're not screwing around in Italy for six weeks like other venture capitalists. No, your entrepreneur. entrepreneurs in the arena, kicking ass. And so I said, I want an ass kicking lineup. You know what happened? Everybody said yes. Everybody loves this weekend startups.

Everybody wants to come on the program. And what a murderer's row we've had. CEO of Zillow, CEO of HubSpot, CEO of MongoDB, Rulof Both, everybody coming on the show this summer. But something crazy happened. So many people said yes that we had to spill into September. So here we are All-Star Summer going into September, which, you know, listen, if you live in the Bay Area, September is the best month in the Bay Area.

It's kind of like our August. And, you know, one of the things we talked about on this program over the last year is the massive impact that we believe AI is going to have on every industry. We haven't talked about travel all that much. And travel is a huge, huge industry. In fact, my greatest investment of all time, Uber, a transportation company. Now, there are so many tools for you to try to make itineraries like roam around, one of the companies we just invested in. But this is not a new category. We have had great entrepreneurs doing travel for decades.

One of the great entrepreneurs in this space is Steve Hafner. He is the co-founder of Kayak. He founded it 20 years ago, brought it public, sold it to booking.com. And he's joining us today. And we're going to talk all about the state of all the original OG travel companies. And then what they're going to do in the face of a post-COVID era, recession possibly, and of course, AI. Steve, welcome to the program. Jason, great to be here.

You're part of this original group. I guess Dara Khazro Shahi was also he did, was he Expedia? Expedia. You did kayak. And just a lot of you all just cut your teeth. Rich Barton, yeah, he was also involved in the early days. You all saw sometime, you know, in the 99 to 2005 Web 1.0, Web 2.0, that travel would be changed forever because of the Internet. And here we are, COVID and then AI.

Let's talk about the state of travel today. when you saw AI appear on the scene and you're running kayak and everybody's using you and Expedia and all these other services to book their travel, it's the best place to start. What it happened in your brain when you saw a chat GPT 3.5 in November of last year and how well it was answering questions.

And of course, it does feel like maybe the interface of comparison shopping, which has been the cornerstone of your service and many others, is going to be changed forever by maybe a conversational chat room. Do you believe that? And what was your experience seeing this crazy change in AI? You know, there's, by the way, thanks for having me on.

There's been a lot of tech revolution over the last 20 years. I think chat, GBT may represent another shift, but it's way too early to tell. So I'm not as hyped about it for the travel sector as others might be. although we're paying really close attention because I could well be wrong. You know, I co-founded kayak with a gentleman by the name of Paul English, magical CTO,

who when he told me he wanted to turn kayak into an app for Blackberry, I thought, what a ridiculous idea, who's going to look for travel on a Blackberry? And I turned out to be horribly wrong. So I might be wrong on AI. But right now, the jury's still very much out. And by the way,

I use room around. It's great for itinerary building. But that's not the use case that I think people are looking for. So walk us through the argument for the search in a table format versus chat. What has to happen? Because I believe you made a plugin for chat GPT for. I used it. I'll be candid.

The plugin architecture on chat GPT sucks. That's not your fault. but to the team over there, Sam Waltman, everybody, great that you got it out quick. But it sucks. I used the Canva one. I used the Zillow one.

Zillow unplugged it. Rich Barton said, eh, no, bueno, and he turned his off. So you're the CEO, you're a product guy. What didn't work or what's lacking with the chat GPT4 interface and the plug-in architecture?

What needs to change there to make it viable? Yeah, and by the way, our OpenTable brand launched as well with a plug-in for chat, GBT. You know, I think for us, it's more about having our developers play around with the latest toolkits and then seeing if we get any signal from consumer usage that we could use to inform what we do next. And, you know, our plug-in for Kayak, for example, gets 3,000 queries a day.

Okay. You can trust that with our website and our apps, and we're doing 60 million a day. So it's a tiny, tiny use case. Right. But what, let's talk about this querying. It would seem to me that a lot of my processes I want to find, I'll just take it through two processes, because you work on OpenTable as well, right? I don't know if you manage the entire group, but my process, and I love OpenTable, major member, is I, and love Kayak as well, I will search. the web and say, hey, eater, hey, Yelp, hey, I like the Guardian Times of London for travel as well.

There's some editorial sources, timeout to a certain extent. Used to be Zagat was up there, Michelin, obviously. And I go to those sites, hey, best sushi, best new restaurants, best hotels, 2023, best boutique hotels. I find those. Then I go to your site. I try to find those things, find the best deal. Yep.

It's like still a little bit of a process. me. What I want to do is I want to say, chat GPT, I'm looking for three to four-star sushi restaurants while I'm in New York that, you know, have Omocase, and I'm looking for, I have Tuesday, Wednesday, and Friday open at 7 o'clock. What's available? Now, I can't do that on open table without a bunch of hunting and pecking, and then I can't figure out which ones are the best. So I, as the power user who spends big money on your services, I'm looking for that layer above it. Does that concern you that maybe I'll start my search at Bard,

at chat, CPT4, as opposed to on your sites? I don't think so. I mean, I proceed the use case that you just talked about as being relatively rare in the scheme of what dining really is. Because, you know, most dining is local. It's, you know, not New York City with 2,500 restaurants, which is a new one opening all the time. You know, for most of our clients, they're in smaller locations where there's not that much turnover. So people know their restaurants.

They're actually looking for a quick booking, not so much of recommendation. And then, you know, the brands you mentioned either, et cetera, the reason you go to them is because it's curated great editorial content that you trust. I'm not so sure you're going to get there with an interface like Chat, TBT, unless there's a brand behind. it, that you actually have seen the recommendations of the past. You found them to be authentic and true. And as a result, you go back to that brand for another recommendation. And the reason people use Eater versus OpenTable, for example, is because a lot of great restaurants aren't on Open Table.

So you wouldn't trust us to recommend a non-open table restaurant. Or if you saw a list, it was all Open Table, you wouldn't trust us as well. So I think there's, it's not, it's not an issue of capability of chat, GPT to do some of this stuff for you or Bard or someone else. It's, it's actually consumer habit as a barrier and also consumer trust. Hey, everybody. Today I'm joined by Root's CEO, Dan, welcome to the show. Thanks for having me, Jason. Tell everybody here in the audience, what is Roots and what makes it different than the other real estate investing platforms?

I'm a complete neophyte. Roots is a reet with a little twist. Sorry, how to do it. We are the first real estate portfolio that we know of that builds wealth for both our investors and our residents. And we've created a unique win-win model that creates partners and not tenants. We built this model because I've spent my entire career in real estate investment 13 years. And what you always hear from people is, hey, location, location, location. But location at the end of the day, doesn't actually pay your bills.

and location doesn't let you know when there's a small leak that will create mold in the future. The people do. And the people who rent your properties are really the people who generate your profits. And when those people are your partners, it really creates this amazing scenario. And it's this model that's helped us grow our fund over 36% in the last two years. Fantastic. How can people learn more about this opportunity, both on the tenant side or on the investor side? Check us out at investwithroots.com. com backslash twist. All right.

Everybody go to invest with roots, no spaces, no dashes. Dot com slash Twist to sign up and start investing today. So let's talk about just interfaces in general. Going to OpenTable and doing a search, do you think you'll add a language model where I could talk? And I know that you probably have some hooks into like Siri, let's say. The Siri hooks are terrible right now. You know, if I ask Siri to play something on,

Spotify, gets it right two out of three times. If I ask it to call an Uber, I don't trust it. It's just doesn't work as well as chat GPT4. So I think it's your responsibility to build this into Open Table and the top level of kayak and let me talk to those interfaces in the way I want to as opposed to clicking a bunch of drop down. So are you going to build it into these products, you think? And have you started that process yet? And what's the early testing looking like? Yeah, look, it's not a technical challenge, right? voice can be done. And if anything, AI makes it easier to do voice for everybody.

Yeah. Right. But I think the bigger question in how we allocate our resources are, is it ready for consumer adoption? How many people actually want to speak to a device to make an open table reservation or to make a flight booking? What we observe based on our usage is the answer is not many. A lot of people are in meetings making their lunch reservations.

or they're in the back of the car with plenty of free time and interacting with an app or texting away. And it's the same is true on the flight side, on the travel side of the business. You know, there is just so many entry fields to consummate a transaction and travel that voice is really not a good mechanism for it. And that's why, you know, even with our sister brands, booking.com and priceline and a go to, and Ogota is an Asian brand, by the way, you would think if voice was going to be the vehicle by which people interacted with our services. You see it there first. We're not seeing it. Yeah, that's fascinating to me.

So you have to, as someone running an at-scale service, as opposed to a startup, startups are like, we can make this thing plugi. It can hallucinate. Nobody's got any expectation of our brand. You're at this, you have this tremendous gift that your brand means something to somebody. Open table means you got your reservation.

you don't have to worry, it's consistent, it's perfect. Kayak means you're getting the best price, it's perfect, you're not going to have a mistake. And you spent 20 years building up, over 20 years, building up that trust. You can't go crazy with these features. They've got to be bulletproof, huh? I think so. And I also think that we have plenty of time to course correct if we get it wrong, right? So, you know, we pay a lot of attention and startup planned to what's the latest greatest.

because a lot of these are companies that create features that we can easily copy and scale. So I think, you know, you quoted a couple examples earlier that as we see good ideas, start to get traction, we pounce on it, we improve on it, and then we scale it. And that's historical across Silicon Valley Days. That's how the big keep getting bigger is because they're able to do that. I think we've fortunately reached the same point in our life cycle, we can do that as well. What happened during COVID to your business, both on the shutdown side and how difficult that was, and then on the, let's call it, I think, the three Yolo Summers. Did we have three YOLO Summers? We had three YOLO Summers. Take us through exactly the pit of despair and how brutal it was and then the absurdity of the Yolo Summers. Yeah, look, I think if you had picked two industries, the worst industries to be and would be travel and dining, you know, in the COVID years.

So it was a total show. But, you know, thankfully, we were well capitalized. We had a very strong balance sheet, billions of dollars of cash on the balance sheet. And we could do the right things. And the right things for us in this order, first help our customers. So the people who were actually traveling on it on itineries, we reached out. with the kayak surface and said, here's ways to get home, right? Here's things you can still do.

For on the restaurant side, restaurants literally closed, right? So, you know, we, we waive our fees. So OpenTable charges restaurants fees to use our software. We stopped doing that. We thought it was going to be a three-month waiver. It turned out to be almost two years, which was, you know, hundreds of millions of dollars that we put back into restaurant pockets by not billing them. And then the third thing we did is we wanted to make sure we took care of our employees.

You know, so, you know, unlike a lot of other companies, we didn't have massive layoffs or anything like that. We kept the team. We didn't replace turn or voluntary churn, but we kept the team in place and we made it through. And we emerged stronger than we entered it. I mean, we did have some hiccups along the way where like kayak, you know, when you couldn't travel, you could use the kayak website. in our app to look for toilet paper. Remember when looking for toilet paper was actually a thing? We actually did meta-search for toilet paper.

We made no money doing it, but it was fun for our developers to work on. Let's talk about the economics of the travel business. My cursory knowledge of this from seeing startups in it is you make very little money per airline ticket, a couple of dollars. You make 10% or 20% booking a room. In other words, a $200 or $300 room, you can be making $20 or $30 a night. Restaurants, you make a buck per seat or $2 per seat. You get a table of four, you make $4 to $8. Is that about right in terms of what you make on open table, hotels and restaurants?

I'm sorry, in airlines? Yeah, I think the way to think about is airline tickets are low margin of business, always have been hotels, rental cars and activities are in the 15. to 20% take rate, and restaurants are sub 2% take rate. Now, restaurants run on a very thin margin. What is open table? A dollar per head? I don't remember that from like 10 years ago.

What do you make? What is, where are you charged? I wish we still made a dollar per head. No, it depends on the market, but it's about half that these days. Oh, wow. So you've had to compress that. So if you, if you see it a table of six, you might make three bucks. that's a that's a razor-thin margin huh yeah which makes for a great competitive mode if you get the scale

got it um and the restaurants are now experimenting with other modalities uh i signed up for something called dorsia which i guess is named after the restaurant from it's that crazy movie with christian bell uh where he's a serial killer uh america psycho Dorcia is like his favorite restaurant in that. And so with Dorcia, this is for like crazy rich people. You basically can get a reservation at hard to get out places. But you have to guarantee you're going to spend 500 a person, 300 a person, and then you kind of knock money off of that.

It seems to be working for certain high-end restaurants. What do you think of this model where it's beyond surge pricing? It's rich people cutting the line. and let's call it what it is. What do you think of Dorcia? And you must have had this idea before. So why didn't you do it? Are you considering doing it?

This is a perfect example going back to what we were talking about earlier of a new startup coming out with a business model that we pay careful attention to and then we figure out how to make it better and scale it. So there actually aren't that many people in the world who are willing to pay that kind of money for a reservation, nor are there that many restaurants who have that kind of oversupply of demand, you know, more demand than they actually seek people. So the real insight there is how do I change consumer behavior and get consumers to think about making a deposit or prepaying some amount when they make a reservation?

So, you know, it shouldn't be $500, but maybe it's a dollar. maybe it's the first $10 you put down so you have a deposit. It's no different than these installment payment plans, right? Which is if you go to a website, you don't want someone to abandon a cart. You want any way to get an attachment to a consumer. Airlines do this too with courtesy 24-hour holds for fares. So if I can get you, even if it's a dollar to collect your name, to have a deposit towards a transaction, have that hook in you, then that's much more important to me.

and across the 55,000 restaurants that are an open table, then getting into the 10 hottest restaurants on a Friday night in Manhattan, because that is a really, really small niche. Yeah. But, you know, if I can affect all the people on all their dining occasions and get them into the mindset of when I make a reservation, first, I need to make it online and I need to put a deposit down for a benefit, which is the restaurant knows who I am,

or I get a discount on the actual tab or I get a pet or table or a better time or loyalty points since we have a loyalty program. These are all reasons to do this. It's not the Dorsey's of the world. That's a really small idea. Yeah. So having more skin in the game from the customer, that's very appealing to restaurants who, what's the average no-show for, you know, or cancellation with an open table

reservation or just in the industry at large? So the industry at large, no-show rates can be 25% or higher. Wow. At OpenTable, we're about a third of that rate because we know the person who's making the reservation. And it's a three strikes in your route rule. So if you know show three times, Jason, at a restaurant, without telling them in advance, you get blocked from using OpenTable. Oh, wow.

And so, yeah, that is, and there's no way to make up for it. You can't get back in good standing or something? A lot of people do the workaround of creating a new, Gmail account. Yeah. So, you know, there are workarounds, but it's, but it's inconvenient. Yeah. You know, I love using OpenTable for a couple of very specific restaurants that are hard to get into.

And I don't mind making the reservation and losing a certain amount. So have you implemented that yet where I can put a hold on something? And if I don't show up or I have to cancel with a short time, I pay 10 bucks. Does that exist on the app? That exists on the app. It's on a restaurant. discretion on what they decide to do. So the software has a capability.

A restaurant can say, look, it's a prepaid dining experience. This is what it costs. Or you need to pay $25. For example, if you're in the Hamptons, which is everywhere there now, you have to pay $25 or more to reserve a table. They can all enable that. And then they can choose whether to make it refundable to you or not or have that reservation fee apply against your check or not.

I like that. Now, what about bidding for? spaces on premium nights. That is something that I've seen. I get pitched on that idea all the time. You, again, since you're at scale must get this, is the concept of bidding for a table on Thanksgiving, Mother's Day, do you receive?

Has that come up? Or pre-selling it, I guess pre-selling, you have that option. You've enabled them to do that. So what about that? Like bidding, surge pricing. How do you think about bidding and surge pricing or discount pricing? It's premature in the restaurant industry, because right now what we're trying to get people to get to is first,

it used to be a walk-in and phone behavior to make a reservation. Now we've crossed the divide more than half of reservations are now booked online. The next one is to get them into the habit of doing it in advance and putting their wallet into the equation. Bidding, I think, is just another hurdle down the road when, you know, maybe 90% of all activity is now online and half of all restaurants are, you know, for a monetary deposit some sort, then perhaps

you can have a bidding mechanism. So we slowly have to change consumer behavior, get people comfortable with the idea that, hey, if you blow off the reservation, there's going to be a reasonable price to pay for that. And you actually, as a consumer, if you

want the table saved for you, it's kind of reasonable for you to pay $25 or $50 if you blow it off because the restaurant could could have used that table and you burned it on them. Yeah, that's right. So look, I think the restaurant industry is going through the same evolution that you're seeing in live events. So I'm on the board of a company called Sikik, amazing company.

Yes, great company. Great company. Was that Jeff Flores company? Did he do see where he did the other one? No, no, no. Jack Gretzinger and Russ DeSuzza. The co-founder's there. Yeah, they're taking it to Ticketmaster.

And what they're basically doing, is they're going to venues and sport teams and say, don't you want to know who's in the stadium? And don't you want to have a mobile first ticket, easy transfer process, you know, get a scrape on every transaction that it happens because, you know, tickets go through multiple hands. So who you sell it to the first time and who actually shows up could be completely different people. Yeah. So, you know, restaurants are just getting to, hey, let's, let's book everything online, to actually know who's in your venue and what when Jason sits down at the table, what Jason likes to order, what his average check size is, what other venues he goes to and

with what regularity, these are all gold for restaurateurs. And that's, the platforms generally obscureify that, right? They want to own the customer. So there is something about sharing that. So does open table share the names of the guests and their contact info? Or how do you, what's the philosophy there? Yeah, we absolutely do with the diner's consent. So, you know, our view is the person that's in the restaurant is actually the customer of the restaurant. We capture the data on our front end and we pass that if the consumer gives us consent to the restaurant, which almost all the time they do. The sensitive part is if restaurateurs are very competitive, right?

So the steakhouse doesn't want to share its data on how often a consumer comes in with the seafood. food place next door. No. We obviously see both. Right. So, you know, what most platforms do who are adept at this is I give you a rating. So, or I tag you. So, you know, when you go into that steakhouse, I can tag you as a regular or local or a high spender or a wine lover.

The restaurant can tag you. The restaurant can, but so can open table. Oh. And we do. Because you know how much I spend? How do you get that? Oh, you are the point of sale system, right? It depends on the rest of it.

I know for, I know your frequency, but also if you're, you know, we have point of sale connections with lots and lots of providers, including toast, which seems to be the, the POS du jour. Yeah. Of the moment. Of the moment. So, you know, when you check in, we actually have read, write capability so we know exactly what gets ordered and is sent that check.

And we can also update in our software where you are in your meal. then we can release that table for the next diner. If your landing page is terrible, I'm out, right? Most consumers are. It's 2023. You can't have an ugly website. Stop selling for okay or good and have great. And great means you're using Squarespace.

It's out of the box, beautiful. These websites have templates made by the world's greatest designers that are going to engage your audience, let you sell anything. And Squarespace, over the past decade, has just added feature after feature on top of the gorgeous templates that are designed. for mobile, and the drag and drop web design with their fluid engine is just perfect, easy to use, and you get built in analytics, marketing channel analysis, sales data, all that stuff. It goes beyond page views and site visits and time and all that.

And with Squarespace, you can create an online store, or you can start a blog. Click of a button, right? Easy, peasy, lemon squeasy. You can create a subscription business for members-only content. You're seeing a lot of that out there. It's simple. It's cost-effective. It's gorgeous.

And they keep adding feature after feature after feature. That's when technology is at its best, isn't it? When you pay one price, but the product gets better and better and better. You get that with your Tesla. You get that with your iPhone. You get that with Squarespace. These are the legendary brands of the internet, of this era. Go to Squarespace.com for a free trial.

And when you're ready to launch, I want you to go to Squarespace.com slash Twist. And they're going to give you 10% off your first purchase of a website or domain. Go to Squarespace.com slash twist because they know we sent it. So that would argue for you having. a rating system for diners like Uber has, and Uber decided to start disclosing that to both parties, both the driver, et cetera. I would very much like to have the restaurants know

what a ridiculous absurd tipper I am so that when I come in, they're like, hey, this guy tips 50% often or 100% or 35%. That's basically 35, 40% is my floor. So is there a way for me to be gold or elite in the system and then have that be public knowledge? Because I've never had that communicated back to me in there. Yeah. So diner rating is something that we've been aware of for a long, long time in his opportunity.

We actually have that capability internally. We have not crossed the rubicon of exposing that either to the restaurant or to you are using. for a whole set of reasons that I don't want to go into right now. But it's a little divisive. It's a little divisive, right? It could, I think just, I would only share exceptional guests because then you leave out the bad guest part, which people don't like, right? Like they wouldn't want to be known as a cheap tipper or a minimum tipper.

Yeah, that's right. I mean, but we can, we can solve a lot of that with badges. So we have an Open Table VIP badge, for example. And when we use that to communicate to restaurants, hey, this is someone you should be more attentive to if you care about VIPs returning to your restaurant. Do you have an open? Do you have like the equivalent of Amazon Prime or Uber 1 for OpenTable? I've never seen it in the interface where I pay you $100 a year and I get some elite status or something?

We do not enable that. You have to earn your way to our status. levels, either by the frequency of using the app, making sure you have a great no-show rate, and then some of these other attributes on your spend profile. Fantastic. You mentioned toast. You know, I grew up in the restaurant business. I love waiters, but then I had three kids.

And, man, do I appreciate when they destroy some appetizer and I can just open my phone and reorder it? And I'm seeing in California specifically where we have an inability to hire service people that they've gotten rid of the concept of waiters at what I'll call, you know, three and a half four-star restaurants. Like there are some nice restaurants now with toast. And I was shocked like, huh,

this is a, you know, we have a nice beer hall in San Mateo that we like to go to. That's not cheap, but it's not a Michelin Star place, but it's higher end. And they use toast. And I was like, huh, this is interesting, only runners. And I was just talking to them and they said, honestly, JCal,

if we could find waiters, we wouldn't be using toast. This is not because we think customers love it because some do and some don't. It's pretty polarizing, in fact. This is because we can't just hire staff because unemployment is at a 50-year-low. So maybe talk to me a little bit about your thoughts on that and you may be adding that as a feature set because that does seem to be like a feature set and the POS kind of functionality that maybe you should get into as a brand extension. How do you think about ordering from QR codes? Well, it's great. I mean, this is one of those areas where the technology has existed for years, actually,

is the restaurateurs themselves who, out of habit or out of desire, don't want to implement it. And as you said, there's a lot of consumers who agree with those restaurateurs. They like paper menus. They like the presentation of the menu. They like the interaction with the waiter in terms of recommendations and what's popular. They like to tool around and wait for a table. check to come and buy some extra time and stretch out that experience. Yeah.

Versus, you know, other folks who like being transactional, like to use their phone to see what's a popular dish, what's been ordered how many times today. They like to pay that way. They like to get their recommendations from friends versus a server who, you know, some people just don't trust what the server is going to say. So the technologies existed. Open table, as you noted, we're not a POS. We don't intend to become a POS.

Oh, really? Never. That's a very fragmented market. There's lots of different players. It's a harder B-to-B sell, and nobody's making money at it, including toast, by the way. Yeah. So it's another of these verticals where we prefer to be the front-of-house software layer, with the, so what's guest-facing, but with the direct connections via API to the back

of the house. My understanding for OpenTable was that that device where you, could put the floor plan and seat people was invaluable to restaurants. And that hardware and that service, they pay something like 500 bucks a month for. I'm not sure what the pricing is. But that SaaS business really is what captured a lot of the front of house. And they became sort of addicted to it. They hire people who understand how to use it really well. And then the marketplace became the second business. Maybe you could explain how that business developed and what drives it revenue-wise and what drives it adoption-wise?

Is it the marketplace and the customers in the app, or is it that SaaS solution? Yeah, so you're right. The components of our revenue stream are right now, there's two pillars or two tools, if you will. By the way, we need three. And we'll talk about the third and a second. The first is that subscription fee, right? Which is just to use the software.

That's the SaaS product. People will pay anywhere from $79 to $350 a month for that. And then there's the cover fee, which is what you call the network or the marketplace. So that's pay for performance. If we actually get people from Open Table into your restaurant, you pay us, you know, you reference a dollar per butt. It's about half that. So that's, you know, the bulk of our revenue comes from that.

But the third stool, which is now what we're very eager to see happen is as consumers move to actually opening their wallet when they make the reservation, that's where we have the ability now to take a dip into the take rate of the actual transaction. Yeah. And that's actually our fastest growing part of the business is as we evolve, as consumer habits evolve and as our restaurateurs start charging for services that were previously free, we can actually take us scrape.

I would love to see the chef's table or the wine list be included so that I, as a baller consumer. And this is what I have my assistant do. This is a secret I'm giving to everybody in the audience. I'll have my assistant call. You know, I want to go to the best places. I go on a quick trip. Listen, I earned it.

I'm 52 now. I've got to spend this money. I was broke my whole life. I have my assistant call. Hey, Jake, how's going to be in town? I understand you're sold out. He really would love to try your restaurant. He's read all about it.

He was wondering if he could order two bottles of wine in advance. he likes this nice wine, and I looked on the wine list. And if we could order this wine and this dessert wine, and then if there's any cancellation, if there's any way you can do that, please call me back. And she'll write a nice email, whatever. So now I've pre-ordered a $300 bottle of wine and a $200 bottle of dessert wine.

You know what happens? Nine out of ten times a reservation opens up. I want to do that in an interface. You offered the wine pairing with it. Then all of a sudden, you've now filtered out, who are the great customers who can avoid the wine pairing and, you know, maybe who's going to drink water all night and they make all their money on the wine pairing anyway. So anyway, that's my tip.

That's my strategy. It's a good idea. We already do do that, by the way. Oh, really? By badging you a VIP, you get better view into availability at those restaurants. And by the way, if I was your assistant, she's the one that should be worried about chat, GPT and Bard in your scenario. Yeah, that's true.

She actually uses it. and she's incredible at it. It's just, it's really a matter of, you want me to tell you how I bribed to get into restaurants? This is my big secret. I've been teaching people how to give Matrides tips for the last 20 years because my dad taught me. You take the $20 bill or $50, depending on where you're going.

You fold it twice. Now you got it in your hand. You put it between your thumb and your palm. So now you're holding a 20 or a fitty. You go up to the matrienne station. There's 20 people around the table. You put your hand. on the matri table behind the light, you know, where the book is.

You say, I am so sorry. I may have made a reservation or I might have forgotten. If there's anything you can do for me, you're keeping eye contact, and you just turn over your hand halfway. Person sees the 50. And you say, oh, which your name? Oh, Susan, nice to meet you, Susan. I'm Jason.

And you hand them the 50 or the 20. Boom. Goes right in the pocket. Let me see what I can do for you. I've done this 100 times. You know how many times they gave me the money back and didn't get me a table? once. Once in New York at the China Grill, they were just swamped and they couldn't do it. The woman literally gave me the $40 back and said, I thank you so much for the tip. I really can't do it tonight,

but I will get you next time. And there's seats at the bar. You just go take a seat at the bar. So there you have it, folks. There's how to tip properly. But nobody likes to tip the matro di anymore. There's no cash anymore. Weird that we live in a cashless world. Yeah, you know, a quicker way to do it is just go up to the, the, the, uh, the, the, uh, the mater d in your example and just, say reservation, yes, Jackson party of two. Yeah. Or Franklin, if it's a nice place. Oh, oh.

Oh, I didn't know that one. Jackson, party of two. Did you have you used that? Yeah, it works better with Franklin. Works better with Franklin? I would say probably working better with Franklin. All right, everybody, life for your in-house legal team. Man, it can be so hard chasing down.

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Let's talk about hotels and trends over there. Sure. I stayed at something called Citizen M. I don't know if you know about this yet, but I like stylish hotels. I always had an affinity for the W hotel when they first came out. They were very well run, hip. And I just couldn't believe that like the W hotel wherever I went was 300 bucks and had the hippest bar downstairs. And then when I stayed at a nice hotel or a nicer four or five star hotel, five, six hundred bucks, but the bar was old and sodgy.

So I really got into my SP, what is that, SPG points for a while, which is not a bonvoy, I think. And now I'm seeing Citizen M. And I'm seeing some other ones where you don't go to the lobby anymore. you just simply pay $200, $250, $179, you come in with your phone, you scan your ID, you go right to your room. Let me talk about how hospitality is changing in hotels. And then on the other side, I am a super fan of Amman hotels. That's my favorite hotel in Tokyo. This is like $1,500, $2,000.

So I go high, low. I either do Citizen M, I'm in and out of a city two nights, or I'm, you know, bringing the fam and I want to have something really nice with Amman. What are the trends now in the hotel business here? There's a bunch. Look, that there's a lot to unpack there. By the way, I think you're probably the oldest guy in the lobby at a Citizen M. I think I, well, you know what I love about it is I go in there.

I get recognized and people are founders hanging out in the lobby. The Citizen M movement is incredible. I see all the founders who are on a budget. And that's who I want to. And also Ace Hotel in New York is also super affordable. and the Ace Hotel has a lobby where everybody works and co-works, I like to run into founders. That's how I found some of my best investments. So, walking through the hospitality trends in hotels now.

Yeah, you know, hospitality is an interesting industry because you've got a couple counterparties involved that are very different and have very different incentives. So you've got the actual owner of the building, right? Then you've got the operator of the hotel, which is usually not a brand. It's some name you've never heard. of and then you've got the flag, the actual brand of the hotel. So you've got three different parties involved. Citizen M is an example of a new trend of the hotel brand, actually operating the hotel

two and having a brand new tech stack and reimagining the actual hospitality experience, which is trying to take labor out and putting as much of the functionality into the app and into the palm of the guest. So if you notice with your Citizen M booking, you probably got a text message, you interacted with them via text, right? Amazing. You probably checked in advance by scanning your ID and submitting your credit card. And they told you when you showed up and they know when you show up because they can locate

your phone, right? Yeah. And they'll tell you, hey, your phone is your room key and this is your room. Right. And you can converse with them via chat. order extra pillows, all that kind of stuff. It's amazing. Contrast that with a Marriott, which is a great company, the brand, right?

But they don't actually operate hotels. They contract with lots of other management companies to operate at those hotels, and they don't control the equipment that's on the property. So if you went to the Marriott in New York, pick one, you know, pick the one in Times Square, you can't get into those doors with your phone. And there's a reason for that. Because the landlord doesn't want to, the owner of the building, the landlord doesn't want to spend the money putting in new doorlocks. Right?

Yes. And then the hotel management company doesn't want to strip out staff either. They don't mind having front desk staff because typically a hotel management company bills you at cost plus. Oh, so cost plus means that their incentive is to increase your spend. That's right. not lower the spend and make you addicted to their brand and take longer vacations. That's right. And then, you know, at the high end of the spectrum, the Amman's, look, the luxury properties,

this is a great time for them because so many people are willing to spend money on experiences. And there's a lot, been a lot of wealth, despite the COVID-19 pandemic, a lot of wealth has been accumulated over the last five years. And people are looking to deploy that. Amman's a beneficiary of that. And that's another place where they don't want technology. They want personal service, right? Right. They want your guests.

Five people meet you at the door. That's right. There's no reception desk. They just take you to a little seating area. They open a lease and then they pour you some soda, put out some snacks. They have a conversation with you. You sign a couple of pieces of paper and then three people walk you to your room and your bags up there and it's been unpacked. Exactly.

Already. Already. So that's a staff heavy model. Yeah. And you're seeing that in their roommates you're willing to pay. But those are also the most profitable hotels. Yeah. by far. The thing

I really love is we have an investment in a company called Anyplace. And this is really interesting. They are renting apartments. Then they design the Anyplace hotels. And I think it's Anyplace.com.

Yeah, it's Anyplace.com. They put in gigabit speed internet. They put in a working desk with a giant monitor. They put in a like basically camera, podcast kind of studio. And And, you know, we incubated this company. We invested in it.

And it's really making people super productive. And they do very long stays. You know, this is like 30 day stays two weeks. So if you're a nomadic person, so is that longer stay thing and the maybe not Airbnb, they got their own thing going. But there seems to be something getting filled in between the kind of randomness of Airbnb and the predictability of your Marion. Is that something you're covering as a trend?

Yeah, look, I can go into lots of interesting trends in hospitality. That's definitely a segment that's growing because you do have these nomads and more companies are flexible about where you can work and for how long. And there is a little bit of a gray area. Historically, hotels could, you could not book a hotel for longer than 30 days. And that was by regulation. Ah. So, you know, you've got folks who are now 30 days or more and exploiting some loopholes in the law.

but it's still a very, very small segment of the population that actually chooses to stay this long. But if you're in that business, it's a great product offering, but none of these companies, and I think any place is probably just not the exception to this, can't do it profitably. No one's actually figured out how to open these new hotels. And that goes to Citizen M2 or Sonder or Vacasa or Selena, or Selena. I could go on and on of these companies that were venture-funded, last four years, came out with great tech stacks, great experiences for when you're actually on property, but have not figured out how to make money. And these companies have all, you know,

for the ones that went out via spec, lost, call it 95% of their value. And some of them trade for less than what's cash on their books. It's an operationally hospitality is a business that requires operational excellence at a deranged level. I just read unreasonable hospitality. I don't if you've read that book. I have. It's just such a great book because you realize you really need the front of the house, the back of the house, and then you need the third stool. Somebody's got to be watching the books and really thinking about, like,

is this worth it or not? And you're absolutely correct. The Anyplace team has had to really think through, hey, if we're putting in this laptop, desktop station with the monitor, how much does that cost? How much is it cost to furnish it? How much is it cost to maintain it? And what is the actual real price?

They luckily they figured it out, you know, because they're probably charging $7,000 a month for that, you know, studio apartment with everything built in. And maybe their cost basis is four or something for that studio in Manhattan. But it is not easy. You really have to think when you're doing asset heavy. Well, listen, this has been incredible. I love your products and services. Thanks from the crazy insight into all this. I hope you keep going down this rabbit hole with Open Table.

I'm going to try to get my elite status going. I wish you would just charge me $100 so I could just be elite. And I, man, put a button in there where I can share my tipping. Share what a baller or maybe put my tip in advance. Any of that, anything where I can get an edge on getting a table I want. And just congratulations on the success. And I appreciate you sharing all the knowledge from inside the hospitality industry. You're hiring right now.

You need some positions filled, I take it. We are not hiring right now because we're seeing this huge productivity. benefit from AI, which we didn't talk about. Yeah, yeah, same more. Running the company, I'm having the same experience where people are getting 30% more efficient. So explain where you're seeing the gains. Customer support, I would think. No, customer support isn't that big line of business for us in terms of expense.

But we're really saying we're a technology company. So we're seeing in developer productivity for sure. And the best developers now are far and away better than our junior folks. But our junior folks are a lot better too. We're seeing it on the marketing side. Everybody's labeling up. Yeah, marketing side and our press releases, our financial discussion, you know, as we look through where we're performing, that's much better.

The search results, the product are much better. That's where we're actually seeing AI transform. It's not actually, I think, on the user interface side. Fantastic. So basically in year zero of AI in the enterprise, it's making people, what would you say, 30% more efficient in those functions, 20%, 40%? everyone seems to say 30%. Everyone seems to say 30%.

I don't know why we all say that because it's not 10 or 20. It's more than that. Now, it's not 50. We know that. So I think you just wind up at 30 because it's really noticeable. That's the key. Yeah. Well, I think it's just like when Google docs came out,

everyone who could collaborate got a lot better than the early adopters performed. But I think it will normalize. What's great for us to see is the disparity between some people are really good at using those tools, and they improve by a lot more than 30%. And if I can get my highest paid best developers to improve by 50, man, I can let go a lot of junior folks. Yeah. Yeah.

I mean, you just don't need as many people. And having less people means you go faster. So if you can build more elite teams, and this is really just an important message for young people getting into the workforce, either learn these tools or be at like the gap between people using them, that's really the important message, isn't it? You have to commit to use it. I literally did it today because some people hadn't done PR or marketing before. And I said, just literally going to chat chip because you're a PR person advising a company,

trying to accomplish this task in public relations, make a plan, step by step plan. It built a 20. I was out of my mind. This is like, see, 20 point plan. And then copy editing, you know, writing copy is one of them. I said, make me a sub plan for copy for somebody who's never written copy before. for and it gave me like a 12-part subsection because the person felt they were inadequate at that. I'm like, this is like a $10,000 consulting job that chat chip BT did in 10 minutes or no,

two minutes. Unbelievable, they gains. Unbelievable. What it's going to be like in year three? You know, pretty soon we'll have AI talking to AI though. So we'll still need humans to navigate all this stuff. Steve, this has been great. Please come on again next year and we'll talk some more about the AI revolution and all this great stuff.

That is happening in the hospitality space. Are you going to the Skip conference? I'm having dinner with you next week. Oh, are you going to be at that secret dinner? All right. We'll be at the secret dinner together. You know, Rafat, who runs a Skip, is one of my first employees. Is that right?

That's cool. Yeah, he worked for me at Silicon All the reporter. It was one of my best journalists and then became this incredible entrepreneur. And I'm a tiny investor in Skiff. I will see you at dinner next week. And we'll see you all next time on this week and startups. Bye. Bye.