David S. Litman ’82 and Robert B. Diener ’82
One of the most viable and profitable on-line travel services, Hotels.com, was founded by lawyer-entrepreneurs Robert B. Diener '82 and David S. Litman '82. The Internet hotel reservations service based in Dallas, Texas, now a subsidiary of Expedia.com, generated nearly $1 billion in revenue last year and employs 1,200 people. Mr. Diener and Mr. Litman's partnership has lasted almost 25 years-and, though both men are lawyers, it's always been on a handshake basis.
Mr. Litman candidly describes himself as a serial entrepreneur. "I started out as a lawyer, working for a big law firm, Johnson and Swanson, in Dallas," he said. "After a couple of weeks of practicing law, I realized that I did not want to do this for the rest of my life. I really wanted to run my own business."
He approached his classmate, Mr. Diener, and they started small, buying and selling real estate and cars. In 1984, both men left their legal practices and began a discount airfare wholesaler company with a modest investment. It quickly grew to one of the most profitable airfare wholesalers in the country. In 1990, they sold the company for a profit.
"I've always liked the travel business," said Mr. Diener. "Although I really enjoyed my legal career, when Dave Litman and I talked about the growing opportunities in the airline industry, we decided to pursue them."
In 1991, the two made another small investment to launch a new business, Hotel Reservations Network, which used a similar business model to their airline discount venture. The business evolved into Hotels.com. The ambitious, hard-working entrepreneurs nurtured and strengthened their company during the early years. Then, in 1995 they were among the first companies to leverage the power of the Internet and offer their services to a global network.
"Our original business model was developed because hotels nationwide were overbuilt and were having problems filling up," said Mr. Litman. "We were hoping that people would reserve and pay for rooms in advance, if we gave them a discount for planning ahead, much like selling airline tickets," he said. So, with a bank of used Radio Shack phones, a couple of computers, and a few staff members, Mr. Litman and Mr. Diener launched their company, earning income from commissions paid by the hotels and motels that used their service.
"When the Internet came along in 1994, it didn't change the rules of business. It was just an incredible new distribution channel and we recognized it," said Mr. Litman. "When we realized that the Internet was virtually free, we saw it as a great opportunity to incorporate this dynamic, new technology and grow our business," Mr. Litman said. "So, we built our first Web site; and by early 1995 we had clients all over the world-from Australia, France, Asia, everywhere!"
Riding the Internet wave and working with their executives and employees, the savvy partners developed and grew Hotel Reservations Network into Hotels.com, the largest specialized provider of lodging in the world. Hotels.com quickly evolved into one of the Internet's primary sources of discount accommodations. Their most important innovation, the selling on hotel rooms on the Internet, called the "hotel merchant model," is now used by almost all online travel companies. That model takes prepayment from the customer. The company then pays the hotels a portion of the prepayment and keeps a portion as profit. The partners' business model and the technology and design of the model have also become industry standards.
For twelve years Mr. Litman and Mr. Diener, as chief executive officer and president, respectively, of Hotels.com, oversaw all aspects of the company's domestic and international growth. The company went public in February 2000. It performed among the top one percent of public companies from 2000 to 2003 and increased its value by more than 450 percent during a time when NASDAQ fell by more than 60 percent. In 2003, Mr. Litman and Mr. Diener sold their portion of the company to InterActiveCorp in a deal that valued the company at over $5.5 billion. Employees who had taken stock in the early days of the company benefited from the sale. "The day after the first stock option exercise, I saw about eighty brand new cars in the parking lot," Mr. Litman said. "Of course Bob and I were too cheap to spend money on new cars." Mr. Litman and Mr. Diener left the company in 2004.
Prior to pursuing his successful business career, Mr. Diener was an attorney with Gibson Dunn & Crutcher in Los Angeles, where he practiced corporate and securities law. This experience proved quite beneficial. "Running a public company and having a legal background is a big advantage," he said. "More chief executive officers and company presidents are coming into the job with some kind of legal training or experience, which is valuable. There are so many legal issues-corporate filings, Securities and Exchange Commission rules, and so on-and having the additional legal knowledge can assist corporate executives when they are evaluating the risks and opportunities. I figure Dave and I have saved our various companies thousands, maybe millions, of dollars in legal fees." Mr. Litman concurs, mentioning that "At Hotels.com, we experienced no significant litigation until well after we became a public company."
Mr. Diener currently is president of a new joint venture that he founded with his longtime partner, Consumerclub.com, which is an online business that offers deals to consumers while offering another way for retailers to market their products.
Surprisingly, the two law school classmates have never drawn up a partnership contract. "Everything has been done with a handshake," said Mr. Litman. "At Hotels.com, we took a traditional business and moved it online. We did things faster and better than our competitors and we were innovative. We were very aggressive, able to grow fast, and sell at the right time. Oh yeah, and we were really lucky too."