Travelling is fun but stressful. Is the destination going to look like the pictures on the website? Voila, Tripadvisor.

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Dave Young:
Hey, welcome to the Empire Builders Podcast, that’s where we’re at, right? I’m Dave Young.

Stephen Semple:
That’s where we’re at right now.

Dave Young:
Yeah, I don’t know. And as we’re recording this, it’s early in the morning. Stephen has gone to the great trouble of researching empires, the people that built them, and how they did it. And just before he hits record, he whispers in my ear the topic of the day, and all I have to do is show up and do this kind of stuff. Hi, Stephen.

Stephen Semple:
Hey. You’re really doing so well this morning.

Dave Young:
Look, it’s early, I’m still waiting for the meds to kick in. I’m stalling because I’m trying to think of things that I know about the empire that you told me about. We’re going to talk about Tripadvisor.

Stephen Semple:
Yes, sir. A big player in their space, man.

Dave Young:
They are. And my recollection is they’re sort of travel agency-ish, but they’re also just big search and ad, and you just find them when you’re going to a place and you want to know stuff about things before you hit the ground.

Stephen Semple:
And that’s literally the inspirational idea for Tripadvisor. So Tripadvisor was founded by Steve Kaufer in February of 2000, and today they get like 400 million visitors a month to the site.

Dave Young:
That’s not nothing.

Stephen Semple:
That’s not nothing, it’s pretty significant. But here’s the interesting thing, the thing that really drives them, user review was actually an afterthought when they started their business. It’s not where it started. So, Steve got a major in computer science. In 1985 he graduated, and he decided to start this software company, and he stayed there with a bunch of friends, and he stayed there for 10 years, and he worked at night. In fact, he started off doing this productivity tool, which found errors in C code, and he grew it to 160 people, doing 18 million in sales, then the market changed and it contracted.

And by the time he sold it to Compuware in ’98, they were down to a dozen people. But it was a learning lesson for him, because what he discovered when he reflected back on it is he had on these blinders, and the blinders were, as the business was contracting, he kept thinking, “All I need to do is invest a new product, all I need to do is make this thing better and it’ll work.” What he was not connecting with was what the customer actually wanted.

Dave Young:
How is the market changing too, right?

Stephen Semple:
Correct.

Dave Young:
Man, if you think that you’re the rock and you ignore the fact that the market is changing around you, you’re doing something wrong, you just haven’t opened your eyes.

Stephen Semple:
Yes. He believed that the business failed because he had this complete product-first focus. Product, product, product, not looking at the market, not looking at the customer, and that shaped what happens next. So he basically walked out with nothing from that venture, and he went on vacation in 1998 and he went down to Mexico. He and his wife are going down there and he’s planning the trip. So like, “Well, where should we go?” “Well, how about Mexico? How about a trip to Cancun?” They go to a travel agency. Remember this is 1998. He goes into a travel agency. He’s handed three brochures. There’s one that’s cheap, there’s one that’s average. There’s one that’s luxury. And the agent’s like, “Hey, where do you want to stay?” He says, “Let’s do the cheap one.” The wife asks, “Is it up to our standards?” So he goes online to try to find out information, and there are basically low-resolution pictures and 1-800 numbers to make reservations.

And what he wanted was, are there people who have loved it? Are there people who hate it? Are there candid photographs taken by people who actually visited? He knows a lot about technology so he starts using negative keywords because what he discovered was all these sites were basically travel agent sites. So he uses negative keywords to find non-travel agent sites. And really what he finds are these precursors to travel blogs. So places where people put photos, and the first thing he noticed was there’s a big difference between the photos on these travel blog sites and the photos on the brochure.

Dave Young:
Isn’t that the truth?

Stephen Semple:
And in fact, he goes, “Thank goodness we didn’t go there.” They didn’t choose the cheap one. They went to the other ones and had a great time. On his way home, his wife says to him, “Maybe you should start a company that makes this easier for others.” He initially says, “Yeah, no.” But it sits with him because what he realizes is, wait a minute, it’s hard to find information. This is a bit of a mystery. And for a lot of people, this can be one of their big purchases is their travel. And around this time, Expedia launches. And what he sees is that travel as a category is the number three industry on the web.

Dave Young:
Okay.

Stephen Semple:
So he decides, you know what? I’m going to do this. And the first company name was not Tripadvisor. He had a far better name at first. What he decided is tripresearch.com.

Dave Young:
Tripresearch.com.

Stephen Semple:
Yeah, exactly. What he found, for some reason, people were really not excited about this idea of doing research before a trip.

Dave Young:
Often descriptive names like that were wesellbiggerbrighterdiamonds.com. That’s okay, you can look at it and understand it, but there’s nothing very intriguing or exciting about it. And I’m going back to the early days of the web compared to something like bluenile.com,

Stephen Semple:
Yes. So he found people weren’t excited about the name, and then he landed on Tripadvisor because he wanted it to feel more like your friend. Your buddy will give you some advice on a trip. So that’s why he landed on Tripadvisor.

Dave Young:
Can I point out one other just weird benefit to that name versus, what was it? Trip-

Stephen Semple:
Research.

Dave Young:
Research?

Stephen Semple:
Yeah. You remember it so well. We’ve said it like five times.

Dave Young:
Tripadvisor flows off the tongue because it’s in iambic pentameter.

Stephen Semple:
Oh, that’s a good point. I hadn’t even thought about that.

Dave Young:
Tripadvisor. That’s it.

Stephen Semple:
There you go. I hadn’t even thought about that.

Dave Young:
And that makes things easy to remember.

Stephen Semple:
Awesome. Great insight, yeah. What he decided he wanted to do was create this entire web for trip information, what to do, where to stay, and he felt it was all out there. And what he found was at that time, remember it’s 2000, a lot of web guys are going up into flames because they’re buying eyeballs, they’re just going out and buying eyeballs. Here was his business model, the first business model, search the web, find the information, and sell this information to travel sites to create a better search experience on their site. Here’s the info so that they can then sell more trips and clients, his clients being the travel agencies would pay per inquiry.

Dave Young:
So you’d have a little Tripadvisor sort of widget on your site when somebody’s looking for Cancun, there’s all the reviews for Cancun.

Stephen Semple:
Exactly.

Dave Young:
Okay.

Stephen Semple:
He brought on some co-founders. They raised $1.2 million, and his wife was running a company at the time, she had an office above a pizza place, and there was enough room for them because there was no intention for anything to be consumer-facing. So what they did is they called everyone they could get ahold of in the travel space, and they went nine months with no sales, and finally they got ahold of Yahoo. Remember Yahoo?

Dave Young:
Yeah. They’re still around.

Stephen Semple:
They’re still around. And we forget they used to be the 900-pound gorilla in that space. They met with Yahoo and Yahoo said, “Hey, we love this idea.” However, they realized that what Yahoo wanted to do was charge them for being part of Yahoo. They were getting on planes, they were meeting after meeting, and finally, they came across Lycos, and remember, Lycos used to also be a big search engine. And they got added to Lycos travel section. And what they hoped was this would open the door to other clients. The idea was that this would bring more revenue to the Lycos site, and the deal they set up for Lycos was not what they originally wanted. What Lycos said to them is, “Hey, we’ll do a revenue share on the ads on this page, on this travel page.” Because Lycos was running banner ads and things along those lines, and they were excited. Steve was excited. Folks at Travelocity were excited. We’ve landed this great big customer, it’s Lycos. We’ve got this revenue share. It’s going to be really, really great. And then two events happen. One, it’s September, 2001.

Dave Young:
Oh, yeah. But there’s a dent in the travel industry.

Stephen Semple:
Yeah.

Dave Young:
An iceberg.

Stephen Semple:
So basically the attack on the Twin Towers happened, and for those who don’t remember, travel was canceled. When I say canceled, planes were not flying.

Dave Young:
I mean, within a couple of hours, all the planes, all the planes were out of the sky.

Stephen Semple:
Yes. I lived near the airport in Toronto at that time, and it was weird. There were no planes in the sky.

Dave Young:
I lived in flyover country in the middle of western Nebraska where it was just, you looked up and there’s jet trails, that’s it. The sky is littered with these stripes and there were none.

Stephen Semple:
I know it was weird.

Dave Young:
Just a big, blue, blank screen.

Stephen Semple:
But their saving grace was that they figured was going to help them weather the storm was the check was going to be coming in from Lycos, the revenue share. So the check arrives and it is, drum roll, please, $500.

Dave Young:
Sweet.

Stephen Semple:
For a quarter.

Dave Young:
I mean, they could buy some pizza from his wife, I guess.

Stephen Semple:
Well, it didn’t even cover the lunches that they periodically did. He thought there was no way possible. And what he discovered is that most of the ads on that site were house ads that were not charged.

Dave Young:
Oh, no.

Stephen Semple:
And there’s a big problem, the industry is in complete disarray. So they went into this panic mode.

Dave Young:
Wait a minute, are you saying that a lot of the ads we see on sites are phony, baloney vapor? That’s another discussion.

Stephen Semple:
That’s another discussion. That’s another discussion. But the point is, they’re in now this panic mode. They need a new business model, the industry is in disarray. And here’s what they finally decided at that point, they said, “You know what? We need to make this site open to the public.” Because people were finding it, even because when they started to look at it, they said, “This is really crazy. We’ve made this site hidden, and people were still finding it.” So here’s what they got thinking about, if you’re a consumer on the site, you’re a traveler and you’re getting these reviews and rankings, what’s the next natural step that you want to do as a consumer? If you want to see, is it available and how much does it cost? That’s the customer journey. Customer journey is I do research, I get reviews and rankings, I then say, is this hotel available, and how much does it cost?

So what they started to do was they created then a text link of price and availability, and they sent them to the Expedia site. They tested this, so they tested it long before calling Expedia. They just were sending shit to the Expedia site. So then what they found was, okay, this is working. So they reached out to Expedia and they said, “Hey, Expedia, we’re sending traffic to your site. Will you pay for the traffic?” And Expedia said, “No, but we’ll do revenue share.”

Dave Young:
Okay.

Stephen Semple:
What they settled on was clicks and Expedia would spend 50 cents a click. There you go. So in November, they did a free test. They said, “Well, let’s do a free test.” And they sent them 10,000 clicks. They signed up in December. In December, they sent them 20,000 clicks, and they called Expedia at the end of December. And basically, the lead quality is good. Expedia said, “Lead quality is good, send more, and we’ll buy more.” So now they have a business model that makes money. They now have a business model, which is, to create this site, have these reviews, track consumers, and send it over to Expedia, but there’s way more money to be made here. Now what they decide to do is you’re going to bid for placement. So in other words, we’re going to go out to all the other travel sites.

Dave Young:
Okay, yeah. This is the wild west of the web back in those days.

Stephen Semple:
Plus, what they also know is one consumer will click on both links. And so now they’re making more money per consumer. At one point, they decided to let users write their own reviews because what Tripadvisor was doing at this point was going out, finding travel reviews, scraping the web for those, and putting it on their site. So basically they were just aggregating, and they suddenly decided, you know what? Maybe we should let users write their own reviews. The people in the company were split on it because have no idea what somebody was going to write and not everybody was a good writer. And some people can barely…

There was a big split on that, but they decided to test it, and it turned out to be a great idea. And it turned out what they found was visitors to the site skip the professional reviews, they looked at the people reviews. And it exploded. In March of 2002, they did their first month of profitability. They have a $70,000 month, and they are now a consumer brand. So they looked in and said, “You know what? We are now consumer-facing, and what we now need to do is get more traffic to the website.”

Dave Young:
And this is March, right after September 11th?

Stephen Semple:
March, 2002. So the next year.

Dave Young:
2002, but still half a year.

Stephen Semple:
Yes.

Dave Young:
Travel got killed on that day and now you’ve figured out the key to creating a travel-focused site and making money. I mean, that’s a pretty damn good pivot and success story in and of itself.

Stephen Semple:
And Steve, when he’s interviewed, he will talk about how, and he sort of says it guiltily, because it was a terrible thing and it was very disruptive to the industry and really hard times. But that event, having that happen, and a check that he thought was going to be like $50,000 show up, and being $500 was the best thing that ever happened because it forced all of this pivot. There was no choice.

Dave Young:
Yeah, absolutely.

Stephen Semple:
And it was like, what the hell are we going to do? We need to do something dramatically different, so yes. And he actually wonders if that didn’t happen they may never have done that. They may have continued to try to make that other business model work. So sometimes these events are the gifts. But now what they realize is they’re consumer brands, so what they need to do is drive more traffic to the website. And they looked at it and they said, “Look, what we’re doing somebody else can do, so we actually need to become big. We need to grow really fast here because we need to become unassailable. The only thing that’s going to protect us in this, because anyone can do this, is by becoming the giant.”

And they had not been focused on building traffic. They had not been focusing on that. The traffic was sort of happening on its own. And they looked at it and they said, again, in 2002, search engines were the key. This was the early and golden age of SEO. This was about content and SEO. And look, it’s way harder today. Anybody who tries to replicate a strategy from 2002 to 2003 does not work today. Again, they know that that was there, and they also know others were doing it at the time. So here was the cycle, cycle was get more visitors, get more reviews, more reviews equals more visitors. What they realized was reviews were the key. So how do you work on building reviews?

When someone does a review, you thank them, you pat them on the back, you reinforce to them. You tell them how many people that review was helpful. So if you did a review at that time, they would reach out to you directly and go, “David, thank you for the review. I want to let you know that 260 people have read your review. And in fact, here’s somebody who’s commented on your review.” And what does that do? Reinforces you to write another review.

Dave Young:
Absolutely, yeah. People like that. We like people saying thank you and look how many people you’ve helped, even if there’s nothing in it for me, there’s that affirmation.

Stephen Semple:
Yeah. So things start really going gangbusters for them because, in 2003, they did 20 million in revenue. They go, man, we got something here. Let’s go global. Let’s become the number one in travel is the goal. But they also went, hold on a second. This would work in other verticals, wouldn’t it? How about, I don’t know, restaurants?

Dave Young:
Because when you travel, you have to eat somewhere.

Stephen Semple:
How about, I don’t know, guided tours?

Dave Young:
Sure. Got to do something.

Stephen Semple:
All of that stuff. What they realized was the key to even all of those other things was encouraging reviews and thanking them was the best way and that encouraged other travelers to thank them. Because I thank you. Now a traveler, thanks you, and people want to feel like they’re helping other travelers.

Dave Young:
Absolutely.

Stephen Semple:
In 2003, they were getting 10 million visitors a month, but they’re still far from the top in terms of the travel space. So they said the magic ticket was to increase traffic by 10 times. So here’s the part that’s amazing. At this point, they have a choice to make, do you become an agent? There’s money in booking, or do you do more of what’s working? There is a huge temptation in the business to become an agent, but what they decide to do is, no, the key is to do more of what works. And so they really commit themselves to increasing their traffic 10 times, and they’re working hard at it.

Around this time, Yahoo comes along to them to acquire them. And remember at the time, Yahoo was this big giant. And here’s the irony, two years ago, Yahoo laughed them out of their office. As Steve talks about, it was actually big ego play. “Two years ago, you guys kicked us out of your office and wanted to charge us, and now you’re coming wanting to write us a big check to buy us.” And they enter into an exclusive negotiation. Here’s another really important lesson, everyone and I see this happen over and over again. I’ve done podcasts on this. Gary Bernier, one of our partners did a training thing at the Wizard Academy around selling your business. Here’s the number one mistake I see happen over and over and over again.

Somebody’s coming along and they want to buy your business. And what do you do? You stop growing. You stop promoting your business, you stop growing because you know what? I’m going to be selling it. Well, here’s what they did. They did not take their foot off the gas. So it’s 2003, late 2003, and Yahoo comes in to do the acquisition. January 2004, they have a massive spike in traffic. Yahoo does the thing that every acquirer does at the 11th hour. Now that we’ve done your due diligence, we think you’re worth less. Here’s how much we’re prepared to offer. They go, “Our traffic just shot up. We think we’re now worth more.” They walk away from Yahoo. Big gulp, walk away from Yahoo. Yahoo could become a competitor, but they’re making money and they’re growing. And Google was becoming bigger because Google was gobbling up search. And one of the other problems that they have is these are not contracts.

Price shifts and fluctuates day by day, this is a bid strategy. But what they also realize is that this was also the day when clicks were cheap, they could start buying traffic. And what they also noticed was people would do multiple clicks so they could buy traffic for a dime and sell it for 50 cents. But the world also knew Yahoo was interested and walked away. And guess what happened? IAC, another big company in the space approached them and came to them with life-changing money. So they sold the business for $210 million. Their biggest customer at this point was Expedia, which was also owned by IAC.

And if you take a look at IAC, they’ve done a couple of restructurings. Eventually, Expedia became its own public company and all of these things. But at its core, Tripadvisor thinks of themselves as a media company. It’s all about reviews. And 9/11 adversity really taught them a lot. And the key that has made them successful, if you think about it, they own the customer. They own the customer. And anytime you own the customer, you are in the power position. And when they face that key decision, do we become an agent? No, we got this thing that’s working. Let’s do more of that.

Dave Young:
Let’s do everything we can to help the people that we set out to help, and that’s the traveler. It’s not helping the hotel, it’s not helping the airline, it’s helping the traveler. And so when you keep your eye on the customer, and in their case, even though the web world is weird about who’s actually a customer, they knew that travelers were their thing and owning the travelers and being their spokesperson, their proxy if you will.

Stephen Semple:
Yes.

Dave Young:
So we’ve got to focus on that.

Stephen Semple:
Yes. And if we think about this, the origin of that lesson was his failed business. Remember when his business failed, he said, “The mistake I made is I didn’t keep my eye on the market and I didn’t actually know what my customer wanted. So September 11 happens, I’m looking at the market, I’m looking at my customer, looking at the market, I’m looking at my customer.” Now we pivoted in terms of who they viewed the customer as being, and then when they got things working, what we need to do is just do more of this. So what we need to do is find, we need to track more people to our site that we can help. And when they’re selling their business, didn’t take their foot off the gas.

Dave Young:
Yeah. Smart moves. Some might say lucky moves, but I think a lot of smart stuff going on there.

Stephen Semple:
I think a lot of smart stuff going on there. Lessons learned that he then went out and applied. I have a lot of admiration for the moves and the things that they did. I think it was very thoughtful. I think a lot of lessons were learned and they did some really smart things. And the smartest one was when Yahoo walked through the door, not taking its foot off the gas, continuing to build the business.

Dave Young:
Well, thank you for sharing the Tripadvisor story. I’m now looking for a place to go. Don’t know where I’m going next.

Stephen Semple:
Check it out on Tripadvisor, I think that is what you need to do.

Dave Young:
I think that’s the plan. I think that’s the plan.

Stephen Semple:
All right, Dave, get out of town, man.

Dave Young:
Packing my bags as we speak. Thank you, Stephen.

Stephen Semple:
Alright, thanks, David.

Dave Young:
Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app and leave us a big, fat, juicy five star rating and review. And if you have any questions about this or any other podcast episode, email to questions@theempirebuilderspodcast.com.

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