David Litwak: [00:00:00] Hello everyone. Welcome to “How I got here”. Mozio’s and Phocus Wire's weekly podcast about innovation and travel and transportation. I'm David Litwak and I'm joined by Kevin May. Today we're honored to welcome Bob Diener. Bob is currently the cofounder and president of getaroom.com but he's more well known for founding hotel reservations network, which eventually became hotels.com.
Together with his business partner, David Litman. Bob created the merchant model for booking hotel rooms and launched one of the first travel sites on the web in 1995. Thanks for joining us, Bob.
Bob Diener: [00:00:34] Well, it's great to be with you today.
David Litwak: [00:00:36] So we'd like to start every single one of these podcasts with the same question, which is, if you could explain to us how you got here.
Bob Diener: [00:00:44] Sure. Well, I started off my career as an attorney. I worked at a large law firm, Gibson, Dunn and Crutcher in Los Angeles. But, while I was in law school, I had a part time travel business. And, that helped put me to law school and I kept a business on the side while I was practicing law. And after practicing for about two and a half years, I went into the travel business full time first in the airline side until 1990 we sold our airline company and then my partner, Dave Witman and I, we were a little bit bored sitting on the beach and our foot flops and, and talking about what are we going to do next?
And we decided to take a trip to Belize, do some scuba diving while we lived in a hut for a few days and crunched a lot of paper and figured out what our next steps were going to be and we decided on the hotel business.
Kevin May [00: 01: 41] It sounds very easy. I mean, Bob, it's Kevin here. Nice to meet you. And tell us a little bit about the travel business that you said you had when you were a practicing to become a lawyer. I mean, how did that come about? I mean, it's not the most obvious thing that perhaps some people will do while they're also doing their studies.
Bob Diener: [00:02:03] Sure. So I ha, I had what's called an airline consolidator business. So what I used to do is, is buy seats from airlines and then resell them. And so at the time, and this was, this was in the early eighties.
There were a lot more airlines at the time, and many of them were strapped for cash. So they were happy to get some cash in advance in return for future airline credits. So that was, that was my original business. And, we resold the tickets largely to other lawyers and law firms and travel agencies.
And it grew into a bigger business. And I kept that business part time and eventually went into it full time. And then in 1990, right around the time of the Gulf War, there's a lot of things changed in the airline business, a lot of the airlines that, where weaker went out of business or reemerged into other airlines.
And we decided to sell the business and look for something else. And of course we knew the travel industry. And so the hotel business was a natural because it's much more competitive than the airline industry, the car segment or the cruise segment. Cause there's so many hotels. I mean the US alone is over 50,000 hotels and then you have thousands of vacation rentals and other types of lodging. And once you look at it internationally, it's just, it's just a massive market that's in the hundreds of billions of dollars. So we saw a ripe opportunity to take advantage of a marketplace that really wasn't being tapped out effectively.
Kevin May [00: 03: 39] And what did you learn, Bob, from that period during the 80s that you kind of applied to that very, very early phase of the early nineties.
Bob Diener: [00:03:56] So we really learned how to distribute and market in a cost effective way, and we really started by targeting certain segments. For example, the travel agency segment was a great segment because they were in the industry, they're selling travel. They're always looking for more profits and, and, and more ways to increase their business. And so when we presented them with really good opportunities, it was, it was a great market to take advantage of it. It was easy to reach out to agents. They were, at the time, about 30,000 agents in the U S so it was, it was fairly easy to tap into that business. And we knew many agencies would develop relationships with them.
So after the airline industry was kind of a natural to present them our new hotel product, once we launched the hotel business.
Kevin May [00: 04: 47] You've referenced David a number of times already. I mean, we're always very interested in that. The kind of the backstory is how you, you, you found your, your founding team, how you discovered yourselves and what kind of connected you with each other, both on our guests, a personal level and also on a business level.
Because that kind of, that co-founder relationship is such an important one.
Bob Diener: [00:05:07] No question. And Dave and I have been partners now for way over 30 years. So we first met at Cornell law school, and I was at dinner with a friend and we were talking about a great ticket that I found that travel around the world after law school, and they was eavesdropping that conversation and he said, Oh, that sounds really interesting.
Can I join you guys? And he joined us. And. I know. I was telling him how I found this ticket for about $500 to travel all over the world. And he said, I'd love to join you guys on the trip. And so we, I traveled together after law school. We went through Asia, went to Europe together, and we became very close.
And afterwards we both came back and we worked at different law firms. I worked at that Gibson's on a Crutcher in Los Angeles. Dave went to Dallas and worked at the Johnson and Swanson. and, I started working in the airline business, continuing it once I was practicing, I tapped Bay because Dallas was a great market.
I said, Dave, why don't you join me in this business part time and said, Dave says, that sounds great. And we both worked at a port time and then I decided to go into his full time and Dave says, well, I don't want to leave my law practice yet. I've got a great salary here and my bonus is about to come up.
This was in November, so we made a deal. And the deal was that I was going to leave the law firm and go into the travel, the airline business full time, and Dave was going to keep his job, get his bonus at the end of December. We were going to split. split the profits, how's making split Dave salary? And then we would assess again in January.
And so that's how we started. And Dave saw how great the opportunity was and he left the law firm who was working at in January. And then we both went into the airline business full time. So that's really how it started and how our relationship has started.
Kevin May [00: 07: 05] That's very interesting. Yes, I'm sure, and you know, these three decades plus that you referenced, you know your relationship is very strong, but in those kind of early days, there's an awful lot of trust on both parts.
The business you're about to go into, which is a, essentially a startup. I mean, how did you get your head around how you're going to kind of manage those different elements.
Bob Diener: [00:07:29] Well I was very impressed with Dave's work ethic and David's just incredibly sharp.
And when we have different talents that Dave was very strong in the tech area is very strong, a personnel, very strong administration. And so we really split up our tasks. I focused on the finance part, sales and marketing, and Dave focused on the tech and operational part. And so we each worked in our, we each, you know, focused on our individual strengths.
And together we were a great team. And, we worked well together. We both worked hard. We appreciate each other's work ethic and, and we developed a close relationship. And to this day, we've actually never had an agreement. We don't have a buy sell agreement. We've split all our profits 50 50 for the last 30 years plus without anything in writing.
So it's been an incredible relationship. And usually whatever, when I'm thinking about a number of Dave's coming up with almost the exact same number, and when I'm thinking about a marketing strategy or finance strategy Ialways look the day if to analyze a tear it apart. And he does the same with me.
So it's been just an incredible relationship. And, and you know, when you're, when you're running the business by yourself, it's, it's, that's a very lonely business because it's, there's very few people that you can relate to. You know, maybe you can relate to some competitors or some people used to be in the business, but it's very difficult to, to really run things by anyone or really have someone to bounce ideas off of or, or have someone to criticize you at, tear your ideas apart.
So it's, when you have someone like that, it's really a great blessing. And, you know, not only we've been close friends and partners, but it's just been, it's been, it's been an incredibly great working relationship for the last 30 years plus, and even to this day, we're actually meeting tomorrow for strategy day, going over what we're going to do next here at getaroom.com using much of the same techniques and style that we've use for the last 30 years.
Kevin May [00: 09: 32] And that's Testament to the friendship, I suppose the fact that you didn't need, you don't need a contract is perhaps because you're both former lawyers as it were, so that's very interesting,
David Litwak: [00:09:41] Yeah. Bob, I wanted to see if we could segue a little bit and if you could explain what the merchant model for booking hotel rooms is. I think that's something a lot of our listeners probably don't fully understand how to appreciate what you guys kind of came up with, and maybe we can talk a little bit more about how you guys formally created a hotel reservations network.
Bob Diener: [00:10:03] Sure. So back in 1991 I told you a little bit about what we were sitting in a hut in Belize crunching paper or writing ideas on paper and trying to figure out what is our next business.
We'd love the hotel business because number one, it's so fragmented. So there's no one supplier that has such a high percentage of the industry or control that that they could exert so much leverage, to squeeze your profits and so forth. And, the state of the industry at the time was that, you know, hotels were about 60% occupied on average and needed about 70% to break even.
So the hotels need them more business. If one, didn't want to work with us, we could go across the street. So the competitive nature of it was just great, and it was just so large. So the market was so large, so many people travel. We didn't need warehouses. We didn't need storefronts. So it was really, even initially without the internet, all we really needed was a call center.
So it was it was just an ideal business to go in with very low downside and so much upside and so much opportunity. And so when we started in the business, we went to hotels and we negotiated. Special rates, and I'll tell us what often gives us a better rate. Because we had a unique marketplace and we booked with hotels and our agreement was that hotels were going to send us a commission.
The problem was very few hotels sent the commission. So we ended up being a collection agency and we were spending more time chasing hotels, writing legal letters that demanded our commission. And we were selling hotels. And so we looked at each other and we said this justice and going to work. And, and I said to Dave, you know, why don't we just, why don't we go get credit with hotels and have customers pay us in advance?
And Dave started to laugh and said, first of all, who's going to give you credit? We're a small little business. We don't have any track record. We don't have any funds in the bank. And who in the right mind is going to pay us in advance? So I said, Dave, look, I've got some relationships with hotels. I'll find some hotels to give us credit. And then let's try and. Let's offer consumers a great deal and see if they'll see if they're willing to pay us in advance. So Dave was very skeptical, but I went, I called a few hotels and I begged and pleaded that that original tell was the, that gave us credit was the Dorset hotel in New York, which turned into a museum, several years ago.
But it was, it was, it was a great hotel because it was right. It was right in Midtown. And they were very, very difficult to deal with. And I knew that if, if I could convince this hotel to give us credit and use them as a reference, that many other hotels would also grant this credit. So I went up and I met the general manager and he kept saying, no, no, no.
Why would I give you credit? You have no track record. You have no history with us. You've only been working with us for a short period of time, but he says, look. Yeah, I was persistent. I didn't give up and he says, look, I'll tell you what I'm going to do. I'm going to give you seven days to pay. I'm going to give you a small amount of credit.
And if he pays on time and you can't time consistently, I'll consider increasing it. So we would pay them much quicker than seven days. And after several weeks that went by, I'd call them, ask them to extend our credit. After a couple months, he started extending it. He started giving me more credit and I eventually, I said, can I use you as a reference?
And he said, sure. So I started going around to every other hotel in New York, giving them as a reference, and within a few months. We had tons of hotels that were giving us credit, and then on the customer side, we changed our model to have customers pay us in advance. And again, Dave was still very skeptical.
I was thinking who was going to pay us in advance. But sure enough, there was no hesitation. People saw, we offered a great deal. They gave us their credit card when they booked and so that became the beginning of the merchant model. And the merchant model is basically a model where our company was the merchant.
So instead of a consumer booking through us and paying at the hotel, which was the prevailing model at the time, the consumers would pay us, it would pay hotel reservations network, and then we would pay the hotel. So. W it was a great model because it provided us an incredible amount of cashflow. So the typical flow would be the customer would pay us on day one for the full amount of the hotel stay.
The customer would stay on average 30 days later. Hotel would bill us approximately 30 days after checkout, and then we'll give us 30 days to pay the bill. So that became 90 days of free float. So this became our financing arm for the business. Our customer is really the entire beginning and growth of what became hotels.com and really the entire OTA industry, especially for hotels.
Alright, so this is a, so we call us the merchant model and. We basically change consumer behavior because consumers were used to, again, paying at the time that they check into the hotel, but now customers were paying us in advance and it became a dominant model worldwide. And that’s the dominant model until booking.com came around in Europe and change the model to, to what it was long ago where people paid at the hotel.
But the merchant model is still the dominant model. In North America and still a very successful model and we never needed a, we never needed a financing. It's, we never took a bank loan. We actually know much. We started the business with, do you have any idea? Do you know how much we invested in the business?
So we each invested, you don't want to take a guess? We each invested a total of $600 in the business, and Dave didn't pay a $600 in. So we always had a liability on our balance sheet for $600 and I had to chase Dave for two and a half years to get them to write the check for $600 eventually he wrote it.
So our total investment in what became hotels.com and, and over a $5 billion business was $1,200 that was the total investment in the business.
Kevin May [00: 16: 46] It's mind blowing when you think of all the money that is swelling around from venture capital companies tend to start ups nowadays, isn't it?
I mean, I've got a question for you, Bob, and that's, it's really interesting. You were saying that you went to this single hotel in Midtown Manhattan and you've got their trust and that became a reference point for you to go to other hotels and you, you know, all of a sudden you had lots of hotels on the books.
How did you as a business handle that from a kind of a business servicing perspective? I mean, contracting with hotels is a fairly resource heavy part of any kind of any kind of new business, let alone one that's coming up with a new model and there's a lot of hand holding. How did you run that as a business?
From a resource perspective, you know, manpower and things like that.
Bob Diener: [00:17:36] You know, that's a good question because I'm, at the time the travel companies were just using a GDS type system to book, which of course we know is not very profitable, but very easy to use, any have access to a lot of hotels, even though the margins slow. But we built a totally different system where we really built up an army. It was out there in major cities across the world, contracting with hotels, and so we did it slowly and methodically. We started in the cities where we saw the most demand, and rather than try to contract every hotel in the city that we started contracting a little bit in number of hotels where we thought we can do a lot of business.
And that's really hard. We started n a city like New York with 50 hotels instead of 500 hotels. You know, today we have hundreds of hotels and just about every major city. But we started smaller and we made sure we kept quality control. We made sure we paid on time. We made sure that we treated our customers right and we also treated our partners that hotels right.
And that we paid them. We paid in the right amounts, we paid them on time, we were reliable when they contacted us, we responded. So it's keeping that quality control. That enabled us to develop great relationships with our hotel partners, and we just kept expanding, but we control the expansion. So we did it in, in a way that was first of all cost effective.
We kept our profitability up versus going out and just spending a lot of dollars. We did it slowly, methodically, carefully, and so know so many entrepreneurs come to me. And they have these, you know, what they think are the greatest idea since sliced bread. They want to take over the whole world at once and they want to market their plan worldwide right away.
And when I ask them how much it's going to cost them, how am I going to raise the funds and make it profitable? They turn red. So many people try to do too much at one time. They try to, yeah, create a worldwide business overnight. And that's really not the way to do it. The way to do it is to start small, start slow.
Make sure that whatever market or area you're in works well, that it's profitable. And then once you have a system that works, then you can expand it. The other thing I did was I did everything myself at first. So I contracted all the hotels. I handled every aspect of the business.
So I even took phone calls cause I want it to know the business. I wanted to find out the kinks and once I figured out the system. And I was comfortable with the way it worked. Then I went and hired people and trained them, but I did really every aspect of the business myself for a same with Dave. We each took different parts of the business.
We did it ourselves, we learned the business, we figured it out, and then we went out and hired people and trained them how to do it.
Kevin May [00:20:19] I think it's interesting and I don't want to talk too much about the here and the now because we're here to talk about you and your kind of history, but I wonder if your ability to grow in the way that you did, which was very organic, just wouldn't happen nowadays because so many startups take investment money and there is pressure on them from their investors to grow faster and take arguably more risks in inverted commerce.
Would you agree with that?
Bob Diener: [00:20:53] Well, I totally agree with that. And that's the downside of taking investor funds. When you're not working with your own funds, you don't tend to be as conservative. So, I consider myself what I call a conservative entrepreneur. I don't want to run a business that loses money if there's some investment, that's fine, but I want to pay off in a reasonable period of time.
I want to look at every expense. So I want to be very methodical and the expenses to make sure we're not wasting. And what happens is when, when you get big private equity money, you get funds from investors. You tend to be careless. And that's often what happens. What happens in today's world, for example, people work for companies. The companies give them credit cards for expenses, and they tend to spend like it's other people's money and not their own. So we don't give any employees company credit cards. All our employees charge on their own cards and then they have to seek reimbursement.
And by doing that, we believe we save a significant amount of funds, because when you're using, you're spending your own dollars on your own card, you're much more cautious with how much you spent than if you're using. Then if you're using somebody else's card or a company card for your expenses, so that just one example, the way we run our business to make sure we're not wasting.
David Litwak: [00:22:25] Okay. Quick follow-up on something you mentioned earlier. You said, you know, the merchant model became the way until booking .com model kind of took over again in Europe. Why do you think that works in Europe but not in America and you know, is booking.com not a collections´ agency too now is what, what makes it work today?
Bob Diener: [00:22:46] Right. Well, the merchant model also is, is, is successful in Europe. It's just a booking.com came up with a different way, and they came up with different systems to collect. So for example, they're not necessarily chasing the hotels. A lot of times they’re just automatically debiting the hotels accounts.
So they came up with some much better, a much better way to debit the hotel. But, they have another issue in that, so many people cancel when you book that way. So the cancel rates you get with a model that we call our model an agency model, so they're an agent and the customers pay the hotel, versus paying the, the OTA.
The cancellation rates in that model are much higher than the merchant model. So there's some downsides that a model too, but they´ve, they´ve figured out some ways to do it that are much more efficient than what was available when we originally started.
David Litwak: [00:23:39] You said they debit the account. I mean, what did they, it sounds like they found some ways of getting pre-commits and you know, having deposits or I'd actually be curious, well, what are some of those ways they, they, they figure it out.
Bob Diener: [00:22:49] Right. Well, they have different systems they use, so they're not, they're not spending all their time chasing the hotels for commissions. So in that way they can focus much more on their, on their, sales and expansion versus just chasing, chasing hotels, but they're, you know, there's, there's, there's pros and cons to each model, but we found that the merchant model was an incredibly successful model. Again, it's the dominant model in North America and some other places around the world, and it's still highly used, in Europe and other areas as well.
David Litwak: [00:24:24]Cool. Cool. I have kind of a segue question. You, you talked about your experience bringing on the Dorset as your, your first client, on this merchant model. And I speak to a lot of startup founders who are trying to make inroads in a, kind of a fragmented supply market that operates in a very traditional way. I've got friends starting, you know, stuff that want to work with, art galleries and others, you know, obviously in our, our, world, want to work with airlines and etcetera, that don't, you know, move quickly at all.
How did you know you weren't crazy and you weren't just barking up the wrong tree, that eventually this was going to work. And, because I, I think, you know, there could be a case that could be made that, like, they just weren't going to do it, you know? What was your inkling that, this was going to work?
Bob Diener: [00:25:15] Yeah. Well, we started again, as I was talking about earlier, we started small and we started slow. So we didn't bet the bank on it. We said, let's test it. Let's test the market. Let's feel it. Let's test it. Let's try some hotels and let's do it. No, we knew we weren't going to all of a sudden have thousands of hotels to give us credit, but also we knew that if we can get, you know, start with one or two or a handful of significant hotels to give us credit, then we can slowly expand that as we're, as we develop a credit history with the hotels. So it's, it's, it's, you know, it's a matter of the way we did it was a carefully calculated way to have success, versus just shooting in the dark and trying to, all of a sudden have, have a lot of credit from a lot of hotels, which was very unlikely.
Kevin May [00:26:03] So tell me, Bob, I mean, not in 1991 but, at some point there must have been much more of an emphasis and a launch into the website version of the business rather than the call center, which you were originally best known for. Talk us through how that process kind of came about and the various things that you needed to do to make that switch.
Bob Diener: [00:26:24] Sure. So 1991, when we launched it there, there was no internet. In 1995, I had a friend of a friend, bang really hard on the door, pretty much bang the door down that he has to show us something that he thought was going to change the world. And, you know, we, we were very skeptic. His name was Dave Ryan.
Unfortunately, he, he had cancer and he passed away a few years ago, but he was really, just a genius. And he, he was in the gaming industry, and he thought that he could apply what he developed in the gaming industry for hotels. Because, there was no really online commerce at the time. And at the time, in 1995 the internet was not interactive. So, you know, if you sent out an email, it was an ISDN. Basically on phone, a phone line, and it will go out one letter at a time and it was not interactive, so you would have to wait sometimes, you know, it could be minutes, hours, days to get a response back. But basically came and he showed us the technology. We said, it's very interesting, but nobody knows about it. Nobody uses it. How are we going to get any business? And so I was very reluctant to invest. And he says, listen, I'll make you a deal you can't refuse. I said, what's that? He said, I'll build a site for you. It won't cost you a penny. I'll build it.
I'll own the site, and you provide the inventory and you pay me a 10% commission, so you have no downside. I said, deal. And so he builds the site. We launched it in late 1995 and by 1996 the internet is still not interactive. It's already 5 to 10% of our business and it's slow as can be.
We just couldn't believe it. I mean, we were getting orders from South Africa, from Paris, from Japan. It was just incredible, is mostly in academia because it was mainly universities that, you know, had access to the internet at the time. And then the, the, the industrial revolution for us was in October of 2000, sorry, 1997, when the IBM mid frame systems became interactive. And, and, and connected with the internet. And now everything changed because now the internet was interactive. So now you can send an email, get an instant response. Now someone could come onto our site, and get an instant confirmation. And there was really, there was really, nobody doing online commerce at the time.
And so we were probably the only site for travel that was easy SABRE at the time, but people really didn't use it to book, they used it more for lookup. So we were one of the only sites out there where you could actually transact,t use a credit card and actually do business on, and get a booking confirmation. And hotels didn´t have any websites, none of the travel companies out there had websites. And so, we decided to create what's called the affiliate model. And so we went out to all kinds of businesses, especially travel businesses, and we said, we'll build an internet site for you, and we will develop the entire site for you, and you can promote it, you can use it, and we'll pay you a commission for every transaction on the site.
And within, I'd say, you know, a year to two years, we had about 20,000 affiliates, almost every travel site that was out there, was an affiliate of ours. And that was the way we grew the business at a very low cost because we didn't have to go out and promote, and buy ads and incur a lot of expenses. All these other companies that we worked with wanted to promote their businesses, and they promoted their website as part of their business.
And so, all this business went to us. At no initial cost. It only costs us, if there was actually a transaction. So it was an incredible business model and we really built up, it wasn't until about 2000, that we changed our name to hotels.com, acquired the URL and it was actually 2002 that we acquired it.
We were going under the name “Hotel Reservations Network”. Most of our businesses, some of our affiliates, and we decided in in in the 2002 to go ahead and find a really good consumer name and start marketing directly to the public. But all the way up until that time, we almost all of our business came from our affiliate program.
David Litwak: [00:31:16] Tell me in that, kind of late 1990s period, where everything was just going crazy with the affiliates and the websites, did you ever, you know, yourself and David ever just sit there thinking, this is just crazy. You know, six, seven years ago we never ever would have anticipated what's going on now.
Bob Diener: [00:31:41] Yeah, well, we never thought it would be anywhere nearly as big as it was. I mean, we were basically, you know, the way we looked at our business, we, we were, you know, a small travel agency. We found the niche, you know, we were, we were making some nice profits, but nothing anywhere near what it eventually became.
But we were, yeah, we kept the business profitable. We had a great business model. We kept expanding it. You know, we had a really good business, but we really didn't see the, the, the potential. But we kept it profitable in another way we did it is that in addition to the affiliate program.
One day, I had a phone call from, from John Hamilton, from KGO, he is, a host of one of the largest travel talk shows in America. I'm actually still a guest on his show every week. And he says, one of my listeners booked a hotel reservation with you and got a good deal. Can you come on my show and talk about it? I said, sure. I said, how much is the charge? He says, charge, what are you talking about? He says, I'm happy for you to come on. We don't have to pay you. I said, great.
So I came on the show. He kept me on for about two hours, and people kept calling with questions and our phones lit up. I mean, you couldn't get through to the company at the time. There were so many callers in there. And so about, about a week later, I start getting calls from all these other radio shows across America, KSL on Salt Lake, WWPR in New York, KGR in Detroit on and on and on. They said, we heard, we heard you as a guest on KGO San Francisco; will you come on our show? So all of a sudden I had almost every major talk show in America, inviting me on as a guest.
So I came on and people would ask questions, and I talked about hotel deals and our business our direct business started to blossom just from all these radio shows. And I started doing the same thing on TV. So he became a great way to promote our business at no cost.
Kevin May [00:33:44]It´s advertising the money can´t buy, I guess…
Bob Diener: [00:33:47]That's right. It was really free. I was better than much better than advertising because you know, if you're invited on as a guest, it's, it's, it's, it's much better than paying for an ad.
David Litwak: [00:33:59] That was insane. I have heard of a startup founders these days doing some radio advertising, but it sounds like that was a kind of your golden goose, and you've kind of discovered the need.
Bob Diener: [00:34:09]Yeah, but not only that, you know, you go out and you buy and you buy an ad, right? So people buy 30 seconds ads, 60 seconds ads, you know, first of all, they cost a fortune. Second of all, it's a very short period of time. So you really can't explain your business. And, and Third of all, it sounds like an ad. Most people don't want to hear it, right? But when you come on as a consumer interest guests and you have a story to tell, and I would tell a story about the company and what we do and how we do it, and where people like to go and what's popular.
And now it's interesting and people call up and you know, talk about they are getting married and where they want to go, or it's an anniversary or birthday, what can they do? And I would give them all kinds of suggestions. And I'd give them all kinds of ways to save money, and telling them where we had the best hotel deals at the time.
People loved it, because everybody likes to save money, right? So it turned out to be so much better than advertising. We could, we, we couldn't pay enough dollars to get that type of promotion. So now we had a great business. You know, we had all this affiliate business, which was most of our business, and now we started getting a lot more direct business, at no cost.
David Litwak: [00:35:16]What's a great is, there's an article that came out on injuries and Horowitz´s website, actually, it's talking about, obviously everyone knows the term ´product market fit´, but they call it ´product zeitgeist fit´ and like how veggie burgers are suddenly investible now, you know, with beyond meat and stuff, due to climate change, etcetera, etcetera. And it almost feels like you're able to kind of get this kind of free, you know, radio coverage because you somehow manage to hit the ´zeitgeist of travel´ coming online.Would you, would you say that's accurate?
Bob Diener: [00:35:44] Well, you know, I found, I found a great niche and, you know, I found a way to do these shows on, on the, on a TV and radio to make them entertaining. And, you know, people love them. And so, you know, when you're on one, when you're on one show or one area, everybody else, everybody else wants you on their particular markets. So it was really a great way to expand the business. And, and for us, we've always kept our, costs of marketing advertising very low. Typically the 1 to 3% range.
Now remember that in late 1999 or early 2000, when we were taking hotels.com public. Again, it was ´hotel reservations network´ at the time. So we interviewed a lot of bankers on Wall Street and none of them wanted to take us public. And I'd say, what's the issue that they say you're too profitable.
I said what do you mean we are too, too profitable? Isn't that why you run a business? They say, well, the problem is only you're only explaining 2 to 3% of your revenues on marketing. Most companies in the space are spending 50 to a 100%. So if you really want to go public and have consumers and investors take an interest in you, and we're talking almost every bank on wall street told us this, but you need to go spend a lot more dollars in advertising and marketing, show a loss for two or three quarters and then come back to us.
I was shocked. All these people on suspenders telling us to go lose money, I just couldn't do it. I said, this is ridiculous. So finally, we must have interviewed 20 to 25 bankers. We found one that was conservative and loved our business bottle, and we ended up using them as, as the lead banker. And we took the company public.
Our, our symbol is hotel and we were oversubscribed 20 times and our stock went from $16s to somewhere in the $ 90s. And it was an incredibly successful offering and we did it the way we always throw in our business. We didn't change our model to please the bankers and suspenders. We did it in a way that we ran our business in the same way we always did, focusing on profitability, focusing on great customer service, focusing on having a great product, and that's really how we built the company. Same thing we do today, get a room.com.
David Litwak: [00:38:08] Very cool. I think it's a good lesson for all those startup founders out there who are, constantly told that they, you know, maybe being profitable, or a little more logical when it comes to profits, is a, it means they're quote unquote “unambitious” and I'm sure have had to put up with that, myself over nine years of fundraising.
I do want to quickly segue though, I'm conscious of time here, to, Expedia. Obviously, hotels.com is part of the Expedia group, how did that acquisition comes past?
Bob Diener: [00:38:39] So we were, we were acquired in, in the 1999 by USA networks, which became IAC. And so they bought a majority interest in us, and we took the company public.
So, Dave and I owned about 20 to 30% of the company, the public owned about 10%. And then IAC owned the balance. And, we took it public, and about three years or so later, they decided they wanted to acquire a majority interest in Expedia from Microsoft. So they acquired a majority interest to somewhere around 60 some percent, of Expedia.
So it was very interesting situation because our major competitor was Expedia and we had the same parent company. So you had a, you had a parent company, a public company, and they had two kind of two subsidiaries that were major competitors. So we would come to the corporate meeting and we would sit on one side, they would sit in the other side, nobody would talk to anybody because, obviously we didn't want to help our competitor, but we had the same parent. So it was a very, it was a very interesting relationship.
And then IAC decided that they wanted to buy out the balance of the shares they didn't have from both Expedia and from us. And they first bought them out from Expedia. So now they owned all of Expedia and they own about between 60 and 70% of hotels.com and we negotiated, we negotiated the, sale of the balance of hotels.com to IAC. And then, and then we all merged into one company. So at the time, Dave and I sold the balance of our shares and the two companies merged.So that, that's, that's how that transaction happened.
Kevin May [00:40:33] And, as David said, we are just conscious of your and the listeners time, so I guess just one last kind of couple of questions really. If we can, I mean. Looking back as a, as a, a multiple founder as you are now, I mean, what would you say that you perhaps would have done differently with the, the, the hotel reservation network launch now, known what you went through at the time and, and how the market developed, or do you think you did it? I mean, it sounds to me like you did a lot of stuff absolutely perfectly, but is there anything in particular perhaps about how you ran the business as a startup that you would perhaps do differently now?
Bob Diener: [00:41:14]Well, we made lots of mistakes along the way. And I think any entrepreneur that that ultimately succeeds that that, associate hasn't made mistakes probably isn't being totally upfront about it.
So we made lots of mistakes. You know, certainly starting out with the agency model was, was, was a big mistake. We should have pushed the, the merchant model much earlier, so there were, you know, they were, there were, you know, we've hired some people that weren't the right people and, you know, hiring the right people and hiring really good people is critical to a business. So we've, we've made, we made lots of mistakes along the way, but one thing that we did is that we learned from the mistakes and we learned from the mistakes, and we grew from the mistakes. So, and that is just an evolution of any business. So, but probably the biggest mistake we made, and, ss that we gave up too much, too much control of the company, and we gave up too much of the company.
So, and, and you know, those founders today, like Amazon and so forth that were, the founders kept, kept, you know, a much larger percentage of the company for much longer period of time. And, and. It, of course, paid off, you know, we sold a very high percentage of the company early on and the portion we kept ended up being worth a lot more than the larger percentage we sold initially.
So, you know, in retrospect, if we would have held on to our share as much longer and kept running the company. We would have been much better off, but, you know, we're happy. And we made the decision based, based, we had our entire, you know, net worth and portfolio in the company and we wanted to take some risk off the table.
And we really liked the partner IAC. They're just incredibly sharp people and we've enjoyed the relationship we had with them, and we learned a lot along the way. And we did well at the end of the day. But, yeah. Certainly it's, it's, it's an issue that every entrepreneur tackles with, that's selling a company or a portion of their company, as do you really want to sell and how much do you want to sell and how much control and will percentage that you want to give up.
Because if you really believe in the company, then you know, every, every, every share you give up, is, is, is a lot of potential there that, that, that you're losing. So it's always a trade off. And those are tough decisions. And of course, in retrospect, we wouldn´t have sold any of the companies.
Kevin May [00:43:41] Okay. That's, that's great. I mean, we, we ended up talking a hell of a lot about HRN and hotels.com and, forgive us, we didn't get through to, to, to getaroom. So listeners, please go and visit, get a room and get a sense of what that business is all about. Maybe we'll get you one in a future episode further down the line, Bob, to talk about, how you founded that particular business.
But I mean, really thanks ever so much. Learned a hell of a lot more than I already knew about HRN and hotels.com. So thank you very much, Bob, for sharing that.
Bob Diener: [00:44:10]No, it was a pleasure talking with you today.
Kevin May [00:44:12] Okay. So, thank you very much. Listeners, you've been listening to “How I got here”. This is a focus for Mozio´s weekly podcast, looking at the inside stories in travel and transportation and innovation.
So thank you very much for joining us. Thanks so much again, Bob for sharing your time.
Bob Diener: [00:44:27] Of course, a pleasure to talk with you.
Kevin May [00:44:30] Okay, thanks so much listeners. We'll see you next time.