In a candid one-on-one, Expedia boss Dara Khosrowshahi shared his thoughts on tours and activities, China, vacation rentals and the company's growth with Trivago, Travelocity, and — hopefully soon — Orbitz.
Here's the discussion with the Expedia CEO, edited for clarity and brevity.
Let's talk China, let's talk the eLong exit. You were in the business for 11 years ad I'm curious what you've learned in that time and what's next in that market.
We've known for a while that China is a giant market but also a very competitive market.
For 11 years, we did very well manuevering through that combination and growing that business organically with a terrific management team.
Over the most recent period, when we looked at the combination of the strategic value that we could get for eLong in a sale versus the competitive environment for the local traveler getting much tougher, we came to a conclusion that it made sense for eLong to be majority owned by Ctrip.
It was an opportunity that came up and when we balanced the view of "should we continue" or to realize value for shareholders, we decided that it was time to realize some value.
The good aspect of that transaction is that we are still very much partners with both eLong and Ctrip on the outbound Chinese traveler, which has always been the most important strategic element of our operations in China.
You never can predict the future, you can never predict it in a market like China. While the outcome wasn't ideal, the outcome was actually pretty darn good.
So is China an impossible market given the competition or are there just a lot of growing pains as companies figure out how to keep the margins healthy?
Everything goes through cycles. I've been in this business for 10 years and some would say that I am getting a little long in the tooth.
You realize that some people take cyclical trends and they assume that the trends are going to go on forever. I think this is a really tough cycle for China in a number of ecommerce categories where you have strategic players trying to gain the upper hand — and especially to be the number one.
This will continue for some period of time — it's difficult to predict for how long — but at some point the economics always come back to real unit world economics. But it will take a while for China to get there.
We think that when it gets there, it will be healthy. And we are still operating in China both through the outbound business, with Hotels.com, and we're introducing the Trivago metasearch brand into China.
We're still going to be playing, it's just going to be in a different format on a go-forward basis.
As far as the outbound traveler from China, that business is good and healthy? Will that demographic offer inroads to get back into China itself?
[This market] is growing in triple digits. [China] is one of the fastest growing outbound markets for us, so we are quite optimistic as far as the result today.
And even more optimistic about the results on a go-forward basis. I think that the majority of our focus will be the China outbound market at this point.
We'll be opportunistic as far as within the China market as it relates to the domestic traveler, just like we are in any other market.
Let's talk about TripAdvisor Instant Booking. You spoke with Tnooz at Phocuswright last year, saying it was "not an attractive marketing channel." Does the Marriott deal on the platform change anything about your approach to Instant Booking or is it still wait-and-see?
I think it's still wait-and-see. Our quickest estimate is that it doesn't change anything. We look at the TripAdvisor channel based on the cost of the channel itself and the lifetime value of the new customers that we acquire.
We don't see that formula changing yet.
Does it make more sense then for you to further invest in technology, such as Scratchpad, to create your own products rather than place inventory on other channels?
That's a sound strategy, regardless of who you are and how you operate. We never want to be too dependent on any one channel, and we tell hoteliers that they shouldn't be too dependent on any one channel.
You always want to have a balance of offerings, both indirect and direct.
Indirect channels can bring new customers usually at a variable cost that can scale - but if you are completely dependent on an indirect channel you are probably in a touch circumstance, so you want to have a number of indirect channels that you are booking with and you want your direct channels to be growing.
That's really the portfolio of demand that we build on a global basis, and then we try to point that demand ultimately to our hotel partners.
How has the experimentation with vacation rental listings from HomeAway been working out? Do you think there will be further prominence of those vacation rental results in the near future?
I certainly hope for further prominence because then you'll know that its working. We've been testing and learning.
We have a lot of respect for the [HomeAway] team and the product has been improving. We haven't found a breakthrough but we are very committed to finding a breakthrough with them because their interests and our interests are very much aligned. I think we can build a nice business together.
Do you think the results are related to demographics? Is that a structural issue related to the types of people coming to Expedia versus HomeAway? Or is it something deeper, related to getting the rentals to the right place on the website?
It's tough to say. My guess is that it has more to do with consistency of experience that the Expedia or Hotels.com customer expects on our sites.
We are working to the inch to optimize that experience so that it's incredibly easy and intuitive all the way through the booking flow to the end of the transaction, as well as post transaction communications.
The HomeAway experience right now is partially our experience and its partially a HomeAway experience.
And there are good reasons for that; there are reasons why the vacation rental booking process is different.
How we combine the two experiences into a great singular experience that delights our customers is what I think we are both interested in solving.
Does that same kind of challenge come into play with last year's integration of hostel, campground and RV inventory? Are you facing some of those same issues or is that experience more similar to booking a hotel?
We're building that experience to be a bit more similar to booking a hotel. And the volumes that we are seeing are off a very small base but they are encouraging volumes. So we are pretty optimistic about that.
We covered the buzzy launch of LocalExpert in depth a couple of years back. How has Expedia's approach to tours and activities evolved, and do you think there's still a future there? Are you working behind-the-scenes on T&A?
Yes, we are very optimistic about that category. The fundamental issue we had a few years ago was that the technology stack that we had backing that customer/supplier experience wasn't where it needed to be.
So we pushed a reset button as far as hiring engineers, bringing in a new team, brining in a new product and tech team, and have been over the past three years have been re-building that stack.
As we have rebuilt that stack, we have seen volumes pick up considerably. Both on a standalone basis and an attached basis.
We think the potential for us to attach that kind of inventory to consumers who have told us they want to fly to a certain airport, to consumers that have told us they are going to be at a hotel in a particular place over a time period.
The ability to attach that LX inventory, both in terms of email but also on mobile, is enormous. We can create those experiences in a seamless and delightful way, and in a way that multiple entities probably can't.
We like what we are seeing today, as far as the trends go, and we think that this is a business that has a terrific future inside of our portfolio.
Would it ever be something that the hoteliers would get involved with merchandising on-site, or any further integration there on the hotel side?
I think there is potential there. We actually have desks inside of hotels in Hawaii now.
We have concierges that are marketing all kinds of activities within Hawaii. It's a profitable business.
Our focus first has been online but I think that we can transition from our focus online/standalone/attached to attaching both online and offline with our hotel partners.
I think it's going to be a little bit of time before we get there because right now we are focused on the fundamentals. But it is an opportunity for us and one that we plan to talk to our partners about.
How are things looking with Travelocity and Orbitz? What's your outlook in the next 12-18 months on the upside on those two particular acquisitions?
Travelocity for us has really been quite good. The Travelocity brand itself is growing double digits and the volumes are very healthy.
We're able to grow those volumes on a profitable basis. So Travleocity, all in, I think we can label as a terrific success. We have a terrific team in Dallas that are working really closely with the Hotels.com team.
It's great to have a nice group of employees there, all of whom are in the same location comparing notes.
Orbitz its too soon to tell. We are obviously in discussions with the Justice Department about that deal.
We are getting information to them. And we'll have to see what they think. We think there are all kinds of reasons why the transaction is one that should be approved but that particular element is out of our hands at this point.
And Trivago is still growing like gangbusters. It seems to only go up, up, up.
We'd like to keep it that way. The original founding Trivago team is still there and executing very effectively.
This was a brand that was a very strong brand that we're trying to take worldwide. Successfully so in the US and Canada, and a number of other markets. We think the Trivago story is one that is still untold at this point.
We're quite pleased with the progress and we want to see more.
NB: Shanghai image courtesy Shutterstock.