Skift Take

Expedia Group CEO Peter Kern didn't just delve into the past during his appearance at Skift Global Forum — he touched on its AI-powered future as well as its international expansion plans.

Expedia made a major move earlier this summer when it ended its relationship with online travel agency Hopper.

Expedia Group CEO Peter Kern explained the breakup at the Skift Global Forum in New York City. Kern also discussed Expedia’s recently launched One Key loyalty program and its artificial intelligence-powered products with Skift Executive Editor Dennis Schaal.  

Watch the full video, or read a transcript of it, below.

Interview Transcript

Dennis Schaal: Hey everybody, thank you for being here.

Peter Kern: Of course. Happy to be here.

Schaal: Great. Hey, so we were talking to Glenn Fogel of Booking.com, Booking Holdings an hour ago.

Kern: Never heard of him.

Schaal: Everybody seems to know everybody, so I’m a little suspicious about that.

Kern: Yeah.

Schaal: Anyway, oh, so we were talking about your statements that Agoda was the “worst rate abuser out there”, and Peter said-

Kern: Glenn said.

Schaal: Peter. Glenn said, “oh, I think Peter woke up on the wrong side of the bed that day. I’ll have to talk to him.”

Kern: Could have been, it doesn’t make it not true, but it might’ve been.

Schaal: So we were actually talking about wholesale rates back in the green room and how does that work? I mean, how do they get Agoda gets wholesale rates which aren’t supposed to be sold to consumers, and yet there it is.

Kern: Yeah, well, it’s not just Agoda, but there are many… Look wholesale rates, suppliers, hotel supply has long tradition in the wholesale business, which is a hard tradition to break. They put rates out into the world that are meant to be distributed to offline travel agents, various places that they are intended to go, specialized pockets of demand.

And then in the modern world, those rates get piped back to people like Agoda or other larger wholesale players. And by the way, we’re probably the biggest player in wholesale. We distribute, we have preferred distribution deals with Marriott, IHG, and others, but we make sure the rates go where they’re supposed to. There are a lot of people in the world-

Schaal: Packages.

Kern: Well lots of places, but to the right kinds of partners in the right parts of the world where they’re intended. There are a lot of players in the world who just take that available inventory and put it back out into the market, wherever it can go, wherever it will sell. And in essence, Agoda is one of them, takes hundreds of inputs from players in Asia, shows those rates to retail customers, shows those rates to their (business-to-business) partners who aren’t intended to have them, and it just churns the machine. And because those rates are cheaper, they get sold.

So there’s really this perverse incentive for a large part of the industry, I’ll call it the gray part of inventory, to move this inventory around and expose it in places where it’s not intended. And we try to encourage our hotel partners who do care about where their inventory is to do something about it. Be careful who they give it to use our products like optimize distribution, which help hotel chains with that problem. There’s lots of ways, but one way or another, I think they should be solving it because right now they’re just turning a blind eye, many of them, and it’s just out there and it’s getting worse.

Schaal: So should there be just one hotel rate around the world for-

Kern: No, hotels have lots of reasons to have different rates. You said package, fine, package. Last minute, opaque rates. There’s all kinds of things. The only issue is do they end up in the places you intend them? In the old days, you had a wholesale rate because you were trying to bring traffic from China to your Chicago hotels so you put a special rate.

In the modern world, that rate ends up everywhere and instead of being just for certain travel agents in China, it’s everywhere. And that’s not what you intend and that’s not good for your business if you’re a hotel because you’re selling the wrong rates to the wrong customers.

Schaal: So you had a series of product announcements last week, what you called your fall release, you’re going to start bundling them like one of your competitors does.

Kern: To be fair, I think Apple invented that. Not one of our competitors, but that’s okay.

Schaal: So could we play the video? We have a little demo which we can look at while we’re talking, and I think that’s Project Explorer. You have Project Explorer and you launched something called EG Labs. Can you talk about that?

Kern: Yeah. Product Explorer is really just the latest in… We led the pack in bringing Gen AI into the products. We’re now bringing it across our products. You’ll see a lot more from us on that. But we’ve learned because we were first, we’ve learned along the way and we are constantly finding new ways to create discovery, create cues and ways to encourage people. We were seeing people getting stuck in the stream. They didn’t know what to ask where to go next. So it’s got cues for people to keep going and then a lot of ways to save things, put that in their trip planning. We have a trip planning tool, they can save it there. And that’s Project Explorer.

But that goes way beyond that because now once you’ve saved it, you can share it. We’re launching a whole slew of new collaboration tools so that if you want to shop with friends, you’re going on a trip with your spouse. You like this hotel and this hotel, you can send them to your friend, they can vote on them, they can add things and send it back and together you can plan. So it’s about the whole work from discovery to planning to booking and how we take the friction out, how we make it easier.

And obviously Gen AI is an amazing tool, but we’re still all learning what its best uses are for consumers and helping them to use it in the most effective way. So Project Explorer is that, and then our EG Labs is a place we’ve designed now that consumers can sign up to and they can test our latest things, use the products, and we can see how they use them, how it works, and get feedback. And it’s an exciting new product.

Schaal: So that’s different than a normal beta, right?

Kern: Yeah, it’s different. It’s not… What people call beta can vary a lot.

Schaal: Very loose.

Kern: But instead of just taking a thing and putting it out into in a open environment to part of the traffic, we’re just creating a lab for interested consumers where they can go play around with the latest and greatest and we can get feedback and we can understand what people do, how they use it, train the algorithms if it’s a learning process and so on.

Schaal: You created a little stir a couple of months ago when you broke up with Hopper. Can we play the video of Peter last year at Skift Global Forum? It’s about-

Kern: It’s a very big business for us. I mean, we don’t disclose all the numbers, but in 2019 it was nearly a 20 billion throughput business. Now it’s going to evolve not just because we think it can grow, but because there are different kinds of partners coming on board. As I said, we power lots of loyalty programs, bank loyalty, AARP, all kinds of things. We also power some smaller ones. We just.

Rafat Ali: Hopper as well.

Kern: Hopper as well, it’s-

Rafat Ali: Frederick is here.

Kern: Happy to power Hopper and they’re doing great.

Schaal: So you’re talking about your (bustiness-to-business) businesses and you were, this was a year ago, you were saying you’re happy to power Hopper. So you had been Hopper’s partner for about five years. I think you were referring to starting to do their vacation rentals from Vrbo possibly?

Kern: No, I don’t think so. I think it was just a question about we have a very big (business-to-business) business that’s grown a lot since last year.

I mentioned we distribute rates for our partners in the places they want them. But look, we’ve made a concerted effort both on the consumer side and the partner side to try to make the marketplace what it’s supposed to be. So we’re making the products better for consumers, we’re making sure they have real discovery. We’ve started rating hotels and other products for guest experience that impacts sort. We’re taking partners off our platform if they don’t live up to a certain standard on guest experience and so on. So that’s going on all the time.

On the flip side with our suppliers, we want to make sure their product goes to the kinds of places they want their product to go. And a year later or nine months later, when we looked hard at the Hopper product, we felt like it was creating a bad consumer experience that was pushing customers to buy things they either didn’t need or fully understand.

And we didn’t want our partners’ products represented in that marketplace. That was the backbone of, Hey, we’ll sell you a hotel, but we’ll sell you all these “insurtech” products, et cetera. We felt like that was not what we wanted to, it’s not what we believe in a consumer experience. When we looked at it, you could book a flight with us in six clicks, which is best in class. On Hopper, it was 27 clicks.

Now you can all decide whether you like that or don’t like that or decide what you think they sell is good or bad. That’s up to everybody else to do. We made our decision, which was that we didn’t think it was consistent with how we want consumers to experience our products or our partners’ products. And we cut partners all the time that don’t comply with our expectations.

Schaal: Hopper didn’t make the cut. So what was the tipping point though? Some people say that you were supplying Hopper with hotels, but they were undercutting your prices with their hotels or they were becoming too big and it was a competitive thing.

Kern: Look, I mean, nothing would’ve pleased us more to have Hopper be a partner that we would like to do business with. They sold a lot of hotel rooms and we certainly don’t like giving up business, but there was no tipping point. The tipping point was we took a hard look for a bunch of reasons over a period of time. We hadn’t looked hard. The product had evolved a lot from the early days from once we first did our deal. And look, we can chalk that up to there, test a lot of things. They like to be aggressive, they’re all fine.

But when that results in a consumer experience that we think is not appropriate, we’re left with what choice? And it wasn’t like there was one little thing we didn’t agree with. There was a whole body of work that we didn’t agree with. So our choice was, do we want to be in the business of powering someone who does business this way or not? And we chose not.

Schaal: There was an analyst or two out there that made the argument that online travel businesses have to be a lot more careful in these (business-to-business) partnerships in terms of building a competitor. So how do you look at that?

Kern: Look for years we’ve powered a bunch of partners who potentially eat into our consumer business. We do a lot with American Express. You can certainly argue that if someone’s using American Express, they’re not using Expedia. Same with banks, same with lots of people.

Schaal: Still power part of Chase, right?

Kern: Yeah, we just launched Walmart Plus, we power them and on and on and on. Again, we have the biggest, we think the biggest (business-to-business) business in the industry. And that’s always an issue, which is what’s the best way to do business?

In general our view is that there are pockets of demand out there that we’re not going to reach with our (business-to-consumer) business. Doesn’t mean not at all, but in general not going to reach and we’d like to power those partners to be able to sell travel.

When Hopper was invented, it was an interesting new idea. They were doing some different things. We were happy to power them. Again, it wasn’t that they got big or that they were successful. It was that they were doing things we felt weren’t right for consumers and therefore not right for our supply partners.

Schaal: One knock on Expedia has been that you should be more international, and I heard you mention that this whole (business-to-business) business that you’re doing is helping to make you more international. So what’s going on there?

Kern: It is a big international business. In general we have used it historically as a way to participate in markets. We even power (online travel agencies) in other markets. We power (online travel agencies) in Indonesia. We power (online travel agencies) in Latin America with our supply. So in places where we haven’t always been as strong, or we haven’t had a brand presence, it’s been a way for us to participate in those markets to help our supply partners again, get demand from those markets. And that’s a balance that we do all the time.

But we have a big international business at Expedia. That’s a growing business for us. It will continue to be a growing business for us. So we’ll keep pushing into the places where we think we have a good product fit with the marketplace, where our brands and our product can and do resonate. But we’ll continue to power corporate travel in these places, package travel in these places, all kinds of things where we think there’s opportunity again in different pockets of demand that we might not otherwise reach.

Schaal: There was an Expedia survey of American travelers that came out today I think in cooperation with arc. And it was good news for dentists in case we have any dentists or dental students in the audience.

Kern: That is good.

Schaal: 55% of American travelers consider air travel the leading cause of stress more than filing taxes and going to the dentist.

Kern: Wow.

Schaal: What are you doing to ease that anxiety?

Kern: Yeah, look, I wake up to emails every day from customers and most of the problems, sadly, to stay emanate from airlines. Now it’s not because the airlines aren’t trying hard, it’s because weather happens. All kinds of things happen. And then the knock-on effect of that is trips get ruined and plans get screwed up. Look, I think what we’re doing is we’re creating better and better products.

So again, customers can find the right thing, they can make good and smart choices. We introduced price tracking last year. We’ve got a bunch of enhancements coming to the flight product. We’re using AI to get customers better matched with the right fit in terms of type of class, what they’re getting in each class, better understanding and transparency. So there’s a lot of work going into that. But ultimately travel is messy sometimes. We’ve also massively invested in service and we believe we’re by far the leading service provider in the OTA space.

But also for customers, if they come to us directly, we can often help them more quickly than the airline itself when they’re queued up at an airport and whatever. So we’re trying to create more tools so they can self-serve their problems. We’re trying to create more tools so they can shop better. And ultimately we can’t change how the planes work. And unfortunately we can’t change weather, but we all have to live with that. And the question is, what happens when things go bad and who’s got your back? And we think nobody does that better than us.

Schaal: So you were at a recent conference. Maybe it was at an investor conference? And you told this anecdote about advising your head of product that Expedia didn’t have a marketing funnel, it had to attract customers, it had a tube and occasionally some of the customers stuck to the side, but it wasn’t really anything sticky. So what have you done to make that marketing funnel more sticky?

Kern: Yeah, well look, as many of, and Dennis, we’ve been rebuilding our tech stacks, replatforming our entire company for the last three years. And the goal there was not just about stickiness, it was about having best product. We started the industry, we always had the best product and we wanted to be in a position to continue to deliver the best, stickiest, most robust product for customers, products that help them find the right thing, products that take stress out, products that have service capabilities, all of those things.

So we’ve rebuilt our entire platform, as many of you know, we’ve moved all of our brands onto a single stack now where got the last little leg to go on a piece of Vrbo that’s left. And that is all at the service of all of those brands and all those products getting the best of our technology, which includes AI, not just generative AI, but regular old AI and machine learning to improve personalization, improve the experience.

It’s new shopping capabilities like collaborative shopping, like price tracking and on and on and on. So really it’s about getting back to product as the core. Product wins usually in e-commerce. And we want to be best in class and lead and be agile and move forward. So we’re constantly innovating.

So now in Gen AI, for example, we used it initially for discovery, now we’ve got it so when you’re searching and you’re in sorting and you get to a product and you see a thousand reviews and you don’t want to read a thousand reviews, you can ask the chat, do people like the pools? And it will summarize the reviews instead of having you because it’s a friction point. You got to go look at all the reviews, see if they match your, oh, I am a family and I do have two kids and I do.

So we’re trying to create more and more ways to help the consumer have the right experience, including really importantly getting what they expect and what they want. And that has a lot to do with how our partners act and behave. And we are monitoring their performance, we’re feeding back to them when they’re deficient in things. We’re using that rating to impact search, so the best performing hotels move to the top of the search, and now we’re introducing new penalties in Vrbo and other things to clean up some of what’s going on in that marketplace.

So we’re constantly on this journey to make our marketplace the best marketplace with the best outcomes, the best service when things go wrong and the best product experience in the product.

Schaal: You just announced that Vrbo hosts would get penalized for too many cancellations?

Kern: Yeah, yeah. I mean, look, we’ve always had the sort of right to do it, but I would say I guess we were lean towards being supplier friendly, but in a way that’s good. But in other ways if it gets abused like anything, it turns bad. And like most marketplaces, a few bad actors can spoil the whole thing.

And so we’re just trying to reward the good actors because those partners do great and make sure that if there are bad actors, we’re not letting them impact our customers. And it’s as simple as that.

Schaal: You have this little program you rolled out called One Key?

Kern: Yeah, it’s little.

Schaal: And one of my colleagues was just saying back in the green room, he lives in the UK. You’re not even rolled out in the UK.

Kern: Not yet. Next year. Coming.

Schaal: He sees ads for it all over the UK as well. Anyway, so there was an audience question. It’s now disappeared, but it was talk about One Key and how it can be a growth driver for Expedia.

Kern: Yeah, I mean we’re thrilled about One Key, which again was only possible through all the technology work we’ve done for the last three years. We had to make sure we could define a person as a single identity. You might have an account on Vrbo, an account on Expedia, use different emails. We didn’t know all of these things.

So there was a ton of work. We’ve moved, I think 70 million people into the program already that were in various other programs. And of course we’re now onboarding Vrbo customers for the first time because Vrbo can now get the benefit of rewards. So this was a huge undertaking for us as a company. We think it’s really powerful because it’s simple because all our main brands get it. It will be out in the rest of the world next year, it will be some countries, we have the same three brands.

Other countries may only have one or two of them, so it will be slightly modified. But basically it allows you to get simple currency. That’s basically the money that you can spend. You can use it on anything. You can earn it on everything. And so if you’re a Vrbo customer and maybe you used to book direct or you used to do whatever, now you have points you can use with us in Expedia.

Likewise, if you’re an Expedia customer and you decide you want a rental home, you can go to Vrbo. So it’s really just an all-inclusive way to get people to use everything in our universe and get the benefit of everything we have. And it’s a really simple… And again, it’s additive to airline loyalty programs, to car loyalty programs, to cruise loyalty so you can get the benefit of both and keep accruing benefit from all of us.

Schaal: Chris said of Hilton was here last night, he said he’s not worried about your loyalty program.

Kern: Yeah, I don’t think he should. I’ve talked to Chris and his peers many times. Look, we are additive. And as I’ve said to the big hotel chains, if you’re one of Chris’s most loyal customers or Marriott’s or whatever, you’re a road warrior, you’re staying 50 times a year at their hotel. It’s like, okay, they should come direct to you. That makes sense.

But the vast, vast majority of people never earn enough benefit with any rewards program, airlines, hotels, anything to actually get real benefit. So when you look at the universe, we don’t all have to have the same people. If they’re Bonvoy loyalists, go with God, optimize your Bonvoy thing, we don’t mind and we’re happy, Tony should be happy with those customers.

But we have millions of customers and many gold and platinum and silver who travel a lot. They’re not loyal to one brand. Those brands don’t always exist everywhere they go and they need answers and solutions and the best product for them will be our loyalty program. So I don’t think it’s an either or. I think it’s really additive and I think increasingly the industry I think understands that

Schaal: An audience member wants to know, since you’re focusing on direct customers, how are you thinking about metasearch these days? And also, incidentally, I just interviewed the CEO of Trivago, you majority own Trivago. We were talking about price discrepancies and they’re redoing their whole strategy. And he said the reason he has confidence to redo the whole strategy go big on TV about metasearch is there’s more price disparity out there than there ever was.

Kern: Which goes back to where we started this conversation. It’s not for good reasons, it’s for bad reasons, but it unfortunately is just still a truth. Look, there’s a lot. I think we and everybody in our business have always been interested in direct customers. And as you alluded to my joke, in the old days, we used to be a tube not a funnel. We’ve been on a journey to make the product better and better and better so that more customers have more reasons to stick. In our opinion, between a great product, a great loyalty program, and the best service.

We have a lot of good reasons for customers to want to stick with us. And that changes what it used to be where it was very much an arbitrage game. All the products were basically listing products. You could find every hotel in the universe, you could basically find them at similar prices and it was just the whole game was played in Google.

I think now we are at a stage where we believe we can retain more customers, we’re moving more of them into loyalty, we’re moving more of them into app and loyalty, all of which moves them down the chain of becoming more direct customers. I think there’s little doubt we have the best supply in the world. There’s little doubt we have the best prices. So customers just need to get out of the habit. And sometimes it’s habitualize, right? You just go into Google and type Paris hotels, and of course we and every other person are bidding for your attention in that, and that’s very expensive and Google takes a ton of money out of the marketplace.

But increasingly, I believe like many categories of e-commerce, you’re going to find loyalists who believe, who really love what the product does for them. That’s why we’ve invested so much time, energy, and money into the product, and that will win and that customers will stick and we will go there.

So I think metasearch, including Trivago, including Google, et cetera, will continue to exist. We certainly want to keep bringing new customers onto the platform and give them the experience with our product. That’s the way we get them. We also advertise on television, do lots of other things, social media, which is probably where your UK friend has seen our One Key stuff, but that’s how we get them in. Performance marketing, metasearch is one of the ways we get them in, and it’s not so much whether we’re willing to be in that market. We just want to make more of it stick. And with any luck over time, that means we need less and less new customers acquired that way and we have a more efficient business.

Schaal: You probably have a bunch of partners in the audience, I would imagine. And someone asked what would you say to partners worried about being switched off like you did with Hopper?

Kern: I think Hopper probably put that in there, but okay. I’m sure Fred’s somewhere here. Look, we’re very consistent about this, I think. We have turned off a few partners here and there over time for a variety of reasons that often have to do with abusive rates or sales practices. Many times encouraged by our supply partners who don’t like what is happening or what’s happening at their hotels when people show up with those prices from those places.

So if somebody is abusing the consumer, using bad sales practices, abusing rates, they should expect to be turned off. If somebody is acting in good faith and has an interesting way to sell things and whatever, they have nothing to worry about. So this-

Schaal: Play it by the book, people.

Kern: Exactly. That’s all we want.

Schaal: Oh, so how is climate change affecting your business? How are you having to change? Not that much?

Kern: Well, it’s hard to… I mean, look, weather problems are more, they happen more often. We just saw Maui and the fires in Maui, a huge problem for the, I spoke to the mayor of Maui two weeks ago. They’re still digging their way out. It’s a problem for humanity. It’s a problem for the travel business. If you think hotel travel, sorry, airline travel is stressful, throw in a hurricane or two or an extra hurricane every year, it just makes it worse and worse and worse on more people.

So there’s definitely those kinds of impacts. In terms of how it’s impacting people’s behavior, there was a lot of speculation. Europe was really hot this summer. A lot of Americans were in Europe bitching about air conditioning, et cetera. Are they going to change? Are they going to go north? Are they going to whatever? I think it’s not obvious yet. It’s a reasonable conclusion, but mostly behavior hasn’t changed that much. There’s obviously interest in sustainable choices, but it hasn’t changed customer behavior very much. If you see that-

Schaal: People say it will, but they don’t do it.

Kern: And it will, eventually. But right now, if you show that this one’s greener, but this one’s 50 bucks cheaper, people often take the 50 bucks cheaper. So until humans start to vote with their wallet and really make choices, I think it’s still early days of that, but obviously it’s a trend that’s going to continue. We certainly want to encourage people to make informed choices, and that includes sustainability.

So it’s a journey we’re on too to get more information. The biggest problem with the journey is there is not good information available. It’s a lot of greenwashing, all kinds of things. And so we struggle to get good data that we feel like consumers can benefit from, but we certainly want to be part of that journey, and we certainly want to give customers who do care the right information to make the choices that matter.

Schaal: Our informed choice is we’re out of time, so thank you, Peter.

Kern: Pleasure. Thank you.

Skift Global Forum 2023

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Tags: ceo interviews, expedia, expedia group, peter kern, sgf2023, skift global forum, skift global forum 2023

Photo credit: Expedia Group CEO Peter Kern in discussion with Executive Editor Dennis Schaal at the Skift Global Forum in New York City. Skift

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