Q&A: Howard Lefkowitz, president of VEGAS.com

By Richard N. Velotta

Friday, April 23, 2010 | 3 a.m.

Although VEGAS.com is the world’s largest city travel website, it’s only part of the story about the award-winning technology company that sells show and tour tickets to Las Vegas visitors.

Using business-to-business and business-to-consumer models, the company also operates more than 70 concierge and tour desks at local resorts and private-label box offices at other properties.

Leading the operation is President Howard Lefkowitz, who has been on the management teams of EarthLink and Home Shopping Network and worked as an independent consultant for the four major television networks, MCA/Universal and Warner Bros.

Lefkowitz talked with In Business Las Vegas about how VEGAS.com has evolved, its role in the local tourism industry and selling show and tour tickets in the hypercompetitive Southern Nevada market. VEGAS.com and In Business Las Vegas are both part of The Greenspun Corporation.

IBLV: How has VEGAS.com evolved over the years?

Lefkowitz: We started with 26 people in 2002, primarily as an online magazine that sold ads to people. When I got here that year, we changed it to a transaction-based model and have grown to be the largest city travel website in the world. We have our box office systems that are deployed throughout the city. We have concierge tour desks in about 70 retail locations throughout the city, and we operate a tour company that takes folks to Hoover Dam and the Grand Canyon. We have a series of back-of-the-house systems that operate from an entertainment and hospitality perspective, payment-gateway or cross-property room-charging operations and all kinds of systems that are deployed not only here in Las Vegas, but in various parts of the United States.

And that’s the company’s focus?

Our business model is different. We’re a little bit marketing, a little bit systems, a little bit retail and we have two distinct lines of business. We have what we call the above-the-line, basically the business-to-consumer businesses that touch the consumers using our direct brands — VEGAS.com, LasVegas.com, Casino Travel and Tours and Vegas Tix 4Less. Below the line are the business-to-business operations that are interacting with other businesses throughout the city, including the box office, our enterprise systems for contact centers and our private-label contact center. Surprisingly, our contact center takes significantly more calls for third parties than we do for our own businesses. That’s working out very nicely for us.

VEGAS.com can best be defined as an online travel company. How many hotel partners do you have? How about other tourism partners?

I’m not sure that I would define VEGAS.com as an online travel company. I wouldn’t define it that way, although people love to categorize businesses and individuals because that’s how people can organize information in their minds. But at the end of the day, VEGAS.com is purely an innovative company in the area of retail marketing systems and media in the hospitality and entertainment space, not only in Las Vegas but in various parts of the United States.

People like to categorize companies, but for example, if five or six years ago I told you we were going to have a website where I was going to be able to let my friends join in and we could post pictures and so forth, you wouldn’t know what to call that business. You would just call it a dot-com. The Internet itself is merely a vehicle. It’s not actually a medium. It’s really just an extension of businesses. At the end of the day, the Internet is a network and we use that network to do different things. Because the dot-com was so famous for so long, that’s how everybody classifies people who are in that space.

In our space, we’re called “an online travel agent.” But we’re not. We’re innovating in different areas of business in what I think is the business model of the future on how businesses need to operate rather than this category that you can pigeon-hole us into. In the future, somebody may coin a phrase that defines what kind of business that we are as we continue to grow and evolve.

OK, so you’re an innovative company that deals in the travel space …

We deal in entertainment and hospitality, yes, and systems.

And you have partners?

We do.

So how many hotel partners do you have and what other tourism partners are out there?

Well, we have every hotel in Las Vegas and virtually every show in Las Vegas. We have about 400 airlines. We have dozens of nightclubs. We have dozens of tour companies. We have dozens of golf courses. We have dozens and dozens of restaurants. We work to create a better consumer experience as well as create market demand for Las Vegas in general and hopefully through our website. With 2 1/2 million people coming to visit (the website) every month, we are the largest purveyor of information about Las Vegas that exists on Earth.

Does VEGAS.com have a sense about whether airlines can be induced into offering more seats to Las Vegas and promoting the destination? Or is Las Vegas in such bad shape that it’s going to take awhile for demand to develop to the point that we can get more flights?

To answer that question you have to go back through the evolution of the process. What happened in the old days, people would create these junkets and the flights were basically free to a large extent and the hotels would cover some of these things and there were various offsets against the airline fares. Then, when the commercial airlines started to become more prevalent into the city, the rates had to be low to compete in that space. If you look at the revenue per mile into Las Vegas for all the major carriers, it is the lowest revenue generated per mile of any city in the continental United States. That’s part of the reason why they are challenged any time, but particularly in these economic times. What happened was that they looked at that model and said, “Where can we make more margin?” and they decided that Las Vegas wasn’t necessarily as beneficial for them. You’re seeing other airlines come in and take some of those slots, but the underlying economic model is shifting, just like every other underlying economic model is changing in various business sectors, from banks to media to cars. Everything is moving currently because of the overall disruption that technology brings and the economic circumstances that we’re in.

So are we going to see airline ticket prices go up in Las Vegas?

In time, we will. One of the challenges is that there’s more capacity created in the last several months and a little more about to come on line (in hotel rooms) and airlift has dropped. US Airways, which has been a great partner of ours for the last eight years, dropped about 50 percent of its inbound flights. A lot of that was connecting flights, but at the end of the day, they went from the No. 2 carrier in the market to the No. 4 carrier in the market. That is a significant drop from two to four. One of the things we’re working on here at VEGAS.com is to try to bring more carriers back into the market by creating value for them. We’re doing that in various ways, and it’s very interesting how that’s all playing out.

What’s the role of VEGAS.com and competitors such as Orbitz and Expedia in putting together more packages involving airlines so we can get the visitation numbers up?

I wish I was smart enough to tell you the answer to that question. We’re actually working on trying to determine the answer to that question by looking at some of the economic shifting that has been going on and attempting to figure out how the value chain has been impacted over time so we can establish some trends and hopefully push that thing back in the right direction. We’re literally working on that today and have lots of smart people on it.

Tell us about the VEGAS.com concierge desks operated around the city and in airports across the country.

They function as a concierge, in many instances under a private-label basis in the hotel environment and in some instances on a VEGAS.com-branded basis in the hotel environment or (VEGAS.com subsidiary) Casino Travel and Tours in the hotel environment. Their job is to function as a concierge and help the guests do what they want to do by facilitating everything from buying flowers to suggesting restaurants and things like that. We work with the host properties to understand and fully promote their activities within their properties initially. But really, it’s to supply the guest with a great experience here. That’s the main purpose of the concierge desk. In most instances, we don’t actually sell them things. We’re actually there servicing those guests for whatever their needs might be. It could be anything, from “I need a wheelchair” to “ I want tickets to a show” to “I need a tour.” We’ve had some fairly unusual requests at the concierge desks.

What was the most unusual request?

There are a lot of them. “I need a 727 jet by tomorrow morning. My friends and I are going somewhere and we need a 727.” It’s all over the board.

How does VEGAS.com generate revenue? Does it get a percentage of revenue for every room booked or is there some other formula?

It’s a hybrid model. As the world turns, you continue to have to find ways to generate revenue. It’s a percentage of what we sell overwhelmingly. It’s a little bit advertising related — kind of like a slotting fee when you have shelf space in a store. We have different folks who qualify in different areas. So it’s a little bit advertising, but overwhelmingly, if we can’t kill it, we can’t eat it.

How has CityCenter changed the hotel room dynamic in Southern Nevada? Are you seeing a big shift to Aria? Are other similarly priced competitors holding their own?

It’s so early in the process that it’s almost impossible to see any trending. Based on seasonality and the opening time and so forth, it’s almost impossible to say with any level of accuracy how it’s going to go. We were asked those questions when the Wynn opened. When anything opens, everyone wants to know about that particular thing. So the answer is: It’s taking its rightful spot in the market. As it matures and the market continues to shift, we’ll figure it out over time.

How long does that take? For example, how long did it take to figure out Encore at Wynn?

It takes about 18 months before you can determine anything real with any level of accuracy. And even that’s not as scientific as you’d like it to be. In three years, you understand it. In 18 months, you’re getting at least a half a year of year-over-year based on seasonality and you can look at trends and things like that and get a better idea and project out that way. But it’s really impossible to project with any level of accuracy without much more significant information.

How about show tickets? Explain how the company generates revenue from them?

As I said, if we can’t kill it, we can’t eat it. We sell tickets to Las Vegas shows and we are, if not the largest, among the largest sellers of show tickets for Las Vegas in the world. A percentage of each ticket sale is revenue for us.

How has the entertainment ticketing industry in Las Vegas evolved? What’s VEGAS.com’s market share?

There actually are multiple markets. There’s a full-price market and a discount market. I remember that around 2004 or 2005, we told people in the community that people are going to buy tickets online to go to Vegas shows. And we were told, “That’s ridiculous! They’re never going to buy tickets online to go to shows, that’s not how the market works and how the world functions.” So we said, “OK, assuming you’re right, let us be the fools and try it anyway.” And, of course, the market has changed significantly. In the days when everything was packed and the economy was robust generally, not just in Las Vegas, lots of show tickets were sold online.

As you know, consumer behavior continues to change. In fact, it changes all the time, not just in the six-month window, let alone the multiyear window. So the full-price model continues to grow and we continue to sell lots and lots of show tickets in the full-price channel and we continue to promote shows in Las Vegas.

In fact, some of the shows have done surveys and folks did exit surveys — “Where did you find out about our show?” — and the lowest number was 30 percent of the people found out about that show on VEGAS.com. Clearly, we don’t sell 30 percent of the show tickets, but we do provide them with the exposure so that people can learn about the shows and look at videos and read the reviews about the shows so that they can make informed choices online. In some cases, about 70 percent of the audiences surveyed in the exit polls showed that they got their information from one of our websites, which is very encouraging. So we provide a lot of value in that channel generally, both in the exposure perspective and the sales perspective. The discount channel is a whole different story.

What percentage of show tickets are sold online?

I don’t know exactly. But it continues to grow as an overall percentage. My hunch is it’s probably in the 20ish percent range and it depends on the show. Five years ago, it was in the zeroish percent range.

What are the challenges to selling tickets to entertainment venues in Las Vegas?

There are challenges to every business, but I’m not sure there are specific challenges to selling show tickets to Las Vegas, other than the fact that there is a cornucopia of choices and people don’t know necessarily what they want to do. They go through a process of figuring that out and they use the websites to determine a lot of that. Everybody has different tastes, everybody has different means. It’s based on age and the area of the world they come from. It’s a matter of providing enough information for people to make an informed decision. That’s a key factor. And the shows are always changing. The only constant is change. That’s not just about shows, that’s just life in general. Frankly, the enemy of change is incumbent thinking.

You have a something new in the discount market, Vegas Tix 4Less. Tell us about that.

On the discount side, there are same-day or maybe day-before kinds of activities for physical locations here in Las Vegas that give the shows the ability to control the discounting and percentages and to yield their pricing throughout the entire process. One of the challenges is that there’s only one competitor in that particular space whose goal is to sell discount tickets, period. We don’t necessarily believe discounting is the way to deal with these challenges. So we created Vegas Tix 4Less that is in the discount market. We’ve created right there in front of the Showcase mall on the busiest sidewalk in Las Vegas an installation that has the ability and the capacity to give the shows the sales that they need with the opportunity for them to control and yield their pricing.

So it’s yield management for show tickets.

Right. The impact of this is crucial because shows have been closing, restaurants are closing, jobs are being lost, gaming revenue is dropping. The entertainment is a way to drive people into the properties. It’s not just about the show revenue. It’s also about the gaming revenue and the food-and-beverage revenue and that’s crucial. What we’re bringing to the space is competition — competition is good — and innovation around the whole channel in order to actually begin to drive more revenue for the properties, the shows, jobs, food and beverage, gaming revenue and provide a value to the consumer that is better than simply discounting the ticket over a period of time.

Let me give you an example. Amazon has had the Kindle out for a long time. The iPad (has debuted). Book publishers have been adverse to the way Kindle has been selling books at $9.95 apiece. That’s been going on for a long time and no accommodation has been made until the iPad came along. Apple says if you want to be in the Apple store, we’re happy to do that, but this is how it needs to work. If you’re going to be in the Apple store, we’re going to sell product anywhere from $12.99 to $14.99 and that kind of competition has resulted in publishers like Simon & Schuster signing deals. Everybody now has a more level playing field and it happened specifically as a result of competition. Publishers are now able to dictate their own terms. It puts the control back in the hands of the manufacturer.

In this case, the manufacturer is the show. That’s who needs to control their own destiny. There’s no reason for the distribution channel to dictate the pricing terms and the commission and that’s what’s happening here in spaces all over.

That’s where competition comes in. That’s part of the reason we stepped into the market. We don’t just sell discount tickets. We’re involved in a lot of different areas of this business and particularly care a lot about this community and the jobs in this community. This is a crucial component to being able to fill the need of the properties and the shows that have the need to bring people through, but also have the need to manage the pricing and bundle things in a way that gives them the ability to drive more revenue. We, with our technologies and the things we have, have brought that to bear to create a place where there’s enough capacity and enough innovation to be able to meet that need.

What’s more effective in the business of selling tickets: a well-placed ad or word of mouth?

Everybody wants to know what the answer is. The answer. “The” in capital letters. The answer. And the answer is … there is no one answer. Everybody asks me all the time, “What is the thing that makes VEGAS.com work?” And the answer is it’s a thousand little things. It’s a hundred decisions made every day. Our goal as an organization is to meet the customer where they want to be met, in the media in which they choose to be met and in the channel of which they choose to participate. There is no one answer. You can’t say it’s the ad. The disintermediation of information, the democratization process, is part of what’s changed how all of these things work. The underlying fundamentals have changed significantly in the last five years. And I think you’re going to see another significant change in the next five to seven years. Again, the only constant is change.

What’s the hardest ticket to get if you’re a tourist in Las Vegas? Are there any particular shows that, more often than not, you have to tell visitors that they’re sold out?

A lot of the headliners and a couple of the Cirque (du Soleil) shows. It depends on the act. People go to a show or an act to see that particular act, not because it’s at a particular venue. Nobody goes to Universal movies because they’re made by Universal. They go because George Clooney is in it. It doesn’t matter who made the movie. George Clooney is who I’m going to see. At the end of the day, it’s all product driven.

Some industry experts say the explosive development of the nightclub industry has cut into traditional entertainment ticket sales. What do you think?

I think a rising tide is good for all the boats. At the end of the day, there is a market segment that is completely different. That’s the great thing about Las Vegas. It works for everybody. We went off on this “we’re a family friendly town.” Well, we’re not just family friendly. We’re Sin City. Well, we’re not just Sin City. We’re a foodie town. Well, we’re not just for foodies. It’s the great spa thing. Well, we’re not just for spas. At the end of the day, it’s all on how you look at the prism. It’s actually been a growth space for the overall market. I’m not so sure that those people who go to the clubs aren’t the same people who go to the shows. I think you’ve seen more shows and more clubs that have increased the overall tide. I don’t see that as necessarily competitive. I’ll bet you it’s less than 5 percent who actually go to both clubs and shows. They’re just different spaces.

What are shows doing to capture more market share?

They’ve gone much more heavily in the discount space. They’re trying a bunch of things in different areas with different methodologies generally, social media that kind of stuff. But a lot of it is the last thing that folks heard at a trade show. I don’t mean to be pejorative and it’s not just the show, but the world in general. They go to a trade show, they hear a guy give a speech, 5,000 people run out and go after that particular thing. And that may or may not lead anywhere, it may or may not be costly, it may or may not work, but they all heard it at a trade show. We can always tell when people come back from trade shows because they all start singing the same tune. That doesn’t necessarily have to do with the shows, it has to do with every aspect of the business in hospitality generally.

Is VEGAS.com seeing evidence of the widely reported statistics that show visitors are still coming to Las Vegas, but they’re spending less?

Yes. As you know, average daily room rates are down. There’s a lot more discounting going on generally. But what we’ve done is found ways to bundle things to create more revenue for folks. So we’ve created dinner-show packages, for example, that we’ve deployed through various places in a very successful way. Hundreds upon hundreds of people every day buy dinner-show packages. It’s a combined price. What happens is it generates more revenue and it brings the person to the property, it has them on the property longer and in many instances, there are restaurants that we’re in business with that are staying open longer and opening on more days because of the volume we’re able to put through by tying the two together. The property itself generates more revenue, more jobs have been saved by this bundling and it doesn’t necessarily nakedly drop the price in public.

In my opinion, this is the way marketing needs to work because if you’re only going to be completely available in any channel and every channel from a discount perspective, it’s a race to the bottom. Look at the airlines. Look at the commoditization that has gone on in various industry segments all over the United States. What happens is if you only compete on price, you’re only as good as your dumbest competitor. You’ve got to find ways to innovate and that innovation has to do with marketing and systems and the kinds of things we find ourselves smack-dab in the middle of.

What does your gut tell you about Southern Nevada’s tourism industry recovery?

You know, my wife’s grandmother died at 104 years old and we used to pick her up to go to family functions all the time. Her greeting was never, “Hello.” Her greeting was. “So what do you know for sure?” One day, she got in the back of the car when she was about 100. Before she got to say to me, “So what do you know for sure?” I was able for the first time to say to her, “So what do YOU know for sure?” And she just sat there in the back and I could see her eyes in the rear-view mirror. I was looking in the eyes of a 100-year-old person, a person who came to California in a covered wagon and who was nine years younger than the telephone. And she sat there for several miles, not speaking at all. And when we were at a stoplight, she said to me, “You know, Howard, the only thing I know for sure is how little I truly know for sure.”

Anybody who tells you they know when that’s going to happen, I’m not so sure that’s the best idea. We have a lot of work to do generally and instead of trying to figure out when it’s going to happen and waiting for that time and some sort of fantasy that somebody’s come up with, we’ve got to get busy and do things together as a community that are going to grow this overall economy and that means working together and figuring out some of these fundamental underlying shifts and changes and figuring out how to capitalize on them to grow our overall economy. So the answer to your question is, I’m not that smart.

What indications are there, if any, that Americans’ discretionary spending habits will change as a result of the recession? Do you see a sea change in how travel is viewed and whether there may be a long-lasting contraction?

I think that this circumstance, unlike other circumstances, has had a huge effect on the psyche of even those who have a lot of discretionary income. They don’t necessarily want to be seen any longer as a conspicuous consumer. It’s no longer cool to be that individualistic or that hedonistic. I’m not saying that there isn’t a higher end. But they are much more aware of being a conspicuous consumer, even if they have the money. If you have a lot of money, you’re still less inclined to be that visible about it. In general, it’s created a fear in everyone else of “I don’t know what tomorrow’s going to bring, so I’m going to be very conservative about how I approach things.” People are willing to spend money. They just want to spend money on value. They want to know that they’re getting something for their money that brings them value. So it’s no longer just the price of a thing, it’s the value that it brings and those values come not in terms of money, but in terms of access, in terms of use and in terms of the psychological benefit of whatever that person’s particular proclivity is about how they choose to be seen and how they choose to see themselves.

Will that make it harder for us?

It makes it harder for everybody. This is a changing world. The world is changing. The biggest enemy to change is incumbent thinking. Reinvention and innovation are the order of the day. You cannot hold to the things that have gone on in the past and say “this has worked for 20 years, it’s going to work for the next 20 when the economy comes back.” It is not going to happen that way. The commoditization of even things like loyalty programs is changing. There are companies — the Mandarin and Four Seasons, among them — that don’t have loyalty programs. You know why? They have to earn your business every time with the service. Why do you have to be loyal to a particular airline when you can get your points on American Express and use them on any airline? This just goes on and on. Inevitably, you have to be innovative.

There are enormous opportunities out there, not only in entertainment and hospitality, but in a lot of industry segments, in green business, in the car business. There’s lots of innovation happening out there. One of the challenges that you have is incumbent thoughts of how things used to be from a particular group or generation. Then you have the newer generation that doesn’t really understand what business is or how business may function, but they say, “Hey, this is cool, let’s do this.” That’s just innovation for innovation’s sake. That doesn’t necessarily mean it’s going to bring value to anybody. What you have to do is combine the two, cross the chasm in an effective manner, build the bridge all the way over and figure out exactly when to step from place to place. That’s really the key to all of this and that’s how we focus our business is how do we do those kinds of things to use the tools, use the innovation, but stay true to driving the economic model in a way that brings value to both ends of our customer constituency, the consumer constituent and the travel, entertainment and hospitality partners.

When your friends come to Las Vegas, what hotels and shows do you recommend to them?

I love all my children equally. It depends who they are and it depends on what they’re doing here. I have a little questionnaire and I ask a series of questions. I start with “What are you coming here for?” If it’s a boys’ weekend, that’s one trip. If it’s the wife, that’s another trip. If they’re coming here for the Final Four, that’s one type of trip. If they’re coming on business, that’s a different type. It’s all over the board. You can’t just say this is the favorite. It doesn’t work like that. It’s based on the individual and their particular need in Las Vegas. It’s back to that prism thing.