Interview: Expedia’s CEO on the travel giant’s first 20 years, and what’s next

Our guest this week on the GeekWire radio show and podcast is Dara Khosrowshahi, the CEO of Expedia Inc., the travel industry giant that owns brands including Orbitz, Travelocity, Trivago, Hotels.com, Hotwire and many others, including Expedia.com.

We spoke with Khosrowshahi at Expedia headquarters in Bellevue, Wash., where employees on Wednesday marked the 20th anniversary of the company’s founding as a small division inside Microsoft. Two decades later, Expedia has more than 18,000 employees and $6.6 billion in annual revenue, and it continues to grow through an ambitious series of acquisitions.

Listen to the show below, continue reading for an edited transcript and check out video of the interview below.

TB: Tell us about Expedia at this moment in its life. Where are you in your evolution and what’s next on the horizon?

Khosrowshahi: Well, the evolution of Expedia, over the past 20 years, certainly has not been a smooth one. We had a town hall with our employees and talked about where we are now and it’s a good place. We do over $60 billion in gross bookings. We’re the world’s largest travel company. But it hasn’t all been up and to the right for Expedia. Obviously, the founding years, the early years, were great years. There were a number of visionaries who wanted bring travel booking online and it was a theory, at the time, but, boy, has that theory turned into reality. About 11, 10 years ago the competition in the field really increased. Suppliers started getting their act together online, became much more sophisticated, and our technology stacks suffered from the years and years of super growth, where we got slower. We weren’t innovating as much as we needed to.

That brought us through a transitional period where we doubled down on our technology investment, reinvested, refactored all of the back-end that runs the company now, and really led to a period of renewed growth now. So the business is accelerating, as far as its growth rates go, we are increasingly global as a company, and more recently we’ve added a number of top brands to our family, which has been great.

PREVIOUSLY: Expedia at 20: Top execs reflect on past challenges, acquisitions, and the journey ahead

TB: We’ve been talking with Expedia executives here and they all cite the technology transformation inside the company as the thing that really laid the foundation for the acquisitions that you’ve made, and the growth that you’ve had, because you were able to apply those lessons to other companies that you were buying that might not have learned them on their own.

Khosrowshahi: Absolutely.

TB: You’ve bought so many companies though.

Khosrowshahi: We’ve bought a lot.

TB: You have. Are you done or do you have more in you? More acquisitions.

Khosrowshahi: Well, we’re never done. I would say that we’re done for now. There’s a bunch of work that we’re doing with Orbitz, with HomeAway, etc., so I think that this year we’re going to be much more focused on organic internal growth, but when you look at a 10 or 20-year runway, and that’s certainly the runway that we’re looking at, and you look at the travel industry, which is a $1.4 trillion industry, there are going to be new players, there are going to be great new brands, and there are going to be great ideas. Some of them are going to be ours and when some of them aren’t ours, we’ll look to buy them in and add them to the family.

JC: One of the big bets was HomeAway, obviously, which we’ve talked about and we’ve written a lot about on GeekWire. That was a big acquisition, a big bet.

Khosrowshahi: Our largest one to date I think.

JC: That’s right. So, what gives you the confidence that you’re going to be able to consume that big brand and incorporate that into the Expedia ecosystem, versus maybe some of the smaller deals.

Khosrowshahi: Sure, I think with HomeAway, we’re really not going to consume that brand. HomeAway is going to continue to be a very independent entity in Austin, Texas, and really what we’re interested in, with HomeAway, is two things. One is, it’s a terrific brand that has been much more advertising-related. Their business has been about listings and advertising, and we think that we can help them move from an advertising model to a transactional model, which is ultimately where travelers want to go. Second is, we love their inventory, this alternative lodging, as a category, is exploding. It is coming online, and we not only want it to come online for HomeAway, but also to be able to offer that product on Expedia, on Hotels.com. But, HomeAway is going to be run independently from Expedia or Hotels.com.

JC: Talk about that transition from a consumer standpoint, because this is a big deal, this traveling and lodging in general that now people aren’t necessarily just booking a vacation rental or hotel room. It’s this idea of renting a room in somebody’s home or basement, or lodge outside the back of the house, or wherever. Did that transition surprise you at all? Obviously you’ve now bought big into it so you’re a believer in it. Did that catch you by surprise at all?

Khosrowshahi: I think the growth of Airbnb has been pretty extraordinary and I think anyone who would say today, that, “Oh, we expected it,” would be lying, maybe other than Brian the founder of Airbnb. We are very much focused on alternative lodging as a category. Not so much as the sharing economy. We’re about people wanting to go on vacations, we’re not necessarily about couch surfing, but having whole homes available if you’re a family and you’re going to a resort destination, not just on HomeAway, but the rest of our brands, we think is a pretty extraordinary opportunity.

TB: Our colleague Monica Nickelsburg has talked with a bunch of HomeAway homeowners. They are not happy with you.

Khosrowshahi: Some of them aren’t.

TB: What would you say to folks who say you’re going away from a focus on them as the customers, the homeowners, to more of a transactional model that potentially leaves them behind.

Khosrowshahi: I think that, in the end, the consumer’s going to win on the Internet. The consumer has demonstrated over and over again that they want to see inventory live, they want to see great pictures, they want to see great reviews, and they want to book online. They’ve said it over and over again. This is a transition that can be painful for some, in the near term, but ultimately it’s about growing the business and growing the pie for our suppliers.

TB: Are you just trying to turn HomeAway into Airbnb?

Khosrowshahi: Well, HomeAway’s going to be different from Airbnb because it’s very different supply and I think the offerings are going to be different. Homeowners are going to be able to have request response. All of it won’t necessarily have to be immediately bookable, but what we are trying to do is help our supply partners and owners offer up a product that travelers love and some of that transition may be painful.

TB: For HomeAway itself, I know one of the goals is to ultimately incorporate that inventory into Expedia.com. How far away is that when I’ll be searching for a hotel on Expedia and I’ll see somebody’s house in the Berkshires?

Khosrowshahi: I think it will certainly happen within the next year and it will continue to progress from there. On Expedia, you have a “vacation rentals tab” now. It’ll go to HomeAway and, depending on the circumstance, we will show you HomeAway inventory based on the context of your search. An example might be, if you’re searching for a place in Boston and it’s mid-week and it’s one night, we know that you’re a business traveler. You probably want a hotel. But if you’re going to Boston for six days and it’s you and three kids and you’re staying over the weekend, that kind of a search is a search where we will look to display HomeAway inventory more aggressively because that context shows us that HomeAway inventory is going to be more helpful to that traveler.

JC: We haven’t talked much about airfare and air travel. I know that business has become kind of commoditized as the airlines have moved more into the business of transactions. Where do you see that shaking out, do you still view yourself as a competitor to the Alaska Airlines of the world and where is that headed?

Khosrowshahi: First of all, as far as competition goes, in this industry, everyone works together, everyone competes with each other. We do compete with Alaska Airlines for audience but we also are a huge, huge partner of their’s and we are booking millions and millions of Alaska Airlines tickets and there is this co-opetition within the field. We compete with Google for audience. At the same time, we are a huge advertising partner of Google. It’s a reality of e-commerce, it’s reality of the Internet, and it’s certainly a reality of this category in general. That’s not going to stop.

JC: It makes your business harder, though, as kind of an intermediary to some degree, because the airline can offer additional incentives or reasons why you would want to book directly through them, versus an Expedia. How are you trying to make sure that your offering is the most competitive and most interesting for the end consumer?

Khosrowshahi: Well, our offering is about breadth and depth. If you are an Alaska Airlines loyal customer, are you going to go to them? Sure, but there are lots and lots of people in the world who aren’t necessarily loyal customers of one airline or one hotel, and if you look at the millennial generation, they are much less brand-loyal than they used to be. We think that those users that are brand agnostic that want every single thing out there, all the choices out there, all the prices, are going to come to us. We think that’s been a good business and it’ll continue to be a good business going forward.

TB: Dara, you actually came to the United States as a 9-year-old. You were born in Tehran.

Khosrowshahi: Yes.

TB: And you have said, let me pull up the quote here, you said in 2010 that the U.S. is a welcoming place for people who did not grow up here. Is that still the case six years later?

Khosrowshahi: Well, it is depending on who becomes president here.

TB: That was the context for that question, in fact, yes.

Khosrowshahi: I think a lot of Americans don’t appreciate just what an incredible country this is, how lucky they are, how safe they are, how empowered they are. I think my background, coming from Iran, which is a great country but is going through its share of troubles, really allows me to appreciate what we have here. We’re pretty lucky and I hope we don’t mess it up.

JC: How has that experience, growing up in Iran and coming to the U.S., shaped, maybe, your leadership qualities as the CEO of a leading travel company?

Khosrowshahi: Well, I think it’s really important for us to be global in nature and to be open to diverse kinds of backgrounds and cultures. It’s important for us commercially because we want to expand outside the U.S. About two-thirds of our business is in the U.S., one-third of our business is international. We want to grow there, but it also allows us to attract a really diverse employee populace, and that is an incredibly important asset for us because we don’t own hotels. We don’t fly planes. The only assets we have are people and I think we’ve been able to attract a pretty diverse employee group and it really serves us.

TB: Has it, in addition to shaping your perspective as the leader of Expedia, has it shaped your perspective of the world, and in what way? To have made that transition, that was during the Iranian revolution, right?

Khosrowshahi: Yeah, sure. I think from a personal standpoint, maybe I appreciate a little more that there are two sides to every story and the way that the U.S. is sometimes is viewed outside of the U.S. can be pretty tough, depending on what the U.S.’s actions are. There’s a lot of distrust of the United States and I certainly see that. But, at the same time, everything I’ve seen is that the U.S. is a general force for good in the world.

TB: You’re obviously running the company as the CEO. The executive chairman of the company, Barry Diller, he’s actually here today, to cut the cake. How often do you talk with him? What’s his level of involvement within the company? Give us a sense for how Mr. Diller is engaged with Expedia.

Khosrowshahi: I’ve worked with Barry for over 15 years and we’ve got a great relationship. He is always available on email. I can call him anytime and he’s genuinely interested in the company. One, because it’s just a cool company doing great things, but Barry loves travel. He is one of the best travel people that I know, he is absolutely passionate about it. He loves the area in which we play. On a formal basis, we have meeting with him every week — myself, Mark our CFO, and our general council. We go through with Barry the strategic topics, what’s going on with the business. He’s very engaged in the mergers and acquisitions activity that you remarked on earlier. He’s been an incredible value-creator in the deal area, and in general, he really helps us shape the strategy of the company going forward.

PREVIOUSLY: Exclusive: Barry Diller on his Expedia investment, travel acquisitions and the promise of AI

TB: Boy, if you’re going to have somebody in your corner for M&A — mergers and acquisitions — I can think of no one better.

Khosrowshahi: It’s awesome. It’s awesome and then the other perspective that Barry brings really is a view of the long-term. As a public company now, there is so much pressure on the short-term and on quarterly earnings and you see these hedge funds come in who try to get you to not invest for the long-term, etc. Barry is a controlling shareholder of this company and allows us to make some long-term bets that some other public companies couldn’t and it’s really served us over the years.

JC: We’re here on the 20th anniversary. I think a lot of people forget that Expedia actually started within Microsoft, which is pretty amazing. It’s probably the most successful spin-out ever in Microsoft’s history. How much of that Microsoft DNA is still left in the company, if any?

Khosrowshahi: I think there absolutely is this techie, curious, questioning, not accepting the status quo, DNA in Expedia and it did come did come from Microsoft. Microsoft, they’re going through an interesting journey and it hasn’t all been up and to the right for them. We have turned some of that core DNA into a bunch of new technology and innovation that we have driven and we’ve thrived on, so while it’s not all Microsoft, that Microsoft core of technology making the world a better place and tech empowerment has absolutely been a great thing for us.

JC: What would you say is the unique Expedia cultural DNA that’s maybe grown up on its own?

Khosrowshahi: I think the unique DNA is how global we are and how open we are to diverse ways and manners of doing things. Companies sometimes talk about corporate culture, and what you’re like, and there’s a certain way of doing things at a company. Our top culture norm, the number one is we believe in being different. This is a place that you can come to and you don’t need to look like me, you don’t need to act like me, you don’t need to have my personality, and you can be yourself and you can succeed here. I think it comes from a place that believes in travel and travel is about bringing lots and lots of different people together, different cultures, different belief sets, and I think that comes to the core of what Expedia is, as a place.

TB: I think there’s a perception out there in the industry perhaps that it’s now Expedia and Priceline and everybody else, or no one else. Is that true?

JC: It’s a duopoly.

Khosrowshahi: No, there’s so much competition in the marketplace. Now Priceline is our toughest competitor. Great company, grown really fast, and that competition has made us better, but to the earlier point with airlines, we compete with Google for audience. Google has a great travel product. We work with TripAdvisor, yet compete with TripAdvisor, for audience as well. The suppliers themselves usually get a majority of their booking direct. This is just such a huge market. While ourselves and Priceline are the two biggest intermediaries, there’s still so many ways that travelers can book travel that we really have to be on our toes.

JC: What do they do really well that you wish you could incorporate into Expedia?

Khosrowshahi: This is Priceline?

JC: Yeah.

Khosrowshahi: I think they’re more global than we are. They bought a company called Booking.com fifteen years ago, one of the great acquisitions on the Internet.

JC: They’ve also got a big presence here in the Seattle area.

Khosrowshahi: They’ve come to the U.S. and that company was born out of Amsterdam. They built themselves to be very global from the ground up and that global approach first is something that we are trying to build at Expedia and I think we’re doing a good job, but I think we can be better tomorrow.

TB: Appreciate you letting us crash your conference room. This home, though, is not going to be your home for too much longer. In 2019, in a few years, you’ll be moving the Seattle waterfront. I was just riding my bike by your future waterfront home.

Khosrowshahi: It’s awesome.

TB: It is probably the best corporate location in the city, without question, possibly in the region. I mean, you’ve got the Boeing 737s going by on the trains, you’ve got the cruise ship terminal, it’s right on the water, I can’t imagine a better setting.

Khosrowshahi: On a day like this, Rainier looks amazing.

TB: Space Needle completes everything. It’s picturesque. It’s a postcard. How’s that going to change your culture, moving to that place? Because it’s not just pretty, it’s kind of a pain in the butt to get to.

Khosrowshahi: It is a pain in the butt to get to today. We want to fix that, hopefully, but like you said there’s just nothing like it. We were looking. Our lease here was up in 2018-19 and we were thinking about where we’re going to go and we just happened upon that space and it’s 40 acres and it’s on the waterfront. It’s got epic views of Seattle and Rainier, etc. We thought, “We have to have this and we can build an amazing, forever headquarters for this company within Seattle. There are problems as far as transportation go. The local authorities, the mayor’s office, etc., they are making investments to ease that and it’s in the interest of the whole city. We will be making investments in shuttles, etc., to ease the transportation pain for employees, but it’s something that we are keenly aware of. But we think, in the end, it’s going to be a win.

JC: So you’re going to start your own float plane service out of Elliott Bay?

Khosrowshahi: Now that’s a great idea, we may have to look at that.

JC: We actually were digging into the story at one point.

Khosrowshahi: Is that right?

JC: Not the float planes, but there were some records that we found when we were looking into the new headquarters and there was something with Todd, some conspiracy theory.

TB: I had a conspiracy theory.

Khosrowshahi: What was the conspiracy theory? I want to hear this.

TB: We thought there were clues in some of the property records. We were quickly corrected by your wonderful communications staff, but we thought there were clues in the property records that you were going to be opening your own hotel on the property.

Khosrowshahi: Oh no, we do not want to get into a hotel operations business. That’s something that’s best left to our partners.

TB: I was thinking more like the Apple store model where you’re sort of creating a place to showcase your product all the way to the consumer. That was what I was thinking.

Khosrowshahi: You know, we were joking that that grain elevator south of us would make a really cool hotel. Maybe that’s a possibility, we’ll have to look into that.

TB: Are you worried employee turnover? As people look to that move, many of them are located here in the Eastside of the region. Are you worried about employee turnover as you get closer to that move date?

Khosrowshahi: It’s definitely something that we’ve talked about and we want to mitigate. We’ve been very open with our employees about the move, when it’s happening. We’ve told them that we’re going to invest in making their commute as easy as possible, being flexible as far as the hours go. It’s something that we’re absolutely taking into consideration. We think net-net it’s going to be a positive and lots of employees who are on the Seattle side and lots of tech folks who are on the Seattle side are going to be pretty excited. And it’ll help, we think, on the recruiting front, but it’s something that we take absolutely seriously.

TB: Switching gears for just a little bit, from a technology perspective, what is the future of travel booking and how long will it be until our AI bots know when we need a vacation to Hawaii and just book the trip for us?

Khosrowshahi: Well, that would be pretty cool. We’d like to do that. I think some personalization is going to be pretty important. We have incredible depth and breadth of inventory, but we want to offer up the right inventory for you based on your past behavior and based on others like you. I don’t think we do a particularly great job of recommendation. If you’re going to Paris, we’ll have 2,300 hotels but maybe we can recommend the right hotels for you. Then I think voice search and voice interaction is going to really explode and really develop. An interesting thing about voice search is that it’s much more unstructured than search with a mouse. With a mouse, or with your thumbs, we can force you in a particular direction. “Tell us where you’re going,” etc. With voice, you’re going to ask for anything you want and you won’t be set by structured rules and we will have to architect our databases and our responses to essentially be able to respond to much more complex queries than we respond to today.

JC: Think about what you just said in the context going back to when Expedia started 20 years ago and when it was really a travel agent that became displaced by the service. What’s the coolest thing that you’re excited about in terms of implementing of all the new technologies that could be coming in the next five, 10, 20 years?

Khosrowshahi: To me that kind of unstructured search is really cool. I’ve got a family, I’ve got four kids, so when we travel, we need room for six and for me to be able to ask for a search for a direct flight to New York City, with six adjoining seats or two adjoining seats and just get the flights that have the availability, versus my hunting and pecking, that would be really cool, to make a search, and for the computer to know instantly that this is a family-friendly hotel that I’m looking for, versus, again, making me look for everything, would be really exciting for us going forward.

JC: You mention kind of the rocky road that Expedia’s had for 20 years, not just a rocket ship ride to the moon, but, going forward 20 years, what do you see as the biggest challenge in front of the business? Maybe 20 years is too far to look out. Three to five.

Khosrowshahi: Well, I think the biggest challenge for us at this point is to keep the innovation and keep the speed up. As companies get bigger, they tend to slow down. It’s a universal law. Our response has been to keep breaking up the company. We have all these independent units, all these independent brands that are doing their own thing. They don’t have to come to me to ask for permission to do something. They just do it. As you get bigger, bureaucracy takes over and you slow down, and we’ve go to fight it and we’ve got to fight it actively.

JC: The brand strategy, because you’ve got Hotels.com, HomeAway, Travelocity, that’s a conscious effort to, obviously, keep the power of those brands. But is it conscious to keep the organization more entrepreneurial?

Khosrowshahi: Absolutely. Planned economies don’t do well and we don’t want to be a planned company. We want to allow these brands to be entrepreneurial and to actually compete with each other, as well as compete with others, and then we think the best ideas surface and the best ideas win.

TB: It’s been interesting talking to some of the executives here today. That’s one thing that surprised me. They compete but then they also share what they learn so they can all get better. It seems like a really interesting dynamic.

Khosrowshahi: As a group we’ve become a better overall competitor. It took time and it took trust, probably 7, 8 years ago you’d have had a different attitude at the company, but these are folks who have gone through battles together and the trust really is there to share and to actively try to get the other player to be stronger.

JC: Talk about the polar opposite, Todd, from the Microsoft days. Those were historically the problems within Microsoft.

TB: The fiefdoms. Where you have Windows versus Office and everything like that. It sounds like you’ve kind of gotten the best of both worlds, where they’re competing, but then they’re also cooperating.

Khosrowshahi: For now, but we don’t take it for granted.

TB: Dara, any final thoughts that you want to share with us here as we conclude? What should your people know about Expedia at 20 years-old?

Khosrowshahi: I think Expedia at 20 years-old is just getting started. This is a company that we want to be known as one of the great global Internet companies out there. I don’t think we quite get our due and five or 10 years from now, we certainly will.

TB: Great, well Dara Khosrowshahi, the CEO of Expedia Inc., thank you very much for being on the show.

Khosrowshahi: Thank you for having me, it’s been a pleasure.