Skift Take
With a two-decade track record in online travel, Khosrowshahi has had his duck-and-cover as well as been-on-a-mountaintop moments. If Uber's looking for a steady hand, and a guy with experience who isn't afraid to take a U-turn when called for, then they could have done a helluva lot worse.
From shining moments to times when he was a hard-ass, who is Dara Khosrowshahi, the current Expedia Inc. CEO and Uber’s pick to take the helm at the ride-sharing company?
What makes him tick business-wise?
In 2016, we interviewed Khosrowshahi, and many of his peers and competitors for Skift’s Definitive Oral History of Online Travel.
We bring you eight oral history anecdotes ranging from him modestly admitting his short-comings to pioneering moments and being a tough-as-nails business person. The anecdotes cover a lot of deals, and character-defining episodes, many of which have relevance for the tasks ahead at Uber.
A philosophy of Being Unafraid to be Different
Khosrowshahi has worked alongside Expedia-controlling shareholder Barry Diller since 1998, and they’ve been together through times when the online travel company has struggled and excelled. There have also been around a couple of dozen deals they’ve done together along the way.
Khosrowshahi: “I think Barry [Diller] is always comfortable being a counter-programmer. One of the pieces of advice he gave me is that 90 percent of the time you’re going to make the decision that everyone else is going to make because usually 90 percent of decisions are fairly obvious. But 10 percent of the time you’re going to make a different decision and the key is what is that 10 percent. And he’s always encouraged us – he’s encouraged me – not to feel uncomfortable going against the flow. Because it’s during those times when you go against the flow, when you actually make a difference.
“If you’re always going to go with the flow you’re going to be a perfectly average company and that’s certainly not necessarily something that I want to say after my career, that I was perfectly average. There’s a comfort in that. There’s a comfort in knowing, you know what, I’m not making the typical decision, I’m making a different decision. I know there’s a risk. But I’m going to take that risk and I’m going to go for it. And Barry really encouraged us to go forward with that thinking. It’s OK to be different. You want to be different as a company, you want edge, you want an angle that separates you from the crowd. Be careful what those choices are but you got to have an edge to be different.”
TripAdvisor Saved His Ass
Khosrowshahi became a first-time CEO at Expedia when IAC spun off its travel holdings in 2005. [See my interview of the newbie CEO in September 2005.] He conceded in the oral history that he had a learning curve and wasn’t particularly good in the CEO role for the first few years. He credits one of its business units, TripAdvisor, and its then and current CEO, Stephen Kaufer, with saving his butt because at the time TripAdvisor was growing like a weed.
Kaufer, who has a sign, “Speed Wins,” tacked onto his office door, taught Khosrowshahi that “speed takes care of a lot of mistakes,” Khosrowshahi said.
Uber, of course, hopes that its new CEO wouldn’t need a comparable learning curve as the head of the ride-sharing company.
Disrupting the hotel Business
In 1999, while vice president of strategic planning for Barry Diller’s USA InterActive, Khosrowshahi led the talks to acquire acquire Hotel Reservations Network, later renamed Hotels.com. It was a time when hotel bookings occurred over the phone or by walking into a hotel lobby.
Brad Gerstner, former co-CEO of National Leisure Group, founder of Room 77, former Orbitz Worldwide board member and founder Altimeter Capital: “[National Leisure Group] started negotiations with Expedia. Then we meet Diller; and Dara Khosrowshahi had bought a company for Barry Diller in 1999 called Hotel Reservations Network. Remember Barry’s background: He owned the Home Shopping Network so he understood this idea that you could have a phone number that people could call and you have a catalog or you have television to drive the demand and everybody calls this phone number, and you have real scale economies and commerce. Using that same model he sees this company called HRN, or Dara sees it, and they had 1-800-HOTELS. Hey, you don’t know a travel agent call 1-800-HOTELS. We’ll get you a better deal on hotels. That was the business.
“We’re talking about the future Hotels.com, but at the time it was all telephone-based. [Hotels.com co-founders Bob] Diener and [David] Litman those guys are amazing entrepreneurs but they weren’t at the time necessarily in the technological vanguard in the way that Rich Barton was. But Dara had bought the company for Diller and it was exploding, it was growing so fast. Dara understood that this was all going to move online and this company was just going to be huge and if you remember, HRN’s massive breakthrough was their partnership where they ran the hotel business under private label for Travelocity. Travelocity outsourced all hotels to HRN which was an incredibly positive move for HRN but probably signed the death knell for Travelocity. Because while Expedia went on to develop all their capabilities around hotels, Travelocity never did because they outsourced. They let HRN do it and by the time Travelocity understood strategically many, many years later that they had to do it themselves, they were too far behind.”
Read More From Skift’s the Definitive Oral History of Online Travel Here
A Tough Negotiatior But It Doesn’t Always Work Out
Tim Poster’s Las Vegas Reservation Systems, which changed its name to Travelscape in 1998, recognized the power of Microsoft and was advertising and working with Expedia, which was featured on the MSN homepage. Rich Barton’s Expedia was independent of Barry Diller’s IAC at the time, and Dara Khosrowshahi was not yet affiliated with Expedia, but was IAC’s deal-maker. Expedia would acquire Travelscape in 2000 – but first came some bad blood and a thwarted deal around October 1999 between IAC and Travelscape.
Poster: “We were going to do a deal with Barry Diller. This part wasn’t public, but now who cares? They were going to buy us. I think this was in the very early days of InterActiveCorp. They made an offer to buy us for $120 million. You’ve got to remember at the time that was like all the money in the world to me. We didn’t have any debt; my partner and I owned the whole thing. We said, ‘Yes.’
“They had people out here in our offices for months, like counting every paper clip. It was just one of those grueling legal things. Every single thing was a fight over everything. It was like four months of that. My partner Tom [Breitling] and I, we were supposed to go to New York after this was all done, and we had spent like $300,000 or $400,000 on legal fees. Let’s say we were supposed to be in New York on Wednesday, well, Tuesday afternoon I get a call from the guy who is now the CEO of Expedia, Dara Khosrowshahi. He called me and he said, ‘Listen, I got to tell you, I’ve got some things that you’re probably not going to want to hear, but actually if you hear me out, it’s actually good news.’ I say, ‘Yeah, what’s that?’ He told me that, ‘Well, we got everything done and we took it to our board, but the board just won’t go for the valuation. We could only get approval for $90 million.’ I almost died. I told him I’d call him back.
“I went and got Tom and we called him back and he said, ‘No, I know, I understand, we agreed to 120 and I know we had a deal.’ We had a signed LOI [letter of intent] and everything, $120 million. He tried to convince me that this was still a great deal. He begged me to think about it. We were going to be on a flight to New York the very next morning to sign it.
“This was after months of grueling negotiation. It was the hardest thing I ever had to do, but I told Dara that there would be absolutely no way that I would ever agree to anything less than 120. This was one thing I didn’t like. They even had private investigators follow us. The one guy told us ‘Well, everybody in Las Vegas that deals with the casinos, they’re all connected to mafia guys and all that.’ I remember telling Dara, I said, ‘Well, I don’t know what you think of Las Vegas people, but when we say we have a deal, we have a deal. We had a deal at 120 and you’re not honoring it.’
“One of the New York bankers from one of the New York firms, who I later became friends with, told me that he was in the room in New York when that phone call took place and so was Diller. Before [Dara] called me, [Diller] said, ‘These guys are very young; $90 million is all the money in the world to them. Believe me, they’re going to take the $90 million.’
“Everybody in the room was saying, ‘Yeah, but we made a deal with these guys for 120. That’s the deal. We have a signed deal with them.’ ‘Don’t worry. They’re going to take the 90. Trust me, I know what I’m talking about. This is so much money, they’ve never had this much money in their lives,’ which he was right about.
“I told Dara, ‘I don’t know who else I’m talking to,’ but I could tell I’m on the speaker phone, ‘but all of you can fuck off. Unless you tell me now it’s 120, fuck you.’ That was it.
“Diller said, ‘Don’t worry. He’ll call back.’
“I never called back. Trust me, I was sweating. Believe me. I felt like, ‘Holy Christ, what did I just do?’
“We didn’t have to sweat too long because it was like three weeks later, Expedia went public and then they immediately wanted to buy us. We ended up doing the deal with Expedia, I think it was for $105 million, plus we had a little bit of debt, like $10 million or something like that. It was almost the same amount. What was ironic was that Barry Diller ended up buying Expedia a few years later, so he ended up buying Travelscape anyway.”
September 11 Nearly Stymies Expedia Deal
On July 16, 2001, USA Networks announced it intended to acquire a controlling stake in Expedia and to purchase outright National Leisure Group, then the largest online cruise and vacations packager. But then came the terror attacks of September 11, 2001.
Khoswrowshahi: “[USA Networks’ deal to acquire a controlling interest in Expedia from Microsoft] had been finalized. And we had signed for the deal and that deal – as many deals of the time – had what’s called a Material Adverse Change clause in the deal. September 11 was, if nothing else, quite material to the travel business. Unbelievable tragedy, and all the talking was about how we really didn’t know where this was going in any way, shape or form. And we had some time to make a decision as to whether or not we wanted to go forward with the acquisition or not. And, there was a debate happening.
“[Expedia founder] Rich Barton called up Barry Diller and Rich said, ‘Listen, we want to be in business with you but people at the company are nervous enough right now as it relates to September 11, and if you don’t want to close the deal that’s fine, just tell me now. I want to know now whether you want to close it or not. I completely respect your walking away from the deal but time is my enemy. During times of difficulty and crisis, leaders need to be clear. They need to provide clarity to their employees. I just want to provide clarity to my employees so please tell me sooner rather than later whether you want to do this deal or not.’
“We all got together as a small group of people around a table: Barry, myself, Victor Kaufman, the vice chairman of the company, and a few other folks. And we talked it over and I remember someone at the meeting – Barry and I still debate who it was – said, ‘If there’s no travel, there’s no life. It’s going to come back. Expedia is going to be an important part of it. So either the whole world is going to blow up or we’re going to be OK and who knows how long it will take, but we’ll be OK.’ I was at that meeting and Barry said, ‘Let’s close’ and I forgot whether it was myself or Barry who called Rich, we said, ‘You know what? We want to go forward with our partnership.’ And in hindsight it was a great decision and I’ve got to commend Rich for looking out for his employees and asking us to make that decision sooner rather than later.
“[The deal to acquire National Leisure Group] wasn’t as big a deal as Expedia. And, to some extent, we felt like we needed to hedge our exposure. If we’re going to go forward with one player, it was Expedia. In hindsight it was definitely the right bet to make.
“Expedia had its own path. I think Hotels.com led us to look at Expedia. After we bought Hotels.com we said, ‘Hey, we like this travel thing. We like this sector. This is going to go online fast. Let’s look for who else is playing in the sector.’ It led us to Expedia, it lead us to Hotwire. It really got us in the travel field and certainly got us interested in the lodging sector as a particularly interesting area to organize. I think Expedia on its own, really the credit goes to that team on their own. Their recognition of product and technology got them there and also their recognition that they shouldn’t just be an air brand. They should be a full-service brand, including hotels and dynamic packaging, were the real keys in their overtaking Travelocity.”
IAC Lets Booking.com Get Away
Khosrowshahi: “I think the Expedia team had taken a look at Booking.com and Active [Hotels, acquired by Priceline in 2005 and 2004, respectively] and again had passed. And, I think it was because we were attached to the merchant model and we were attached to high margins at the time. And I think in hindsight that blinded us. I think companies get very comfortable sometimes that there way is the only way and hats off to Glenn [Fogel, Priceline’s mergers and acquisitions lead] and team for recognizing Booking and the potential there. And there’s another deal that’s been a home run on the Internet: the Priceline purchase of Booking.com. It’s been absolutely extraordinary.”
Khosrowshahi Grabs TripAdvisor While Yahoo Dallied
Khosrowshahi: “TripAdvisor was a super-interesting company that was all about the power of user reviews and there was a sale process in which Expedia took a look at TripAdvisor and ultimately passed. There was an IAC corporate deal team that looked at deals. This was a travel deal so we passed it on to the Expedia team to take a look at. They passed really because they thought that TripAdvisor was too Google-dependent at the time and TripAdvisor was quite dependent on Google. TripAdvisor entered into an exclusive negotiating period with Yahoo and I remember going to Barry and saying, ‘You know what? I think we missed the deed on this. It was the company. I know that there’s a Google risk but I think every company on earth has risk relative to Google. And I think that growth is going to be on the company’s side.’ Barry said, ‘If you really believe in it then go chase it.’
“So I had called the banker who was working on the TripAdvisor deal, who advised me that they were in an exclusive negotiating period with Yahoo. We said, ‘Listen, we’ve very interested. This exclusive negotiating period seems to be going on for a long time so if you have any trouble closing let us know. We’re small, we’re fast and we can close a process faster than you can blink.’ And, I got a call a couple of weeks later saying, ‘Hey, we can talk?’ And, at that point, we really mobilize to take a good look at the company. I think the key element for me was meeting Steve Kaufer. I flew up to Boston, had dinner with Steve and Langley [Steinert], who was the other founder of the company. I came back from that dinner, I tell Barry, ‘We have to have this.’ So, then in a couple of weeks we negotiated a deal and we closed on TripAdvisor. It was really a bet on Steve and Langley. And, I think in hindsight it turned out to be one of the best deals in the travel sector ever.”
Khosrowshahi Let TripAdvisor Do Its Thing
TripAdvisor co-founder and CEO Stephen Kaufer: “While we were part of Expedia, I got the insight of how an OTA operates from the insider’s perspective. We still got to sell our leads to all the other travel companies out there and grow our supplier-direct relationships with the Hiltons and IHGs [InterContinental Hotels Group] of the world directly. It was an excellent relationship. Dara Khosrowshahi was my boss for most of the time. I just thought he did a wonderful job helping TripAdvisor by educating me and the rest of the team on what he could, by way of how the online travel industry operates, yet allowing us to lead a very separate life in terms of all of our clients or a lot of our clients, who were competitors of Expedia. And he never got in the way of that. He never dictated terms. He never said, ‘You can or can’t do this or that.’ That allowed us to flourish. When we spun off [in 2011], that was an easy transition for everyone.”
The Daily Newsletter
Our daily coverage of the global travel industry. Written by editors and analysts from across Skift’s brands.
Have a confidential tip for Skift? Get in touch
Tags: barry diller, expedia, mergers and acquisitions, oral history, tripadvisor, uber
Photo credit: Expedia CEO Dara Khosrowshahi speaking with Skift Executive Editor Dennis Schaal at the 2016 Skift Global Forum. Skift