Terry Jones Travelocity Interview

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David Litwak: [00:00:00] Welcome to How I Got Here. The inside stories, start-ups, and innovation and travel and transportation with your hosts: Focus wires’ Kevin May and Mozio's David Litwak.

Hello and welcome to How I Got Here. Today, we have Terry Jones on the podcast. Terry is best known for spinning up Travelocity out of Sabre, and as the founding chairman of Kayak. He's also written two books: “On Innovation” and “Disruption off”. Thanks for joining us today, Terry.

Terry Jones: [00:00:51] It's great to be here. Thanks for having me.

David Litwak: [00:00:53] So, we'd like to start every podcast with the same question, which is “How I Got Here?”.

Terry Jones: [00:00:59] Well, it's kind of a funny story. I thought when I left college, I was going to Vietnam, that was going to be my travel. But I got rejected for the draft because of my eyes. Ended up going around the world for a year with two guys, came back and said, “I want to get in this travel business thing.”

So I went to night school and went to work in a travel agency. Six months later, my manager and I did a start-up. So, I started a company that did travel to Eastern Europe and the Soviet Union, built it into the 50th largest travel company in the U.S, got interested in computing, jump to a computer company that sold computers to travel agents.

Six months and that company was sold to American Airlines. So I was at American for 18 years in marketing, then in IT, I ran applications. I ran all the computer operations and eventually became CIO. When I was CIO, they gave me this tiny little online thing that we had on AOL called Easy Sabre.

It was about 1995, the question we debated as soon as I got there was, “Why isn't this on the internet?”, 'cause the internet had just been deregulated. So, we put it on the internet and it's a longer story we'll get into. I ran that for six years, took it public, eventually Saber took it private.

When they did that, I left and we can talk about why. Then, I was doing a number of things as a speaker, an author. I've served as a board member. I've now served on 17 boards of directors and I was working for general catalyst partners as a special venture partner looking at travel investments.

We got this idea for a travel search company and general catalyst decided to fund it. We got two great guys, Steve Hafner and Paul English, to run it. I became chairman there for eight years. We took that company public and sold it to Priceline for 1.8 billion. I got fired, which was fine.

We sold it. Since then I've been on a number of travel company boards and I brought out a new book disruption office, you said, so still involved in travel. Couple of weeks ago, when I got the, old person award focused, right? Some honorary award for me around a long time. So, I've been in the travel business now for almost 50 years.

Kevin May: [00:03:18] Oh, congratulations, Terry, on your hall of fame award, I believe it was called. You've got a couple of weeks ago.

Terry Jones: [00:03:25] It’s the longevity award, I think.

Kevin May: [00:03:29] Yes. the carriage clock award, they would call it over here. This is obviously a question that perhaps you would ordinarily get at the end of an interview. But I'm curious because  you've just reeled off this litany of experience. What would you say has been initiative, the most exciting part of your career and the least exciting part of your career. Then we can go back into the backstory of…

Terry Jones: [00:03:54] Well, you know, I think starting each business has been wonderfully exciting. Starting Travelocity is particularly exciting because of the time period, because of what was going on in the .com boom. It was pretty interesting and no one thought online travel would be important. So, we went public and played to empty rooms. Everybody was investing in delivery companies and online retail companies, and nobody thought travel would be big. Of course, travel is now the largest part of e-commerce, larger than the next three categories combined.

So, it's sort of fun to prove them wrong and to really change that industry. That's probably the most fun. Being CIO was probably the worst job because you're responsible for everything and in charge of nothing. I lost my hair running Sabre. We are running 40 airlines and 40,000 travel agents, and when it went down, it wasn't a lot of fun. So I was happy to get out of that job.

But, I'm generally a half glass, half full person and to me there's something new around the corner. Even though I've been in the industry 50 years, I'm still investing in helping new start-ups because that's where the excitement is.

Kevin May: [00:05:10] Okay. Thank you. Thanks.

David Litwak: [00:05:11] So, Terry, maybe you can elaborate a little bit more on how you spawn Travelocity out of Sabre, because we all know Sabre and the kind of the outlines of the story. But taking a consumer company out of a BTP company is not necessarily a normal thing to do especially one with this plague of a bureaucracy, a Sabre. So could you elaborate on that?

Terry Jones: [00:05:35] Yeah. It's an interesting story because, and for the reasons I became a speaker, because so many people are looking at entrepreneurship and saying, “Can we do that?” So, what happened was that, we had this product called Easy Sabre for almost eight years and it was an online booking pro product.

It was on CompuServe and prodigy and AOL and others. Eventually, the travel agents were woke up to the fact that it was alive. Now, we didn't write tickets. We referred the business to the travel agents . But even so, some of them were smart enough to recognize that at some point, we're selling bullets to the enemy here and this is going to be a bad thing.

So the sales department approached The CEO of Sabre and the CEO of American, Bob Crandall, and said, “We should shut this thing down,” and he said, “No, somebody is going to do this anyway. But why don't we give it to Jones? He's over in IT and we can hide it over there.” So, he gave it to me and they were already talking about putting it on the internet.

Now, surprisingly, we had looked at the internet. Maybe five or six years before because we had some customers coming in from the internet. But of course, you really couldn't do business on the internet. It was illegal at that time. It was still a government entity. So now was open and we could do it. We put it on the internet.

We actually partnered with another company who did content and we weren't sure whether booking or content would be big. They own the URL and we owned the name. It was kind of a Mexican standoff and, pretty, it became clear pretty quickly. The booking was what it was going to be. The company started growing and I said, “Hey, I want to go do that full time”.

So I left the CIO position. I went over to run that. Then, it was about 'how do you do a start-up inside a big bureaucracy?’ And they're kind of four things that we did that I think were pretty important. The first was really organizational structure. So we convinced, Sabre to let us be sort of our own department. We stood on our own two feet. Then we started trying to decouple the individuals from their own departments. So, the beginning, Finance lent us people, and IT lent us people. Eventually, those people worked for us directly. That was a long battle. Took a couple of years, but until we were all together and really had the same incentive. It was tough. It was like a committee, not a business.

The second thing I did was I moved out of the building. We needed more space. So I found some abandoned space that American owned in a strip mall. We went over there. That was important because again, it was about building a team.

Funding was also important. Our funding was held by the CEO of Sabre. It wasn't part of the marketing budget where it normally would have been because they would have stolen all our money for a Superbowl commercial or something. So, it was important to have kind of a black bag, CIA budget.

The last thing was staffing. I fought to bring in people from the outside and American said, “No, you have to hire from the inside first,” and I said, “I already have those people. I want different people.” So I brought in, finally, he got permission after six or eight months. A bunch of young people from all kinds of interesting start-ups, who had a different view, how the world can be changed. They didn't know travel at all. They were then combined with the suits, right? The dot Corp, who knew travel very well, but weren't much into change. If you put those people together, it was like cats in a bag. They fought like crazy. But out of that crucible grew up, eventually, a multibillion dollar travel sales company.

So organization, location, funding, all very important in terms of really decoupling us from the bureaucracy. But using the big parts of American and Sabre, when we could, their big name opened doors was easy to get money. Space wasn't a problem. But we had to deal with the bureaucracy and the rules.

David Litwak: [00:09:57] You said something really interesting. They use a phrase that “If you know someone's going to do this. I feel like cannibalization is a term that comes to mind that I feel like I hear a lot and there seems to be a lot of companies that can't get past that. There is a, don't, can't get past the idea that Uber is eventually going to put car rental out of business.

If it's cannibalizing your business right now, they kind of can't see several years ahead. How did you fight past that and how did you just luck out and then that you had a CEO who kind of got it? Or did you have to make that case?

Terry Jones: [00:10:32] Well, I think both. Certainly, Crandall, got it. I mean, he was a very entrepreneurial guy, even though he ran a huge structured company.

In fact, there's a great story that when I went to him, I needed $1 million for Travelocity, and I went late one night all by myself to go permit present to him. Usually, he would have a bunch of minions, just the two of us. I was pitching for this million dollar appropriation request. And he said, “Okay, well, I get the Travelocity thing, but I don't understand the internet. So explain to me who owns the internet and how is it structured and planned?”

I started trying to explain it, and of course there wasn't any way to explain it. I mean, it grew organically, right? Nobody planned the network. They just connected to it. There was no central organization that was very hard for him to understand because he was a huge central planner of this massive airline with 100,000 employees.

He listened for a while. He said, “Go away and come back Monday. Try again.” So I spent the weekend trying to figure out how to tell him and I used some examples that it takes some time to explain here. But they didn't work. Eventually he said, “Okay, I still don't understand the internet, how it works, and who plans it. But here's your million bucks.

So, I got done. I got to start anyway. He was supportive and a lot of people in the company thought it was a good idea. But most people didn't because we were directly competing with our customer travel agents, and that was scary. We got to the point where a lot of people thought we were wasting money.

They said rightly that ‘if we gave them 1 million bucks, they'd make money. You give me 1 million bucks, I would lose money.’ So Mike Durham, who was head of Sabre at the time, said, “Let's have a debate.” So, we put all the VPs in a room and we set up a structure debate for and against selling Travelocity. I was not allowed to participate.

I just sit on the sidelines. We mix the teams up, and we had this debate. Luckily, Travelocity won so we didn't sell the company and it got all the bullshit out on the table. All the reasons were there and it really brought us together as a team around, 'we should keep this thing, it's going to be big and we should make more money.’

Years later, I ran into Durham and I said, “What would you have done if they'd said ‘sell it'?” and he said, “Well, I wouldn't have sold it, but I'm not quite sure how I would have pulled it off if the team actually sends out, because he didn't want to sell it.” But he knew, instinctively, we needed to change the culture.

So, it's very difficult. And I talked to the head of innovation at Phillips Lighting when they brought out the LED lamp, which is of course was antithetical to the incandescent bulb, right? It lasted longer. It was cheaper. And he said, “The person I looked forward to lead the business was a bit of a dreamer who knew the system.” And I think that's kind of important, I've always been a little bit of a dreamer. But I could move inside of the Sabre and American structure. I knew the levers of power, and that's important when you're trying to run a small venture inside a big one.

Kevin May: [00:13:56] When did Terry, it's Kevin. When did you feel that, was it that moment when you had the kind of the debate that you felt that you were accepted by the organization as a whole? Or did you always feel perhaps that you were the kind of the young upstart within a massive organization?

Terry Jones: [00:14:16] Oh, we always were the upstarts and it was interesting because in the beginning, we were the dirty dozen, a bunch of people who like taking risk and they were in this small project and they thought it was okay. You couldn't if you had a superstar who was over at American, who was on the MBA track, they would never take that kind of a risk to come work for us because that wasn't in their five year plan to become world domination, right? Later when we were about to go public, we had a lot of people who said, “Oh, we'd like to come work for you, “ and when we said like, “Stuff it, you know, you wouldn't come when it was risky. I think you would want to come now just to get the money, you know? No, we're not taking you.”

So we never were totally updated mainly because I think the power centers, finance, marketing, legal, IT couldn't control us. Of course, you know, that they're all about control, right? They're all about making their own goal. We didn't use corporate IT. We had to connect Sabre to the internet, oh my God. The way we convinced them to do that because they had all these security concerns. We said, “Well guys, it's written in assembly language and has a single terabyte flat file. Who the hell would understand it if they broke into it?” And that's true. Only someone quite old when I understand how Sabre worked.

So, we didn't have any problem with hackers 'cause they didn't know what to hack. Those power structures always reject independent operation, and it's tough. But the head of a REI created a separate organization for the internet, for e-commerce. She said, “You know, when our Internet Department grew up, we turned the org chart on its side and poured the internet in and made everybody responsible for it and got rid of the division.”

And that's one thing you can do. I mean, corporations in the 19 hundreds had the departments of electricity. Well, they don't have the now, of course. So when somethings new, sometimes you have to separate it. When it grows up, you can spin it out. Make it a separate division or as REI did dissolve it into the organization because everybody understands what to do later. Once technique has caught up with technology.

David Litwak: [00:16:49] You brought up a really interesting point. I was literally, I think you kind of half answered my next question here. But, I think sometimes when big companies have a head of innovation, they've siloed away innovation. And it can sometimes be a sign that the company is actually not taking innovation very seriously because they kind of want to show their board that they're taking it seriously, but not actually. And they can kind of have that person's been wheels somewhere. Other times, and someone could, people could make the case that you should be integrating. Innovation at all points. You kind of half answered that when it came to like a new type of technology, like the internet or electricity.

But how do you feel about that when it's not necessarily around eight new transformational technology, but just generally a culture that has maybe become stale and just is not innovative?

Is it better to silo away or is it better to try to kind of change the internal culture piece by piece.

Terry Jones: [00:17:43] I think you have to change the culture and you have to do it from the top down. I was speaking, ‘cause I do a lot of public speaking at a big insurance company, a hundred year old company. Before the speech they had a little reception and a woman walked up and said, “Well, I did something innovative.” and I said, “What's that?” and she said, “I unlocked our PDF forms so that our customers don't have to print them and fill them up by hand and scan them and take them back in.” I didn't want to say to her that the IRS did that like 10 years ago, but to them it was innovative and certainly to her it was, I encouraged it. I thought it was awesome, right? That she did that. On her own in the forms department. And then we had spent a day on innovation and everybody got fired up and I ran all these seminars and at the end, the CEO came in and said, “Well, this innovation thing is good, but don't go out there with your hair on fire. I only want you to innovate about these two things.” Well, the air went right out of the room, right? Because I said, “Well, I'm in the legal department. What can I do?” So he really didn't get the fact that innovative culture has to start from the top. You have to release people to take risk and fail and you have to kill projects and not people.

If you do those things, then the real innovation will start, which comes from the bottom up. I can innovate in every department. Now, if you can do something as radical as switch to LED bulbs or build a new product that competes directly with your old customer, then you probably need to separate it, right? Because it's just too antithetical to the culture to accept. Many companies do that but it's damn hard to do. Which is why some of them are corporate venture capital, right? Where they invest in the other company and they learn from it and maybe eventually absorb it. It's a lower risk way, but I think the separate innovation organization is okay when it's a teaching organization. It's there to teach people skills and help them innovate. But laboratories that stand apart are very hard to manage. I mean, there's some great ones in history, Xerox Park and R C., and AT&T. But they have to have a culture where they're accepting of what the laboratory produces. Continue [00:20:12]

And many times they're not.

 

 

Kevin May [00:20:16] So Terry, if you could talk us through a little bit, you know, you've been accepted within the, the, the world and the beast of saver and you started to do very well. I was intrigued by what you said just a moment ago, which is you kill projects and not people in that period where you were, you know, flying high, leading up to the, uh, to taking the company public.

Did you have that mindset of trying on some projects and killing them when they didn't work or is it something that’s been more of a recent thing.

Terry Jones: [00:20:46] Oh, sure. No, no. And one of the great ones we, we, uh, you know, in the early days of the internet where it was 1200 bought dial up modems, you couldn't send video over the internet, but we thought video would be quite persuasive. And I had run a big project called Sabre vision, which was about putting video into travel agents through kiosks.

So we spent $1 million with IBM to build a video CD rom project, that integrated with, with Travelocity. So you could, you could put that in and it would, you'd be looking up a hotel, but you could actually see the video of the hotel, which you couldn't do online. I spent $1 million producing it, getting in the stores, and I lost $1 million. Total failure.

And I had to go to my boss, Mike Durham, who was the CFO of American at the time. Tell him I lost 1 million bucks. Well, I was terrified. And he just said, well, Terry, “what did you learn?”. That was awesome. That wasn't kind of the American culture and the word spread like wildfire. Right? Terry didn't get fired, but also this guy was a coach.

And coaches don't just throw people off the team. They work to make the team better. Right ? Now, I knew I could lose 1 million bucks again, but, but that was a very important cultural change. I tried to do that a lot. At Travelocity, one of the things we did, I mean, I spent 1 million bucks in venting the first fair calendar.

To actually show you what the lowest fare was from Chicago to New York every single day of the month, because I thought people would move their trip to seek out the lowest fare. Nobody used it. It was a complete dud and it was hard to do because airline systems were not set up to do that. Now everybody has it.

I just got one from Delta today, right? Find the lowest fare, click on the calendar. Everybody just, I was just too early, so it wasn't wrong. I was just way ahead of the customer who was still trying to say, should I get my credit card to these people? You know. Um, in fact, there's a good story. We, people were very afraid of putting the credit card over the internet in those days.

Not because they thought it would be stolen when it got to us, they thought it would be stolen in transmission. I'm still not sure that's ever happened. Like it's just too hard. So we put up an 800 number and said, “Look put the booking on hold and then call us and we'll take your credit card over the phone”. Now what we didn't tell them was we’d put their credit card in over the internet. We didn't feel they needed to know that part, but it worked. It worked like crazy and people would call us until they finally got comfortable with using credit cards online.

 

Kevin May [00:23:37] Could you give us a kind of a run through of that last kind of period really? Cause we're quite keen to obviously talk about your time with them, with Kayak as well. And I mean. At what point did you sense that you are ready to move on almost. And talk us through how that he went public and made things happen.

 

Terry Jones: [00:23:53] That's an interesting story too, because initially there were some talks between Microsoft and American about a joint venture, an online product.

Bill Gates wanted that to happen and he and Crandall were friends and I was involved with some of those negotiations with the Microsoft people. It didn't happen. We were just two big companies who both wanted to drive the bus, and then Expedia launched and we thought they were going to build travel into the browser because they were building everything else into their browser and their browser had all the share.

So we did a big deal with Yahoo and a big deal with Netscape portal deals, and we wanted the AOL business. And to get that, we had to buy Preview Travel who was public. And that we didn't really have a reason to go public, but that they were public. So we did it because we had to fight off Microsoft. In the end, the Justice Department didn't let them build travel into the browser.

That left us in a difficult position because we were spending a lot of money with portals that Expedia could spend on brand. Eventually, after a couple of years after we were public, didn't really like the way I was running the company because I was running it for the public shareholders, not for the benefit of Saber.

No, they understood, you know, that's the law. You got to do that. But it wasn't as much in their interests. So they decided to buy it back. And that's when I decided to leave because they said, you know, I really think it's going to come back in and we're going to have all the same problems. And I'd loved running a company by myself.

So, the entire Executive Team resigned,  because we all wanted to get our options. And. What happened is kind of instructive in terms of entrepreneurship. They layered all the corporate structure back on top of Travelocity initially, or along the way put a finance guy in charge of a marketing company.

In the end, you know the story, they sold it to Expedia for 280 million.  So they took a one point $2 billion company and basically sucked all the value out of it. And they caught it. It's funny that when that happened, I got a call from the Fort Worth Star telegram, and they said the people at Sabre say it was just hopeless.

The company couldn't be fixed. It was a mess. And they had to, you know, it wasn't their fault. They lost all the money. I said, well, that's kind of funny because I have friend named Bernie Hartford and Barney, of course, took over Orbits when the stock was five or two and turned it around, billed it back up and sold it to Expedia for $1 billion.

So don't tell me you couldn't make Travelocity. It was just, he didn't know how to fix it. That's really what I thought would happen. It did. And so I left.

David Litwak: [00:26:37] that's a shame. I wanted to quickly ask you a quick follow up there before moving onto the Kayak years. You said that you guys were spending a lot of money on portals that you could've spent on brand.

Could you elaborate what you mean?

Terry Jones: [00:26:50] by that? Well, in order to be the travel company that powered AOL. You had to pay him 200 million bucks. It was a portal charge in those days to be part of the portal. And they, you pay them money and they got a split of the commissions. So it was a great way to build volume.

And we built a lot of volume. And of course that's helpful. And getting lower prices and building up commissions and moving to profitability. But it wasn't a way to build your brand because even though AOL, CompuServe, Prodigy, uh, Netscape and the others, Yahoo were all powered by Travelocity, consumers don't really recognize that.

I always discourage entrepreneurs who are having a powered brand because unless you spend the kind of money on the power BI brand that Intel has, it doesn't work. And so we got there, we got the revenue. And actually we were moving to profitability. It turns out at the time, Wall Street could have cared less about profitability. It wasn't important. It was about eyeballs.

You go back and look at the numbers. The Travelocity brand had much higher brand recognition than Expedia for a long time. But it did cripple us in terms of we didn't have the cash to increase that brand and really fight Expedia in the way, we might've been able to without those portal fees.

 

David Litwak: [00:28:16] Very interesting.  Moving on to Kayan now. You phrase it in a very interesting way when you explain it at the beginning of the podcast. You said you guys had this idea and you found Steve Afrin and Paul English. I have heard of this kind of before as well, this was somewhat of an idea incubated within general catalyst.

And obviously that's the reverse. Many, you know, found a better capital relationships, usually goes the other direction. Could you tell us a little bit?

Terry Jones: [00:28:43] Yeah. You know, I was looking at companies for GC and we looked at sidestep, you know, Brian Barth's company and tie step was,  a browser add in at the time.

So if you were searching on Travelocity would, it would pop up three or four alternatives. And we kind of, we thought there was a germ of an idea there, but we didn't agree exactly with what it was. And we thought, well, we don't really want to invest. The company's already invested. And so Joel and I, and I had also been on the board of Overture, which really was the first paid search company before, even before Google.

We built the paid search technology later, Yahoo bought that company for a billion. So we knew something about search and we said, why isn't there vertical search and travel? And Joel stepped up and said, I'll incubate it. Which is rare for VCs and rare for GC. And he knew Steve. I did not, and he thought Steve would be great.

And he knew Paul. So we had dinner one night,  the staff from who'd been with Expedia and Paul and Steve and Joel and I. Joel said “if you guys do it, I’ll fund it”. So that was the start, and it was quite unusual. Immediately the airlines loved the idea.

They said “It was great, your search is better than Google's” because we send a customer to the last page, not to the homepage, our customer is extremely high converting because they've already searched. They said, great, but we won't pay you. And nobody paid us in the beginning or very few.

And the guys just said, look, let's go do it. And GC said, let's build traffic. So we built a ton of traffic using search arbitrage. And then one day we turned it off airline by airline. We just turned off the traffic and they called immediately. He said, where'd all the traffic go? We said, well, the same place your money did. Nowhere.

 And then they paid. So maybe we invented Ransomware, but it worked. It's a crazy way to build a business with a lot of businesses. You know, start getting that big wheel of the platform turning by, gathering a lot of customers, and then using that to build leverage for the suppliers. And by the way, many of these stories are in my book On innovation. And my other Disruption off, I should mention both of them have, particularly On Innovation, has a lot of the stories about Travelocity and Kayak.

 

Kevin May [00:31:26] It's interesting you said it was an unusual setup because the idea was born out of GC. How did that affect once you'd got, you know, Steve and Paul together and you know, the formation of a team, how did that affect the relationship given that it was born out of an investment.

Terry Jones: [00:31:49]  Yeah, I don't think it was overbearing at all. And we, we immediately, very soon after that, Mike Maura to Sequoia invested. And you know, one of the absolute top VCs in the Valley, Joel Cutler, of course, is an amazing guy. We got Harry Nellis from Acell. So we had one of the best sports ever been on it.

As I said, I'd been on 17, so they were all extremely supportive. Particularly, you know, for Sequoia, we happen to be in the tail of a very successful fund. So he wasn't in any hurry. Most of the investors, until the end, we're not in a hurry to take it public and monetize, which gave us a long runway to build a great large business.

You know, sometimes you, you get a bunch of very anxious guys or guys are running out of money and you know, they push you to do things you don't want to do because. They need, they need to sell. That wasn't the case here. We have a very supportive board. We let Steve and Paul run the business the way they wanted.

There were some things, you know, we ran into, for example, we wanted them before we went public to do television advertising, and they hated that idea because everything that was done with Google on was highly measurable. And we said, look, we're up against these. You know, Expedia, Travelocity, Priceline, guys who are spending tons of TV and building brands, we have to do the same.

And they, they fought us for awhile and did a lousy job in the beginning and eventually did a pretty good job and it helped us, it helped when we went public.

Kevin May [00:33:22] What did you make of the team in particular? I mean, a lot has been said over the years about the bonds between Paul and Steve. I mean, is that something that now in the other businesses that you're interested in, that you look for, is the bond between the founders or is it just luck if they do get on incredibly well?

Terry Jones: [00:33:43] Well, I think it's wonderful. I don't think you can necessarily hire for it. And you know, they had a bond, but they were very, I mean, they're very different people and they even worked in different States. So, you know, as a friend of mine said, who's, she worked in a different city with her husband.

She said, it's kinda hard divorce when you only see him on weekends. Right? I mean, you know, every, every time it's a honeymoon. So they, I think Steve, let IT do what IT wanted to do and, and, you know, uh, vice versa. So they didn't get involved in these others Pea Patch very much. But they knew what they wanted to build and they were of the same mind of how to build it.

Paul is the best hiring manager I've ever met. He's unbelievable. He would go anywhere in the world to hire the best engineer he could find. And when you hired that guy, he would say, who's the smartest person, you know? And then would go hire that guy or girl. And he, he didn't want to hire anybody who'd been involved in travel.

So hard on all non-travel people. I didn't agree. You know, as I said earlier, I'd tried to mix it up. But his model worked for him so that's fine. I mean, an amazing small team. And he really hired A-level programmers and you know, there's that mantra that rock stars hang out with rock stars. And it worked for Kayak.

I mean, we went public with 200 people for Kayak, Travelocity, it had 3000. Part of that's the business model. Of course Kayak doesn't have customer service. You know, we're not a travel agency. We didn't issue tickets. So search business can be smaller, but, but we also had fantastically talented people and it makes a real difference.

 

David Litwak: [00:35:26] I want to delve a little bit more. You kind of said that. You guys were sitting around and had this insight. Could you delve a little bit more into what that insight was like? What about the traditional online travel agency market where it wasn't satisfying the customer need that you thought like a Kayak that referred off to someone else did and how do you feel about the fact that now most of these meta-search are actually now incorporating booking?

Terry Jones: [00:35:48] Yeah. It's kind of funny. Well, I mean, the, the idea was this, you know, we kept trying to figure out at Travelocity and Steve was doing the same thing at Orbits, why we were converting three to 5% of uniques in the, in the customers. Where did the rest of them go? I mean, if Walmart had a backdoor, 95% the size of the front door.

And 95% of the people went out the back door, they'd go broke. Right. But in eCommerce, it's sort of, yeah, well that's traditional. Well, it's crazy. And so in looking at those customers, we'd all done the research and we knew most of them eventually purchased either from a competitor or from the supplier because people wanted to buy from Marriott or Delta because they felt they'd get their mileage, they'd have better customer service.

They could get a refund. There were a whole lot of reasons. So we said, well, why don't we just build a site that searches everything? And when you click, you can book directly. And that's what we did. Now, it is interesting that Steve never really wanted to make that the advertising tagline. Which of course Trivago does.

Kayak has never really said that. Search everywhere. And by direct it says search everywhere. And he many times, you know, wanted to turn us back into a travel agency early on. And it has, the story hasn't been circulated much, but it's an old story now, either by buying someone else or eventually, you know, creating booking, on our own.

And that was controversial in the company. We didn't do that till just before we went public, I think. We didn't advertise that we were just a search company so a lot of people thought we were an agent. Yeah. We weren't any different than Expedia, so we really built a tremendous amount of share.

I think mostly because of the UI. And we were the first to have filters. Well, Paul worked tirelessly to make the thing blindingly fast. We had the best mobile product, far and away, and they have, you know, amazing. I don't know, 100 million mobile users, some crazy number. So we differentiated on UI. We were easy to use.

We did compare everybody. And people said, “gee, it was easier to pick where they wanted to book”. And you know, I think that had a lot to do with the success of the business. It is surprising now that more of them are coming back into the other model because then they're just peas in a pod.

 

Kevin May [00:38:32] It's interesting too, I mean how did you,  as the chairman of the company kind of want to guide them with in terms of expanding internationally.

Because I think some would say that the international expansion of Kayak has been perhaps not as successful as some would have hoped. And that was in part due to certain, you know where I am in the UK, we had some Travel Supermarket back in the day, but in particular Skyscanner. So how did they go international?

 

Terry Jones: [00:39:07] I think they blew it there and, and I said, so.

For sure. The team came to us and said, we want, we think we can run international from Connecticut. And, and the board, and myself in particular in Greg Slink who’d been with Expedia. He said, we think you're wrong. We don't think you can do it. And they said, yes, we can do it. We're different.

We'll search. We can do it. And they tried and they failed. So it's one of those things as a board, you know, you don't really want to lay down the law. You can recommend. You can cut off funding, you can do a lot of things, but generally boards don't do that. So  we let them try and they failed and, you know, then they went back and started either building their own offices or buying competitors, but it was slow and, and they missed, they missed the bubble there.

Just too bad. You know, but look. Paul and Steve are great guys. They're also pretty arrogant guys. And they have a lot to be arrogant about, right? Because they build $1 billion business. I've sold it for almost 2 billion. Um, they're, they're going to guess wrong. I sure as hell have as a CEO, that's going to happen.

Even if you get advice not to do it. So, you know, if that's the only thing they did wrong, and they certainly did more things wrong in that, but they did a hell of a lot more things right than they ever did wrong. So I still think they're an amazing duo.

David Litwak: [00:40:37] I wanted to ask you kind of a funny question here.

I think for a couple of years it was almost a staple of focus rights to have Steve Hafner onstage and assaulting Hipmunk kind of playing loose.

Terry Jones: [00:40:52] Hipmunk is a feature.

David Litwak: [00:40:54] Well. So that's actually what I kind of wanted to ask you about. I remember hearing some statistics at one point that I, something like 80% or 90% of the people only touch one or two filters on Kayak, and it's the price filter or something like that. The point that that person was trying to make was that. All the fancy UI was kind of beside the point and that was geared towards one or 2% of the market and you guys were catering to the other 90 plus. I just think it's a way of bringing up a wider question around, competitors and positioning. And how did you guys think about what features to focus on?

And you, you just said it was a feature, so why, why was that not an important feature?

Terry Jones: [00:41:31] Well, actually, you know, we had that feature and we put it in, right? Not everything Hipmunk did, but you know, we put in and tested fair maps and fair prediction, which I think is part of it now. Um, but you know, you find that, again, Hipmunk, I mean, on a size basis is kind of a small fraction of how big Kayak is, right.

So they found a niche. There are very passionate people who like it. They're passionate people who love Travelocity today and won't book an Expedia, even though amazingly, the UIs are identical and the prices in backends are identical. You know, they've got, they fall in love with the brand. And my dad was a madman advertiser, and of course their biggest accounts were beer and cigarettes.

And I said, dad, how come the biggest accounts are beer and cigarettes? He said, cause there is no difference. We have to create one. Sometimes you know, people, people start with something and they like it. I think the other part about Kayak that we really concentrated on was speed and speed does kill.

I mean, the numbers in all the studies prove that the faster you are, the more people buy. And people just loved the kayak UI and how fast it was. And they particularly like mobile, which got completely redesigned because we started, we thought it was about next flight out. Or, you know, I have to stay tonight.

There's a snow storm and it turned out people using mobile just like the desktop, but in those days, nobody knew that right? There was, there was no trail to follow. So the filters, you're right or are loved by a passionate, small group of people. I being one of them, and you know, they were helpful.

They were good things to talk about. Hipmunk had its mantra, they went after it. But in the end, you know, it turned out to be, one interesting feature that drew a customer base, but not a huge one.

 

Kevin May [00:43:39] So I'm very conscious of your time, so we're going to kind of get towards the end here if that’s okay. A couple of things really for me. 'm interested, you know, obviously you were there, through Kayak’s, fairly short time as a public company, and then obviously it was then sold to Priceline group, now booking holdings. Once that period in your career ended. Was that a moment for you to say, okay, I'm not going to dive into the extent that I have with other companies. I’m going to do, kind of spread myself around other things by sitting on boards and things like that. Before we came on air we referenced Wayblazer, which is, you said just one of these, one of the businesses that you've been involved in that hasn't done so well.

So two parts to the question there too.

 

Terry Jones: [00:44:32] I didn't know what I was going to do next when I left Kayak. You know, I was in my mid sixties but I still had a thriving business as a public speaker and a consultant and an author. And I was doing a lot of other things and I'd been on seven public boards and that takes a lot of time.

And most of those companies have been sold. So I had a pretty busy life. I loved doing the Kayak thing, but you know it board for chairman's only takes a certain amount of time, particularly when it's a company dominated by VCs. Because they're really, it's very different to be chairman of a public company.

Then a VC based company. So it was fine. I certainly didn't think I was going to do another startup. I was joining boards and being a consultant. And then I got this call from Ginni Rometty who I'd spoken to a couple of big IBM events and she called and said, can you come and teach IBM Watson about travel?

And I thought, well, that sounds pretty interesting. And I said, well, that's cool. Will you pay for my ticket? And she said, no. You know, typical. I thought, well, there might be some money in there. And I ended up. A meeting, a guy named Manuel Siena and Manuel had run with IBM Watson, and he decided to leave.

He's a serial entrepreneur and started several AI companies and he said, would you like to start an AI travel company? We did. He had already sort of formed the company by the time I got there. We made a lot of mistakes that we don't have time to get into. It was more of a technology chase market.

And you know, we found that selling AI to it was incredibly difficult. It's only now about a year ago, I saw this wonderful graph from McKinsey that shows the amount of AI deployment by industry and travel is dead last. So, I feel better because we were pushing a huge rock up Hill. Um. To try to convince people in an industry that just isn't using AI, which I think is nuts.

I mean, it's starting to, we saw some in focus, right? Um, but nowhere near that other industries are. In the end, we started selling our product to marketing rather than it, and IT really started to take off. Unfortunately, by that point we'd also gotten into the real estate market and that investment turned out to be a bad one.

We needed their money, so we took it. But, there were a bunch of reasons it failed. But I don't feel bad. We learned a lot. And you know, we built some great products that really did well, that dramatically increased conversion. I think it's sort of like the fair map. We were just too darn early.

And you look at Paul English, his company, I think they've had maybe $50 million of investment. I think we had 15. You know, they still haven't created a rocket ship over there. I mean, he's done well, but they've changed their story two or three times. Now they've got a great partnership with American Express and they're not no longer doing, they're doing more back office work. I think the front of office work. So, you know, the path to success in a startup is a winding road and you don't know where it's going to be. I'm sure Paul will find a way through it and they've got enough money to survive. But most of the others, AI, travel startups have been sold or they're gone, just hasn't worked.

And that's too bad for the travel industry. I think they're going to miss out because with machine learning, the one company does have it is learning is going to clean your clock because they're going to learn way faster than you are.

 

Kevin May [00:48:03] Just finally then, sorry. I mean, it's interesting you said a failed, but you learned a lot. Could you give us kind of like a personal perspective on how that must have felt for you after such a. A long road of success. What did you think it was a bit of  we would say a blot on our copybooks here in the UK.

 

Terry Jones: [00:48:26] No, I don't think so. Particularly at this point in my career.

I'm not going to do another one, but you know, in Silicon Valley, sometimes failure usually opens more doors and I lecture about that. Did you have to be willing to fail? If we failed totally due to bad management, you know, then we'd have a blot. But I had a terrific CEO and Norine Henry, she fought till the last dog died to keep the thing alive.

We had a great team. The entire team was hired within two weeks. So they were all superstars. I think what I learned is, you know, we, we started with a technology and went off to solve a business problem rather than a business problem first as we were shopping technologies. A lot of people, that's a dumb idea, you know.

We thought we knew what to solve and we didn't. SAS was new to me. B2B was new to me. We initially were going to be B to C, and that's a business I knew better. B2B selling is way harder to get managers to open their perk. So there were a lot of things that we just, we zigged and, and the markets. We tried to be nimble.

But in the end it didn't work. I, I've learned a bunch of things that I wouldn't do the same way, and many of them you can learn about in my wonderful book, Disruption off, which really talks about disruptive technologies, you know, from AI to 3D printing to whatever new business models.

That's the first part of the book. But the second part of the book is, what can I do about it? How do I build a nimble organization? And this is for your listeners who are in big companies that can keep up with the pace of technological change. What do I need to do, no matter what's happening? So you'll find that a quick and easy read Disruption off.

Kevin May [00:50:22] As you've spent so much time, we will put a link in the introductions.

David Litwak: [00:50:23] Yeah, thanks Terry. So, I know we've, we've really enjoyed this, but we're out of time today and this has been “How I Got Here”,  Mozio and Phocus Wire’s podcast about innovators in travel and transportation.

And thanks Terry. It's been great to have you.

Terry Jones: [00:50:38] Thanks so much. Well, thanks. Congratulations on the pocket.

David Litwak: [00:50:47] Thanks for listening to the How I got Here, podcast. We'll be back next week with more insights, stories behind startups and innovation and travel and transportation. Check Mozio.com/move for a complete write up of the highlights of every podcast with translations into five languages and get your daily dose of news on the digital travel economy by subscribing to the newsletter@focuswired.com.

See you next week.

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