Room with a view
Wednesday, March 28, 2007/
A big idea in a tiny office has been turned into a multi-million dollar, debt-free business. For entrepreneur Graeme Wood, innovation has been the key to success. EMILY ROSS reports.
By Emily Ross
Opportunity: In just under seven years, Graeme Wood (right) has taken Wotif.com from a big idea and a tiny office with hand-me-down furniture, no customers and a manual credit card processor to become a debt-free, highly profitable (almost) billion-dollar business. Innovation has been a fundamental part of the Wood strategy from day one.
A self-confessed “ideas man”, Graeme Wood has had a wildly varied career. He had a stint as a public servant (he loathed it) and started six businesses, including a data processing firm for accountants and an egg business. Each business was sold, says Wood, because “either I saw the growth was flat, or I moved on to something better”.
The idea for Wotif.com came about through consulting work Wood was doing on Queensland’s Gold Coast in the late 1990s. He was talking to a client about what to do with vacant hotel rooms. It was too expensive and often too late to sell them at discount rates through traditional media outlets, so they went unoccupied. All revenue lost.
Wood found a solution. If hoteliers could use the internet to list the rooms it would be a low-cost way to sell stock that would otherwise go empty. It was a win-win proposition. The hotels would only sell the rooms up to a week in advance on Wotif.com.
Wood built the prototype website for his online business between Christmas and New Year of 1998. It was the first holiday following his divorce, one of the lowest points in his life. An IT contractor at the time, he locked himself away in an apartment for five days and did nothing but think about how this new website idea could work.
It was a wildly productive few days. Wood created an innovative hotel price matrix that could display a list of hotel room rates on the screen. This would be the framework for Wood’s site that would sell last-minute hotel rooms over the web. The look of the site has changed very little since.
Despite having zero experience of the hospitality industry, Wood was convinced he could make a business out of it. The internet was the perfect, low-cost distribution channel and Wood could charge a standard travel retail commission if the rooms sold through Wotif.com. “I couldn’t stop thinking about the idea,” he says. “Driving home I nearly had a couple of accidents. I knew it was hot.” Wood kept very quiet about his idea, only mentioning it to his accountant, Andrew Brice.
Wood was “between fortunes”, he jokes, as he had just gone through a property settlement with his former wife. He needed money to start up. Wood showed the web model to Brice, who quickly offered to invest, and knew some other investors who would commit to the project.
The venture was founded by Wood, Brice and fellow Queensland investors Kevin Fitzpatrick and rural investor Lyn Brazil. “In an afternoon, we did the deal,” says Wood. There was no business plan, “only a few numbers thrown about the place”. Wood had $200,000 seed funding, “in dribs and drabs as needed”. The main cost was software development. The rest was done on a shoestring.
Finding suppliers and customers
Wood had seed funding, and a framework for the website. Now he needed inventory. One of the big challenges was to convince hoteliers to list their empty rooms on the site. Wood personally went around to hotels with a rented laptop showing hotels how the site would work. Wood wanted to launch with 100 hotels but could only manage to sign up 60. No major chains supported the venture.
The site went live in May 2000, a tough time to start up, weeks after the dot-com crash. There was only one booking on the first day, then days went by without a bite.
Wood knew he needed to promote the site. Despite being a “marketing sceptic” he used an outsourced PR company and then employed one, then two, PR people who were invaluable in generating media interest.
In the early days, Wotif.com was able to leverage off the consumer benefit side of the business to generate publicity, receiving widespread coverage in print, television and radio. However, the overwhelming majority of business (80%) came through word of mouth.
Wood is not a big fan of television and print advertising, and Wotif.com’s few experiments with either were all flops. “Anything we tried we either stuffed it up or it didn’t work, so we said let’s keep it simple and focus online.”
Wood’s team has paid attention to search engine listings and services such as Google AdWords (he describes Search Engine Marketing as a “black art”), but the priority has been usability for customers and suppliers. Wood has also avoided selling advertising on the site despite his juicy 100,000 traffic per day figures. “You go to Wotif.com for one reason, to find a hotel and book it,” he says.
Within six months, things were looking promising. Wotif.com had attracted more hotels and decided to include motels, serviced apartments and bed & breakfasts on the site. Cash flow was assisted by the fact that Wotif.com customers paid for their hotel bookings upfront and Wotif.com did not pay the hotel until after the stay. This model meant the business was self-funding. New hotels kept coming on board, with inventory slowly building up on the site.
Besides the initial seed capital, Wotif.com did not take on any debt. It did receive a $1 million AusIndustry grant from the Queensland Government in early 2001 that paid for a new technology platform so that Wotif could do multicurrency transactions.
The site kept evolving. In February 2001, Wotif began offering rooms two weeks in advance. Building up hotel numbers was a slow exercise. It was not until late 2001 that hotels started coming to Wotif.com. In 2002, the business became profitable with earnings of $2.2 million. Over the next three years turnover would increase 800%. There are now more than 9100 properties listed on the site in 35 countries. The site attracts more than two million hits and 110,000 bookings a month.
Wood has been courted by major media companies to buy into his debt-free company. Wood decided that a listing on the Australian Stock Exchange would be a better alternative. The time was right in September 2005.
Wood, Brice, Brazil and Fitzpatrick put 42% of the business up for sale. Investors were clamouring for a piece of the company. The IPO was an estimated 20 times oversubscribed. It raised $172 million and the shareprice listed at a 66% premium to its issue price.
With so much cash in the bank, Wotif was ready to operate at a whole new level. In late 2006, Wood went into partnership with ninemsn in a co-branded website, guaranteeing extra traffic to the site. This joint venture gives Wotif access to an extra 7.5 million visitors each month that will help it beat the 1.8 million nights booked through the site in the second half of 2006.
There is no such thing as status quo for Wood. The company is looking at several major acquisitions (it has to do something with all that cash). Wood’s plan is to continue “wearing down the competition and seducing the customer”. The online travel industry is not a place for the faint hearted. In this climate, Wood is a perfect species. “It is warfare, a war of attrition. The challenge is to keep enjoying it.”
The world according to Wood
- The big idea: If the business idea is not simple and understandable, don’t do it.
- On the art of the deal: “Don’t extract the last drop of blood out of every transaction.”
- On reality checks: “Get the bad news early – test the concept with anyone who’ll give you an honest answer.”
Wotif.com will be featured in the book 50 Great E-Businesses and the Minds Behind Them by Emily Ross and Angus Holland, (Random House, September 2007).