How They Started Read online

  “After the first month they were sold—10 percent of the people who saw the Expedia links advertised were clicking through, when at the time click-through rates averaged about a quarter of a percent to half a percent. They started off paying us $10,000 a month, then $20,000, and soon enough we were into hundreds of thousands each month. We’d found ourselves a profitable business model and went from no revenue to breakeven within four months.”

  “When we first started out, we’d never intended to appeal to the end user, but instead planned on selling our content to travel companies. When we realized our test site was getting 5,000 hits a day without any effort on our part, we started looking into ways we could monetize this traffic.”

  It was perfect. But as even Stephen admits, while the company was now on the right course, it didn’t yet appreciate how valuable its user reviews really were. “People told us that they loved the information they found on TripAdvisor and that they’d like to post their own comments. So we added a ‘write a review’ button,” he says.

  As this functionality was introduced, the number of reviews grew tenfold. But in what he now admits was an error, Stephen didn’t foresee the full potential of these “user reviews” and buried its user-generated content at the bottom of its pages, beneath links to reviews by outside organizations.

  Banking on users

  Luckily someone noticed the traffic patterns among the site’s visitors, and the trend was clear: the majority were ignoring the outside links and going straight to the database of user reviews.

  In March 2002, TripAdvisor turned a $70,000 profit, and from that point Stephen began thinking about the company with a view toward global expansion, he says. TripAdvisor began expanding its existing content into Spanish, German and Italian to find new audiences—and today it offers content for users in 15 different languages.

  But as TripAdvisor grew into a top online destination for honest user reviews, it also experienced the first significant challenges to its commercial growth. As greater numbers of disappointed travelers felt free to post their comments, a number of hotel and restaurant owners became annoyed by the open forum TripAdvisor was providing.

  “We’d found ourselves a profitable business model and went from no revenue to breakeven within four months.”

  Again, this was still in the pre-Web 2.0 days of the early 2000s, and the blogs and social media we now take for granted weren’t yet around. A site like TripAdvisor, which was one of the first truly global forums for sharing opinions, was liberating for its users, but a cold shower for those in the hospitality industry.

  Stephen’s belief in sharing honest opinions works both ways, however: “Our policy is, the customer stayed there, so they get a chance to voice their opinion. But that’s why we have always offered the management a response capability, so they can tell their side of the story.”

  What’s more, the company claims that reviews are systematically screened by TripAdvisor’s proprietary site tools, which are regularly upgraded. And the site’s community of (now) more than 60 million monthly visitors also helps report any suspicious content, while a team of quality assurance specialists investigates suspicious reviews.

  A screenshot of TripAdvisor’s website today.

  What’s happened, Stephen says, is that the growth of TripAdvisor’s user reviews and online visibility has motivated the travel industry to up its game. Hotels, restaurants and other services have increased their quality, and in a Darwinian sense, the best businesses in the hospitality industry have thrived.

  “I still meet hotel owners who don’t like to shake hands with me because I’ve hurt their business, but far more often I get people thanking me for helping their brand shine,” Stephen has said.

  Though he knew he had an innovative idea, Stephen admits the timing of TripAdvisor’s launch proved to be another significant obstacle. By the time TripAdvisor arrived in 2000, the dot-com bubble was bursting and plenty of free-spending Internet firms had either gone bust or were well on their way. What’s more, investors were growing cautious of handing money over to yet another startup.

  “In our early days, we cut costs wherever we could—my wife owned a small software company that gave TripAdvisor free rent, equipment and supplies in our first year,” Stephen says. “Our office was little more than an attic over a pizza shop, but it was free and it worked. We eventually got too big for this space—it comfortably fit eight people and we moved out when we hit 15—but even then we were careful to keep our overhead low. This was in the dot-com days, and even though it was commonplace to spend freely, we never did anything lavish.”

  Making friends the world over

  “The company I started out of university was originally self-funded, and although this worked out well, I only briefly considered replicating that strategy with TripAdvisor,” he adds. “By this time I had more responsibilities and a family to support, so we chose to raise money rather than self-fund. We went through three rounds of investment, raising $1.2 million in February 2000, another $2 million that summer, and a final round toward the end of 2001, which was around the same time the business really started to take off.”

  And when the company took off, it soared into uncharted territory for its time. There has always been a wealth of travel information out there, but before TripAdvisor it was difficult to find the most relevant information for one’s needs. What Stephen had done was set a successful model for many other industries beyond travel and hospitality.

  “I still meet hotel owners who don’t like to shake hands with me because I’ve hurt their business, but far more often I get people thanking me for helping their brand shine.”

  “We looked at all kinds of published travel information in newspapers, guidebooks and magazines,” Stephen recalls. “We had staff members who read every single one of these articles, then tagged and indexed them in a way that was easily searchable, providing an incredibly relevant and thorough database that allowed users to search for, and immediately find, only what they were looking for.

  “Over time, the focus of our content changed—eventually our travel editorial content was dwarfed by our user review content and users discovered how useful the ‘wisdom of the crowds’ could be in their holiday planning. Instead of listening to one source—a guidebook or an article that may be two years old—they could read 20 reviews, all posted in the last three weeks. It’s fresher information that tends to be more detailed and, for many people, more reliable.”

  It’s this combination of fresh content and targeted advertising that has given the company its incredible run over the past 10 years. TripAdvisor’s traffic grew steadily and the company expanded its client set beyond Expedia.com to Hotels.com, Travelocity.com, Orbitz.com and many others.

  What’s more, as TripAdvisor expanded into new markets, the company that was once just weeks from going bust was suddenly attractive to potential buyers. In 2004, InterActive Corporation acquired the company and made it a unit of Seattle-based Expedia, which was TripAdvisor’s first client. Under terms of the deal, TripAdvisor was allowed to operate almost autonomously, with Stephen still at the helm.

  Where are they now?

  TripAdvisor grew from a tiny startup in a cramped office with a test site that saw 5,000 visitors a day, into what is now the world’s largest travel website in over 30 countries with over 50 million visitors a month reading reviews in 21 languages. What’s more, its founder still guides the ship as CEO, which is something of a rarity in these days when CEOs leave a year or two after a company has been acquired.

  As the 2000s advanced, TripAdvisor itself embarked on an ambitious plan of acquisition. In May 2007 it acquired Smarter Travel Media, operator of SmarterTravel.com, as well as BookingBuddy.com, SeatGuru.com, TravelPod.com, Travel-Library.com and The Independent Traveler Inc., publisher of Cruise Critic and IndependentTraveler.com. The next year TripAdvisor acquired UK-based user-generated travel site Holiday Watchdog.com, along with Virtualtourist.com, travel comparison site OneTime.com
and a majority stake in vacation rental site FlipKey.com.

  In 2009, the company purchased Kuxun.cn, China’s second-largest consumer travel site and hotel and flight search engine. Finally, in 2010, TripAdvisor acquired the UK’s largest independent vacation rental website, Holidaylettings.co.uk.

  In recent years, Stephen says, the company has expanded its focus to providing new mobile products, and travelers can now access TripAdvisor’s more than 60 million reviews and opinions via smartphones and tablets. The company’s apps now have over 10 million downloads and are available in 20 languages, and its iPad app has reached number one among Apple’s free travel apps in 85 countries.

  In April 2011, it was announced that TripAdvisor would be spun off from Expedia as an independent company operating its brand of travel sites. Finally, later in 2011, it was revealed that TripAdvisor would go public, with the IPO valued at approximately $4 billion. On December 21, 2011, the company officially went public and became an independent company listed on the NASDAQ and a member of the S&P 500.

  These days the company boasts 530 employees, around 300 of whom are based in Newton, Massachusetts, where the company was founded, with 70 more employees based in its London office, its second largest, and others in scattered locations. Its portfolio of websites contains listings and reviews of 400,000 hotels and 500,000 restaurants across 70,000 cities worldwide, and in the travel sector its Web traffic is rivaled only by Expedia.

  At the time of writing, more than 250 companies have entered into an agreement to feature TripAdvisor content, says Stephen, including destination-marketing organizations, airlines, hotel chains and online travel agencies. More than 150 million people view TripAdvisor ratings, reviews and opinions on sites other than TripAdvisor each month.

  Zynga

  Creating Internet treasure

  Founders: Mark Pincus (shown) (founding team: Eric Schiermeyer, Justin Waldron, Michael Luxton, Steve Schoettler and Andrew Trader)

  Age of founder: 41

  Background: Three previous startups: FreeLoader, Support.com and Tribe.net

  Founded in:  2007

  Headquarters: San Francisco, California

  Business type: Online social gaming

  Few startups are valued at $3 billion two years after they open the doors. But that’s what happened at social gaming company Zynga. The company’s seeming overnight success was possible in part because its founder made his mistakes at earlier startups, before coming up with an idea that would transform the gaming industry.

  Portrait of a serial entrepreneur

  From early on, Mark Pincus set his sights on business success. The Chicago native graduated in 1988 from the University of Pennsylvania’s Wharton business school, and followed this with a Harvard MBA in 1993. In between, he had a fitful career in finance, going through four jobs in five years.

  Employers included investment firm Lazard Freres, consultancy Bain & Company, and Tele-Communications Inc. (now AT&T Capital), where he worked under telecom legend John Malone. Mark recalls he was asked to leave his Bain internship midway through the summer.

  “I realized I didn’t have a career working in anyone else’s company,” Mark recalled at the entrepreneur event VatorSplash in 2009.

  In 1995, he started FreeLoader, a push-technology news service that delivered customer-selected feeds. His co-founder was Sunil Paul, a technology developer who left $1 million in unvested stock options on the table at his former employer, America Online. Thanks in part to a media blitz Mark orchestrated, FreeLoader quickly became well known.

  Sunil’s gamble paid off: in less than a year, the company was acquired for $38 million. Buyer Individual Inc. had initially offered $25 million, but Mark had turned it down.

  While the financial windfall was incredible, Mark regretted that his short FreeLoader ownership didn’t let him figure out the company’s true goals. He also had the unhappy experience of working briefly for Individual after the sale. The new owner quickly lost interest and shut down FreeLoader in 1997.

  “I realized I didn’t have a career working in anyone else’s company,” Mark recalled at the entrepreneur event VatorSplash in 2009.

  Later the same year, together with Stanford grads Cadir Lee and Scott Dale, Mark founded Support.com, which offered computer tech support. Support.com went public at the height of the dot-com boom in 2000 and was renamed SupportSoft Inc.

  The problem? Mark wasn’t interested in tech support. And once again, he had lost control, retaining just 15 percent ownership after the IPO. At VatorSplash, he described Support.com’s founding as almost accidental: “Before I knew it, I was the CEO of a large, boring tech-support company.”

  Breaking away in early 2003, Mark co-founded Tribe Networks Inc., one of the first social media platforms. Tribe was enabled by a key patent for social network technology, purchased for $700,000 jointly by Mark and Reid Hoffman, founder of LinkedIn. But the platform didn’t catch on. In March 2007, Tribe was sold to an unlikely partner: telecom/networking giant Cisco Systems Inc. Mark and co-founder Paul Martino ended up getting fired from their own startup, recalls Paul, who later became managing partner at investment firm Bullpen Capital.

  After Tribe, Mark later recalled, “I stepped back and was more thoughtful. I was around 40. I realized I wanted to start a consumer Internet service that would be around for a long time, and that really mattered. I set my goals high and really wanted to start a company that would be profitable early and not controlled by investors.”

  Ironically, both those goals would prove challenging in his next venture. Though Mark had publicly derided other companies that took too much money from investors, his next startup would raise more venture capital than almost any other—a cool $1 billion.

  Game on

  Searching for the next big consumer Internet idea, Mark was drawn to the world of online gaming. People were playing games online in 2006, especially casino games such as poker. But they could play only against the computer or unidentified individuals.

  At the time, Facebook had 50 million members. Mark observed that the most common activity on Facebook was viewing friends’ photos. Beyond that and writing updates, there wasn’t much to do. To address the problem, Facebook opened up its site to outside developers in 2007, so that new programs could be designed for the platform.

  Mark saw his opportunity. His new startup’s software would let users play against their Facebook friends. While most social networks aimed to help people make new connections online, his would offer a new way to connect with people you already knew.

  The initial goal was to create and launch one social game. Mark decided it would be easier and faster to create a socialized version of a poker game than to create a new game from scratch. It would also be easier to get Facebook users to try a variation on a familiar game. This would turn out to be a canny move; while competitors slaved to create custom games, Mark’s startup would be early out of the gate.

  A non-techie himself, Mark began tapping his extensive professional network to find experienced programmers who could create and operate the game. Paul recalls Mark asking him and another Tribe co-founder, Chris Law, to meet him for lunch at a San Francisco coffee shop to discuss his start-up plans.

  While Paul and Chris awaited Mark’s arrival, a horrific car crash took place outside. Paul rushed out to find Mark emerging from a totaled BMW he’d been test-driving. The salesman screamed at the other vehicle’s driver, who had run a red light. But Mark strolled into the restaurant clad in his usual work attire—a hoodie and jeans—and sat down as if nothing had happened.

  “He was literally almost killed,” Paul recalls. “I say, ‘Do you want to go to the hospital?’ and he says, ‘No, I want to tell you about this start-up idea I have. Could you hire me a dude to write a poker app?’”

  Paul and Chris loved Mark’s social game idea. Chris had done research at Tribe on Korean social network sites that sold virtual “gifts” users could give to friends. Mark’s social games w
ould offer a platform for selling such virtual goods.

  Another new wrinkle: unlike traditional online and console games, where players paid to purchase a game, these games would be free. Only players who chose to purchase upgrades or virtual items would pay.

  The initial goal was to create and launch one social game. Mark decided it would be easier and faster to create a socialized version of a poker game than create a new game from scratch. This would turn out to be a canny move.

  At first, Mark funded the new venture himself. The founding team consisted of Eric Schiermeyer, Michael Luxton, Steve Schoettler, Andrew Trader, and Justin Waldron. Nineteen-year-old Justin was a computer science student at the University of Connecticut, whom Eric recruited to serve as lead engineer.

  Michael and Eric came from eUniverse (now Intermix Media). Andrew had been the CEO of Utah Street Networks, which operated Tribe.net. Server engineer Steve had worked with Mark on a short-lived project after Tribe sold. Other key early hires were Mark’s co-founders from Support.com, Scott Dale and Cadir Lee, as well as Kyle Stewart, another Support.com veteran.

  On Skype … and in a garage

  In June 2007, work began on Texas HoldEm Poker (later known as Zynga Poker). The team worked remotely for several months, staying in touch via Skype and AOL Instant Messenger. Justin was on summer vacation from college and living in Connecticut, while Mark and the rest of the team were scattered in various California locales. Steve was working out of a converted-garage home office in Menlo Park, and sometimes Michael—who lived in nearby Sunnyvale—would join him there. But for the most part, it was a virtual team.

  Zynga’s Texas HoldEm was launched on Facebook that fall. Facebook users took to the game quickly. Paul recalls that within a few months Mark told him Zynga was pulling in $1 million monthly. A key innovative feature of the game platform was a “social bar” that showed users what other games their friends played.