Frederic Lalonde, Founder and CEO, Hopper
HopperA Series of Q&A interviews with innovators operating at the intersection of consumer behavior and business transformation: Frederic Lalonde, Founder and CEO, Hopper, a mobile app that predicts airline and hotel prices, allowing travelers to save up to 40%. To date, Hopper has helped 30 million travelers book trips around the world, saving them more than $1.8 billion.
Bruce Rogers: Tell us how Hopper came about?
Frederic Lalonde: I’ve been an entrepreneur all my life. I started my first company Newtrade technologies in 1997 when I was 19. And I sold itto Expedia in 2002. I ended up joining Expedia as a result of that acquisition, working with and learning from Expedia founders Richard Barton and Lloyd Frink. They’re now doing Zillow among other things. Expedia was a formidable consumer company. And a lot of what we do today at Hopper is inspired by those learnings.
And if you followed anything from that group, the central thesis is: Take a consumer category that has consumer anxiety and a few gatekeepers that control limited information and blow it open through transparency and trust. And then build up the business. And then think of a really big category, because, we want to build a really big company. That’s what they did at Zillow and Expedia. And I come from that school, having worked with them. They basically picked me up as a scruffy kid and taught me a lot of this stuff. So, a lot of what you’ll find at Hopper is from that lineage.
Rogers: When did you start the idea for Hopper and how did the concept evolve?
Lalonde: Hopper was started over a decade ago in 2007. And our thesis back then was not as developed as it is today. But, after spending some time at Expedia, I was in shock at how little the category had evolved. Digital travel – travel sold online is a $800 billion global marketplace. And mobile, the segment that we’re in, is about $270 billion. So, for scale, ride-sharing is about $40 billion. So, this is a gigantic market.
It’s bigger than all cloud services. It’s bigger than all social media revenue, all search revenue. It’s bigger than all gaming. And, of course, it’s fragmented. There’s no Amazon of travel. The biggest company has a 10 or 12 percent market share. But, it’s also something that’s kind of boring. The category today looks a lot like it did in 1997.
When we started, it was on the eve of big data. My thinking was that although these online travel businesses had taken the inventory and made it available online so that you no longer needed travel agents to buy stuff and compare – nobody had really pushed the consumer value proposition much beyond that. And so, our original idea was: Lets aggregate an ungodly amount of information at a scale that nobody would ever think of doing. And then, in that data, there must be a way to create consumer value in a way that nobody else has really done. And let’s not just build an engine that’s focused on transactions, but let’s try to provide insights before we try to sell something.
We started on the web before we pivoted to mobile. It was about aggregating a lot of airline data and a lot of discovery data to answer the query, “Hey. I want to go direct-flight to a beach for $300.00.” So, this mythical discovery use case, it turns out, didn’t work. But, in the process of building that, we discovered that people had an unlimited amount of anxiety around when to purchase a ticket.
And all those online travel agents that played with forecasting, nobody had really taken the customer-centric view and built up the dataset to do it. So, if you look at our history, we’re in year-five of being a consumer app itself and have revenue, but it took us six years and we spent almost $12 million building the data infrastructure to prior to that. And this was back in the lean start-up days when you were supposed to launch your company in six weeks. So, people were throwing rocks at me for doing it this way.
We believe that if you could aggregate data at a scale that works, something magical would happen. The first version of what we launched was able to correctly predict airfare up to a year in advance. So, instead of saying there’s a probability that it’ll go up or down, we were saying, “It’ll be $200.00 in six weeks. Wait.”
The data gave us the ability to have great certainty around this. And it’s because we’d aggregated data that had never been pulled out of the legacy systems. We actually found a new dataset – that had been around from the 1960s, but nobody ever thought was valuable. The companies that we bought this data from were throwing it away. It’s one of those like Cinderella stories for data.
It took us years to get these deals together and build the infrastructure. We were making our own servers. We had no clear path to revenue and no clear path to monetization. And then we released something on the web and we were very, very quickly told that airlines didn’t really appreciate us sending them free customers. (Laughs). Back in those days, mobile was 12 percent of the category in terms of transactions. So, it’s not like today where it’s half. I had the chance to work a lot in India when the cheap Android phones hit the market. We saw online travel in India go from 12 percent mobile to 60 percent in one quarter.
So, I made a really crazy bet. After all this time in building a website that people wanted, we shut it down and we built an app. And then we released it in the Apple store.
Rogers: What was the business model?
Lalonde: We weren’t selling tickets, it was just the prediction and the advice. And the idea was very simple. It was: We know the future. Don’t shop for your own airfare. We’ll send you a push notification when things change. And, today, for scale, we send over a billion push notifications. Ninety percent of our revenue comes directly from these push notifications. We sell in 126 countries. And the app is used to track about $18 billion in travel. So, it is a very, very successful value proposition to say, “Don’t do any work and save money.” [Laughs].
It’s what consumers want. Taking a completely different approach on the phone opened up what turned out to be conversational commerce. And I don’t mean a bot, I mean having a long-term dialogue over this new technology. Because the phone is a personal device, it created a completely new type of environment, completely new user acquisition. So, everything about Hopper looks like nothing that I’d seen before in the web world, and it’s why we’re only app-only. But, fundamentally, the genesis remains the same. It’s about using data to create trust and transparency to help consumers, and then assume that through this trust commerce and revenue will happen.
Some 70 percent of what we send to our app users tells them not to buy. So, we are an e-commerce company that spends 70 percent of its resources convincing customers not to transact on us. And we don’t make money in any other way. We don’t do advertising, never will. So, it gives you a sense of how differently we’re built in terms of the philosophy.
Rogers: Do your app users intuit that immediately?
Lalonde: We onboard you to a prediction screen, not something you can buy. And you have to tap through to see the actual product. And the main action we try to get you to do is watch. Which it’s literally a thing we invented. It’s not like anything that other people have. The app has been used to plan about 100 million trips this way. And what you will see is about 200,000 “watches” are added every day. And most people don’t buy from us still. We only sell between $1 and $2 billion worth of travel a year for about $18 billion tracked on it. So, a lot of people use it just as a planning tool. But if I save you money, eventually we think you’ll become our customer. And we’re very patient and work long-term. We try to give you a good outcome and believe that over time you’ll become our customer.
Rogers: That is an unusual business model to say the least. But, I do feel that it is going to be increasingly the future of data-driven companies, because people otherwise won’t trust you with their data.
Lalonde: I think the expectation too is shifting. We can see this in our data now. Twenty out of a 100 tickets that people buy never ask for that particular destination or date pair. And we’re doing that because we’re able to be so much smarter about the way that we do recommendations. And part of the magic is not even just the tech, it’s the consumer behavior. When people are told, “Don’t do this yourself, the computers are much better at it. We have your back,” and they trust us, we see that the advanced period at which they start tracking flights, for example, is much longer. So, we’ll have an average of 90-120 days. We will see you as a user 30-40 times before youpurchase from us. This gives us an incredible amount of time to understand what you really want, and get to know you and do a better job at recommending things. And I think that’s the future of all commerce, not just travel.
Rogers: What was the most surprising consumer behavior that you found when you started to introduce this?
Lalonde: When we first released the app in the U.S. And we got a call from Apple on the night of the release, and they said, “Hey. This is Apple from Cupertino.” And Apple doesn’t typically call developers. They asked us to release it worldwide, because they were getting a lot of people outside of the U.S. who wanted to have it. And, of course, we’d never tested outside of the U.S. It went on to get a million downloads around the world. Also, the idea that people would drop thousands of dollars on their phones on a flight because we sent them a notification. We had no idea that people were going to do that. And, immediately, the first week, the app sold a thousand tickets.
It turns out that people plan longer ahead on Hopper than on the web. They buy bigger ticket prices, they spend more money. Also, people thought that if you forecasted prices, you’d only get people that were looking to buy the most budget products. We have a higher mix of upgrades and premium tickets sold. We learned that the ultimate convenience of having it on your phone and that we do the work for you trumped everything.We believe that everything will be on the phone and the web will seize to exist as a material commerce funnel.
Rogers: It certainly is true for many markets outside the U.S. already.
Lalonde: Anywhere where there’s not a solid base of laptop usage, mobile skipped right over. They went straight to the phone. And when you look at China, money no longer exists, with most transactions happening on the phone.
Rogers: What does the future look like for Hopper?
Lalonde: Our competitors outspend my annual budget every two hours. So, that gives you an idea of the scale difference. However, almost every month for the last two years we’ve had more downloads and more users than them on our app. So, it shows you that something fundamental is changing in mobile. I believe we’re a good company, but that is happening because the world is changing around us and we’re at the right place in the right time. I know from my past experience, when those moments happen you don’t get a redo. The world’s going be a completely different place because of the mobile commerce and mobile in general. We fundamentally believe that Hopper should be the largest mobile travel company in the world. And, for scale, our competitors sell $100 billion in travel.
Rogers: Where did you grow up?
Lalonde: I grew up in Quebec City, but I was born in a suburb of Montreal. I then spent five years in Ohio. So, weirdly, I consider myself a Midwest kid. And then we moved back to Canada when I was pretty young. I didn’t even make it to college. And I’ve never really held a job. I started my first company when I was 19. So, I’m functionally unemployable (laughs).
Rogers: Where does this idea that you could build a business come from, especially at such a young age?
Lalonde: My dad’s a university professor and was very into computers. He had all of this computing power. And this stuff was expensive back then.The first mouse-enabled computer Apple made was called the Lisa and it cost $22,000.00 in 1983. We had two of those in my home. So, when I was 12 I taught myself to code. I’m one of these early hacker kids. My history is being this weird outcast before it was cool to be a nerd (Laughs]. When you grow up in the fringe of that, you’re thinking gets affected by it. Not that I’d been particularly inclined to be a conformist, but, by the time I reached 19, I was done with school and just wanted to start something on my own.
Rogers: Did you have mentors or somebody that you knew was an entrepreneur? I don’t think of either Ohio or Quebec as hotbeds of entrepreneurialism.
Lalonde: Now it’s actually pretty good in Canada. It has a thriving ecosystem. But, back in the day, it was really bad. We raised our first round of capital in 2000, right after the crash, on my first company. I had worked a little bit in the states. And it was just that nobody really knew what they were doing up here. We kind of plowed through with creativity and grit and that’s what builds good entrepreneurs-a lot of adversity early on.
The first time I met somebody I would call a mentor is when I met Richard Barton and Lloyd Frink. Those guys bought my company, which was cool, but then they gave me an amount of responsibility that was unreasonable for a 27-year-old. Because, they would just trust people to learn it. They’re some of the best entrepreneurs I’ve ever worked with, and I’ve met a lot by now.
So, going from a scruffy kid to actually getting tradecraft and an understanding of, not just computers, but how people work and how to build companies and business models, that was really the four years I put in at Expedia. Those were transformative. Not just the philosophy, but the tradecraft. That was such an amazing company.
Rogers: Thank you
