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Skift launched its largest and most ambitious project yet, The Definitive Oral History of Online Travel, on June 1.
In nearly 40,000 words founders, CEOs, other executives and insiders tell a story in their own words about the creation of Internet giants such as Expedia, Priceline, Travelocity, Orbitz, TripAdvisor and more.
Not all of the interviews fit into the big story so we are publishing standalone stories that offer deeper insight into information we collected during the three-month research process.
Ctrip started out as a TripAdvisor-like review site in 1999 and soon developed a small hotel business. Among the marketing tactics, Ctrip staff began handing out advertisements for the hotels at the airport in Shanghai and rail stations. This didn’t happen in isolation: Ctrip’s founders were well-aware of what was going on in Silicon Valley at the time and took encouragement from the growth and development of Travelocity, Expedia, and Priceline.
Ctrip obviously had to adapt its own development to conditions in China at the time, and emerged as the strongest player after the financial and SARS crises.
“[Co-founder] James [ Liang] wrote an email to all the employees telling them that after SARS, Ctrip will become stronger,” says Ctrip co-president and COO Jane Jie Sun. “And, sure enough, SARS plus the financial crisis swept out the companies that were not very efficient or innovative. But Ctrip stood out. Ctrip and eLong were the two companies after this turmoil that survived.”
As part of the Skift project, The Definitive Oral History of Online Travel, we spoke with Sun about the historical development of Ctrip.
Skift: I was very interested in the founding of Ctrip and what was going on in China at that time. Were there other online travel companies already doing business when Ctrip was founded and what was the situation?
Jane Jie Sun: Ctrip was founded in 1999. When we founded our company at that time in the USA we had already seen the takeoff of Silicon Valley. James Liang, our current chairman and CEO [and co-founder], evaluated the different options … At that time, payments were really an issue because credit cards were not widely used in China. When they tried to establish Ctrip, at the beginning, it was just a review community similar to TripAdvisor. It was a community with no monetization at the beginning.
Then the capital markets tightened up. All of a sudden, we had to turn it into a money-generating business right away. Again, I think James evaluated different options. So the first line of business he went into was the hotel business because hotels are relatively fragmented. Then we established a model, which is we make the reservation and the customer will pay the hotel directly. By doing that, you avoided the issue of credit card payment. At that time, Ctrip was very small. We concentrated in bringing volume to very specific hotels. That way nearby hotels would realize, ‘Wow, Ctrip is valuable. We want to put our inventory on their website, too.’ So gradually, Ctrip established partnerships with a majority of the hotels. Ctrip also established a strong sales force on the ground to recruit memberships. Ctrip was the first to give out Ctrip cards at the train station, bus station and airport, all these traffic hubs. That was one method to acquire traffic.
Skift: The cards were just like an advertisement?
Sun: Yeah, for example, when you landed in Shanghai airport our sales team would give you a Ctrip card. And, by using this card, you would be able to enjoy the hotels that we negotiated on behalf of our customers.
At that time, the Internet was just at an early stage. It wasn’t very easy to find a hotel if you did not use the Ctrip website. The sales and marketing side was also quite labor-intensive at that time. That’s what was going on. We had two teams. One is the sales and marketing team, which was recruiting the customers by giving the cards to the customers on the ground near the airport, the train station and bus station. We also had another hotel team working with the hotel to enlarge our inventory pool. Both sides needed to grow very quickly in order to sustain strong growth. That was the first line of business. It was very successful.
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At the beginning, when we established our business, we were very innovative. The majority of the travel business was done offline by establishing roadside travel agencies with very, very low efficiency. But what we did was we created a centralized call center. It was a paperless operation. All the information from the data was stored in our proprietary software. In a traditional travel agency, in order to train a sales rep, it takes about one year to make sure the sales rep is equipped to host customers. And if this sales rep leaves, then he or she will take away all the information, including the customer’s data. Our founder, James, used to work at Oracle. He is a software engineer so his net mindset was all the information needed to be stored in our system.
Our staff normally, when you train them, would take three months to be put in a position to host and to take care of the customers. Even if they leave all the information remains in our system so the next representative can also help them. That’s what was going on during the early days. The majority of the calls at that time came to the call center because in 1999 and 2000, the Internet connection was not very easy. Broadband was not widespread. So PC volume was still quite low at this time.
Skift: Did any other companies, such as airlines or hotels, have websites where they took online bookings at the time?
Sun: There were a lot of online travel agencies but after the financial crisis, only two survived. One was Ctrip. One was eLong, but eLong was much smaller. What Ctrip did is after we successfully launched the hotel business, we then acquired a very small air-ticketing center and we started our air-ticketing business because we already had a big pool of the customers who were using hotels. And, naturally you could promote the air-tickets business. About one to two years later, the air-ticketing business took off. Again, it was very successful.
At that time, credit cards started to take off. We issued the first joint credit card with China Merchants Bank. By doing that, I think we were able to take the payments upfront from the customers and make a reservation for the customers. Again, that was a huge undertaking, but it was again, very successful. After the air-ticketing business, we already had two killer businesses under our one belt. One was hotels. One was airline tickets. The third line of business was vacation packages. Vacation packages were a combination of hotel, plus air and plus local activities. Since we already had two major products under our belt, the vacation packages had a good foundation. That again also took off very well.
Skift: When James was first getting the idea to do the hotels, what was the reaction from investors? Was it easy for him to raise money to get Ctrip started or was there a lot of skepticism?
Sun: We did our IPO at the end of 2003. So for four years Ctrip was a private company. I believe the first couple of investments were from IDG Capital Partners and the Carlyle Group etc. I think the investors had a good vision and they felt the team was very solid. And everyone was burning money. When Ctrip burned money, the efficiency and scalability achieved far exceeded everybody else. That is why the company stood out among hundreds of startups.
It’s very interesting. In 2003, I believe, SARS swept over the whole country. So a lot of companies shut down. James wrote an email to all the employees telling them that after SARS, Ctrip will become stronger. And, sure enough, SARS plus the financial crisis swept out the companies that were not very efficient or innovative. But Ctrip stood out. Ctrip and eLong were the two companies after this turmoil that survived.
Skift: There was still a lot of competition, I imagine, from the offline market?
Sun: The offline market was the majority. Even today, the offline market still is the majority. I think if you have a new technology that is more efficient you will serve the customer much better.
Skift: You said that after the financial crisis, a lot of the competition didn’t make it. Yet, it became such an extremely competitive environment with all the price discounting. When did that take shape?
Sun: The China market attracts lots of capital so lots of foreign investors really do not know the market very well. So they pour in lots of money into this market. But really it’s very difficult for the smaller players to know [the market]. Travel actually is very intricate. You also need to make teeny little steps to be flawless in order to execute well. Lots of smaller companies tell a very good story to the investors and gets lots of money. Then they try to beef up the GMV [Gross Merchandise Volume] and then they set a GMV as their target. If you do that, it’s very easy to inflate growth because it is very easy to inflate GMV If the team feels GMV is the target, then it could lead to loss-making sales.
Skift: Yeah, I’m sure there were many doubters about Ctrip, especially in the beginning.
Sun: Fortunately, I think in travel we already had a couple of players in the USA. The USA was very advanced in online travel. We had Expedia, Priceline, Orbitz, and Travelocity. The U.S. was always the leading player. Investors saw what happened in the USA and our model was very easy to explain it to them. What was difficult was that China at that time was quite backwards. When I first joined Ctrip, investors always asked me, ‘Do you think we should invest in Ctrip?’ I told them, ‘Every investor, every fund has its own criteria. But I can share why I came to China to work for Ctrip because for me I’m investing my youth and time, and my life in this company.
I told them, ‘You really need to ask three questions. First of all, do you want to invest in China?’ Because 10 years ago, some investors still had a bias against China. It is a country very few people knew about it. The reason I came back was I was born in Shanghai. I went to Peking University law school. I went to study, work and live in Silicon Valley for almost 15 to 20 years. The GDP growth rate at that time in China was about 8 to 10 percent. In the USA it was about 3 percent.
For me, as a young person, if the country is developing faster that means they need more talent and the career path will be better. China obviously was going to surpass many countries because the government is very efficient and people here are very hardworking. It was going to surpass a lot of neighboring countries like Japan, Korea, Southeast Asia, all these. So that’s a great opportunity. The first question is whether you want to invest in China.
The second question is, ‘If you want to invest in China, which industry do you want to invest in?’ I feel travel is a great industry. A lot of other industries, such as alcohol, tobacco, and the gaming industry are very profitable. They’re high-margin. For travel, you bring happiness to people’s lives. So you are very rewarded. Also when so many Chinese people go out into the world we always ask our customers to become the diplomats for China, and to bring the best of China to the world. Let people know China through you and ask these customers also to bring the best of the world to China so people in China will know what’s going on in the rest of the world. From that perspective, I think it’s increasing the friendships between Chinese people and the rest of the world.
That is very meaningful to me and to the rest of our team. Every day when we are issuing a ticket or booking a hotel, and we don’t see it just as people working. It’s a mission that we are actually doing. We’re training the whole country. We’re bringing China closer to the rest of the world. I think travel is a great industry. And as a percentage of GDP, the China travel industry still is much lower than in Europe and the United States. Again, the travel industry will be among the fastest growing industries there.
The third question is, ‘If you want to invest in China and in the Chinese travel industry, which team has the best chance to win?’ Throughout the past 15 years, every year there were newcomers that came in to compete with us. In the beginning, I think, it was China Mobile, then banks and lots of players. In the end, it’s always whoever has the strongest customer service, whoever has the strongest technology, branding and product will win.
Internally, we have five very important items. One is service. That’s important. The second is the product. You need to have all kinds of product rather than one product. The third one is technology. The fourth one is price. And if you have all these four items, then your branding is very strong. If you can do these five items very well, then you will be leading the competition. That’s what happened.
Skift: You came to Ctrip in 2005, right?
Sun: Yes, I just had my 10-year anniversary with the company. It has been a very rewarding 10 years for me. When I first joined the company, our market cap was about $500 to $600 million. Now, we’re close to $15 to $20 billion.