Spencer Rascoff on AI: Legacy Companies Take the Lead, Startups Face Challenges – Full Video

The shift from desktop to mobile created new winners in various industries. Will the current innovations around artificial intelligence do the same? That’s unlikely, according to Spencer Rascoff, co-founder of Zillow and CEO of 75 & Sunny Ventures.

Rascoff discussed the impact of AI on the travel industry in a conversation with Skift Editor-in-Chief Sarah Kopit at the Skift Global Forum.

Rascoff noted that legacy travel companies are quickly incorporating AI into their businesses. They already have large teams working on it and extensive data sets. That could limit opportunities for startups.

Rascoff also discussed the potential of AI in travel search, the challenges of regulation and local opposition faced by disruptive startups, and the changing expectations of consumers in the travel industry.

Watch the full interview with Rascoff:

Interview Transcript:

Sarah Kopit: So, Spencer Rascoff, thank you for joining me.

Spencer Rascoff: Thank you for having me.

Kopit: This is my first onstage chat for Skift, so be nice.

Rascoff: Welcome to Online Travel.

Kopit: Thank you very much. So, I want to get your 30,000-foot view. That is my first, but surely not my only, travel pun of the day. I want to go and get big picture. So, our theme this year is Connection in the Age of AI. So, what do you think the big opportunity is for the travel industry with artificial intelligence?

Rascoff: Well, I thought the last conversation was a really good primer on how AI is going to impact travel. A couple of observations though, from my standpoint. Firstly, I’ve been impressed by how quickly the legacy incumbent leaders are moving and incorporating AI into their business. And it should really come as no surprise, in retrospect, because these companies already had huge teams of people working on AI; Booking and Expedia Group and Amex. These companies have hundreds, maybe thousands of people, that have been using AI for a decade, long before any of us heard of ChatGPT.

So, when AI became a thing six or 12 months ago, of course they had this enormous running start and they have larger data sets to train things on. So, I’m a little worried about the boom of startup funding in travel, or online real estate, or any of these verticals, because incumbents are moving very quickly. I’ll contrast it with the shift from desktop to mobile, which created a whole set of new winners in vertical. All right, so in online real estate, for example, Zillow was able to use the platform shift from desktop to mobile to catapult past realtor.com, which was the web 1.0 leader. In online dating, Tinder was able to build a mobile product that catapulted past eHarmony or match.com or others.

So, that platform shift from desktop to mobile created new winners, but this new technology shift towards AI, I’m not a 100% sure it’s going to create new winners, because the incumbents are moving very, very quickly to build AI into their products.

Kopit: So, we were listening backstage to Seth talk. Do you think that his theory, that AI is going to take the drudgery out and let us all bask in the glory of our togetherness, do you think that, that’s a real thing?

Rascoff: Well, it’s definitely going to take some of the drudgery out of jobs, it already is. I don’t know how many of you are using ChatGPT or other AI tools in your daily work. It takes a little while to form the habit, I’m still forming that habit, but I now keep ChatGPT open as a tab in my browser and I try to use it the same way you might use Google all throughout your day, which we’ve gotten used to over the last 20 years. But once you start using it to draft emails, or to summarize articles, or to do research for you, or to plan a trip, it starts to become habit.

So, I definitely see that already happening in my own habits. What I’ve observed, though, just to give an example from yesterday on the internet, when ChatGPT was released, that it can now interpret and create photos and look at images. One thing that started making its way around the internet was this example of people fixing a bike by using photos of ChatGPT, I don’t know if you saw this yesterday? But OpenAI released this example where you take a picture of your bike and you ask ChatGPT, “How do I raise or lower the bike seat?” And in conversation with ChatGPT, it coaches you on how to do that. Not that hard, but they’re using this as an example.

And I think back over the last year, I’ve been pitched dozens of handyman AI startups, and all of them now are at risk of being disrupted by an LLM that is just baking that use case of how to fix something into their LLM. And of course, it’ll be in Google, it’ll be in Alexa, it’ll be in Bing and every other search engine that AI powers. And so, I guess to the question of how will AI impact online travel, I worry about some of these startups that are getting funded, but are very quickly being distributed by the LLMs themselves, or the legacy category leaders that, as I’ve said, are baking AI into their products.

Kopit: Yeah, so let’s talk specifically about OTAs. What’s the impact there? What is the value prop for them?

Rascoff: Well, the value prop, the most obvious one, as the last speaker said, is around search. Complex travel planning with a freeform search box. So, the search paradigm of entering dates and entering origin and destination pair, and maybe a budget if you’re super fancy, eventually that’s going to go away and it’s going to be more of a freeform search experience. By the way, does that sound familiar? That’s what we do when we talk on the phone to travel agents. It’s a freeform search box, or I should say, a freeform text box where you’re conversing with a travel expert and giving them information, like your preferences, and the length of time, and where you’ve been before and where you haven’t been before.
Ideally, that human being, that travel agent, or in the future, an AI, learns and knows all that, because they’ve been working with you for some period of time. So, that’s the killer app for AI in search. I have no doubt that the OTAs are going to bake that into their product, they already are racing to. I’m pretty skeptical of startups that are trying to disrupt OTAs with that as their value prop, because as I’ve said, it’s coming to the OTAs, it’s also coming to the supplier websites. It’s going to be a much better travel experience. I think that’s a much more natural way to search, so I’m excited to be able to search that way, but that’s going to be the killer app of AI in travel.

Kopit: Yeah, so if you were starting another company now, what would it be?

Rascoff: Well, that’s the killer product, but as I’ve said, I think, unfortunately, the OTAs are going to do it. So, if you can find some wedge, some way to differentiate as compared with an OTA around a complex travel planning product, that could maybe work, but you better run quick, because it’s coming to an OTA near you.

Kopit: So, let’s switch gears and talk to failure for a minute. World’s best teacher ever. So, Path failed. What did you learn from that? What were the big lessons?

Rascoff: Yeah, so I was on the board of Tripadvisor for many years, and Tripadvisor has an incredible product, but it always struck me as it being incredibly unsocial. So, knowing the average of 100,000 people of what hotel they like in midtown Manhattan, is not nearly as useful as knowing where your 10 or 20 or a 100 friends stay. So, I tried to create that product that I would want to use, it was called Path Travel. I incubated it, and it was basically a social trip advisor with a better user experience, also one that was much more visual. Think Instagram Stories, or Snap Stories, on a map with a filter of just your friends, of their restaurants, hotels, and local service recommendations.

What I learned from it is that, product is not enough. You can build a great product, but distribution is really, really hard. And most people’s online travel habits are formed. We have preferences. Some people love Hopper, some people love Kayak, some people love Expedia. It’s very hard to shake those preferences. A whole heck of a lot of people just start at Google and end up wherever they end up, they’re brand indifferent and they just think Google when they think travel.

And so, what I learned from it is that, distribution is every bit as important, maybe more important, than product, which is a little depressing as an entrepreneur, because you’d like to believe that if you can build a good enough product, that surely it will find audience. But in a mature category, like online travel, it’s hard to do that.

Kopit: So, you mentioned Hopper. I’m curious what you think of what Fred’s built with that.

Rascoff: I think it’s amazing. I was wrong. I remember when I worked at Expedia with Fred a million years ago, and I didn’t think it would be possible to build another OTA/metasearch engine. Again, I thought that preferences were too mature and that it would be too hard, but it shows, never bet against a good founder and a good founding team and good technology. And they made it through lots of ups and downs, and they clearly made it through that gauntlet and have built a great company and a great product.

Kopit: I’m curious to get your thoughts on price transparency. The Biden Administration has made junk fees a bit of their zeitgeisty topic du jour. I’m curious, what you think is at stake if the travel industry can’t figure out this transparency issue?

Rascoff: I don’t know if you heard David Neeleman’s share about the travel technology fee that he was asked about. They said, “Why do you charge a $29 separate fee on Breeze?” And he said, “I don’t know, that’s just what we do.” I thought that was pretty interesting, and also a little frustrating as a traveler. This industry, we’ve been talking about this forever. We started Hotwire in 1999, and that’s when they started resort fees after 9/11 in 2001. And I was dealing with customer complaints in 2001, where travelers would show up at hotels that they thought they had fully prepaid on Hotwire, and then they were hit with a $20 resort fee, and then they were hit with a $40 valet parking fee, which by the way, $40 seems quaint now, it’s $60 or $80 or $100 in some metros and etc.

And so, there was a government initiative back in 2001 to try to crack down on this. So, this is the whack-a-mole thing that our industry has been going through. I guess the advice I would give, or the cautionary tale I would share, having spent the last 15 years mostly in online real estate, not online travel, having built Zillow and now Picasso, I will tell you, be careful with the government, because they have unlimited resources on these types of things.

And the online real estate industry, I should say the real estate industry right now, is going through a series of class action lawsuits, where the concept of real estate agent commissions are being challenged by two class action lawsuits, wherein the concept of the listing agent sharing half their commission with the buyer’s agent is under attack in these two lawsuits.

And it has the potential to transform the way the real estate industry works. And so, I worry for the online travel industry, that what we’ve dragged our feet on for 20 plus years could actually become a problem. And you can imagine a class action lawsuit of the billions of dollars of extra fees that travelers have paid over the years, unknowingly, and just wait until plaintiffs attorneys get stars in their eyes on those types of numbers and who knows where that goes. So, beware.

Kopit: So, you’re a consumer, I’m a consumer. We were talking about the expectations, like with junk fees, of what everybody who’s buying a product that they’re getting what they’re paying for, what they think they’re paying for. Consumers have really high expectations these days. I think it’s kind of like the apple effect. What do you think travel brands get right with the consumer experience, and where do you think they can do better?

Rascoff: I think the design of travel apps has come a long way and it’s really good. If anything, it’s so good to a fault, where things have been over-optimized for purchase conversion. And so, I guess what I feel they’ve done right, is being incredibly engineered for purchase conversion because of the SEM tax. Every travel company, whether you’re an OTA or a supplier, you’re all competing for SEO and SEM, and whoever has the highest conversion when somebody goes from Google to your travel website, if you’re a hotel or an OTA or anywhere in between, whoever converts best on that search results page or that hotel details page, can then, in turn, afford more SEM.

So, the industry has architected itself to optimize for conversion. And that’s mostly good, because that means the consumer is finding what they want and is likely to purchase. Where I think we still could do a lot better, is up funnel from that, on the dreamy aspect of travel. Where it still feels pretty wide open, and the travel startups that have gone after that dream place have mostly moved down funnel, because dreaming doesn’t monetize well.

Transactions monetize well. So, when Tripadvisor has gone up funnel or Expedia has gone up funnel, or I don’t know if anyone remembers Site 59 that got bought by Travelocity a million years ago, went more towards dreamy. Those companies have been forced to move down funnel.

That has left open social media that has filled that gap in dream. Where people dream for travel is not a booking engine, it’s not a hotel website, it’s Instagram and it’s TikTok. And that’s where we may see disruption coming for the OTAs, we may see it coming for supplier direct. And it’s because we’ve left open our rear flank while we are so focused on optimizing every pixel on the hotel details page, or the search results page for conversion.

Kopit: Do you think that the TikToks and the Instagrams of the world, do you think the travel industry is really doing as much as they can to take advantage of the influencers and that? It’s almost like the gray economy of travel.

Rascoff: Well, I keep coming back to Google, because Google was to travel from 1995 to 2015, as Instagram and TikTok are to travel in 2015 to 2025. So, you’re right, there is this gray economy where influencers are making money on the side. Some OTAs and some suppliers are doing a good job of generating audience from social. There are emerging OTAs, and basically booking engines, that are building their brand on social. But it’s actually a pretty exciting place, because it’s all still happening. The winners haven’t really been formed yet, which is a little bit surprising.

But it is the new Google, I guess. It’s funny, I don’t know what your e-commerce habits are, but a lot of my friends, and my wife and her friends, say, “Oh, I bought that on Instagram.”

Kopit: Yeah, right.

Rascoff: And they didn’t buy it on Instagram, because Instagram doesn’t really sell anything. They bought it on some other e-commerce website that they follow, or they saw an ad on Instagram, but increasingly, that’s their behavior. And so, before too long, people are going to say, “Oh, I booked that hotel, I booked that airline ticket on Instagram,” even though they didn’t really book it on Instagram. So, that’s changing consumer behavior. And also, cautionary tale here around brand building. These brands that we think of as impenetrable, because Expedia has been around for 25 years and Priceline has been around for 25 years. At some point, that tips to become a bug, not a feature.

Kopit: Yeah.

Rascoff: Because they become perceived as your parents’ website or, God forbid, your grandparents’ website. And that might happen before too long. Of course, these brands have a 100% brand awareness, but they may not have a 100% brand affinity, because they may be perceived to be old. So, that’s another thing that we need to keep an eye on with these Web 1.0 leaders. We’ve seen it in other categories. You’ve seen it with eHarmony versus Tinder, is a good example. You saw it with realtor.com and Zillow. You’ve seen it in other category, so that’s another one to watch.

Kopit: Yeah. So, we’ve got about 10 minutes left, so anyone who has questions, please get out your app, send them on over for us, and I see that Roffit has a question. Where is he? There he is.

Rafat Ali: I can? Okay. Hey, Spencer, how are you? Thank you for doing this. I have a question. So, obviously with Zillow, when you introduced Zillow into the world it caused a sensation in terms of how can you do this and how can the house prizes there? In a different way, what Airbnb type companies are going through in terms of regulation at the local level, which is what you faced with when you introduced Zillow. How do you see the regulation at the local city to city level, in terms of, for instance, short-term rentals, Picasso, the company that you have, has a version of that ongoing as well? And then, how should these companies think about working with cities and how should cities think about working with these types of companies in terms of regulation?

Rascoff: Well, I see this firsthand now with Picasso. So, I started Picasso three years ago with my co-founder, a fellow Zillow colleague. Picasso takes the luxury of second homes and fractionalizes them, so we sell them in eighths. And we view it as great for communities, because second homes usually sit empty. And instead, with Picasso, these homes are fully utilized and they’re shared by a couple of families that own them together. We think of it as carpooling for second home ownership. What could be a problem with that? More money in the community, more people going to restaurants, or going to wineries, or buying lift tickets instead of these homes sitting empty.

But Picasso has faced opposition in some communities, and we have some lawsuits that we’re facing in some areas. It’s been frustrating, as a founder, to be met with resistance when we think we’re doing something that’s additive to the community. And obviously, we’ve seen this with Airbnb before, we’ve seen this with Uber before and others. I think these disruptive startups, it is incumbent upon them to try to make their case to communities, both to elected officials and regulators, but also to the citizens there themselves. We’re trying to do that with Picasso. I’m sure that we could be doing a better job of it in some communities.

But yeah, it’s important work and it’s something that all of these startups invest very heavily in, and probably, it’s something that will continue forever in a lot of these cases. Airbnb is still working through this issue, you might say politely. Uber is still working through this issue in certain markets. Hopefully, it won’t take Picasso 15 or 20 years to gain wide acceptance from a regulatory or local standpoint, but it’s a work in progress.

Kopit: Where are you getting the biggest pushback?

Rascoff: Geographically or…

Kopit: Yeah.

Rascoff: Geographically… Well, we’re in a lawsuit with Sonoma County in Northern California, so I guess that you would describe that as pushback. We view it as, this is buying real estate in an LLC. This has happened forever, and this is no different than a couple families buying a ski house together, or buying a beach house together. And Picasso’s doing the property management. But again, there are certain geographies that view it differently.

Kopit: Yeah. So, I’m going to take a few questions from the audience now. One of our watchers says, “You said the switch to mobile created new winners in industries, but did that ever happen in travel?”

Rascoff: Skift would have good data on this to answer it. As a traveler, I can tell you I probably won’t… Maybe I don’t want to make enemies, so I won’t say where I do my travel booking, but I will privately, or not so privately, I will share to my 1,000 closest friends here, and the other people watching online, that my travel preference has shifted with the shift to mobile. So, yes, I think it did. I don’t have data to support who were the mobile winners and who weren’t, but there are some sites or some apps that I think do a much better job on mobile than others. And so, yes, I do think new winners were created with the shift to mobile.

Kopit: I want to talk a little bit about what some have called the great merging in travel. So, that’s when we blend work, life, vacation. Although, personally, I’m not a fan. I’m very protective of my beach time. That’s just me. But has that changed your strategy as a founder, as an entrepreneur, about what you’re…

Rascoff: Oh, yeah.

Kopit: Yeah.

Rascoff: Absolutely. Firstly, as a business leader, it’s changed my perspective quite a bit. I remember it used to be so unusual, so weird for an employee to say something like, “Oh, I have to go pick my kid up from school.” Can you imagine somebody saying that 10 years ago in a meeting? I’d be like, “Well, that’s none of my business. Maybe do that or don’t do that, but don’t talk about it.” And now, that’s very normal. So, just firstly, as a business leader, as a team leader, you have to change the way you interact with employees on these types of things.

But from a business strategy standpoint, for someone in online travel or online real estate, absolutely. This is what Picasso is really founded on, is this concept that, we are untethered from our corporate headquarters now. And almost everybody, certainly every knowledge worker, can spend more time working in different places, and that increases the amount of time that they can spend on vacation, it increases the amount of time they can spend at a second home. And this hybrid of work-play is the new reality that we live in.

And even companies that are calling people back to work, I saw an executive this morning that I said, “How’s it going with your return to work?” And he’s like, “Oh, we have 700 people in headquarters and it’s really great. 200 people are there Tuesday, Wednesday, Thursday, and there’s no one there Friday, and I’m really happy with that.”

Kopit: Yeah.

Rascoff: So, that’s success for a company that’s trying to get people back to the office. So, those people on Fridays can go work from a second home, or go work from an Airbnb, or go work from a hotel, and combine their vacation with their work life.

Kopit: So, we’ve got a Hotwire alumni in the audience who asks if you’re curious what you think of the discount hotel space, given Priceline and Hotwire’s reduced position within their parent companies?

Rascoff: Yeah, as Hotwire co-founder, I’m sad that… Hotwire is still alive, which makes me happy, but it’s not as focused of a brand for Expedia Group as it once was. What I’ve observed mostly from the outside looking in, with respect to the Opaque channel, is the products still have fences, but the suppliers have allowed the brands to merge, basically. So, when I see on Expedia now, for example, Opaque and non-Opaque side-by-side, or on Hotwire, you can see Opaque and non-Opaque side-by-side. There’s no way that would’ve happened 15 years ago.

So, there are still these differentiated products with different fences, points, no points, refundable, non-refundable, you know the brand, you don’t know the brand. But they exist side-by-side now on the same portals, and that’s a big change. And the implication for the big players, the Bookings and the Expedia Group, is that they don’t need to invest as much in a whole family of brands, because the Opaque product can be on an Expedia or on a Booking, it doesn’t have to live on a separate brand as much as it used to.

Kopit: Yeah. So, we’ve got an amazing audience here. We’ve got disruptors, CEOs, all sorts of amazing travel industry professionals. I’m curious what your closing advice for them would be?

Rascoff: Well, if you’re a startup, or a founder, or somebody thinking about starting a company, I would say, do something mission oriented, something that you can get really fired up about, that you feel that you’re going to devote your time, you’re going to spend much more time on this company than you are in your personal life. So, make sure it’s something that you care about and you’re surrounding yourself with people that care about it equally. If you are at a company and you’re trying to be an intrapreneur, or bring innovation into your company, make sure that you feel properly compensated and treated fairly, and that you’re still learning and highly motivated.

And as soon as you find that you’re no longer learning, or that you don’t feel fairly compensated or appreciated, then perhaps it’s time to think about doing something different. And maybe then you move into that first bucket of people trying to disrupt with startups.

Kopit: Spencer Rascoff. Thank you very much.

Rascoff: Thank you.