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Editor’s Note: Skift is publishing a series of interviews with online travel CEOs talking about the Future of Travel Booking, and the evolving habits and device preferences of travel consumers. Check out all the interviews as they come out here.
João Ricardo Mendes, founder and co-CEO of Rio de Janeiro-based Hotel Urbano, the leading hotel online travel agency in Brazil, is nothing if not confident. Mendes says Hotel Urbano, which raised $50 million in venture capital funding in a Series D round in March, plans to go to the well again in the first quarter of 2015 and raise perhaps triple that amount before going the IPO route a year or two later.
Mendes says he has the utmost respect for the people at Booking.com, but warns Booking.com and Expedia that although “they may be a shark in the ocean,” Hotel Urbano is “a crocodile in the Amazon River.”
Rhetoric aside, Mendes details how Hotel Urbano is using Big Data to uncover travel intent and is generating so much demand that its customers tend to book travel every 100 days or so, a frequency that is much greater than the norm in the travel industry.
The Hotel Urbano founder says the site is educating the Brazilian public about online booking and getting customers accustomed to using its mobile app while discouraging call center bookings, and all of this is taking place as the Brazilian economy and its hotel market is undergoing fairly spectacular growth.
Skift discussed these issues, and others related to the future of travel booking with Mendes.
An edited version of the interview follows:
Skift: What are some of the trends you are seeing when people book hotels on the Hotel Urbano website, app or through a call center, and how is it all changing?
João Ricardo Mendes I think a huge trend is not just the way people book hotels, which is very similar to any other online travel agency. Ever since we started Hotel Urbano four years ago, we have been able to monitor and track the behavior of every single potential traveler. So at Hotel Urbano we have quite a different approach than the traditional OTAs. If you already know you want to go to New York you can go on Booking.com and book a hotel. The same with Expedia and Hotels.com. At Hotel Urbano, 35% of our business comes from these kind of clients who already knows the place they want to go.
But what we are doing that is very different from most of the OTAs around the world is creating demand for travel. We have one of the biggest travel brands [second largest behind Disney] on Facebook with all of this travel intent. We don’t only have the big travel brand on Facebook with 12 million likes. We are monitoring that behavior and we are seeing what they are sharing and querying no matter if it is not connected to travel. Through that we create over 400 kinds of patterns. We can see whether you want to go to a Japanese restaurant or a concert on Sunday, and whether you travel to any place on a given weekend. From this we create marketing for people who didn’t even think of traveling before.
In terms of the way people book their travel, I don’t see any trends in terms of differentiation. But, I do see a lot of trends — and we are working hard on those trends — in terms of the way we make people travel. We are making people travel a lot. Our average time between orders is 96 days, which is very good for the travel industry. Probably before Hotel Urbano they traveled once or twice a year. No we are making them travel more than three times a year. That is the main trend we are working on.
Skift: Once you see on Facebook that someone is interested in traveling to a particular city or a certain restaurant how do you lead them to the booking stage?
Mendes We call that a virtuous cycle at Hotel Urbano. The first thing we do at Hotel Urbano is track user behavior. Of course people focus on the 1% convert and we also talk to the 99% who don’t convert. We try to understand why they don’t convert. We have a lot of things to do. The first is make them become fans and then we understand their behaviors.
A lot of people talk about Big Data. Big Data goes far beyond static data. The hard part of data is to create patterns is dynamic data because that changes every day, it changes every year. Then we start to understand how you interact the most. There are people who interact the most with push notifications, there are people who interact the most with email marketing. Even that changes.
Skift: What percentage of people book on your website, your apps and maybe through call centers? How does that break down and is that changing at all?
Mendes: The mobile market in Brazil is still at a very early stage even if we are the second biggest emerging market in the world. We have over 200 million people and over 250 million smartphones, but only 1% of those smartphones have Internet access. We try to get people friendly with our apps even if they don’t buy.
For instance, if you want to go to Salvador or Miami and you arrive at the hotel and have Wi-Fi access and you want to upgrade your room you can speak 24/7 with our customer service center. Six months ago our revenue from mobile was zero, three months ago it was 2-3% and last month we had 9% of our revenue come from mobile.
One of our main differences at Hotel Urbano is we have over 700 employees, including 200 engineers, and we are improving our apps and our mobile strategy every day. Not just to increase our bookings through the app and through the mobile website today, but to make people download our apps and make them comfortable with our app.
We our changing our government, hopefully with a new president this month, and the Internet, digital and mobile penetration for the new middle class will grow. We have more than 80 million people who now have credit, have access for broadband and Internet. Even if they are a new middle class, they have a net income much higher than China, India and other emerging markets so there is much more to come. In my humble opinion it will take two to three years and we want to be very well-positioned. Today, our main source of traffic and revenue still comes from the website.
Skift: What about call centers? You are saying that more people are booking on the website than are booking through call centers?
Mendes: Our call centers are just for questions. We want to change the market. We want to educate the market. We are unlike Despegar, which has a huge demand for flights, and most of that is done through call centers. I know that we are losing some business from people who love the call center. But we still try to make all of the experience for people who are picking hotels, whether it is in Dubai or in Brazil … We are trying to educate the market that we are a technology platform, that we are online. If you want to call we are there 24/7 to help you, but we will show you, train you, teach you to make your order online.
Skift: Can you tell me how Hotel Urbano is changing? In the beginning, weren’t you much more of a deals website and now you are broadening things out? What can you say about that?
Mendes: In 2004, we started an ecommerce company. We learned that flights, in my opinion, is not a good piece of the market. By 2010 we started a deals website. A lot of companies like Groupon and LivingSocial came to Brazil. One of the things that made a lot of sense were hotels. We started to deeply study the market and realized that there were 35,000 hotels in Brazil and this number will almost double by 2016.
And we started Hotel Urbano, as a website focusing on hotels. With our deeply local knowledge, and making people travel more, we are doing a great job with Big Data and we realized we could create an online travel agency. And we can beat players like Booking.com, Hotels.com.
We can be a huge player here, connecting the dots, with all of our knowledge in the second biggest emerging market in the world. We can be the number one player in hotels by far. We have over 8,000 hotel partners in Brazil and we have over 8,000 to 10,000 waiting to be part of the club. We also have 200,000 hotels worldwide, which we use brokers to get like GTA and all of these guys.
We are getting one piece of the cake, which is the demand that already exists, and we are getting the other piece of the cake, which is the demand we are creating.
Booking.com’s search engine marketing strategy is amazing. They have a better conversion rate. So they are able to outbid other players. But the main thing is their availability is amazing. We are making hotels profitable, some of which have a cash flow problem. And we are solving those kinds of things 12 months a year so our value proposition for those hotels is amazing.
Skift: You mentioned Booking.com. What would you say your competition position is in Brazil in relation to players like Booking.com and Despegar. Where do you stand?
Mendes: On Booking.com, we are big fans of the company. We are very close to Priceline and all of the Booking.com team. I’ve learned a lot from those guys. People ask me when is Booking.com coming to Brazil, and I say, ‘Guys, Booking.com has been in Brazil for over 10 years.’ They are very strong for Brazilians traveling internationally and vice versa for international travelers coming to Brazil. But for Brazilians traveling in Brazil we are by far far the biggest one.
Despegar is a huge player. Most of their topline revenue comes from flights, maybe 85%. Their net revenue may be 35% from hotels because the margins are so much bigger than flights.
Have you seen the documentary, Crocodile in the Yangtze: the Alibaba Story? It’s about Jack Ma about 15 years ago when eBay was going to China. And [Alibaba CEO] Jack Ma said something very interesting — and I use their words for us a lot — he said, “eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose. But if we fight in the river, we win.” So basically, I believe we power knowledge, we power the relationships with the hotels, we power low-cost, we power an understanding of our base. We can be the Alibaba connecting these dots. OK guys, global players like Priceline and Booking.com and Expedia: They may be a shark in the ocean. But we are a crocodile in the Amazon River.
We are very well-positioned and bullish about the years to come. We are going to have almost 1 million hotel rooms in Brazil, which is almost double what we had when we started Hotel Urbano. We have a lot of room to grow, and I do believe we are going to be the biggest player by far in the Brazilian market and then in the Latin American market. And hopefully, one day we will be bigger and go international.
Skift: You had a $50 million Series D funding round in March. What did that do for you and how are you using the money?
Mendes: We are cleaning house, getting ready for an IPO. We still have plenty of money on the balance sheet. We are close to break even. In Q1 we are planning to make a big private placement, a pre-IPO in Q1 of next year. We are going to bring in some very good investors. We already have Accel, Tiger Global and Insight Venture Partners. We are going to bring maybe two more guys around the table. It is going to be very strategic for us. That is going to be our biggest round by far, probably three times bigger than the biggest one we already had.
We still have all of the money we raised from the last round we had. But we are going to be more aggressive in some ways, including mobile. In two or three years from now, we are going to be ready to be the number one player in the mobile environment in Brazil.