Episode 41 Booking.com with Jetsetter & Room 77 CEO Drew Patterson

In episode 41 of Acquired, hosts Ben Gilbert and David Rosenthal, joined by guest Drew Patterson, CEO of Jetsetter and Room 77, delve into the 2005 acquisition of Booking.com by the Priceline Group. They explore the nuances of the online travel industry and the profound impact of Booking.com's agency model, which contrasted with the prevalent merchant model of U.S. counterparts like Expedia. Drew, a seasoned travel industry expert with experience at Starwood Hotels, Kayak, and as founder of Jetsetter, shares insights on the growth strategies and customer acquisition tactics that propelled Booking.com to success. The episode also touches on the importance of customer conversion rates and the challenges faced by traditional hotel brands in the era of OTAs. With Priceline's acquisition leading to exponential growth, the discussion highlights how Booking.com's innovative approach to online travel bookings not only transformed Priceline but also reshaped the travel industry at large.

• Drew Patterson, the CEO of Jetsetter and Room 77, is commended for coming prepared with printed notes and pen and paper.
• His preparation indicates his enthusiasm and seriousness about participating in the podcast.

"Drew, I think you might be our most prepared guest ever. This is great. Drew has printed out notes and pen and paper here. This is awesome."

The quote highlights Drew's level of preparation for the podcast, which impresses the hosts.

• Ben Gilbert and David Rosenthal introduce episode 41 of the Acquired podcast, which focuses on technology acquisitions and IPOs.
• The episode will cover the 2005 acquisition of Booking.com by the Priceline Group.

"Welcome back to episode 41 of Acquired, the podcast about technology acquisitions and ipos. I'm Ben Gilbert. I'm David Rosenthal, and we are your hosts."

This quote serves as the opening of the podcast, setting the stage for the discussion.

• The acquisition of Booking.com by Priceline Group is considered legendary with many nuances.
• Drew Patterson is invited for his deep travel industry experience to ensure a thorough analysis.
• Drew's background includes working at Starwood Hotels, Kayak, and founding Jetsetter.

"We are covering the 2005 booking.com acquisition by the Priceline Group. Now, this acquisition is legendary, and there are tons and tons of sort of interesting nuances to understanding the industry."

The quote emphasizes the significance of the Booking.com acquisition and the need for expert insight to unpack the details.

• Drew Patterson's travel industry experience spans from managing distribution and pricing at Starwood Hotels to VP of marketing at Kayak.
• He founded Jetsetter, which booked the hosts' honeymoon, and later became CEO of Room 77.

"So, yeah, we are lucky to have Drew, who is a, quote, grizzled travel industry veteran, to help us unpack this one."

This quote acknowledges Drew's extensive experience in the travel industry, which adds value to the podcast's discussion.

• The hosts skip the usual request for reviews to announce the annual acquired survey.
• The survey aims to collect listener feedback, tailor content, and provide anonymous data to sponsors.
• Participants in the survey have a chance to win Apple AirPods.

"We are launching the annual acquired survey and we'll have it open for about a month. So whether you're a first time listener or a longtime fan, we would love to hear your thoughts."

The quote is a call to action for listeners to participate in the survey, highlighting its importance to the podcast creators.

• Pilot is presented as a valuable service for startups, handling accounting, tax, and bookkeeping needs.
• The company is backed by notable investors and is the largest startup-focused accounting firm in the US.
• Pilot's services are recommended for startups wanting to focus on their core product.

"Our next sponsor for this episode is one of our favorite companies and longtime acquired partner pilot for startups and growth companies of all kinds."

This quote introduces Pilot as a sponsor and outlines the services they offer to startups.

• Booking.com's ownership by Priceline and its market dominance, especially in Europe, is not widely known in the US.
• Booking.com is part of the world's largest travel company and one of Europe's most successful tech companies.
• The company's market cap is compared to other major companies to illustrate its size and success.

"But today we're going to talk about how priceline, of which booking is by far the majority of it, is actually the largest travel company in the world."

The quote reveals the significant position of Booking.com within Priceline and the travel industry.

• Booking.com was founded in Amsterdam in 1996 by Gert Jan Brunsma, who believed the Internet could solve travel booking issues in Europe.
• The company initially attracted American customers due to the early Internet adoption in the US.
• Gert Jan Brunsma raised initial funding by emailing everyone he knew with an email address.

"So he starts casting about for an idea of what type of company he would start. And apparently, according to, there's this great, great oral history of online travel that the website skift published that we'll link to in the show notes."

This quote details the early stages of Booking.com's founding and the challenges faced by Gert Jan Brunsma.

• Booking.com evolved into one of the first OTAs, focusing on acquiring travelers and hotels, and providing customer service.
• The company's proprietary long tail marketplace of supply was a key differentiator.
• Drew Patterson explains the GDS system and its role in the travel industry.

"All these businesses really are marketplaces about how they bring together supply and demand."

The quote explains the fundamental business model of OTAs like Booking.com, which is central to their operations.

• The Global Distribution Systems (GDS) were developed by airlines to connect travel agents and originated before the Internet.
• GDS primarily included larger, franchised hotels, whereas Booking.com focused on a broader range of accommodations.

"I mean, it goes back to, I think it was 1973 when the first GDS was built. I mean, these were actually byproducts of the airlines."

This quote provides historical context for the GDS systems and their significance in the travel industry.

• Search advertising is highly effective for travel because of the direct link between search intent and transaction potential.
• Travel has high purchase value and transactions are completed online, making it an ideal sector for direct response advertising.
• Online Travel Agencies (OTAs) are among the largest spenders on Google due to the effectiveness of search advertising in the travel industry.

"In terms of search engine advertising, because the link between searching Google or whatever search engine for a villa in Rome and an online travel agency is you're so far down the funnel, it's a perfect type of advertising for these companies."

The quote explains the close relationship between consumer search behavior for travel accommodations and the subsequent booking through OTAs, illustrating the efficiency of search engine advertising for travel-related companies.

• Booking.com grew slowly until merging with Bookings Online in 2000, renaming itself to booking.com.
• Expedia considered entering the European market in 2002 and almost acquired the newly merged booking.com but backed out due to concerns over the agency model.
• The European market's differences from the U.S. market required a unique approach to access the supply of accommodations.

"Yes. So booking is growing slowly. They end up merging in the year 2000 with another group also in the Netherlands, also called booking, called bookings online. And that's when they changed the name to booking.com."

The quote recounts the merger that led to the creation of booking.com, a significant player in the online travel booking industry.

• The merchant model involves OTAs contracting wholesale rates with suppliers, marking up prices, and taking no inventory risk.
• The agency model, used by booking.com, involves taking a commission from the supplier after a booking is completed, with lower commission rates than the merchant model.
• The agency model aligns better with consumer and supplier interests, offering flexibility and lower costs.

"So the big difference between the two, the merchant model is effectively a wholesale model. In the merchant model, the online travel agency contracts for wholesale rates with a supplier."

The quote explains the merchant model as a wholesale approach where OTAs contract at lower rates with suppliers and sell at marked-up prices without inventory risk.

• Priceline Group, through strategic acquisitions, built the largest online travel agency in the world.
• The acquisition of Active Hotels and booking.com for under $200 million each was a significant move that led to exponential growth.
• Priceline Group allowed its acquisitions to operate autonomously, which contributed to their success.

"So the first acquisition that they make, led by Glenn, is actually not booking, but a company in the UK, in Cambridge, England, called Active hotels, which is very similar to booking, was larger in the UK than on the continent."

This quote describes Priceline Group's first strategic acquisition in Europe, which was a stepping stone to acquiring booking.com and expanding their market presence.

• The travel industry has seen a flurry of entrepreneurial activity and company formation.
• Major players in the industry often move between companies, creating a tight-knit community.
• Despite the industry's financial success, it remains relatively small in terms of the number of people involved.

"Why is this not flooded with entrepreneurs?"

The quote poses a question about the entrepreneurial landscape of the travel industry, suggesting a curiosity about the concentration of activity among a limited number of key players despite the industry's lucrative nature.

• The OTA market has largely consolidated into two dominant platforms: Expedia and Priceline, with CTrip as a third major player in Asia, and TripAdvisor also being a notable entity.
• The high level of technical integration required between various entities in the travel industry presents a significant barrier to entry for new startups.

"were built that UlTImatelY have consolidated to a relatively limited number of two platforms, ExPedIa and PRiceline. I guess you can look at CTrip as the third one in Asia, maybe TriPAdvisor."

This quote highlights the consolidation of the online travel agency market into a few dominant platforms. The consolidation is significant in understanding the competitive landscape and barriers to entry in the travel industry.

• Startups often propose new ideas for enhancing the travel booking and planning experience.
• Despite numerous ideas, the execution is challenging due to the high technical bar set by established businesses.
• The concept of a "better mousetrap" in this context refers to a more efficient business model rather than more appealing consumer features.

"But it seems like it's just really hard to execute as the bar has gotten higher and higher with these established businesses."

This quote emphasizes the difficulty new entrants face when trying to innovate in the travel industry due to the high standards and capabilities of established companies, which act as barriers to successful execution of new ideas.

• Airbnb represents a different approach within the travel industry, offering an alternative to traditional OTA models.
• The innovation and entrepreneurship that Airbnb brought to the market showcase a unique angle in the travel space.

"Yeah, well, one thing on this front on innovation and entrepreneurship in the entrepreneurialism in the travel industry, I want to come back to maybe in tech themes is of course Airbnb, which is a wholly different approach to this industry, but is nonetheless still the travel industry."

This quote points out Airbnb's unique business model and its impact on the travel industry, suggesting that it's a significant topic worth revisiting, particularly when discussing technological themes and innovations in the sector.

• Statsig is a feature management and experimentation platform that allows product teams to make data-driven decisions and understand the impact of features on business metrics.
• Statsig provides tools for A/B testing, product observability, and integrates with various data warehouses.

"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics."

This quote describes the services offered by Statsig, highlighting its role in helping product teams improve their development and decision-making processes through data analysis and experimentation.

• The acquisition category discussed is defined as a business line, encompassing people, technology, product, business line, asset, or other.
• A business line acquisition involves buying a new marketplace with new supply, demand, and business models, which is often kept separate on the balance sheet.

"They bought a new business here, and they happen to learn a lot from it and really make it the cornerstone of the company and grow from there. But they bought a wholly separate line of business, and they kept it pretty separate."

This quote clarifies the nature of a business line acquisition, where a company purchases a distinct new business and learns from it, potentially making it a cornerstone of their operations while maintaining its separate identity.

• Discussions around what could have happened if different decisions were made, such as Expedia acquiring certain businesses instead of Priceline.
• The role of capital infusion in the growth of companies like booking.com and whether they could have reached their current scale independently.

"It sure seems to me like booking could have done this on its own. Booking didn't need priceline to achieve the scale that it did."

This quote suggests that booking.com had the potential to reach its current scale without the need for a capital infusion or acquisition by Priceline, indicating the inherent strengths and capabilities of booking.com as a standalone entity.

• Marketplaces present both challenges and opportunities, with initial growth being difficult but offering significant defensibility once scale is achieved.
• The discussion includes the impact of marketplaces on various types of suppliers and the role of capital in accelerating marketplace growth.

"This is the thing about marketplaces, though. They're a total slog to get started... But then it tips right. And then it's just the defensibility."

This quote reflects on the nature of marketplaces, noting the initial difficulty in establishing them, followed by a tipping point where their scale provides a strong defensive position in the market.

• The conversation explores the potential for new competitors to challenge established players like booking.com.
• The role of digital marketing and customer acquisition strategies is examined, with companies like Travago attempting to compete by investing heavily in marketing.

"But could somebody else go do that? Could you begin to compete with them to generate that level of demand?"

This quote questions the feasibility of new entrants competing with established OTAs by generating comparable levels of demand, highlighting the challenges and considerations involved in entering the OTA market.

• Marketplace businesses focus on matching supply and demand and consummating the match.
• The goal is to maximize the rate of consummation of the match.
• Investing in areas that do not drive this process can be a misallocation of resources.

"The product that you're building when you're at a marketplace company is essentially the matching of supply and demand and the consummation of that match."

This quote emphasizes that the core product of a marketplace business is the efficient pairing of supply with demand and ensuring the transaction between them is completed. It's critical to focus on this core function for the business to succeed.

• Expedia missed the importance of being a marketplace in 2002.
• The company relied on portal tenancy deals for traffic, which made them less concerned about individual session performance.
• They signed large deals with portals like Yahoo and AOL for traffic, leading to a fixed stream of clicks.

"In 2002, you had big portal tenancy deals that drove a lot of traffic."

This quote describes Expedia's strategy in 2002, where they focused on portal deals to drive traffic, which did not require them to optimize individual session performance as traffic was guaranteed.

• Consumers increasingly prefer on-demand services with less commitment.
• The agency model allows for flexibility, such as easy cancellations and refunds.
• Businesses can innovate by offering flexibility in industries where commitments are currently required.

"What else can you take that people are hamstrung into committing to right now and allow them much more flexibility and change the business model dynamics within the industry to allow them that?"

This quote suggests looking for opportunities to innovate by providing flexibility to consumers in industries where they currently face rigid commitments, potentially changing the business model dynamics.

• The best consumer experience is not solely about website design but also about inventory and conversion rates.
• Booking.com succeeded due to its inventory and conversion rates, not necessarily its UX design.
• The discussion suggests that having the right supply is a crucial aspect of the consumer experience.

"The reason it delivered the most conversions was it had the most and best inventory."

This quote highlights that Booking.com's success was due to its extensive and quality inventory, which was more important in delivering conversions than the website's aesthetic design.

• Metasearch engines abstract the decision-making process from the transaction process.
• They provide a simplified user experience, focusing on decision-making and then directing users to complete bookings.
• Metasearch engines initially monetized through advertising fees from marketplaces but have evolved to include transaction-based fees.

"Metasearch sort of takes a wholly different approach. It's a layer on top. It's not a marketplace itself."

This quote clarifies the role of metasearch engines in the online travel industry, highlighting that they serve as an additional layer that helps consumers make decisions rather than being marketplaces themselves.

• Mobile technology blurred the lines between metasearch and direct booking.
• Metasearch engines developed "instant book" features to allow transactions within their platforms.
• Instant book has mixed success due to the complexity of handling transactions and edge cases.

"Metasearch engines started to build what they described as instant book. Effectively, they would allow you to complete a transaction."

This quote explains the evolution of metasearch engines, which began to offer features that allowed users to complete bookings directly on their platforms, changing their monetization strategy.

• The acquisition of Booking.com by Priceline was highly successful.
• The discussion compares the impact of this acquisition to other major tech acquisitions.
• Booking.com's acquisition is considered on par with or greater than Instagram's acquisition by Facebook.

"I think that Priceline may have been totally hosed without buying booking. And booking has turned into a gigantic business."

This quote suggests that the acquisition of Booking.com was critical for Priceline's success, turning the company into a significant player in the market, similar to how Instagram was for Facebook.

• The speakers share personal stories, movie recommendations, and industry insights.
• They discuss the importance of consumer experience, company strategy, and market trends.
• The conversation includes a discussion about an interview with Scott Forstall about the iPhone.

"The funniest thing is it looks like he's wearing the same shirt they make fun. The dude has a style."

This quote is a lighthearted comment on Scott Forstall's appearance and style, reflecting the personal and informal nature of the conversation.

• Crusoe is a clean compute cloud provider for AI workloads.
• They partner with Nvidia and run on wasted, stranded, or clean energy.
• Crusoe's data centers are located at energy sources, reducing costs and benefiting the environment.

"Crusoe's data centers are nothing but racks and racks of a Crusoe's cloud is purpose built for AI and run on wasted, stranded or clean energy."

This quote explains Crusoe's business model, which leverages unused energy to power data centers for AI, providing cost benefits and environmental advantages.