Hi, The Investor’s Podcast Network Community!

Somehow, we’re more than halfway through the summer.

Where are you headed this month? ✈️

Given that it’s peak vacation season, we’re diving into the rise of Tripadvisor and the secrets to its impressive scale, turning an initial $3 million investment into a $7 billion global brand that 1 in 16 humans rely on each month.

All this, and more, in just 4 minutes to read.

QUOTE OF THE DAY

“Treat your customers like they own you — because they do.”

— Mark Cuban

WHAT ELSE WE’RE INTO

📺 WATCH: Why do groceries cost so much?

🎧 LISTEN: Adam Robinson on positioning yourself for success

📖 READ: How to read: Lots of inputs and a strong filter

INSIDE TRIPADVISOR’S SUCCESS

‘Add your own review’

Tripadvisor’s story begins in a room above a pizza parlor in Newton Centre, Massachusetts, a Boston suburb.

Just 22 years later, nearly 500 million people – one in every 16 humans on Earth – visit the travel site to plan or book a trip. Today, Tripadvisor is to travel what Google is to search, as Uber is to cabs.

Founded in 2000 by Stephen Kaufer and Langley Steinert, they built a service almost nobody else could: information on all things travel, notably contributor-led reviews. Kaufer and Steinert turned an initial investment of under $3 million into a $7 billion business.

The journey didn’t come without struggle. After 18 months, Tripadvisor had no clients or revenue, and the business was running out of money fast. After 9/11 dented the travel industry, Kaufer worried his startup would become another dot-com era bust.

But leaders were always tinkering with new ideas, and they decided to add a subtle button to their site’s homepage. It read: “Visitors add your own review.”

“Boy, did that just take off,” Kaufer recalled.

 

Travel guides and authenticity

People have sought travel guides for hundreds of years, possibly thousands. In the second century AD, Greek geographer Pausanias was credited with authoring one of the first official travel guides, describing Greek travel. For centuries, explorers shared maps and literature akin to travel guides to enhance their navigation.

Recently, in a world before the internet, many Americans called up travel agencies or visited them in person to generate ideas about destinations. But that was mostly marketing; travelers didn’t hear other travelers’ thoughts about destinations, hotels, airlines, and other excursions.

 

A billion-dollar idea forms

The idea for Tripadvisor came to Kaufer when he tried to book a vacation to Mexico with his wife. “It was really hard to find the honest answers, the honest opinions, about where to go and where to stay,” he recalled, wanting to know what places were really like, not through the filtered lens of marketing brochures.

Two years after launch, Kaufer noticed how the platform’s users cared less about travel experts’ opinions. They gravitated toward crowd-sourced reviews instead, so Kaufer doubled down on collecting consumer input. In this way, the customer became the product.

In the beginning, ad sales generated enough revenue to keep it afloat. But in late 2001, Tripadvisor shifted its revenue model, which drove rapid growth in the decade ahead: Every time a visitor clicked on a link to a hotel or restaurant, Tripadvisor charged the business a fee for the referral. Within three months, the company earned $70,000 a month.

“I think they call it a pivot now,” Kaufer said in 2014. “I called it running for my life back then.”

 

How Tripadvisor makes money

Tripadvisor began with ads, commissions, and booking fees, but they’ve since diversified their revenue stream:

1. Subscriptions: In 2021, Tripadvisor added a subscription service that offers trip savings. It’s $99 per year.
2. Insurance and trip protection: Tripadvisor partnered with Allianz Global to offer protection for travelers who book through their site.
3. Commission and booking fees: Tripadvisor has millions of listings and collects a commission each time someone books a hotel or flight, or trip via their site. (Tripadvisor receives a 12-15% commission for direct bookings.)
4. Advertising: Tripadvisor makes money by displaying ads on their platform, just as Google earns from advertisers via its search engine.
5. Listing upgrades: Tripadvisor offers listing upgrades for hosts, such as hotels, that want to “stand out from the rest and book more.”

 

Supercharged growth and network effects

The key benefit of authentic, user-generated content: It doesn’t cost the company anything. Tripadvisor also benefited from the first-mover advantage, emerging before travel reviews were commonplace on Google, Facebook, and elsewhere.

By 2004, Tripadvisor had racked up 5 million unique monthly visits. The growth impressed investors, and Kaufer sold Tripadvisor to InterActiveCorp (IAC), the parent company of online travel company Expedia, for $210 million. Kaufer remained as CEO, though he told Harvard Business School’s student newspaper in 2013 that he regretted selling the business so early, with so much growth still ahead: “In hindsight, this was the stupidest move I ever made.”

Since the sale, Tripadvisor’s business model hasn’t changed. A network-effect business flywheel manifested itself again and again, enabling large-scale growth.

The three-pronged network: the consumer, the travel venues, and advertisers. The network becomes more valuable as more consumers provide reviews, which drives more venues to provide access to vacation options, incentivizing more advertisers to offer deals and bookings.

“(Travelers) are getting free advice from their friends, others out there that have shared their opinion online,” Kaufer said.

Kaufer, who retired last year, cultivated a startup vibe despite the sensational growth beyond his initial dreams.

“No matter how large we are, I always want to maintain a startup mentality,” Kaufer said over a decade ago. “We have a once-a-week release cycle that we have religiously maintained for years…even with hundreds of developers working on a shared code base.”

He continued: “If my team tells me they want to launch a new feature in two months, I ask them what prevents them from doing it in two weeks. Culturally, I’m happy to play the ‘crazy CEO who doesn’t get how hard it is to build and release stuff’ in order to push.”

Kaufer, a former engineer, favored a test-and-learn approach on product improvements, dating to the initial move to add the review button.

“I enjoy focusing on building a great product,” he said. “I can maintain that focus as we grow because I have a fantastic executive team who enjoys doing things that I don’t enjoy doing.”

 

Dive deeper

Check out more insight from Kaufer on the secrets to Tripadvisor’s success with his interview with CBS.