Hopper CEO on Super-App Ambitions and Becoming an Everything Startup

45 20/06/2022

Hopper, which finds travelers low rates on flights, hotels, and rental cars, is most frequently described as a travel-booking app. It also qualifies as an online travel agency (or OTA), a term that applies to any company selling travel on the internet. OTA is a useful classification because numerous brands in the travel space, including TripAdvisor, Kayak, and Google, only do lead generation, explained Hopper founder and CEO Fred Lalonde, whose travel tenure dates back to 1997, when he cofounded Newtrade Technologies, a platform to connect hotel reservation systems and electronic distribution channels. He then spent time as a VP at Expedia, which acquired Newtrade in 2002, before starting work on the big-data-for-travel project that turned into Hopper.

Technicality aside, Lalonde believes that Hopper “behaves more like an Asian-style marketplace” than an OTA. On some occasions, he’s also categorized his seven-year-old app as “fintech,” to account for an expanding suite of add-on products that Hopper users can buy on top of bookings. “Super-app” is another label Lalonde’s used — but only in reference to future ambitions.

Lalonde unpacked some of these labels during a recent interview with Future. He also opined on topics including generational differences in search, the universal truth that all travelers worry about something, innovative use of gamification in travel, and how price predictions became Hopper’s thing in the first place.

You launched Hopper in 2015. You’ve described its initial purpose as helping travelers figure out the best time to book a flight to get the best deal. How did you decide to home in on that goal?

FRED LALONDE: We actually didn’t decide to. It was a pivot — and not a voluntary pivot. We had started building big data for travel. Initially, we were trying to do price discovery — “I want a direct flight to a beach where I can take my kids.” This was the same year that Google paid a billion dollars for OTA software to do the same thing. It turned out, that’s not a real use case. It’s not something people want to do.

As we were building that initial thing, we had a couple people doing data-driven journalism, putting out content with the data we’d accumulated. And we got a contact at the New York Times. Instead of writing whatever story we pitched, he wrote about the data. He said, “There’s a website called Hopper that can tell you which day to buy your ticket, depending on where you’re going and which dates you are flying.”

It became the second most-emailed article in the Times for that week. It ended up in print, and the next day we were on Good Morning America. We got a million users for our website in one day. If you know anyone who works in travel, at every holiday party, every gathering, everyone asks them one question: When should I buy my ticket? Even though Expedia and other companies had been around for 20 years, nobody had approached that problem. We basically solved it, accidentally.

By the time Hopper formally launched, it was a mobile-only product. Did that seem like a risky choice at the time?

Yes, it was crazy. Less than 10% of digital travel was booked on mobile. I called my buddies at Expedia and they all said, “You’re nuts. Don’t do it.” But I was on the board of a company called MakeMyTrip, India’s largest OTA. About a year before cheap Android phones had hit India in 2009, you saw the same thing there, about 12% or 13% of travel on mobile. Then, within one quarter, it climbed to 70%. So, I said, “Let’s get ahead of the curve.”

Almost everyone has one thing that they worry about when they travel — some people care about prices, others care about arriving on time, some people just are worried the hotel is going to suck. But nobody worries about everything going wrong.

And one thing that happened was we ended up scoring on a completely new demographic. In terms of downloads, we became the app of choice for millennials and Gen Z within about two years. Today, we have about 70 million downloads.

Right, millennials and Gen Z make up 75% of your customer base. Have you noticed different behavior patterns between the two generations?

Yeah. “Elder” millennials are a thing — they’re like 40 now. Compared to them, the younger chunk of millennials and Gen Z are very different. They’re fully mobile-first and pretty much mobile-only. They don’t use TripAdvisor. They don’t go to search. They behave like Asian populations do, starting on social and then going to the app.

But, across travel, we’ve seen a really interesting transformation coming out of the pandemic — there was an almost 14% increase in mobile bookings. The effect of buying everything on your phone seems to have baked in a mobile-first behavior in older people too.

Did you consciously set out to corner the market on younger generations, right from the get-go?

That was always deliberate. It’s important to note that we didn’t invent a cryptocurrency platform or figure out ride-sharing. We were doing something that was already a mature market. The idea that we’d displace Expedia and Booking.com, which own practically every travel brand you’ve heard of, except Airbnb — and do a better job at selling hotel stays on Google — was just laughable. So we needed a better plan. You need to bet on technology changes, generational changes, when you’re trying to do something like that.

Today, 70% of Hopper’s revenue comes from selling what you call “fintechproducts,” which are non-refundable, a la carte booking add-ons. For instance, a customer can opt to pay $30 to freeze the price of a flight, or pay some amount to cancel a flight, or to switch hotels if their room doesn’t meet their expectations. How does Hopper offer these add-ons without cooperation from airlines, hotels, and rental car companies?

It’s simple: We make all suppliers whole when the customer gets a benefit. There are a couple different families of add-ons: We’ll freeze a price for you, if you want prices to stop moving until you make up your mind. And if the price goes up by a set amount, we pay the difference. Or you want flexibility — to take a non-refundable thing, or a non-changeable thing, and make it refundable or changeable. Or you’re worried something terrible is going to happen. You book with your money, but we pay with our money for the new hotel room.

If everybody were using apps to buy travel, which is what young millennials and Gen Z do, there would be one dominant app. Now, the question is, what else does that app have to do for you to use it for other things?

The point is, it’s a risk pool. The genesis of this was, when we were talking about our price prediction, we’re right 95% of the time. We tell you to wait for six weeks to book a flight, so you wait and save money. But what about that 5% of the time when we get it wrong?

With technology, if you’re able to predict things, if you’re able to create a digital experience, in principle, you should be able to cancel out every possible risk that you face when you travel. It turns out that A) you can, and B) that almost everybody has one thing that they worry about when they travel — some people care about prices, others care about arriving on time, some people just are worried the hotel is going to suck. But nobody worries about everything going wrong. Today, at least one of these add-ons are attached to 70% of the travel transactions we sell. When customers buy them, they average 1.7 per booking.

If the average number of add-ons purchased per customer increased, would that affect your ability to offer them? Let’s say, customers started buying three or four each, instead of 1.7?

Well, you’re describing a pandemic. So, yes, we have seen tap rates go super high. But one way to think of it is as a portfolio: When you have product disruptions — a variant like Omicron comes in, or there are staff shortages and 1 in 4 flights is getting canceled, people hear that in the news, they add our Flight Disruption Guarantee. But you know what’s happening at that point? Prices are low because there’s a pandemic. Then the pandemic ends and prices start going up, and they no longer care about disruptions as much, but now they want to freeze prices.

In that first month of the pandemic, when all the planes in the world got grounded, we lost money because we had to refund 500,000 people. But apart from that, in every month since, these add-on products have been profitable because they basically hedge each other the same way a hedge fund has a portfolio that’s long and short at the same time, depending on what their thesis is.

The Western motivation for social behavior, which is staying in touch with friends, bragging, and posting, is not the only way to do it. People will do it for rebates. They’ll do it for discounts.

We hold enormous amounts of theoretical risk, but not everybody is going to wake up the same day and cancel their flight for no reason. Also, it turns out that when there’s a global disaster that grounds all the planes, airlines give future travel credits. So we didn’t actually have to refund people, we just needed to rebook them. I think we’ve seen every possible weirdness aside from aliens invading Los Angeles. I can’t tell you what happens in that case.

Are the add-ons more popular with a certain subset of your customers, or have they proved to have broad appeal across your customer base?

Hopper CEO on Super-App Ambitions and Becoming an Everything Startup

If there’s a pattern, we can’t find it. What we have found, though, is that every individual has a preference. So some people will never do the price protection, some people will always do it. And so it seems to be that the more of these we create, the broader the appeal of the portfolio. We’ve done one very recent experiment offering a bundle in hotels. You can pay a premium to control for whatever goes wrong. It seems to be popular because, I think, everybody’s a little anxious about a lot of different things in hotels. But, in air travel, people are used to cherry-picking. Just look at low-cost carriers, where everything’s an add-on. What people worry about when booking a car is different too. All these forms of travel are different by nature, even though they’re part of the same trip.

Some of the add-ons you sell are also offered by airlines as part of the cost of a ticket. If you buy a business class ticket, or even premium economy, it probably includes free cancellation. So these extra conveniences aren’t all net-new ideas. But it seems like you’re making them available to everybody for a price, rather than as a perk for select travelers. Is that right?

It is, except that there are a few things. Cancel For Any Reason is probably a good example. A business class ticket is about an order of magnitude more expensive. Cancellation comes with it, and that makes sense. But many leisure travelers aren’t booking those tickets; the vast majority of people who travel do it in economy and basic economy, or stay at three-star hotels. And those prices don’t come with all these things. Fifty percent of what people book are discounted rates, which aren’t cancelable or changeable. With Hopper’s Cancel for Any Reason product, you pay a premium upfront. Then, if you exercise the plan, you get at least 80% of your money back.

Second, we don’t want to disrupt our suppliers’ revenue management. One of the reasons they have this is for business travelers, where the traveler isn’t paying, so they want to buy the top-shelf stuff. The last thing you want to do is create a product that destroys the airline, or the hotel, or the car rental company’s business, because that’s just not sustainable. Everybody has to benefit. As a very smart friend of mine once said, “There are two ways to make money, bundling and unbundling.” We’ve unbundled the high-end products.

Leisure customers trying to get a good deal will drop $50 to cancel out their anxiety, but they don’t want to overpay for the thing they view as a commodity. We didn’t invent this principle. We’re just figuring out how to do it well in this category.

In 2021, Hopper was the No.1 fastest-growing OTA app, followed by Expedia, Hotwire by Expedia, and Booking.com. You’ve described Hopper as on its way to becoming the first travel super-app in North America. As you see it, what’s required for Hopper, or any travel app, to become a bonafide super-app?

There’s a fascinating cleavage between the East and West right now. In China, Pinduoduo launched the same year we sold our first ticket. And Alibaba has basically been around as long as Amazon.

One notable thing when you look at Southeast Asia is that credit card use has historically been low, so businesses had to invent digital wallets. The super-app, in my view, is an accidental by-product of the Asian evolution of e-commerce.

Also, when people shop for leisure travel, on a desktop, old people like me look at an average of about 38 websites before we book. For that reason, Google is the dominant travel platform. They’ve reaped billions of dollars a month for decades. Everybody goes back to Google and does a search, but nobody switches between 38 apps that do the same thing. If everybody were using apps to buy travel, which is what young millennials and Gen Z do, there would be one dominant app. Now, the question is, what else does that app have to do for you to use it for other things?

You need to be rewarded for behavior in the app. With Pinduoduo, you can go in and play a game, and then get credit to use in the real world. If you share that game with other people and play it every day, you can get more credit. It’s like Amazon meets Clash of Clans.

Dara Khosrowshahi, at Uber, has been transparent about how they’re slowly moving into doing that. Grab has tried travel in Southeast Asia. Then you have your Chinese companies like the Meituans, and the Alibabas that have Fliggy, where they’ve already integrated travel. And Pinduoduo sells lychees, iPods, and hotel rooms. I believe it’s a Western anomaly that Amazon isn’t into travel, that Facebook doesn’t sell anything, and that Snapchat does no e-commerce. I think it’s because we’re used to a Western construction for older people that is slowly getting eroded. And just like QR codes, just like text, as people adopt the technologies, we’re going to become more and more Easternized.

It stands to reason that either one of the travel companies will add high-frequency purchases to what they’re doing. We’re one contender for that. Or a high-frequency app that does delivery, like Uber, will get into travel. Or one of the e-comm companies is going to get into travel. It has to end with a couple of companies that offer a lot of things, and travel is just one thing.

How many super apps would one person reasonably use?

One or two. You can look to Asia. There are usually three players that take the pie, usually even-steven. Everybody gets one-third.

In 2010, BlackBerry founder Mike Lazaridis defined a super-app as a “closed ecosystem of many apps that people would use every day because they offer such a seamless, integrated, contextualized and efficient experience.” Do you think that definition still applies?

That’s from 2010 — it’s kind of remarkable the vision those guys had. It’s also remarkable how they didn’t execute on it, if they knew this. Habit and functionality are definitely involved. But, fundamentally, I think there are two important parts to the super-app definition.

First, I don’t think a super-app can exist without a closed credit ecosystem. The second part, which is what Pinduoduo does well, and they started this, is engaging to earn. You need to be rewarded for behavior in the app. With Pinduoduo, you can go in and play a game, and then get credit to use in the real world. If you share that game with other people, or you check in, and play it every day, you can get more credit. It’s like Amazon meets Clash of Clans. It’s super weird from the outside, but if you think about it, it makes sense: You have all this behavior that people do every day on their phones, and they pay to play games. Well, Pinduoduo went and said, “Instead of you giving us money for that, we’ll pay you, but you have to do it.” Pinduoduo has these things where they pay you to scroll for 60 seconds. It doesn’t matter if you buy or not. But if you stop scrolling, they stop paying.

The overwhelming focus in the West has been about discovery … We have definitely fallen on the other side of that. We think the only thing that matters is price.

One of the things the Asian apps have done is figured out that the Western motivation for social behavior, which is staying in touch with friends, bragging, and posting, is not the only way to do it. People will do it for rebates. They’ll do it for discounts.

Gamification of travel isn’t a new idea. It’s been a predicted trend since 2011, at least, based on old forecasting reports. And there are numerous examples of legacy travel brands trying to leverage it. In 2013, Expedia ran a 15-week gaming contest where players assumed virtual travel avatars, and could earn rewards points by completing tasks that translated into real-world value. What’s different about the way you’re using gamification?

Again, I think it’s an East-West thing. Gamification has been happening for a while. On Facebook, back in like 2006, you could build mini games. That’s how Zynga built a bunch of these travel things that got super popular. Every couple of years, somebody builds some crazy, “Where Have I Been?” app or “Who Am I Traveling With?” app.

The overwhelming focus in the West has been about discovery — traveling with other people, bragging about where you’ve been. They’re all about the experience of travel. We have definitely fallen on the other side of that. We think the only thing that matters is price — the bulk of leisure spend on the planet is about price. Why we are looking to the East is not because there are no smart people in the West. It’s because we cannot find anybody who has said, “Social behavior for future booking credit.”

One of the crucial components is the concept of live ops; these platforms are continuously creating sales of virtual items or events, where things are cheaper and if you team up with other people, you can accomplish things more easily. That’s a very logical thing to do in e-commerce, especially if you’re working for many months to knock off $200 a person for your trip to Disney, which many people have to do.

So we’ve been running sales every month now. These are the days where you can buy $7 piñatas that are full of carrots (Hopper’s virtual currency). Suppliers will participate in that; they’ll discount for 24 hours. Then the question is: What can you do leading up to that?

One of my favorite comps for this is Shopee, the e-commerce arm of Sea, a Southeast Asian gaming company. They have this thing called Shopee Shake. It’s fascinating. Let’s say there’s a sale over the weekend. At 9 a.m. on Saturday, for example, a million dollars worth of credits to use in the sale becomes available. At 9 a.m., you have to log into the app and shake your phone as hard as you can for 15 seconds. If you’re there first and you’re shaking harder, you’ll get a fraction of the total — $8, $10, $100, who knows. But here’s the thing: If three people get on this hangout together and tell the app they’re going to shake as a team, everybody earns a multiplier. People wake up, they set alarms, to save $8. This is the Asian view. Every part of the phone, whether it’s the camera, the gyroscope, or whatever — like every part of the animal — is used for engagement. We don’t think this way in the West yet.

I fundamentally believe that social and engagement, directly traded for commerce, like lower prices, is foundational. Almost every demographic will participate. All we have to do is build those apps.

This interview has been edited and condensed.

Posted Related Articles

The Marketplace Retention Metric Most Ignore

Olivia Moore

The Marketplace 100: 2022

Olivia Moore, Brandon Barros

Beyond Metcalfe’s Law for Network Effects

Andrew Chen

‘Deep’ Job Platforms and How to Build Them

D’Arcy Coolican, Jeff Jordan

13 Metrics for Marketplace Companies

Jeff Jordan, Li Jin, D’Arcy Coolican, Andrew Chen

Join the Newsletter

Technology, innovation, and the future, as told by those building it.

Thanks for signing up.

Check your inbox for a welcome note.

Views expressed in “posts” (including articles, podcasts, videos, and social media) are those of the individuals quoted therein and are not necessarily the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

Latest: Sharing 'the joy of gaming': Ontario health-care centre helps patients with disabilities play video games
Next: 2023 Nissan Z First Drive: Shall We Dance?
Popular Articles/span>
Back to top