Q&A: Terry Jones on the challenges of creating a successful travel startup

Terry Jones has had a long history in travel. His resume includes work as a travel agent, 24 years at American Airlines, launching and serving as CEO of Travelocity, helping to found Kayak and - most recently - serving as chairman of WayBlazer.

That company, which offered artificial intelligence-powered search, discovery and shopping for travel websites and apps, announced recently it is shutting down, saying, “ …and after four years of investment, the short answer is the next round of funding did not materialize.”

Following this news, we reached out to Jones. While he was unable to share more details about what went wrong at WayBlazer, he did give insights into how the travel startup landscape has changed over the years and what it looks like today, as well as offer advice for entrepreneurs.

Looking back on the 22 years since you founded Travelocity, how has the travel startup environment changed?

Travelocity and Expedia - the two biggest startups at the time - were started by huge companies. One started by American Airlines, one started by Microsoft. So they were startups, but they were internal.

When we took Travelocity public, there was almost no interest. We were playing to empty rooms. Nobody thought travel was big. People were into pets.com, toys.com and things like that. Yet travel turned out to be the biggest category in e-commerce, and I think it may still be larger than the next three categories in e-commerce combined.

You then saw the rise over time of venture-backed companies, whether it’s Hotels.com or TripAdvisor and many others who were able to grow and were quite successful. I think it’s still a fairly small family of venture capitalists who get involved in travel. People will say it’s a great space, but I don’t know it. So you have this small world of people who invest, and they know it pretty deeply.

The change you see today of course is the change you see in all startups - driven by a number of factors, principally by the cloud and the availability of massive computing power at very low cost - people can start and build companies on a credit card or Kickstarter. Or four people and very low investment. That’s a huge change from 10 years ago when it just took a lot more money to do things than it does today.

The other thing that has changed is that the big guys have gotten so big … that it gets harder to make the VC pitch and say, "I’ll get picked up by Expedia or Booking or Amadeus." Because if you go talk to the leaders of those companies, you really have to be a pretty big acquisition to move the needle. I think they’re not buying little companies, they are buying pretty big things, because if you are a public company, you are not going to spend the time for the integration.

I think the exits get a little more difficult now when you have an industry that’s so dominated by two to three really large players. And you have to do something quite different to get the attention of the VCs, because there are a whole lot of recycled ideas out there.

So knowing these challenges – the big players, the recycled ideas – is it still possible for a startup to break through and do something valuable and big?

I’m not writing it off because the category of travel is so huge that there’s still room for interesting ideas. You do wonder how big they’ll get. Some things may never scale to be huge. HotelTonight has done fairly well but they are trying to expand their idea – now it’s “hotel every night” or something.

You can look at the world differently as Airbnb did, as Uber did. They won massive volumes by simply looking at the problem differently. The whole attractions arena has a whole lot of headroom. I think as you see millennials who are much more interested in the experience driving their vacation rather than the property, people are repackaging things around experience.

Something else people forget: You don’t have to change the world to build a big company. Travelocity was a registered travel agent. It just took it online. That was the only difference. The back office was just like any other travel agent. Kayak offered choice - you can book at any of these places, we’ll show you everything. Those are big ideas, but that wasn’t changing everything. You don’t have to change the whole world to build a very nice business.

What is the hardest part of creating a successful startup?

The challenge is coming up with an idea that will have enough market impact that you can scale. It has to be different enough. If you are talking B2C for example, the big challenges are you are up against big entrenched players who are spending billions of dollars on brand. That’s hard to break into. You have to have something that grows through word of mouth to the extent you can really make a difference.

Look at the business travel category. You have some big entrenched players that have been around a long time. I don’t think any of them today - and I can’t get in trouble anymore for saying things because I’m too old – I don’t think any of the big guys are particularly innovative. I haven’t seen much innovation at the top, but it’s very hard to break in.

Lola is trying to break in and others are trying. There are two to three with pretty interesting ideas, but it’s very hard to break the hold that these very large companies have. You have to have something that grows through word of mouth and is innovative and different enough that people grab onto it.

You don’t have to change the whole world to build a very nice business.

Terry Jones

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It’s gotten very expensive. When Kayak started, Google arbitrage was a great deal. We bought tons of search and were able to arbitrage search and make money on it. It’s very hard now. Google is very expensive. SEO is an increasingly difficult game. That’s why word of mouth and having clear product differentiation where people are talking about it at cocktail parties are what you’ve got to have.

You get a lot of people who self-fund ideas. They look at travel, they look at Expedia, Priceline, Travelocity and they say I can make a billion dollars. They have no idea how hard it is. And very few of the ideas are profoundly different enough to get enough consumers to make it work. And the problem is exacerbated by the fact that we have these titans who won’t buy a $50 million company – you have to be big to be bought. That’s the hard part. Because there’s nobody picking up the crumbs.

And there’s nothing wrong with running a nice little $100 million business and maybe that is a point to make. In this country people used to start businesses and own them their whole lives – family businesses. They were usually funded by banks – you can’t get a bank loan anymore to start a business, that doesn’t happen. So people went to venture capital, which was great but the trip up in venture capital is you have to exit. In five years they want out. You may be running a nice business, but they don’t care. They want their money back and that’s why they invested.

If you start a small company based on your credit card you can just own that company and run it. You don’t necessarily have to sell it. It’s not the billion-dollar exit, but you have a family business. Maybe that’s your story. But people’s mindset hasn’t turned back to that yet - that that’s ok.

Where do you see opportunities for startups in travel?

I think tours and attractions, the whole experience thing. Airbnb added experiences, now hotel chains are adding experiences. I think small meetings is still a big area where things can be done. That’s a business that hasn’t been consolidated. I like spaces that have lots of activity and not much consolidation. That’s why tours and activities – there are so many vendors that need to get automated and there’s no network in place. People are working hard on that. People are doing the same thing with meeting rooms, even big meeting rooms aren’t online, most of them. There’s a bunch going on there.

There’s probably a lot more innovation that can go on in the tourist bureaus and the generation of traffic. I got a little involved with that at WayBlazer, and we found it hasn’t changed much over the years. While cities don’t have a lot of money, states and countries have a lot of money. There may be stuff going on there.

I still think it’s fascinating to me that in a whole other area the airlines are the front door of travel for about half the bookings. People start with air before they buy hotel. And while the airlines are trying to sell more ancillaries, a lot of it is insurance and seat upgrades. They don’t do a very good job of selling car and hotel. Their vacation arms are about the same as they’ve been for the last 20 years. They don’t sell an experience, and I think that’s a huge miss for those guys and I think somebody may get to the point to help them do that really well. But airline companies change slowly. And that’s a B2B not a B2C setup, and B2B stuff is tough.

A lot of people are attacking this multimodal travel thing - air, train, bus ‐ how do I mix those in the right way. I don’t think there are enough people that do that in the United Staes, but in the Asian or European markets, those things are working. So there’s something happening there.

Thinking back on your experiences in travel and with startups, what’s the most important component of a great startup?

More than ever it’s all about having the right team. One of the things I fought very hard for at Travelocity was to bring people in from the outside, who weren’t American Airlines people. I had to fight with human resources for six months to allow me to do that. Because you want debate, you want argument. At Kayak I watched Paul English – who I think is the best hiring manager I’ve ever seen – build an amazing team of rock stars.

There’s an old Silicon Valley saying that rocks stars hang out with rock stars. You want to be on a winning team. And he hired rock stars, and that’s one of the reasons we went public with only 200 people. He focused so hard on the team. It really is important. You really shouldn’t hire your best friend to be your COO or whatever. And now teams can be so small because the entry costs are so low and then it gets more important.

Kayak was great because Steve Hafner had this deep travel knowledge and had also been a consultant and a great business guy, and Paul had no travel knowledge but deep technical knowledge. And Paul worked hard to hire people that had never been in travel. He didn’t want bias. I tried to get a little of both. A great idea with a bad team isn’t going to work.

We regularly hear about work being done by big companies outside travel - Google, IBM, Microsoft. Is it possible for startups to compete against these types of challengers?

I can say this - at WayBlazer, IBM was an investor, and there was a period of time we used their technology and they were helpful to us, and then eventually they began competing with us, but we didn’t have a lot of trouble going head to head against them. When I brought on Travelocity, everyone said AOL and Yahoo will kill you. When we brought on Kayak, all the investors said Google with kill you.

Travel is tough, it takes deep vertical knowledge. I’m not worried about those guys. Microsoft has fooled around with travel for years. Google is certainly becoming more a force in travel. I mean I think for the first five years they owned ITA Software they forgot they owned it. Now they are doing more and of course it’s very tough to compete because they own the funnel. That’s a tough one, but consumers like choice and they still look at multiple sites. So I don’t worry about those big guys. They usually are very slow moving and methodical and don’t understand the vertical well enough to benefit.

Does the demise of WayBlazer indicate anything about the potential for AI in travel? Do you still believe it’s a good match?

It can have a large impact. I saw a chart from McKinsey that showed travel as dead last of industries in adoption of AI. And then another chart that showed of industries where AI could have impact, travel was at the top. We have a lot of opportunity and nobody’s doing it.

That’s bad because I think the ability to change the travel paradigm – which on every website it’s where you are going and when instead of what do you want to do, and allowing people to interact either with voice or text in more natural ways - and using AI to find the right product is a very powerful idea. Those that get around to implementing it will gain share. There’s a lot to be done both in the front office, customer-facing side and in the back office.

And when we combine voice with visualization I think you could get a very profound change in the way people search and plan and book. And these systems can do something else that all online travel agencies don’t do well today, which is give advice. Travel sites don’t have opinions, they have search engines. But AI allows you to say what you want and somebody to say based on this, this is what you should do.