One night in the summer of 2010, after having a fun night out with his wife, Jared Simon decided they should book a last-minute hotel room in San Francisco, rather than make the trek home. As fate would have it, he was planning on catching up with Sam Shank a couple days later. Over coffee, Shank started talking about a new idea: creating a company to serve spontaneous bookings.
Simon, Shank, and their third co-founder Chris Bailey bootstrapped their startup. Simon was in charge of getting hotels lined up. Shank was in charge of getting demand and consumers excited about the idea. Bailey, who had worked with Shank at a previous startup, was in charge of building the mobile app.
In December 2010, without having raised funds, they launched HotelTonight in three cities: San Francisco, Los Angeles and New York, with only a few hotels signed up in each city. The rest is history. They went on to raise their first round the following year. Since then, they've raised $80 million, with $45 million having been raised in early September.
In this interview, Simon talks with Bambi Francisco of VatorNews about expanding HotelTonight. Here's some snippets (slightly edited).
[Editor's note: Shank will be speaking at Vator Splash SF on Oct 2, sharing his lessons learned that he brought to HotelTonight, but also the lessons he's had to learn while building up his latest startup. Go here to register for Splash SF!]
Q: Tell us about your expansion plans:
Simon: We want HotelTonight to be a verb that anyone around the world can use. We want them saying, "I'm going to HotelTonight it."
Q: How many cities?
Simon: We're in 150 cities. We just launched in three new cities in three new countries. We're now in 15 countries and close to 100 cities in the US. We expect to launch another 40 cities. Typically, it's 15 hotels in each destination so the hotels can be rotated each day. You can never see a deal from a hotel two days in a row.
Q: Describe the app:
Simon: For whatever reason, your plans have changed, you're out in the city and extend the night. A hotel might be nice. HotelTonight is the world's first booking service dedicated to that use case. We're exclusively mobile on Android and iPhone. Every day at noon, there's a limited number of hotels available. You can book from noon to 2 am. We curate. Our promise is we only display the best hotels each day. Hotels see us as a way to attract new guests by using their rooms that would have gone on unbooked.
Q: You really focus on quality vs quantity. How do you select your hotels?
This is what distinguishes us. Every city that makes it onto the hotel is vetted by staff. We only display a limited number. We don't work with every hotel. We take the cream of the crop. Hotels that offer something interesting and hotels sophisticated operationally to process reservations in real time. We want our guests to be able to book.
Q: Average discount?
Simon: Between 20% and 70% discount. Average is somewhere in the 30%.
Q: Average room rate?
Simon: Depends on the market. But generally, t's around $100 per room. Now you can purchase amazing suites - High Roller Feature. It's going to be more than $100 per suite.
Q: How many rooms booked a day?
Simon: We don't disclose volume numbers. We're on track to grow 300%. In many of our cities, we're a significant driver of last-minute
Q: Why 20%? We're developing an expertise in real-time, in-the-moment commerce, we can work in just about any industry. The reason we chose hotels is there's an infrastructure and the 20% commissions is a reasonable and competitive commission.
Q: What’s so special about your relationship with the hotels that you can get the inventory?
Simon: We knew going into this that we were coming into a crowded field. There are a lot of well-funded companies that have great relationships. The key for us was picking something that offers incremental value to our customers. In order for us to have value, it had to have incremental value. No one was offering these unused rooms at the last minute. On one hand, we offer an unique product to hotels. The other reason hotels like to work with us, we've set ourselves up as a friendly tool.
Q: When do the other guys get inventory? Expedia might compel those guys to give them inventory for the whole year. As a result, the pricing on that inventory could be poor at the moment you need to book it.
Q: Any objections from brands/hotels that don’t want to put pressure on their premium inventory?
Simon: It's certainly an objection we face. I don't want to train people to buy at the last minute at a steeply discounted price. That's part of the innovation. Because we only display a limited number of hotels, you'll never see the same hotels the next day. Suppose you book the Hotel Vitale, if you’ve got another trip to SF in two weeks, you’re not going to wait to book at the Hotel Vitale. You’ll book at full price. We’re driving hotels new users.
Q: How do you measure new users?
Simon: It's hard. Anecdotally we see that. We survey our guests. 90% of our guests say they've never stayed at the hotel.
Q: How big is this market? Why did you think it would be a big market?
Simon: Because it is. Online hotel bookings $450 billion globally and 15% is same-day bookings. That's upwards of $60 billion a year on same-day bookings. We believe we're increasing that 15%. Our chief competition, the source we're stealing the most share from is your friend's sofa. You're in SF and staying late. You can go home, crash at a friend's couch, but if we could give you a great deal, you might stay.
Q: How do you personalize what people see and what kind of information are you aggregating?
Simon: Our ideal goal is to show you one option. That's what we're going to get to. We are gathering implicit observed behavior. There's seven million downloads. So we now have a data science team who are discerning trends from it. We can start to tell what kind of hotels you prefer. We'll know that you're traveling because you're at a hotel that you're not typically at.
Q: Social involved?
Simon: Stay tuned. There's little bits of social. Earlier this year, we released "Snap your stay" - the first photo review. It's a pain to scroll through these review essays. One thing we know is that every single one of our customers is carrying a camera. So we wanted to give them a structured way to post a photo. We see people emailing them and sharing them.
Q: Why focus exclusively on mobile?
Simon: Firstly, during platform shifts, travel companies are at the forefront. Secondly, incumbent players on the last platform have seldom - it takes a new DNA to optimize for the new experience. no one is focused exclusively on mobile except HotelTonight. What are traditional online competitors have tried is they port their experience on a mobile app. They’ve already started trying to compete. They started doing that quickly. We're surprised at the speed at which they did this. They did this fall 2011. But because the value proposition is "breadth" of offering it becomes a really cluttered experience. It's difficult on the relationships with hotels themselves.
Q: What about the younger startups? And Blink being acquired by Groupon?
Simon: We've been validated in a sense there's been lots of clones. Blink was one of these. What we found with a lot of these clones is that they look at this app and say I can build this simple and elegant app. But what they don't realize is 90% is the behind-the-scenes, e.g. supporting the connectivity with hotels to make sure reservations get there quickly, to fraud-prevention measures to making sure credit cards are safe, to support 24/7 customer support in all the languages we support. There's a lot of work behind the scenes.
Q: When and how will you expand beyond last-minute booking deals?
Simon: The nice thing for us is we've developed an expertise to help sellers of distressed inventory with buyers. We can apply this to any industry that has perishable inventory. What's great about travel is that it's enormous and there's tons of opportunity in hotels. We can expand into an adjacent market. But we do have a responsibility to our guest to ensure they have a fantastic stay. We're going to make sure the hotel is great, and the process is seamless. Given you'll have your phone with you, there's a lot of communication we can have with you to make sure you have a great stay. We're focused on personalization, relevant and perfect hotel options.
Q: We touched on personalization. How will that look next year for the consumer?
Simon: Our goal is to make the booking process as easy as it can be. Our responsibility is to intuit as much as we can to make sure you don't have to tap a bunch of options. We know our guests are traveling alone or with a significant other, so we know there doesn't have to be a number of room options. Sometimes, you're interested in a hip hotel. Sometimes a basic hotel. We need to know that. We could improve the algorithms.