Phocuswright 2022: Hopper founder predicts social commerce will drive 'profound change'

Frederic Lalonde, told the annual conference in Phoenix, Arizona, last month that the travel app it will challenge the big two OTAs and become profitable by giving the money they spend on online advertising direct to customers 

Co-founder of fast-growing global travel app Hopper is confident that giving cash to customers instead of spending it on advertising will make it a profitable rival to the big two global OTAs.

Frederic Lalonde, Hopper chief executive, predicted a “profound change” in online retailing as social commerce, a model already well-established in Asia, takes off globally.

Lalonde pointed to Chinese ecommerce giant Pinduoduo as proof the concept works, as well as language learning service Duolingo and four-year-old brand SHEIN, now the US’s number one fast-fashion app.

Lalonde warned social commerce is risky and can go wrong it having propelled Hopper briefly to the number one travel app spot in Spain, Italy and Colombia before it “imploded” and then started working again.

But he said very little has changed in travel ecommerce since the first flight was sold online by Travelocity in 1994 and social commerce is poised to usher in a new era. 

“Social commerce is totally different,” he said. “You don’t spend money on Google you don’t even spend money on Facebook or TikTok. 

“It’s a complete fusion of what social media does and the transaction to one company one experience. Video is eating the world. No one reads anything any more - for good or bad that’s where we’re heading.

“We’re all just going to stare at our phones all day. We are two to three years from a profound transformation of everything, all commerce everywhere.

“First you have to be an app with a lot of things, a lot of buttons, but fundamentally what you say is instead of giving $40 or $50 to acquire a customer to Mark Zuckerberg I’m going to give it to my customer.

“I’m going to make them play a game, check-in, do a mission list. We were on track to spend $200 million on advertising, we were TikTok’s largest advertiser in 2019, and this year we are almost at zero. We are literally giving all that money to our customers right now.”

An example of Hopper using social commerce is a sales promotion in which it sold digital piñata for between $5 and $14 that contained virtual credits or vouchers that fall out when ‘struck’ by the Hopper brand’s bunny.

Lalonde said: “Fundamentally we’re funding digital products. We sold more piñatas that day than flights. People are actually putting money into the Hopper app for virtual products. It’s real money.”

This is both making travel more affordable and enabling Hopper to acquire customers who will not go off to buy their travel with a rival brand. “There’s a magic in that,” added Lalonde.

Hopper believes it is not only tapping into a generational shift but an evolution of ecommerce epitomised by brands like TikTok that has emerged rapidly to take on the biggest social sharing sites on the planet. 

“That engine has been proven in Asia since 2015. It’s already happened. Out here in the west we are like cavemen, we just haven’t figured this out yet. This is not for the faint of heart because you are giving away lots of money virally, so you can get into a lot of trouble. Luckily we are at a scale where we can start to do this.”

Currently Hopper derives a fifth of its business outside of its US home market, up from just 2% pre-pandemic, but it expects that to hit 50% as it’s new B2B division Hopper Cloud, which is allowing third parties to use it fintech products, takes on new partners. 

The most recent Cloud deal was agreed with Nequi, the first neobank in Colombia, to power its travel offering. Lalonde revealed Cloud currently generates “hundreds of millions of dollars” equating to 40% of the firm’s $5 billion top line revenues.  

“What’s surprising is the sheer velocity of that. There’s an immense opportunity with suppliers - airlines and hotels. There’s an infinite amount of companies that want to unlock new customer spend as ancillaries. 

“You’re basically going round saying do you want this bag of free money. So, it’s not that hard to sell.

“When you go to a marketplace or a booking site where fintech is fully staffed, you have all our products, customers spend between 12% and 15% more. That means there is somewhere between $200 and $400 billion of unrealised fintech spend for the taking. Just put the products there and people will buy it.”

Lalonde said becoming profitable was “just a matter of time”. “Our US and cloud business are basically at break even, and we’re pouring large amounts of money onto international expansion, large amounts into building direct hotel supply and building up homes inventory. 

“We have been raising lots of money and have incredible partners in Capital One and investors and you just don’t sit on half a billion dollars of cash and do nothing, you have to put it to work. 

“We have been transferring our paid spend, the money we’ve been giving to Mark Zuckerberg, and giving it to the people in this room [customers]. What this is doing is creating a growth loop that is better, but it’s ending up costing us a lot less. 

“Hopper’s bet has always been that the app is stickier, and if I get you to transact with us on one product within a year or two I will start to generate money. This is how companies get in trouble, they do a lot of paybacks   

“What’s happened to us is those [paybacks] have shortened, we are actually making money and our cohorts are sticking around with us and they are buying. The only problem is it’s a giant category and you compete against formidable companies. 

“Expedia, booking.com, Airbnb are unbelievable companies, they have scale and they make money, they’re profitable. We have to close that gap and that’s about getting bigger, building better products and getting more supply.”

Hopper was launched 15 years ago, and Lalonde was asked whether the time it will take to scale and eventually become profitable indicates he is naturally patient. 

He said: “When we started we thought we were a technology company and then we became a customer obsessed company. You can be a technology company if you have the best algorithm in the world to find content on the web or if you have a microchip no one else can make.

“But travel is essentially a commodity, so you have to understand that your number one asset is understanding what your customer wants, and so it took us too long to become a customer obsessed company.

“We could have gotten a lot bigger a lot faster if we had started cueing into customer needs at a lot deeper level like we’re doing now. 

“To me, it’s all about how quickly you realise that you don’t matter, your investors don’t matter, your company doesn’t matter. What your customer needs or wants, whether they know it or not, is the only truth that matters.”

Lalonde issued a direct challenge to all of Hopper’s competitors to take sustainability seriously and to offset the CO2 of all its customers as, he says, Hopper is already doing.  

“Unfortunately there’s been a lot of greenwashing around ESG [Environmental, Social and Corporate Governance] and it’s a complicated topic. Here’s what it comes down to.

“At Hopper we took a decision in 2018 that we would offset all the CO2 emissions of all our customers for every hotel, every plane. The only way to do this now is plant trees. You have to plant them in the right place, you’ve got to plant them sustainably, you have to pick the right partners. 

“We have planted 13 million, and we have commitments where we have already paid out for 25 million. I am basically challenging all the CEOs of all the other companies. We can do this now, start offsetting all of the CO2 of your customers right now off your P&L, full stop, nothing else. Because this is an emergency and we have to stop screwing around.”