Travel revolutionary

DEFINING what you are in one sentence can be tricky enough for individuals. It can be as challenging for companies, especially those that do not fit any ready description of what they are good at.

And that's why it's hard to describe what type of company Expedia Inc is. On the one hand, Expedia prides itself on being a technology company with some of the best whiz kids in the business of writing code and generally doing stuff that whiz kids do, including eating junk food.

On the other hand, Expedia, which is also the holding company for well-known online travel brands such as Expedia.com, Hotels.com, Hotwire.com, trivago and Egencia, among others, is one of the world's biggest travel companies with around US$5 billion in revenues and over US$50.4 billion in gross (travel-related) bookings worldwide.

In order to keep within the one sentence limit, one could say that Expedia is a technology company in the business of disrupting the travel industry. Much like Google is a technology-focused search company that is disrupting the advertising industry.

Expedia's Iranian American CEO Dara Khosrowshahi likes the comparison with Google.

"We are a technology company which is in the business of travel. Google is in the business of returning the perfect search results. We are in the business of returning the perfect search results for travel. A lot of the science and technology behind these two are similar," he notes with obvious pride.

He adds that some years ago, "we put the marker down that we would be the best technology company in travel". He says it's technology that makes Expedia different and "technology is what has got us here and hopefully it will get us to the US$100 billion (gross bookings) mark".

And yet Mr Khosrowshahi acknowledges that travel is a people-centric business even if you happen to be in the business of aggregating thousands of hotel rooms from across the world.

"You need people to shake hands (with hoteliers and other suppliers) and know the (hotel) owner personally and know when their kids' birthdays are. That's the kind of relationship which the travel industry demands and we are investing for that."

It's a sign of the new economy that is growing around the world that Expedia invests heavily both in technology, hiring top-class programmers, and the best sales and marketing people it can find to put a human touch to the reach that technology provides.

Expedia has excellent pedigree as a technology company. It was set up as an online travel agency by Microsoft in 1996, one of the first companies selling travel products online. Around the turn of the millennium, Microsoft spun off Expedia as a public listed company. In 2003, IAC (InterActiveCorp)acquired Expedia by buying all the shares it did not already own. IAC is a leading media and Internet company that owns more than 20 operating businesses comprising over 150 brands and products. The company was also the owner of dating site Match.com and mobile app Tinder, both of which it spun off in November 2015 as the publicly listed Match Group.

In 2005, IAC again spun off Expedia as a publicly traded company, which it has been ever since. Expedia currently operates more than 150 travel booking sites in over 70 countries.

Mr Khosrowshahi has held several key posts in IAC before becoming CEO of Expedia in 2005 when it became a public listed company again.

Reminiscing on his career, Mr Khosrowshahi notes that he hadn't always been in the travel business. Armed with a bio-electrical engineering degree from Brown University because his parents wanted him to be a doctor, he fell in love with a girl who was living in New York. After moving to the Big Apple, the only job that Mr Khosrowshahi landed was that of an investment banker.

"My career was completely unplanned. I worked eight years as an investment banker and that's where I met Barry Diller, the chairman of both IAC and Expedia (who offered him a job). It has been a strange journey getting here but it has been a terrific one and I'm having a great time."

He adds that Expedia hasn't been a rocket ship in terms of growth and has had its ups and downs.

"We went through a period of incredibly fast growth in the initial years and then the business had troubles. In the past four, five years, we have really turned around and we have been growing as fast as we have ever been, and we are creating terrific products, and I'm having a lot of fun now, and hopefully I'll be here for at least a few more years."

To the question on what helped turn things around, Mr Khosrowshahi says the company decided to become the best technology company in travel and to realise that dream, it decided to over-invest in technology.

"Our technology platform was based on older Microsoft architecture. We had to rebuild it all. The return on that investment was uncertain but we went on and invested in the technology. That has allowed us to innovate, now I think, faster than any other travel company. That's what has created the kind of growth you are seeing today.

"When we made the investment around 2010, it was a pretty uncertain investment but today I'm happy we did so. Our investors asked what the returns are and how long it would take. It took longer than expected but the returns are terrific."

Analysts have dubbed Expedia, and its online rival Priceline, owner of brands such as Booking.com, as disrupters in the travel industry.

Mr Khosrowshahi himself has a very clear view on this. "While it sounds pretty cool to be a disrupter, I think we are trying to empower the travel industry and I understand we're totally dependent on our travel suppliers for our livelihood. We don't own hotels, we don't own planes."

What the Internet has done, according to him, is democratise travel distribution, especially for smaller players - owners of boutique hotels and single properties. "For example, small independent hotels in Phuket would never have been able to market directly to a consumer in Russia. We make that one-to-one connection possible."

A travel company with thousands of hotel rooms up for offer without owning a single property brings invariable comparisons with Uber, the world's largest taxi company which doesn't own a single vehicle.

The Expedia CEO, however, thinks the comparison is not apt.

"I don't necessarily make a connection to Uber but if you look at Facebook making these one-to-one connections possible between people . . . we make this connection between travel suppliers and consumers for their mutual benefit."

He adds: "Suppliers do not necessarily have to go through travel agents and the consumer can discover on their own a much broader range of products than ever possible before. So it's about empowering the consumer and empowering travel suppliers and we are the ones who are making this happen through technology."

Mr Khosrowshahi agrees that the monopoly control built up by large global hotel chains with recognisable brand names has been eroded to a great extent by the choices thrown up by Expedia and Priceline.

"I think that the large chains had a monopoly and that monopoly has now disappeared. That said, they do have an advantage.

"What we see on our site is that branded hotels convert better than non-branded hotels. So there is absolutely a benefit to having a brand. The branded Marriott hotels, for example, still have a distribution through us as well as direct from their websites."

He adds that the Marriotts and Hiltons of the world have to build up their technology capabilities more thoroughly as now, there is a new set of competitors and "the question is how will they respond"?

Taking the example of Marriott, he notes that the hotel chain focuses on its strength, which is the rewards programme and the business traveller.

"They have a great advantage in their excellent database. We bring to them the weekend leisure traveller and they then have an opportunity to covert these travellers into loyal Marriott Rewards members."

Mr Khosrowshahi notes that there is plenty of room for every one. "I think that when we look at the travel industry, the environment is really healthy with plenty of opportunity for all players. It is a US$1.3 trillion global market place and it's surely not going to be 'winner takes all'. We think we can be a winner, we think that brands can be winners too.

"We are a still a small percentage of the total addressable market. We see us with 5 per cent of the market. I think we can grow with double digits. We have an internal target to reach US$100 billion in gross books. That's a target the whole company knows about."

Expedia has been on an acquisition spree over the past few years. It acquired home rental company HomeAway for US$3.9 billion last November and earlier in 2015, it acquired rival Orbitz Worldwide for US$1.3 billion.

To a question on its game plan, the Expedia CEO says: "We want to own and empower the best travel brands in the world. We know consumers are loyal to lots of different brands and as we try to scale what we are able to do, we are able to bring a number of these brands on to a common technology and supply platform.

"So it's really the best of both worlds. We get to bring a brand into the family and we get to improve the technology and the supply that underlies the brand. Capital is cheap now. We are not only operators but we are capital allocators and we can borrow money at attractive rates and we can get pretty attractive returns for our shareholders."

Mr Khosrowshahi notes that before the Internet, there were really no global demand players in the travel industry. "You know hoteliers would play with European travel agencies, US travel agencies, Indian travel agencies. The Internet has created scaled global players like us and Priceline through Booking.com. Not only do we bring in a significant demand but (we are) bringing a global footprint to the market."

Historically most travel agencies had either been leisure players or they had been corporate, he adds. "We are trying to be both. We have a number of leading leisure brands like Travelocity but we are also building through Egencia (a business travel aggregator). We bring all the tools that leisure travellers love along with the kind of controls that companies are looking for in corporate travel. We think if we bring in global demand at scale and growing that is, both leisure as well as corporate, we can be an entity that just hasn't existed before."

Mr Khosrowshahi acknowledges that concerns have been expressed in different quarters about the monopoly nature of Expedia in the hotel booking business and that there is a fear that it would squeeze hoteliers for greater commissions.

"I think any time you have a new entrant that is gaining scale, you are going to cause discomfit especially among traditional players. I think that discomfit is natural as industries develop. Fact is that we have taken our commission down substantially since we were established."

Expedia started out as one of those traditional consolidators. "The consolidation margins were 30-35 per cent when we were established 10-15 years ago. We have been taking those margins down as the Internet takes those margins down. Our margins today are closer to the 15 per cent range versus where we started off at."

The Expedia CEO adds that the company has been lowering the cost of doing the business every single year.

"What has been happening is that we have been growing as an entity every year. I think that is causing some worry . . . a global Internet company - are they going to use leverage of their size to disadvantage us?

"We just have to demonstrate with what we do and also by developing personal relationships with these suppliers that we are not going to use leverage and we are going to partner up with these players and grow with them in a balanced way. Part of it is in making investments in our local teams who work directly with the hoteliers.

"If you look at the Asia-Pacific region, for example, we have increased the number of people by around 50 per cent year-on-year because we understand we have to build those personal relationships," he adds. "Travel is a relationship business and sometimes it is difficult for technology companies to invest properly in relationships and we are making these investments now."

Mr Khosrowshahi says the core of Expedia from the very beginning has been to empower the consumer to have every tool that travel agents have.

"Historically the travel agent would have the screen that you would be trying to peer into. We are bringing that screen to the consumer. We are providing total breadth, depth and choice. We want to wire up every single hotel in the world, we want to wire up every single airline in the world for a complete breadth and depth, and along with breadth and depth comes competitive pricing because these hotels and airlines compete on a level playing field to capture your attention," he says.

"We combine that with user generated content. Other users talk about their experience and you don't have to trust the travel agent when they say this is a great hotel because that hotel is paying them high commission. And there is the ease of use on whatever device you use. The combination of breadth, depth and user-generated content and very easy booking just makes it a better way."

Expedia is a preferred booking partner with AirAsia. "How do these deals work? It's very similar to other agency deals. The airlines typically pay us a commission and we connect through GDS (Global Distribution System) or Amadeus and other similar agencies. It's been going on within the travel industry for some time. One of the advantages for us is that we can combine air products and hotel products to get exclusive package discounts for consumers."

He adds that these are not your typical packages. "In classic packages you had, for example, five packages to choose from, it sounds good but there is a standard package you had to buy. What we can do with technology is that you can pick your own hotel, you can pick your own flight, and pick your own airport transfer. We put it all together and because we give you one price, we can secure discounts from all players. For consumers, it's the best of both worlds. They get to choose and they also get discounts.

"It's complex technology and it's pretty hard to build and just putting the stuff together and pricing it all out is difficult but it has been a pretty attractive product for us."

Mr Khosrowshahi, who loves to read sci-fi novels and is a gaming geek, understands that as a disrupter, Expedia always has to be wary of the possibility that it can itself be disrupted and pushed to the side by a new kid on the block.

In order to prevent that, Expedia needs to understand its core, he says.

"We have stated very clearly that we want to be the best technology company in travel. Everyone in the company knows it. So if you know what's important to you and you understand that technology is the absolute differentiator for you, you tend to be pretty good at stuff you focus on.

"Second we are investing very aggressively - we spent over US$750 million in technology-related spend in 2015. I think that's the most in the travel industry. One is understanding what is important and the second is investing in it and the third is the culture of the company."

He adds that in order for technology to be disruptive, it has got to be innovative and fast. "As technology companies grow up and get bigger, they tend to get boring and slow. And so what we do is we break up our company.

"When you look at the Expedia brand versus the Hotel.com brand versus Egencia and others, each of them have their president, each of them have their technology or product teams. I do not have a corporate CTO (chief technology officer), so technology is embedded in every part of the company. And so instead of being a giant conglomerate, we are a bunch of small companies which are running at Internet speed."

Mr Khosrowshahi, who enjoys a rock star status in the industry and loves to play with his two-and-a-half year old twins, may give the appearance of being laid back. However, he's very much on the ball, ready for the next challenge that his job, which he thinks he is incredibly lucky to have, throws up.

DARA KHOSROWSHAHI President and CEO Expedia Inc

1969: Born in Teheran, Iran

1978: Immigrated(with family)to US

1991: BA in Engineering from Brown University, US

1991-1998: Worked at Allen & Company LLC

1995-1998: Vice President at Allen & Company LLC

1998: Joined USA Networks Interactive (subsequently renamed InterActiveCorp, IAC) as VP of Strategic Planning

1998-2005: Held senior posts in IAC, including CFO and President

Since 2005: CEO of Expedia