Carrot cash. Loot boxes. Bunnies. What's going on inside the mind of Frederic Lalonde? You're about to find out.
Nobody can accuse Frederic Lalonde of going off-brand. The CEO and founder of online travel agency Hopper was, figuratively speaking, bouncing around as he talked about social commerce with moderator Dennis Schaal, Skift’s founding editor and executive editor, during his interview at Skift Global Forum.
On stage, Lalonde revealed the tips and tricks the app deploys to stay sticky, keep users engaged and (most importantly) spending money. Oh, and he also likes anxiety.
Watch the interview in its entirety, as well as read a transcript of it, below, to get a deeper understanding of how financial technology is blurring with travel retailing, and witness a CEO who’s having a lot of fun with it all.
Dennis Schaal: Hello, New York. Hello, interwebs. I hope you’re going to help me with this interview because between you and me, Fred has a lot of energy and he’s very enthusiastic about Hopper, shock of shocks. Thanks for being here, Fred.
Frederic Lalonde: Thanks for having me.
Schaal: So it’s sort of deja vu all over again because last year we were at TWA Hotel for our conference and you were talking about a Chinese app called Pinduoduo. How do I say that?
Lalonde: I think that’s right.
Dennis Schaal: Okay.
Frederic Lalonde: That’s right.
Schaal: … as the next big thing. It started out as a farmer’s app to bring farm goods online, e-commerce app, they started travel. I saw, they just did, last year, 383 billion in revenue, sort of in the Amazon neighborhood. So is China and the East still the center of innovation in travel or how do you look at it?
Lalonde: I think Asia, but specifically China is the center of innovation in digital and commerce and content. I’ll use TikTok as an example … the Asian mobile ecosystem is actually innovating and completing a lot of the ideas in the west that we started to build out. And I believe that the patterns that we’re seeing there are entirely applicable, and we’re talking about social commerce.
Lalonde: Let’s do the same survey. I did this last year.
Lalonde: Raise your hand if you know what Pinduoduo is, please. Let the record show four hands. Raise your hand if you have it on your phone. Same three people. If I did that question in any conference in Asia, people would look at me like I’m crazy. It would be like asking, raise your hand if you know what Facebook is. So there’s a huge, huge cleavage between what a lot of these companies are doing out in Asia and what they’re doing here until they come here and they become TikTok and they become the most watched social media.
So what we’re really talking about is the fusion between social and commerce. And the thesis is very simple, we a hundred percent believe this is the future, is consumers in every category, including travel will agree to engage with digital products on their phone through games and streaks and all these crazy things.
Schaal: Okay. Let’s show a screenshot-
Lalonde: Let’s see what you have up there.
Schaal: … of what you’re talking about.
Schaal: So there we have, water the tree to earn rewards. Okay. What else do we got? We have Streaks, day three done and dusted. Nice work. Is this what you mean about social commerce?
Lalonde: Absolutely. Absolutely. That’s the very beginning.
Schaal: In the way? How does it work?
Lalonde: Yep. So the idea is you come in and you do something repetitive in what Google calls micro-moments like you’re waiting for your latte at Starbucks and you press that Claim Today’s Reward button. And if you miss a day, you lose the $10. But if you do it a couple of days straight, in this case a week, you get $10 of future booking credit.
So Duolingo, some of you probably use this, in the West, it’s the only real example of this, they took learning a language, which was, most people are too young to remember this Rosetta Stone, a CD-ROM, for those millennials, it was a piece of plastic that contained stuff that you would order … and so, you would pay $600 every seven years because you were taking a trip to Italy and then, Duolingo comes along and they turn it into 125 million daily active users. Now they’re profitable, they’re public. And what they would do is the owl would nag you to learn another Japanese character or some Italian words for bacon.
And so, fundamentally this is called engage-to-earn. So you come in and you do something that you would do anyway, so you water this tree and it grows and then, there’s this secret chest that opens up and it contains vouchers and coupons. And this is actually what will replace the established eCommerce players in travel, in my opinion. And there’s a whole new generation of people that are wanting to do this, but one to underpins it is that it makes the cost of booking your travel cheaper because you put in the work.
Schaal: But here’s the thing, Fred, the big challenge for leisure travel companies, which is primarily what you’re doing, is people book vacations once or twice a year. Okay. So now you’re having them come back. Okay. You’re trying to get them to come back every day. You’re giving them carrot cash. Are they booking vacations four or five times a year? What are they doing?
Lalonde: Exactly. So when’s your next vacation in your leisure room? Where are you going?
Schaal: Next month I’m going to Italy.
Lalonde: Right. Everybody knows what their next trip is and everybody is waiting for a latte at Starbucks, so you scroll Instagram, but you get nothing for it so come in and water a tree. It’s really that simple.
Schaal: Is that like a carbon offset?
Lalonde: Actually, this one is going to be. So we do Hopper Trees, which is a thing, and I have to put this there. So we took a decision four years ago to offset all of the carbon of everything we sell by planting trees off of our P&L, you don’t have to contribute, we do it. We’ve planted over 20 million trees. We have spent millions on this and I’ve challenged every other travel CTO, CEO, Peter, and Glen to do the same thing. And so, there’s a whole thing there that we’ve been doing. And we sent people to Mozambique. I have a picture of a tree on our phone. We’re making sure they’re growing. We have this whole commitment. And this one, what we basically want to do with it is we’re also going to accelerate the that.
But what it is that little chest unlocks and you get stuff. And so, we started this process last year. I’ll give you an example, it’s very, very early. We see people seven times a week when they’re doing streaks, of course, it’s a streak. Right. Then what do they do once they’re finished streaking? Well, they’re in the app, so they start browsing deals. And because they press that button, every single thing got cheaper.
So there’s a small population that do this. We also have an engage-to-earn. You can post a store on Instagram with a code and you can basically earn literally thousands of dollars for your next trip. And we have people that have done that. So fundamentally, we have this subgroup of users that have engaged with this because it’s like testing and we’re trying to figure this out. It’s so wild we don’t actually understand what we’re doing here. And so, that population behaves completely differently than every customer we’ve ever had there. I want desperately to be the CEO of that company, the one that actually is doing that.
Last example, we were notorious for not spending any money on search on AdWords, we still don’t do that.
Schaal: Well, I was going to ask you, how does this fit into your marketing strategy? How much do you spend on marketing?
Lalonde: Yeah. So we were spending a couple of hundred million dollars last year. So first of all, the money was flowing and it was much easier to raise, but moreover, we were heavily invested in social media. And probably a lot of you got some of our stuff. We have interesting guy in a bunny suit running around on Instagram, all this crazy stuff. But last year, we were TikTok’s largest advertiser in the US, not just in travel, everywhere. Today, our paid spend is almost at zero. We are giving the same money we gave to Mark Zuckerberg and TikTok to our customers in the form of tree watering games. And it is working an order of magnitude better, but at a very small scale. So we’ll see this year.
Schaal: So Fred, somebody tweeted at me yesterday, I was talking to Glenn Fogel of Booking Holdings, “Dennis is trying to get Glen to take the bait to bash the competition.” But you just said social commerce is going to replace all the incumbents. And I should point out, you guys now claim to be the number three flight booker in North America so who are you going to replace? So number one is Expedia, number two is Fareportal, CheapOair, and you guys now claim to be third.
Lalonde: Yeah. So on air, and actually, there’s structured data around this called MI D T, which is boring, and so, we are number three in the US, the other ones are Priceline and Fareportal, so we’re probably going to pass those. That’s the mathematical curve of run rate.
What really matters, as you know, is the hotel business because that’s where you build the loyalty, that’s where you can build the share shift. And we are fundamentally working to become a multi-category platform, which we’re getting better at, we’re starting homes and all this other stuff. And so, there we’re smaller, but if we continue to grow at the rates that we were growing and especially if any of this social commerce insanity, all these blinking bunnies and these things start working out, you could see us compounding easily to be the number three OTA, pretty much in every major market. This time last year, while call international, which is somebody …
Schaal: While spending nothing on marketing?
Lalonde: Well, spending hundreds of millions to our users in marketing, right, because the growth is organic at that point, but not giving it to a third-party platform, it’s one thing, which is the holy grail. I mean, Dara, and how many years do all the CEOs come up here and say, “We have to spend less on Google.” Right.
Schaal: Well, Peter said, last week, that the marketing funnel was actually a sieve.
Lalonde: I buy that. I buy that. That’s why we don’t do it. And so, anyway, fundamentally, we’re probably going to end up being number three. The reason I know this is, last year, when I was on stage, about 2 percent of our bookings, of our traffic was international. And that means somebody booking from a location outside of North America. I don’t mean a Canadian or an American going to Mexico. I mean somebody in Europe or Asia or Latin America. Today, 20 percent of our business originates outside of North America. And those markets are growing faster than the US, relative. And you know what’s driving that? It’s social commerce. In Europe and in Latin America, 20 percent of our bookings come from social commerce up from zero. Now the absolute number is puny even at our current scale. But if you draw that line forward a few years, you end up with a very, very large global social commerce company.
Schaal: So you said that it’s all about hotels, right? So how are you different in working with hotel chains than some of the competition? Are you competing against them with the carrot cash and the discounting and that kind of thing?
Lalonde: Yep. So, first thing is we don’t advertise on Google, we don’t really play on Meta on any scale. We do a tiny bit of it. And our strategy has nothing to do with going in and saying that our rate is $2 lower so you come to the website and having a backend fee. We tend to be fairly friendly on the distribution because we’re building our own direct channel. So at least you don’t start with antagonistic position where you’re buying their keywords and all this crazy stuff.
The second part of it is the reason we are able to grow is because of our FinTech products. And so, our global strategy …
Schaal: I want to talk about that.
Lalonde: … it’s very simple is when consumers come to Hopper, they spend an average of $50 more to buy the same travel stuff that they could buy anywhere else. This is new money …
Schaal: Explain to them how that works.
Lalonde: Yeah. So you could freeze a hotel room, a price before it goes up. You can take a non-refundable hotel and make it refundable by Hopper, so that if you decide not to go, you swipe your money is back in your account in seconds. You can buy disruption protection. This is one of my favorite ones. You arrive at the airport …
Schaal: So you like all the disruption that’s going on?
Lalonde: I don’t like the disruption, but I like …
Schaal: You’re a fan of airline cancellation, admit it, Fred.
Lalonde: I like anxiety. Think anxiety is the …
Schaal: High anxiety.
Lalonde: I love anxiety.
Schaal: So I was saying to Glenn yesterday, he wants people to chill, we got your back, it’s the connected trip. You want people to have a lot of anxiety.
Lalonde: I want people to be worried that the logistics around the trip might not be great. And I want to provide a complete, delightful antidote to anything going wrong at a price point that …
Schaal: So you’re like a casino, you’re betting that the price doesn’t go up too much.
Lalonde: No, actually, everybody’s chipping in $5 and if your price goes up, we make you whole. So it’s not my money, we’re not actually doing that. What we’re doing is we’re saying, “Look, it’s not exactly we’re on this together, but that’s how any regulated insurance work, everybody puts some money down and they buy these products and sometimes prices go up, sometimes they don’t. When they go up or when your flight is disrupted, I might take a thousand dollars out of pocket and give it to American airlines to make up the difference between your ticket. So we have moved tens of millions of dollars a quarter to hotels, to hotel chains, to airlines, to compensate for the difference between what the customer decided to purchase and what ended up happening. If I take …
Schaal: So, which one of these products are you losing tons of money in?
Lalonde: Anything new we try blows up in our face.
Schaal: So cancel for any reason at the hotel is a new one.
Schaal: You show up to the hotel … Oh, it’s leave for any reason. So you’re losing money on that?
Lalonde: On the first couple of months. Now those are actually a year old because we test really, really small. So the trick is obviously, you release it to a small group, you lose a lot of money on a few people, you figure out what you did wrong, then you scale. If you do it the other way around, that’s bad. So you go with …
Schaal: And around the world, you’re making about 30 percent of your revenue on these FinTech products.
Lalonde: Closing on 40, actually. On air, it’s 50 because …
Schaal: Travel is so overrated. Fintech’s where the money is.
Lalonde: So basically, anything that you can sell to a customer base that lowers the price, lowers the anxiety and actually works. And so, this is the hard part. If you end up and your flight was disrupted, the way the disruption product works is you open the Hopper app, every flight leaving that airport of any airline says $0, you tap, you board, no calling, no waiting, no queuing. How much do you want to buy this now? Right.
And so, that took three years to build with deep relationships with Saber and Amadeus, to figure out. And so what we learned during the pandemic is if you say that you’re going to do something and then they need it and it doesn’t work, you’ve done the worst possible thing you could do. So the reason that these products are working is partially because we know how to sell them, but more importantly, they work when you need them. And so, we have a huge support team and a lot of what they do is figuring out that stuff out. But 80 percent of the time, everything is seamless from getting your money back instantly to getting rebooked. Leave for any reason.
Schaal: So if this is the holy grail, why aren’t more companies copying you?
Lalonde: So they are, they’re starting to work on it. A lot of the …
Schaal: Google says they’re not interested.
Lalonde: You have to be in the transaction.
Lalonde: Amazon’s not interested in travel because warehouses don’t really help and it’s probably the right decision. The other players are making a lot of money with their models. Look, I am super jealous of Expedia Booking because they’re a great business, super profitable. Look, you take 5 billion, you put it into Google and you get seven back. Who doesn’t want to do that? Right.
Schaal: Well, Glenn was talking about the massive profits they make.
Lalonde: They do and it’s amazing and they’re very good at it and they deliver a good service. But we think that FinTech unlocks between 200 and $400 billion worldwide of new customer spend in the ecosystem. It’s a little bit tricky to build, you got to figure out, but there’s no doubt that …
Schaal: I saw your signage all over the place, Partner with us. FinTech, three times the profits.
Lalonde: Do you like free money? That’s the pitch.
Schaal: I like free money.
Lalonde: Everybody likes free money.
Schaal: Vacation rentals. You recently started doing vacation rentals. Two things, why should somebody book on Hopper for vacation rentals and why should somebody partner with Hopper?
Lalonde: So the first part, the reason we’re doing it is not because it’s cool, it’s because our customers that come in for these games and use the mobile app as their primary commerce tool, they’re twice as likely to stay in a home than a hotel. Right. Full stop. So it’s all customer driven.
If the percent of people that stay in a home in LA is 11 percent or some number like that, I’m not sure what it is, but it’s pretty close, Hopper customers are 22 percent going to stay there. So we need to have this for our customers. What we learned is Airbnb is formidable, it’s just a formidable company. They’ve done an amazing job because no matter what anybody says to you on stage or anywhere else, it is not true that the entire vacation rental space is about managed properties, these groups, these conglomerates, the individual host is essential to getting the price point lower. Airbnb has an unbelievable amount of…
Schaal: But you’re partnering with these property management companies.
Lalonde: We are going block party, throwing a party in an alley, individual host, one city at a time, one neighborhood at a time for the next one million years until we get it right.
Schaal: So one of the attractive things about Hopper, supposedly, is who your customer is, it’s really a younger clientele. How do you do that? You’re not Gen Z, are you, Fred?
Lalonde: No. God, no. I think we’re about the same age. I’m not even millennial, I’m the thing before that nobody cares about. Yeah. No, no. Yeah, fundamentally, there’s a couple of things, the Hopper app itself appeals to a younger demographic, of course, part of it is just, it’s an app, the other thing is all this crazy bunny stuff. But we do …
Schaal: Bad Bunny?
Lalonde: Bad Bunny, good bunny, bunny on Instagram, bunny on TikTok, so yeah, it’s a very deliberate thing. And so, there’s a reason you do that is because the millennial one and two, there’s something called an elder millennial now, I don’t know if you knew this, it’s a millennial that’s over 40. And then, you have millennial two, which are the younger ones, and then, Gen Z’s the complete dislocation. If you have teenagers, you understand this. So theoretically, all we’d have to do is wait, old guys like us die and then Hopper has all the customers. So there is a momentum to catering to that generation, which is one thing.
Schaal: So after we die, how do you maintain that? I mean, every company wonders about how do you stay cool? How do you keep it going? What’s your take on that?
Lalonde: So it’s all about, and this is not even a traveler or Hopper thing, when you were created, what was important? Right. So Expedia, I was there before. And the hotel business was built in 2001, so terrible tragedy happened here, but then people were actually afraid of flying, hotels needed distribution. Airbnb was created for real, it started getting traction 2008, 2009, ’10, if you look at their inflection point. A half of the home values in the US were under their mortgage rate. And so, you have these crises that create these companies. What we’re seeing now is there are two generations, which are the largest generations in history, that are starting to ascend to economic power and they do everything through their phone. Right. And now, we’re probably entering a recession, we’re not feeling any of it now, business is great, everybody’s traveling. I don’t think that …
Schaal: You think it’s coming …
Lalonde: Oh yeah. Oh yeah. Oh yeah. Oh yeah.
Schaal: And are you preparing?
Lalonde: Oh yeah. Well, the first thing is you got to cut your burn rate. So it’s no longer cool to… And this is where my deep jealousy for the profits of our competitors comes from, they make money, which is great. So we got to close the gap. We’re not burning a lot compared to a lot of these crazy things that you’ve seen recently, but we’re not profitable and we need to get there. That’s one thing.
The second thing is you need to grow faster with less paid spend because that’s how you get profitable, which has to do with check-ins and bunnies and loot boxes and all this other stuff.
And then, the third thing is you need to be global. And the reason that matters at a real scale is because if I’m in food delivery, shipping sushi in Rio de Janeiro doesn’t help me with my New York business. But if I’m in travel and somebody uses me in Rio and they come to New York, that’s the high EOV, the high stay. Everybody wants that. So we got to become a global company.
And then the third pillar of our growth is Hopper Cloud.
Schaal: And you’re making some small acquisitions?
Lalonde: We do team acquisitions, so yeah, and sometimes they’re a little bigger, between 50 to five, something like that. A lot of what we’ve done like our car business, Hopper Cloud, which powers Capital One and all these other things.
Schaal: We have a question about Capital One, audience question, how do you balance your direct to consumer approach in support of Capital One’s travel initiatives?
We have separate teams on everything, not just Capital One. We run a model called single-threaded ownership. So we don’t have VP layers. We don’t have heads of product. We don’t have a CMO. We don’t even really have a head of HR. Every team runs independently and we don’t allow them to talk to each other, collaborate. We are fully virtual. We don’t meet. We don’t have offices. Everybody does the best thing for their customer.
Schaal: And Capital One, do they have your FinTech products?
Lalonde: They are rolling some of them out. And-
Schaal: What about vacation rentals?
Lalonde: That I would love to get up there. Our product is too crappy right now to put it on Capital One, we need to do the hard work to get it there.
Schaal: Another audience question, we got 30 seconds, how do you envision a collaboration with a destination?
Lalonde: We’ve been doing a lot of social commerce initiatives. So there’s a lot of destinations that basically want you to come because you’ll drop $1,600 in tax revenue on average or whatever number it happens to be for something in the Caribbean. And we can actually put a voucher for Puerto Rico, a place that you’re familiar with, in a loot box.
And so, we’ve done these crazy things, maybe some of you have seen it, these are flash sales, so you have two days, three days. And so, the last one we did, we did a loot box, which is like a treasure chest that you open, but you have to buy it. And there was a small and medium and a large one. Think of a game, like a casual game when you do this. And they ranged between, I think it was $3 and 14.
We sold more loot boxes than flights on that day, and we sell a lot of flights. It was like people were coming to me with the data and I’m like, “That’s wrong. That’s not possible.” And because when you open this thing up, you had more carrot cash than you spent and then, these destination vouchers. And it’s kind of a mystery, you don’t know what you’re buying. It’s kind of cool. And so, you ended up with like $200 off your flight to Puerto Rico, for example, in there.
Lalonde: And so …
Lalonde: Yeah, go ahead.
Schaal: I have to close the loop since we’re out of time.
Lalonde: It was a pleasure.
Schaal: It was fun.
Lalonde: Download Pinduoduo, you’ll love it.
Schaal: More people will know it next year.
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Photo credit: Hopper CEO Frederic Lalonde in discussion with Skift executive editor Dennis Schaal at Skift Global Forum in New York on September 21. Neil van Niekerk / Skift