CHAPTER 7: TECNOLATINAS PROFILES
Hotel Urbano: A crocodile in the Amazon River.
Industry: Travel, E-commerce
CEO: José Eduardo Mendes
HQ: Rio de Janeiro
Offices: Rio de Janeiro
Hotel Urbano is one of the most successful travel agencies in Latin America. Founded by brothers José Eduardo and João Ricardo Mendes, the company praises itself for offering the largest catalogue of hotel rooms all over the world to the Brazilian audience. But this site offers much more than that. As a full service online agency, it sells airline tickets both domestic and international, and travel packages to the most popular Brazilian and global destinations.
Founded during the daily deals boom in 2011, Hotel Urbano started up as yet another Groupon clone, albeit focused on the travel vertical. This means the site only sold closed packages that were available for short periods of time, at bargain prices. However, only five months later, its founders realized the business was not working as expected, and reshuffled the company into a more traditional online travel agent.
The company’s success at positioning itself within the Brazilian market, allowed it to receive over $135 million dollars in funding in five different rounds, from investors like Insight Venture Partners, Tiger Global Management and, at some point, competing travel site Priceline. More on that later.
It’s local focus allowed Hotel Urbano to thrive, and to be able to resist the pressure from global competitors like Booking and Expedia. “They may be a shark in the ocean” the company’s CEO said in reference to this companies “but we are a crocodile in the Amazon River”.
This candid metaphor is indeed accurate. The company, which uses big data to track the behavior and preferences of its massive user base, appeals to a niche of travelers who are not quite as certain about their holiday destination, as the typical user of its competing sites. And, in the same way a predator waits for its prey, the company monitors social network conversations, and targets users who mention they wish to travel, or who fit certain patterns they have identified.
Another major difference with some of its competitors is that Hotel Urbano sees itself as a purely digital platform, and so they do not operate a sales call center, but rather keep every transaction online. This helps them keep costs down, and while it may involve a slight cost of opportunity in the short term, its founders are confident that is the best way to educate the public into the benefits of online e-commerce based operations.
Focusing on accommodation, and less in flights and other travel services, has helped the company keep the revenue up. Hotel companies, unlike airlines, pay high commissions, and are eager to rely on partners to acquire guests. Hotel Urbano has been fostering a healthy relationship with over one million hotels in Brazil, an that has been its secret sauce, not just to make money, but also to stay relevant in a market where external regional competitors like Despegar (Decolar.com), Expedia and Priceline are competing for a slice of the market share.
It is in this context that, in 2015, Hotel Urbano signed a deal with Priceline, which invested $60 million dollars in the company in a series E round, for an undisclosed portion of the company’s equity. Things didn’t work out well, and an internal power struggle ended with the company’s founders out of the helm. A few months later, however, the brothers repurchased Priceline’s stock in September 2016, as well as stock held by Tiger Capital and Insight Venture Partners, which combined held more than 50% of the company’s equity. With a previous valuation of $560 million dollars the operation was undoubtedly massive. But the political and economic crises in Brazil, combined with a halt in the travel sector due to the Zika virus spread, undoubtedly reduced growth expectations for the company, and allowed the co-founders to buy their former investors stake for less.
Now, as the Mendes seek new strategic partners, and as expectations around the Brazilian economy start to improve, Hotel Urbano is recovering the hype, and getting ready to start competing once again to hold its leadership in its market. However, competing against regional and global adversaries can be tough, as the company is to tied to the ups and downs of its home country. For this reason it is reasonable to expect that, at some point, this website will start exploring other markets and begin an internationalization process, even if that risks the excessive focus its team has been able to put on Brazil and its consumers.
Hotel Urbano is yet another example of the big potential Brazil has as a standalone market. And of the massive growth opportunity any company that serves the country’s expanding middle class has. For that reason, it should not be surprising that this company gets the funds it needs to keep on growing, and to overcome the challenges it faces, in the short term.
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