How eDreams Became the First Spanish Unicorn
Bernat Farrero interviews Mauricio Prieto, co-founder of eDreams, the first Spanish unicorn.
eDreams is one of the pioneering companies of the Internet and the tech sector. It’s a company that grew and achieved a very important position and that went public. It also integrated many more companies and to this day it’s a very important company in the travel sector.
Thank you for having me. Yes, that is correct! In other words, placing it within the entire travel environment, perhaps eDreams is in the top 3 worldwide in terms of flight distribution, which is what it has focused on. I was in eDreams for sixteen years, since 99 when we started the company. In fact, eDreams’ idea and concept started in California.
Have flights always been the main product of eDreams?
No, the initial concept of eDreams was quite different. I was working, from 95 to 99, in the product development part of Charles Schwab, a pioneer in financial services and the world of e-commerce. And, in those years, I met with a friend from Mexico, Javier Pérez-Tenessa. He had an MBA from Stanford and was working at Netscape when we met again in 99. Javier told me about the idea he had of starting a company, a startup in the travel sector because there were already some players in the US that were having traction.
The opportunity he had in mind was to take the success stories in the United States to Europe. We thought that, in Europe, there was a greater opportunity to set up an online travel agency very focused on touristic packages, because it was a very large segment in terms of the way Europeans travel or how they traveled back then.
There were many flaws in the way people bought vacation packages, so we believed there was an opportunity to take all marketing and distribution of vacation package products to another level. That was our initial concept, we wanted to focus on a high-margin, niche vacation package. Things like crossing the desert in Jeeps and things like that, taking vacation packages from tour operators, working with them, and making the market much more dynamic.
On the other hand, we had a fairly innovative concept in mind. We launched a network of experts, a social travel network. They were called Dream Guides, they were experts in geographic destinations or in specific subjects. In other words, you could be a surfing Dream Guide or a DG from Hawaii or the Canary Islands. And the concept was for Dream Guides to advise clients. This is how we launched the initial concept of eDreams, it was this social network of travelers that we called Dream Guides and vacation packages.
How did this first concept work?
Well, there weren’t many people wanting to cross the Sahara by Jeep, much less looking for it online. It was a new medium, a product with a very limited market. And we also realized that the idea of wanting to work with the tour operator product was very good, but the reality is that we didn’t even have availability in real-time. Communication was very poor, we had to communicate with the operators via fax and wait until they answered us.
So, the reality of the product was not very consistent with what we had in mind, and with the internet marketing channel. But we realized very soon, fortunately, that even if there were not so many people who wanted to look for these very exotic packages, there were many people who wanted to fly to Barcelona, Madrid, Ibiza, Paris, London.
Flights were almost the first thing that moved people to start putting credit cards on the Internet for the first time. It was the flights that created the habit of buying online. There was a technological factor, a commodity factor, and a very important price factor. All these factors led people to use the Internet to buy flights.
We would have liked it to be a massive jump, right? Because putting your credit card on a new channel was something that wasn’t easy to convince people to do. Fortunately we realized that we had an important job to publicize this new channel, which was a safe, reliable channel.
But we adapted to the reality of the market. So we launched a business that also focused on call-center. Those who wanted to search and finish the transaction online could do it, but the vast majority back then, in 99-2001, wanted to have the confidence of being able to speak to a travel agent. We adapted to the needs of the client, which is vital and not try to impose a new method or a new purchasing system. This helped us grow. In the early years, it was a sales call-center because the customer had generally already found what they were looking for but wanted to finalize the transaction over the phone. For the client, buying with a credit card over the phone was safer than online. Gradually, the call-center became a service call-center, people were starting to trust the Internet.
What was the flight stock panorama like at the time?
We connected through a GDS, like Amadeus, and through the GDS we had access to all kinds of traditional aerial inventory. The business had the ingredient of commodity, which helped us. If all you do is connect through a GDS, you have the same inventory of products and, more or less, the same prices as any other agency. What was key for eDreams was to realize that not all airlines were in GDS number 1. So, we also directly accessed the inventory of low-cost airlines, etc.
When you start to combine different sources of information or inventory, and when you start to use technology to optimize prices and to create your own packages or your own air product, that’s when you start to have clear advantages of optimization, pricing, location, or combinations that you may not necessarily find elsewhere. Combining and making a different mix and match with the product was what allowed eDreams to reach everyone. What was vital was having a differential product and a very competitive price.
Would you say that what made eDreams position itself in the market was inventory management at that time?
The product is the flight. At least in the years I was there, we focused more on the product than on usability and branding issues. In 2015 we were already operating in 48 countries. Before opening a country, we necessarily had to have the right product adapted to that country. So, we were very focused on the product and on a very aggressive marketing strategy in terms of trying to be in all environments where the customer was thinking or leaving digital signs of some type of interest or willingness to want to buy.
The travel and flight business is highly transactional business. It is very easy for the client to jump from one competitor to another. So we had to earn each transaction independently, we had to be in all channels where the customer was. The first countries were Spain, Italy, and France.
When Google arrived, the landscape changed a lot. With Google, the client told us exactly what they wanted. So, we were among the first advertisers on a massive level in Google, in Europe. We realized the great potential it had to reach the end customer.
Back then airlines paid a commission to the travel agency. So, if you sold a flight for 200 euros, maybe you had a commission of 10 percent. Shortly after starting, commissions went down to zero, airlines stopped paying commission to travel agencies. That, actually, instead of being a tragedy for us, changed the picture to positive. Sometimes easy doesn’t force you to think beyond the obvious. So when we relied on ourselves to find ways to add value, we could actually charge the customer. Our revenue margins increased a lot. And that’s when we started doing all these things of price optimization, and product optimization.
How did you add value?
Finding combinations that are not necessarily combinations that the GDS gives you. In other words, if you travel from Barcelona to Rio de Janeiro and simply connect with a GDS, the GDS will look for direct flights from Barcelona to Rio or flights through Madrid, Paris and London, and also through agencies with combinations or scales of airlines talking to each other.
We noticed there was an opportunity to combine airlines that didn’t necessarily talk to each other, combinations that the GDS didn’t offer you. When you start to combine this inventory in a creative way, you start to find much more competitive final prices than traditional ones. The final customer cares about the final price, when you are providing price advantages, you can charge for it.
How did margins evolve?
In 2003, the turnover of eDreams was about 15 million euros, and the revenues were about two million euros. So, more than 10 percent. In 2003, eDreams was already beginning to have positive EBITDA. From 2003 to 2010 we had an annual growth of 90 percent, that is, year after year. In 2010, we already reached a turnover of 1 billion euros (GMV-Growth Merchandise Value), and revenues were around 100 million and EBITDA was around 28 million.
Then more players and metasearch engines appeared. How did that affect the cost of customer acquisition?
The initial acquisition costs were very high because eDreams didn’t have any brand, and we were trying to introduce a new channel. So the first few years was very offline focused advertising. We campaigned in magazines, in the press, in public relations. The acquisition costs of advertising in the press are generally high, and especially if you don’t have a brand. The costs changed when Google arrived because the client began to segment itself in a clear way. With Google, our acquisition costs became cheaper and much clearer for us.
From 2013 to 2019, the least that was spent on eDreams Marketing in a year was 250 million. In 2019 it was 360 million euros. In the travel business, you have to have a very sophisticated and highly optimized product. And you have to take up most of the space (and as high as possible) on the results pages. In the end, it’s about going hand in hand with product and marketing. It clearly was and still is the key to a business like eDreams. It’s a matter of buying that visit at a lower price than you can and getting that visit converted to a transaction.
Would you say that, in this sector and especially when you started, the level of financing was an important competitive advantage?
Yes, it was. The initial financing in 99-2000, we had like three rounds of venture capital of about 30 million euros in total. In 2000 there was, let’s say, the explosion of an Internet bubble, but in reality, it was a financial explosion because the level of consumption of products through digital media continued to grow.
Before, the travel consumer depended on the goodwill and good faith of the travel agent who was on the other side of the desk, and the agent, unfortunately, often simply did what he did was to recommend the product with the highest commission. And, to get to sit at that desk with your travel agent, you had to adapt to the agency’s schedule. The convenience of businesses like eDreams was priceless.
30 million euros seemed like a lot of money, but we had the ambition to be the biggest online travel company in Europe, which we ended up being. With that degree of ambition, 30 million euros is not that much. But we decided to not raise more money. We began to operate with a discipline of “this is what has to take us to the promised land”. This discipline is key. Many times when there is very easy access to capital, you lose discipline. For us, that discipline was absolutely key.
So, it started with you and Javier as partners?
Well, Javier Pérez was the CEO until 2000, and we both stayed until 2015. In the first financing round, several investors came in and, in 2006, private equity from Boston came in and bought from previous investors, who multiplied their investment by 5x, they entered a valuation of 150 million euros, more or less.
Was this private equity operation motivated by the investors themselves, or because you wanted to?
Fortunately, the incentives of the founders, business operators, and investors were very aligned and the relationship was also very positive. To summarize, the incentive is to want to keep growing the value of the company. And the valuation rose to about 350 million. In 2010, we had € 1 billion in billing and € 100 million in revenue, with an EBITDA of about € 30 million. It was there when Permira entered with a vision of consolidation, I thought that there was an interesting opportunity in the European market to partner with a couple of leading brands in Europe, in that same sector.
In 2011, we did a merger/acquisition process with GoVoyages and Opodo. That was when the eDreams brand became eDreams ODIGEO, and it began to integrate more brands.
The business was going well and there was a demand to acquire, to buy, and to make plans. The goal was to do an IPO. So when you have this very well defined path and then with clear opportunities to add very powerful financial partners and that will continue to allow you to have this growth, the financing options that were coming to us were perfectly valid and those that we considered the ideal ones clearly.
The IPO was in 2014. We entered the market with a valuation of about 1.5 billion euros. eDreams became the first Spanish unicorn. It was a historic IPO because it was the first European IPO in the Spanish market in years. And we are listed on the Stock Exchange, in Madrid. It was an exit where there was a lot of optimism and, at that time, we were already the largest online retailer of flights in the world.
How do you see the current situation for the travel sector? How do you think it will evolve?
I think that, at times like these, it is when the great leaders of the future are created. And within the sector, many of the travel’s current leaders were companies that were created after or during the last great crisis that was in 2008. They are definitely moments of positioning and also of adapting to new conditions. So I am very optimistic for those who adapt to new circumstances.
And in fact, if you see in the second quarter of this year, in the midst of a pandemic crisis, it has been the record quarter in the number of multi-million dollar rounds. There are great investment opportunities in times where not everyone can invest and where the price is cheaper. And that venture capital companies know well, and also to identify the next great leaders.
Clearly, there are very interesting opportunities for startups, because traditional companies in the Travel sector come out of this crisis with fewer financial resources, with fewer human resources and with a greater need to collaborate with companies in the digital sector, that is, with startups.
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