Hipmunk on the Make: The First-Birthday Interview

8/22/11Follow @wroush

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call it done. We can’t do them all together, because we have a really small, nimble development team. The flights website was written by me and Steve. Our hotels project was written by two people. Our iPhone app was written by one guy and the iPad app was written by the same guy. That’s the core of what has allowed us to go so quickly while maintaining design quality—we don’t want to be distracted until we’re sure we can afford it.

X: What is the key to profitability in the travel search business? Is it simply a matter of acquiring as many users as you can? Or do you need to keep branching out into more products with higher commission rates?

AG: You can do it in either of those ways, but it’s easiest if you’ve got scale. It’s extraordinarily difficult to make a profit based just on selling flights. There are companies that have done it, but only by capturing five percent or more of the total U.S. flight market. So if you are hoping to make it without having to raise $100 million and blast out to TV sets across the country, like Kayak, then you have to have some mix of flights and hotels. Cars are nice, but not mandatory. There are fixed costs and variable costs with all of this—the more searches people do, the more money you are paying [for data]. So there is a hump you have to get over to reach profitability, but once you are there you become increasingly profitable with each additional user.

X: So, how do you acquire users without spending $100 million on TV advertising?

AG: That is what I think about all the time, really. It is the question on my mind more than any other one: In this age of the Internet and especially mobile devices, what combination of factors does it take to get broad adoption without having to pay multiple dollars per person to acquire users? Generally speaking, the solution we have worked off of is just word of mouth, but given social media there is a certain speed at which word of mouth is possible. On the one hand have a lot more things vying for people’s attention, and on the other hand you have a lot more sharing. It’s not clear to me which is the more powerful force. But our company is a bet that the power of word of mouth and free products will end up mitigating the need for some of the more expensive techniques.

X: You’ve got the same basic flight and hotel data as everyone else; my sense is that it’s the user experience and the design sensibility that sets Hipmunk apart. Agreed?

AG: All of the companies in online travel right now are essentially glorified marketing companies. The reason is that they are providing, essentially, a commoditized product. You are not going to find meaningfully different prices or experiences on most of them. So the only way they can really grow is by stealing market share from other players, and the way they do that is by yelling louder in more places. If you spend too much time in that mindset, I think you lose creativity. You start to think of our business not in terms of the products you’re building, but the way you’re acquiring users. Our goal, as we grow and start to think about some of these large-scale customer acquisition challenges, is to not become the kind of travel company that most others have become, obsessed with obtaining every last cent and diverting creativity from product into acquisition. That’s the reason we have been able to find success so far.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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