TripAdvisor: How the Boston-Based Juggernaut Disrupts the Travel Landscape
“TripAdvisor is to travel as Google is to search, as Amazon is to books, as Uber is to cabs.” Actually, there is almost no one who is yet to hear about TripAdvisor – the ultimate travel planner, with millions of travel recommendations and reviews from travelers on must-do experiences and a plethora of vacation hidden gems. Founded in 2000 by Stephen Kaufer and Langley Steinert, the Boston-based company is now the world's largest travel platform, turning an initial investment of $3m into a billion-dollar business by figuring out how to provide a service that no other tech company has quite mastered: constantly updated information about every imaginable element of travel, courtesy of an ever-growing army of contributors who “provide their services” for free.
Having risen to such prominence, TripAdvisor – just like numerous behemoths within other spheres – “boasts” a relatively rough growth trajectory. Let’s read on to uncover!
Winning Pivots from The Early Days
Founded the Harvard graduate Stephen Kaufer and Langley Steinert, TripAdvisor has its entrepreneurial journey start in 2000 – six years after Amazon, four years before Facebook and Yelp.
At that time, consumer reviews were still considered a risky endeavor for businesses, if not to say a losing bet. And the most outstanding example of that hard truth was Amazon – the tech giant first allowed customers to post reviews in 1995, which soon turned out to be a controversial move that some critics derided as “retail suicide”. As a result, in its early days, TripAdvisor did so as a simple aggregator of guidebook reviews and other established sources, keeping its distance from the unpredictable world of crowd-sourced content.
"We started as a site where we were focused more on those official words from guidebooks or newspapers or magazines. We also had a button in the very beginning that said, 'Visitors add your own review', and boy, did that just take off," shared Kaufer, stressing that his original idea was not a user-generated social media review site. In other words, Kaufer envisaged TripAdvisor as an “impartial referee”, offering “reviews you can trust” - one of its former taglines promised.
Notwithstanding that, as an experiment, in February 2001, he and his partners pivoted a way for consumers to post their own reviews. The first-ever review was one by the Captain’s House Inn, on Cape Cod, which received four “bubbles” – TripAdvisor’s measure to evaluate companies. Before long, the TripAdvisor co-founder and CEO noticed that more and more users were gravitating away from expert opinion and towards the crowdsourced reviews. On such ground, Stephen Kaufer made an abrupt yet wise move to abandon his original concept and start focusing exclusively on collecting original consumer input.
In founding TripAdvisor, Kaufer desired to take his hard-core engineering skills and apply them to vertical search in travel. That is, to establish a massive database of travel information that offered a white label search engine for travel sites like Expedia and Travelocity. Big Data meets travel…in 2000.
Unfortunately, after a year and a half, TripAdvisor had no clients, no revenue and as a result, the business was running out of money. After that, the September 11 attacks hit and the travel industry was decimated, which made Kaufer despair that his fledging start-up would go under.
Fortunately, on the side, the business had built up TripAdvisor.com as a demo site to demonstrate its prospective clients what a vertical search engine could do. Seeing TripAdvisor.com starting to pick up traffic, Kaufer decided to pursue an online advertising-based business model with banner ads. “Going B2C was daunting and not in our core DNA,” Kaufer remarked. Though, testing hypotheses was very much in the company’s DNA, as well as evaluating data to learn and adjust.
After a few weeks of watching no click-throughs, the CEO executed his second pivot: a cost-per-click model, better known as CPC. From late 2001, every time a visitor clicked on a link to a given hotel or restaurant, TripAdvisor would charge the business a small fee for the referral. Suddenly, everything began to literally “click”. Three months into launching the new model, TripAdvisor was yielding notably $70,000 a month, and in March 2002, it achieved breakeven.
“I think they call it a pivot now,” Kaufer stated, recalling those old days. “I called it running for my life back then.”
Non-Stop Success of TripAdvisor As the Industry Disruptor
The company has grown profitably ever since. Kaufer originally hired editors to comb the Web for great travel articles and links to them, which then empowered users to post their own reviews on the site as a whim as well as focused on fresh and authentic content.
By 2004, TripAdvisor boasted 5 million unique monthly visitors. That year, the company agreed to be acquired by the online travel company Expedia/InterActiveCorp (IAC) in 2004 for $210 million in cash, a huge win for all, particularly given their amazing capital efficiency: they had only raised $4 million in venture capital. Yet, Kaufer eventually regretted selling out so early on. “In hindsight, this was the stupidest move I ever made!”
Under Expedia, TripAdvisor continued to flourish and grow – they would feature Expedia’s ads on their site and reap the revenue benefit when users clicked on those ads. Expanding from New Jersey to New Delhi, TripAdvisor had 26 million monthly unique visitors and a yearly profit of $129m by 2008. Two years later, it became the largest travel site in the world.
To cement its dominance, the Boston-based travel behemoth began buying up smaller companies that operated on particular elements of travel. Until mid-2018, TripAdvisor owned totally 28 separate entities that together encompassed every single imaginable element of the travel experience – not only where to stay and what to do, but also what to bring, how to get there, when to go, and whom you might meet along the way.
Faced with fierce competition from TripAdvisor, a handful of traditional “guidebook” companies have struggled to keep up. In 2016, Fodor’s, one of the most established American travel guide companies, was finally acquired by a company called Internet Brands.
As time passed, the world of hoteliers largely accepted that TripAdvisor was unlikely to go away, even as they watched it turn their industry upside down. As shared by Peter Ducker FIH, Chief Executive of the Institute of Hospitality, “The online world has changed pretty much every industry, but hospitality beyond recognition. For a long time when TripAdvisor first came out, hoteliers didn’t like it. We didn’t want to air our dirty laundry in public.” Now, though, “hotels have learned that it’s not going away, so get over it, and that you can use it to your advantage … They use good TripAdvisor ratings in their marketing materials, because to a lot of the public, that means more than a star rating, more than a government accreditation. It transcends borders.”
The Advent of Challenges at TripAdvisor’s Peak of Success
By 2011, TripAdvisor was attracting a whoppingly 50 million visitors on a monthly visit. The business rose to such prominence that Expedia felt it wasn’t getting full economic credit for TripAdvisor buried within its financials and so spun TripAdvisor out as a separate, publicly-traded entity.
Its IPO was valued at $4bn, yet in December, on the first day of trading, shares fell. After all, TripAdvisor was in new and uncertain territory, and no one knew how the company would fare on its own. Whilst TripAdvisor had undoubtedly become a tech giant, its leadership did not quite realize that yet.
In 2012, the media behemoth Liberty Interactive purchased approximately $300m in TripAdvisor shares. At that time, TripAdvisor had become a well-established leader within the travel landscape, an inevitable part of even the most cursory vacation planning. As the business strived to “brighten” its public profile, its audience base impressively grew, yet so did the pressure to earn a profit.
“When platforms start to commercialize, it changes the DNA,” stated Rachel Botsman, a lecturer at Oxford University’s Saïd Business School who has chronicled the rise of the reputation economy. “When that happens, it’s a problem.” And that thing actually happened in case of TripAdvisor, in which many of the website’s most loyal users feel most aggrieved by the way the site has changed.
“It’s not quite as … community-friendly now as it used to be. In the early days, the active users were very much enthusiasts,” he told me. “It’s become a bit more impersonal in recent years,” shared Brad Reynolds, one of the most active reviewers and “Destination Experts”.
In 2015, as TripAdvisor initiated a program so-called “TripCollective Member Recognition”, awarding Boy Scout-style symbols to users for the number, diversity and popularity of their posts, the forums revolted, criticizing the new system was patronizing. Disgruntlement with the symbols bled into an anxious discussion about the proliferation of fake reviews, and whether the site was losing its DNA.
By the time TripAdvisor floated, the fake review market had started to explode. “Throughout history, nothing has changed – reputation has always been faked, bought, amplified, inflated,” stated Botsman. “On TripAdvisor, this is happening on a scale that we’ve never really seen before.”
Though large-scale companies, such as Amazon and TripAdvisor, fortunately, had fraud-detection measures in place, fake review companies quickly learned to work around them. Until 2011, the UK’s Advertising Standards Authority performed an investigation into TripAdvisor, and eventually ordered it "not to claim or imply that all the reviews that appeared on the website were from real travelers, or were honest, real or trusted". Accordingly, the company changed its motto from “Reviews You Can Trust” to “Know better. Book better. Go better.”
These days, at any given time, several hundred TripAdvisor employees are working on content moderation, around a third of those in fraud detection. “Generally, people who post fake reviews do it with a motivation in mind, to move the ranking up or down,” said James Kay, TripAdvisor’s senior media relations manager. “In the last three years we’ve shut down 60 companies selling reviews, and there are many more that we’re well aware of.” From 2015 to 2017, more than 2,000 reviews were removed from the TripAdvisor site as a result of harassment by business owners, according to Kevin Carter, TripAdvisor’s associate director of corporate communications.
Yet although TripAdvisor fought to keep legitimate reviewers from being hounded into removing their posts by litigious owners, the company unavoidably struggled to come up with a coherent idea of which posts it was willing to defend. The company crafted a long list of rules on what speech was and was not allowed: “all posts must be unbiased, first-hand, recent, non-commercial and free of profanity and hate speech”, for instance. However, whereas those categories seemed relatively clear-cut on paper, they can be extremely ambiguous in practice.
“There’s no way to know how many negative reviews are withheld by TripAdvisor; how many true, terrifying experiences never get told; or for site users to know that much of what they see has been specifically selected and crafted to encourage them to spend,” wrote Raquel Rutledge, a journalist at the Milwaukee Journal Sentinel.
On 7 November, TripAdvisor’s market value crashed by staggeringly $1bn when its stock price dropped from $39 to $30 per share, its worst-ever day on the stock market.
TripAdvisor once claimed its commitment to deliver its users a kind of escape, whether that be simply daydreaming over a vacation or actually booking one. The Internet, too, had long been thought of as a place where one went to get away from where one was. Travel and tech had both been championed as sectors where the normal rules did not apply. Yet at a moment where such adages seemed horribly outdated, there emerged to be more uncertainties to TripAdvisor than what had been expected.
“My sense is that TripAdvisor, from a character perspective, is trying hard to do the right thing, but like all tech companies, they’re at the very first stages of the governance of how these things work,” commented Rupert Younger, director of the Oxford University Centre for Corporate Reputation. “They didn’t construct these sites thinking they’d be catering to half a billion people.”
Resilience Amidst Crisis
Whilst those bad scandals undoubtedly tarnished its reputation, the number of reviews on TripAdvisor has kept growing. In 2018, more than 200 new posts were uploaded to TripAdvisor every minute. “We hear from time to time, like, ‘Don’t you have enough?’” stated Bradford Young, Vice President and Associate General Counsel at TripAdvisor. “There’s never enough. You want one from yesterday, not from last week, not from last month, not from last year.” Since its crisis at the end of 2017, TripAdvisor’s stock has recovered, nearly doubling in value from the low point in November.
Then came the year 2020, which witnessed the unprecedented advent of the “black swan” COVID-19 pandemic. As states and countries were on lockdown to contain the coronavirus spread, TripAdvisor stock understandably suffered.
Whereas every single corner of the economic sphere wreaks havoc, the travel industry has been the worst hit during the coronavirus pandemic. For TripAdvisor, a business that already struggled with declining core hotel revenues, the coronavirus outbreak was yet another headwind.
In Q1 2020, the Boston-based travel giant’s revenue fell 26% year-over-year, which was led by a 33% decline in Hotels, Media & Platform revenue, partially offset by 4% growth in the Experiences segment. Its business performance remained poor until Q3 when TripAdvisor saw demand rebound – though the numbers were still far below 2019 levels. The company’s revenue grew nearly 150% from only $59 million in Q2 2020 to $151 million in Q3 2020. Yet, the revenues were still down 65% from year-ago quarter levels.
What should also be noted is that monthly unique users on TripAdvisor websites grew from only 33% in 2020 April to 74% in 2020 September of the prior year’s comparable periods. Traffic trends on its websites improved since the onset of the pandemic, indicating that consumers were rather interested to travel yet still hesitant to book their plans.
Then, vaccines were invented and have obviously changed the course of the pandemic, hence, the travel scene picks up in the following year. Whereas TripAdvisor’s revenues declined drastically by 60% year-over-year in fiscal 2020, the online travel booking site enjoyed a very strong upside once the Covid-19 fear abates.
The Bottom Line
Having grown into the world's largest travel platform under the leadership of the award-winning and Harvard graduate Stephen Kaufer, TripAdvisor is more of a classic consumer Internet success story. In promising a faithful portrait of the world, TripAdvisor has, like other tech giants, has found itself in the unhappy position of becoming an arbiter of truth, especially upon the rise of fake reviews. Whilst those reviews remain an existential threat, the post-COVID-19 era remains vague and the competitive travel landscape remains uncertain, there is every likelihood that this Boston-based travel juggernaut brings home the bacon and turns the industry upside down – once again.
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