SKIFT TURNS 6

FOR THE LONG HAUL Lessons on Business Longevity 1 Patience: The Radical New Business Model

Of all the achievements anyone can ask of a company from its infancy, staying power — mere survival — is the toughest of them. Let no one tell you otherwise. Make it a media startup in an age of existential crisis in media all around, and you’ve created the biggest odds against yourself right from the start.

Six years into the serpentine journey of building Skift — 2,191 days after launch — we are still here and intend to be here for a long, long time.

Longevity is not top-of-mind for many founders just starting out. Certainly, having a legacy is even further off the map. But there are certain catalysts that move you toward that realization as a founder, and I had mine about halfway into the six-year journey.

My son was born in early 2015, right about the time when the company I founded three years prior was growing out of its early-stage, survival-at-all-costs phase. Clichéd as it may sound — because everyone who has ever been a parent tells you so — the new life in my life ended up changing everything about my outlook on, well, life and business.

As I started thinking about this new life we had to take care of, I started thinking about the values I would love our son to grow up with, and that would have to start with us parents teaching him what we held dear, the values we got from our parents as we grew up. 2 The biggest one I kept thinking about and finally honed in on was patience. In the on-demand world of instant gratification we all live in now, patience — in intent, in living, in outlook on life — is becoming a rarer and rarer life skill, incredibly. And make no mistake, it certainly is a life skill.

Having grown up in socialist India in the 1980s, the precursor to learning patience, frustration, was not a bug in the system. It was the feature of how everyday life worked. Anything and everything was a wait. It was a wait with lots and lots of people in line with you, and that was if there was enough civic value in us to form a line in the first place. India breaks you down if you come in with Western notions of efficiency, a clean logical version of input versus output of effort. If you grew up there, like I did, it builds you up with an ingrained sense of equanimity about everything.

The daily knocks on your inner resolve to not give up, on your self-esteem, on making do with what you have, taught us patience. It taught us the long view, that in the end everything will work out if you just keep at it. All is well in the end. If not, it’s not the end.

That is the life skill I want to teach my now-pre-schooler-and-already-impatient son. “Le pause,” the great way French parents teach their kids patience. Pausing before rushing in. As simple as that.

It is the value I have brought to the company I started and I am building now along with the Skift team.

Not raising lots of money, and deciding not to raise any money beyond seed and building our own way, has given us patience. Patience gives us the ability to block out the extraneous noise and buzz of the startup ecosystem, and focus on building the products and brands that matter.

Think it through, slow down a bit. Go slow to go fast, a philosophy we adopted in 2015.

I wrote this in that memo: “This is the new Skift operating principle — both in our work and culture — that we want to embody going forward. • Doing less with more is the new doing more with less. • Going slow to go fast is the new scaling up. • Less is better, less is deep, less is slow and deliberate, less is human, and humane.”

3 When every prevailing startup wisdom says move fast and break things, there is value to doing the complete opposite. When everyone wants speed, pivots, scale, fail quick, there is value in focusing on your vision, burrowing deep, and taking time in building. Quality is the end result of patience. Quality is the table-stakes start of longevity.

That means reorienting everything patiently to this long-term thinking.

For us as a media company, it starts with our editorial and research: Think beyond headlines, to the trendlines shaping the business and future of travel, something we have embraced for all of our existence: finding, following, and deciphering the trends in travel. Think in multi-year narrative arcs — that is a mantra I tell our editorial leadership at every occasion I can. Every story we are chasing has a longer-term view, a history longer than we can imagine, a wider and deeper perspective we are currently planning to write. Everything we write can be enriched by speaking to sources beyond the usual suspects. The diversity of views makes the writing we do more relevant today and relevant in the long term. Writing in a human language — outside of the current buzzwords — about the business of travel means we are readable today and likely readable a long time from now, when the industry has completely changed.

That also means redefining what innovation means to us. One of the fallacies of media innovation today is 1) new = innovation 2) new formats = innovation. It is the basis of much of the ruin in media, chasing every new thing that comes along. Innovation for us, what I have bet my media companies on, is not chasing formats, but new ways of looking at existing sectors. Chasing new formats and hoping for innovation is like changing your reading glasses again and again and hoping you will read different things with each new pair you put on. Bringing new perspectives requires a lot more patience and innovation than cosmetic format changes. New ways of looking at the world — that’s the real innovation we are betting on long-term.

That also means redefining what scale means to us. The internet changed what scale meant to everyone, and it became a never-ending quest of chasing bigger and bigger audiences. It became “scale for scale’s sake” and investor-driven frenzy to prove out a model that ultimately ate itself. We gave up chasing scale around 2014, after this realization and have redefined it since: The media we are building is a big part of those who care about travel. That for us is scale, to be a big part of the professional lives of the people in the travel industry. That is how we gauge the effect we are having.

That also means redefining what hiring means to us. We want to hire and groom travel careerists, people who want and have deep expertise in travel — not dilettantes — and want to make a career in one of the most exciting and largest sectors on the planet. We give an audacious four-point promise to our employees, a long term commitment from us to them: • Joining Skift will be a transformational move for your career. • You will do the best work you have ever done while you are at Skift. • You will be the happiest you have ever been at work, while at Skift. • You will be set for life; your success beyond Skift means everything to us.

That’s also what performance — of us as a company, of our team — means to us. That means show up and produce, every day, day in, day out, over and over again. Consistency, in the right amount every day, matters a lot more than being consumed by work and work alone. The quality of our work is the end result of this consistency mixed with patience. That’s the not-so-secret of our long-term fecundity. 4 That also means redefining what culture means to us. It is not this mythical, magical thing that comes at the end of work, an add-on to make the drudgery bearable. For us, culture stems from the meaningful work we do, and each of us seeing the tangible in-situ effects of that work — helping change the direction of the future of travel and dining, even — in a reasonably short time frame for the people for whom we create everything. It gives us a purpose to create a long-term culture, around the larger promise of travel and our promise to the travel sector: We are eternally curious about the business and creative possibilities of travel, and what it means to the world at large. “If you are tired of Skift, you are tired of the promise of travel,” is a line I use often. That is what inhabits our culture, today and well into the future.

That certainly means redefining how we look at creating value in the company we are building. What does it take to build a media company that matters to people in their daily personal or professional lives, that can survive any kind of micro or macro correction, that can thrive in the long haul?

We have come up with a “metric” to gauge the longevity of media brands. It goes something like this: Imagine, because of some catastrophe, the media company you know suddenly shuts down tomorrow. Will anyone miss it, and will the disappearance of said company harm the ecosystem at large in various ways? The first part of this question is a level-one test, the second part a level-two test, both of which take time to build up to.

What would happen on day two and beyond, if you suddenly go away tomorrow?

These are two ways of saying the same thing: How much of a personal or professional utility value do your users ascribe to your brand? And how indispensable are you to the ecosystem you exist in?

All of this hides an ugly unspoken truth about media in general: that it is disposable, in so many ways. The key is to move toward making yourself indispensable, by adding enough value.

That also means redefining what leadership means to me. Instead of “leading from the front” as I have done for the first five years, a necessary role to build a company in its infancy, I am now transitioning to “empowering from behind” as is the management of our company. After being the face of Skift, being a face of Skift is role that I now cherish. The long-term goal of any founder is to make themselves useless. I am on that journey now.

This book you will read is an aspirational manifestation of our philosophy on longevity, using travel companies as a mirror to look at the qualities of long-lasting companies and brands. From the efficiency- focus of JR East in Japan, to the courageous will to disrupt from Southwest Airlines, to never putting a price on serving your customers from Oberoi hotels, to Expedia’s realization it could make real people’s lives easier, the chapters here offer valuable lessons. Autogrill’s ability to create a sense of place with all its offerings, and the South by Southwest festival’s willingness to embrace outsiders are testaments to the long view. We, at Skift, salute these strategies as we look ahead to many more of our own anniversary celebrations.

— Rafat Ali, Founder and CEO, Skift

5 The Long-Haul Payoff By Noah Davis

It’s a business problem as old as time: how to balance the desire for a quick score with the need to create something lasting. “This notion of short- and long-term agendas has been a tension way before I started teaching in business school, and I started teaching in 1975,” says Len Schlesinger, the Baker Foundation Professor at the Harvard Business School. “It’s not a new idea; it’s just getting a new spin.” In a world currently obsessed with the latest startups, the most recent raise, and the latest valuation — not to mention the most recent quarterly earnings report — creating a sustainable business designed to succeed for decades isn’t exactly sexy.

As businesses cycle ever faster, even the idea of what constitutes long-term is changing. A 2012 report from the consulting firm Innosight found that in 1958, corporations stayed on the S&P 500 for an average of 61 years. By 2012, that number had fallen to just 18 years, and there’s no reason to think it won’t continue dropping. Our business culture is oriented toward the quick exit. It’s easier than ever to sell out, especially given the domination of any tech-related market by the Big Five — Amazon, Apple, Facebook, Alphabet (Google), and Microsoft — that gobble up smaller potential competitors before they get a chance to gain too much traction, often shutting them down in the process.

6 But that doesn’t mean creating something for the long haul is impossible. In many ways, it’s never been easier. Advances in cloud technology have eliminated expensive entrance barriers, social media means detailed customer demographics are available, and millennials are valuing experiences over objects, opening new opportunities for travel brands. Survival is a balancing act that requires careful planning. “The way you build a great company is to build one that can meet the pressure of short-term mandates that also doesn’t truncate your ability to go for the long term,” Schlesinger says. Here are six ways to do so, learning from companies across industries.

Commit First

Long-term success is as much about attitude as it is about execution. “People can give a speech about built- to-last, but their behavior is about built-to-flip,” Schlesinger says. Before launching a company, determine what constitutes long-term success. Then create goals and design workflow and office culture to achieve those measures, rather than getting distracted by quicker, easier wins that will ultimately hurt the business in the long run.

Berkshire Hathaway, perhaps the best example of a long-term business, benchmarks its performance against the S&P 500 on a rolling five-year scale. At Follian — a beauty startup that focuses on selling clean makeup and healthy skin care and natural beauty products — founder Tara Foley and her team dramatically limit the products they sell due to their exacting safety standards. “There’s a lot of greenwashing in our space,” she says. “A lot of products claim to be healthy and clean, but they don’t fit our standards. They may be really big brands that are growing fast, and by not being able to ride the coattails of their growth, we may have affected our growth, too.” Committing to Follian’s principals might have slowed growth in the short run, but Foley believes it will be beneficial long-term.

Sam Shank, a serial entrepreneur who’s currently CEO and founder of HotelTonight, built a workplace culture that can sustain the high employee turnover he and his executive team face because they are based in San Francisco. A key guiding company value is simplicity, something that’s intuitive and easy to grasp for new HotelTonight staffers. “Culture can perpetuate even as the individuals who are working on what we are doing are changing and evolving,” he says.

Focus on Cognitive Ambidexterity

A strong company built for the future is one that can focus in two places: the here and now, which will sustain the current enterprise, and what’s coming down the road, which can benefit in the future. These two factors, called prediction logic and creation logic, respectively, combine to create the idea of cognitive ambidexterity.

Two companies succeeding at this today are, unsurprisingly, Google and Amazon. Google is constantly innovating its suite of products that drive revenue, while also focusing on moonshots like self-driving cars. Amazon used the revenue from its consumer-focused business (and the capital it raised to cover losses) to help develop its rapidly growing and wildly profitable cloud business.

7 Kodak, on the other hand, is an example of a company that failed to take advantage of what was coming. While the camera manufacturer actually developed digital photography, they were too focused on the present moment (and the related revenues) to make new meaning for the marketplace. They had glimpsed the future but they didn’t know what was going to happen and how, and they got run over by more nimble competitors.

Cognitive ambidexterity isn’t a new idea, but today’s market makes it even more important. “The pace of change is so much faster and it’s a lot harder to predict what those rapid iterations will bring,” says Cynthia Franklin, the director of entrepreneurship at NYU Stern School of Business’ W. R. Berkley Innovation Labs. “But the marketplace is less forgiving of companies that focus on sustaining innovation and ignore disruptive innovation.”

Find a Niche

Specialization is a growing trend in virtually all markets, which makes it more difficult for new entrants. This is especially true in tech. “I think the reason we see so many young tech firms sell out is because of the winner-take-all nature of the platform business,” Bob Litan, a senior fellow in the Economic Studies program at The Brooking Institution, says. “We’ve become increasingly a platform economy and we suddenly have a limited number of platforms and it looks like the Big Five are the winners.”

Litan’s research supports this notion. He points to a study showing that about 600,000 startups launched per year before 2008 but the level dropped to 400,000 in 2009 and it hasn’t recovered since. One key to building a sustainable, long-term business is to find a place where the giants can’t, or won’t, compete. That’s what Foley did at Follian. “These products require so much education,” she says. “We don’t think that those businesses are going to be able to provide that in the short term to the same extent that we can.”

Her customers aren’t shopping based on ease of ordering and price competition, two places where she’d never be able to beat Amazon. As a result, Follian remains insulated from major competition. Shank offers another idea: Find the distribution channel, and then build a product and a company around it. With HotelTonight, he saw an opportunity to use the App Store to create an avenue to rent hotels at the last minute, which didn’t exist before. Another example in the travel space is Trivago, which relies heavily on television to spread the word. “People focus too much on product and then only afterward figuring out how to get it in front of people,” Shank says.

Ride the Wave of Changing Consumer Behavior (or Change It Yourself)

The younger demographic of consumers is infatuated with authenticity, supporting companies that give back. “Consumers are a lot more aware about transparency, where products are coming from,” Sumeet Shah, an investor and venture capitalist at Brand Foundry Ventures, says. “When you are able to get consumers’ brand loyalty early, more brand loyalty means more revenue in the end.” For Shah, the key is to build influence in the marketplace and build out the larger ecosystem as well.

8 Of course, this trend toward consumers who care only goes so far. These shifts toward labor responsibility and environmental sustainability are “over-reported,” Schlesinger says. “Do I believe at the end of the day that there’s been a massive shift in consumer behavior that’s oriented towards getting companies to behave in the long run? No. I say no, definitively.”

In that case, another solution is to change hearts and minds. That’s Follian’s goal, along with other companies in the clean-beauty space. They are working together to educate consumers, which will expand the market opportunity. “For us to grow, the consumer mindset has to change,” Foley says. “That’s the goal: to change that mindset together. Once that mindset has changed, we’ve won and our business will be quite big.” When she’s pitching investors, they are interested in the positive health benefits, but it’s an added bonus. They see that clean and healthy beauty business is growing at a much faster rate than beauty overall, making companies like Follian more likely to survive.

Don’t Be Afraid to Pivot

Thinking long-term doesn’t mean you have to stick with one idea. “So many entrepreneurs stay on for the original dream too long,” Shank, also a startup advisor, says. “Within six months, you’re going to know if you’ve hit it or not.” When he launched HotelTonight, he and his team established a series of goals for the first month. They blew them out of the water — except the number of actual bookings. “It took about five months for us to feel good about having a product that not only were people buzzing about but that they were using,” he says. “I don’t know if I would have gone much further if it hadn’t changed. I’ve seen people repeat the same mistakes over and over again of trying to make something work that doesn’t have the product-market fit.”

Foley recently tweaked Follian’s business model to focus more on e-commerce. When she started the company in 2013, Sephora was the only brand selling beauty products online because customers weren’t used to purchasing them without being able to see, smell, and touch them. But that’s changed, and Follian needed to change as well. They were doing roughly 85 percent of their business in their brick-and-mortar stores, but Foley wants to alter that percentage dramatically.

“We realized that there are so many women out there who want clean beauty products and the opportunity is so big that we’re not going to be able to take advantage of it by building stores,” she says. “We built a tech stack, worked with experts to build what’s going to become a robust site experience. We’ll continue to build stores but we’ll be building to reflect more education online.”

Flexibility makes it easy to glide past business bumps and market changes. Your team is what lets you survive; focus on it from the beginning. “Start with the right foundation,” Shah says. “When you invest in the future of something, you’re investing in people. It’s easier to invest in great people who don’t have the right product than a great product that doesn’t have the right team.”

9 Focus Now, Riches Later

If and when success comes, acquisition offers will follow. Resisting these inquiries, no matter how appealing, is the final step toward building a long-term business. When considering the offer, think about three groups of constituents: the investors, the customers, and the employees. What are the benefits and disadvantages of selling out versus staying the course for each group?

Often, staying the course will be the correct play. And founders can benefit financially by staying involved. They frequently overestimate the financial benefit of selling out. In a post on his website, entrepreneur Bill Flagg demonstrated some math. The sale of a business making $1 million in pre-tax profit per year that was sold at a 10x multiple would return less than $400,000 per year after taxes if invested at an 8 percent annual return. That’s significantly less than the approximately $600,000 in after-tax profit that the founder was making annually when they owned the business. The long haul can pay off.

Noah Davis (@noahedavis) is co-founder of Three Point Four Media and a freelance writer.

10 JR East 01 Like Nowhere Else in the World By Samantha Culp

The distinctive snub-nosed train decelerates and pulls into the station. Arranged along the platform, uniformed attendants bow to greet it. Passengers stream out, toting bags and briefcases and elaborately wrapped gifts as the attendants signal with a few pointed fingers that cleaning is about to begin. They wipe every surface, smooth a fresh paper cover onto every headrest, spin every seat to face the right direction, and remove every scrap of rubbish so that the train is sparkling again — all in a total of seven minutes. New passengers stream in, white-gloved conductors conduct their own theatrical call-and-response routine, a high-pitched bell and buzzer sound, the cleaning attendants bow again, and the train rolls off.

This mundane-yet-remarkable scene occurs at least 100 times a day at Tokyo Station alone, accompanying each new shinkansen (“bullet train”) departure. The absolute control is staggering. In a year, there is only an average delay of 36 seconds. In transporting a total of 10 billion shinkansen passengers across Japan in 50 years, there has never been a fatal accident or serious injury. The shinkansen has been Japan’s emblem of modernity since the 1960s, and is symbolic of the efficiency, safety, service, and high design of the country’s train system as a whole.

11 Few international travelers forget their first encounter with the Japanese rail. From its unbelievable punctuality, to the immaculate plush seats, to children as young as five riding the subway alone to school, to the distinct electronic melodies that denote each station, to the gourmet eki-ben boxed meals available at platform kiosks, to the terrifying and sublime experience that is Shinjuku Station at rush hour: train travel is just different, and better, here.

Today, Japan’s railways carry more than 9 billion passengers per year, more than anywhere else on Earth, coming and going from more than 9,000 stations, along 27,000 kilometers of track that connect the nation. There are 200-plus railway operators in Japan, but none is more iconic than JR East, the country’s largest private railway company. Beyond simply shuttling people back and forth, JR East is a fundamental part of the face Japan presents to the world, and the business is managed as such. “JR certainly has become a symbol for Japan as a nation,” says W. David Marx, a renowned scholar of Japanese cultural history and author of the recent book on its fashion history, Ametora.

A Complex History

JR East only just celebrated its 30th anniversary, but as part of the larger JR Group that emerged from the Japanese National Railway, it can be connected to the much longer heritage and history of Japanese trains.

In 1872, Japan’s first steam railway opened between Tokyo and Yokohama. Colorful ukiyo-e prints from the time illustrate the train as symbol of a rapidly changing nation, foreshadowing how prominently it would figure in the national imagination over the coming century. Only a few years earlier, the Meiji Emperor had ended an official policy of 250 years of isolation and embarked upon a breakneck modernization campaign to ensure Japan could survive the threat of Western expansionist powers. The emperor and other leaders of the Meiji Restoration urged “throwing open the doors to foreign technology” in order to make Japan a global power on its own terms.

In the case of the railways, that meant bringing in British financing and engineers to build the first locomotives, but quickly training local workforces to extend lines across the country. Iron gauge was laid over rice paddies, around temples, through mountains, across islands, and under the busy thoroughfares of growing cities — by 1927, subway lines began service in Tokyo (starting with the Ginza and Ueno-Asakusa lines).

During its early years, the railway was owned and operated by a tangle of government and private entities, but by 1949, during the U.S. occupation, most major private railways were reorganized into Japanese National Railways (JNR). JNR set about rebuilding and reconnecting a nation shattered by war, and later radically reshaping the nation’s sense of time and space during the “economic miracle” of the 1950s and 60s.

The launch of the shinkansen in 1964, just in time for the Tokyo Olympics, turned areas like Chiba and Saitama into commuter cities overnight, as salarymen could live there for cheaper rents and realistically commute into offices in Tokyo. Ever since, the shinkansen and subways have been featured prominently in films, TV, literature, manga, and pop culture, and obsessive “train fandom” culture illustrates how embedded they are in the Japanese psyche. 12 However, 1970 was the final year that JNR ran at a profit. From then on, it was in the red, due to the rising competition of automobiles and airlines, as well as disruptive labor disputes and politically pressured investment in unprofitable new constructions. In 1987, $33 billion (¥37 trillion) in debt, it was privatized and split up into the seven distinct regional companies of the new JR Group: JR East, JR West, JR Central, JR Shikoku, JR Kyushu, JR Hokkaido, and JR Freight.

JR East Today

Based in Tokyo, JR East is the largest and most recognizable of the JR Group companies, indicative of Japanese train travel as a whole. It’s also considered an economic success story, having gone public on the Tokyo Stock Exchange in 1993, and earning $2.5 billion in profits last year with an annual growth rate of 13 percent. (As a quick comparison, America’s beleaguered rail company Amtrak required a $2 billion government bailout last year to stay afloat.) JR East operates all the shinkansen north of Tokyo (effectively half of the country), as well as overnight trains, long-distance trains, and dozens of regional and commuter lines in rural and urban areas, including many in Tokyo that are treated as essential parts of the urban public transit system (like the Yamanote line). For many locals as well as travelers, JR East is the only JR Group company they regularly interact with, embedding it as a systemic brand for transportation.

JR East shares the same logo as the other JR Group companies, created by Nippon Design Center in 1987, but in a distinctive evergreen color. “JR East is known for being relatively adventurous in terms of advertising,” says Ian Lynam, graphic designer and faculty professor at Tokyo’s Temple University and scholar of typographic history, referencing their popular “skiing ostrich” TV campaign from 2003, and recent forays into coarse Risograph aesthetics mimicking “what the hip indie kids do.” Yet the combination of changing campaigns and the company’s fundamental ubiquity means that their identity is subtle, more about what their values accomplish than what a logo communicates.

Prime among these would be a dedication to “service” that’s more profound than just polite station attendants (though there are plenty). It’s about building trust, adapting to needs, and providing lasting value. For the past few years, after a slight increase in non-fatal accidents across JR Group trains (excluding shinkansen lines), the JR East official company mission statement has highlighted “Pursuing Extreme Safety” as a top priority, and re-dedicating efforts to not only invest in infrastructure safety upgrades, but to prevent human error. This is made visible in the decades-old spectacle of the point- and-call system that travelers immediately recognize, and is being supplemented by new training and reporting protocols for staff.

They’ve also tackled specific high-profile hazards, such as people committing suicide by jumping in front of trains. Japan has long had one of the highest suicide rates among developed nations, with trains being one horrifying method, leading railways to experiment with various forms of deterrence. JR East was the first to install blue LED lights on the platforms of its Yamanote Line in 2009, and soon other lines and companies followed. Over the first four years, they saw an 84 percent decrease in suicides at stations with these lights (researchers are still not sure why they work, but they appear to). In an uncertain world, particularly after the Great East Japan earthquake and tsunami of March 2011, the company’s overt and obsessive focus on safety is reassuring.

13 Speed and efficiency are the other key components of service that JR East embodies, so well-maintained that they’re only noticeable on the rare occasions there is a glitch. Says Marx, who has lived in Tokyo for 14 years: “When the trains don’t run on time, especially during morning commutes, all hell breaks loose. The city is built on JR’s punctuality so there’s amazing pressure for them to keep it going.”

These could all be seen as extensions of omotenashi, the value of hospitality and care that is ingrained in Japanese society. But it’s one thing for a family, or even a traditional ryokan, to host a few guests. JR East hosts 18.5 million guests daily. At rush hour, commuters become sardines, just like they do in most cities. But much of the time, the experience is comfortable, even delightful.

Ever since Japan deregulated its airline industry in 1996, it was predicted that airline discounts and new low-cost carriers would decimate the railway’s market share of domestic travel. That has continually failed to happen, despite flights that are often cheaper and shorter than their train equivalents.

A one-way trip between Tokyo and Osaka is 2.5 hours by shinkansen and costs around $130, while that flight on a low-cost carrier is less than half that (as low as one hour and $40). But most passengers on this, and other key routes, prefer the train for convenient in-city stations (compared to airports), smoother security and departure/arrival procedures, and the fact that even an economy seat on a train is far more spacious and comfortable than those on budget airlines. Some regions are starting to see encroachment, such as the train between Tokyo and Kanazawa which now has a 42 percent share of travelers compared to low-cost carriers, but JR East and JR West are jointly constructing a new, more direct shinkansen link to recapture those passengers. Until considerations of cost far outweigh experience and service, it seems air travel won’t unseat domestic train travel just yet.

This relates to JR East’s other great coup: the ability to balance serving very different sets of customers (and investors) at once, and in effect, having a split personality as both an everyday utility for commuters and a memorable travel experience for tourists both foreign and domestic.

For international travelers, the greater JR Group offers the JR Pass, an incredibly popular discount pass that allows seven days of train travel across all the JR systems. It’s only available to foreign-passport holders, must be reserved prior to arrival in the country, and has been effectively marketed as a must-have for first-time visitors. There are also multi-language help desks in many stations (Mandarin is an increasingly popular option), and plans to further help foreign visitors navigate the train system in time for the 2020 Olympics. Some stations now even boast halal ekiben boxed meals. This new wave of internationalization could be seen as a radical adaptation in a country that is so proud of its own traditions (and which continues to have very restrictive immigration policies).

Even more crucial to JR East is domestic tourism. In the 1970s, Japanese National Railways launched the “Discover Japan” campaign, inventing the concept of furusato (hometown) tourism — hip young urbanites hitting the rails to explore small towns and rural areas. One can see echoes of this in JR East’s new “Rediscover the Region” campaign, launched in 2016, which is meant to drive tourism to smaller cities and the countryside where economic growth has stagnated. Starting in 2011, the “Get Back Let’s Go, Tohoku” campaign was designed to help pump tourist dollars into Tohoku region, recently devastated by the Fukushima quake and tsunami.

14 These campaigns often extend to product development as well, including the popular new Oyatsu TIMES, a series of snacks from different regions of Japan, with nostalgic packaging to mimic a local newspaper that has information on the locale and tips on travel. Bored urbanites might pick up the snack at a station kiosk for their commute home and come away with a plan for their next vacation.

Another way to drive tourism and refresh the company’s image is the Joyful Trains series, colorful and quirky trains with themes like modern art, Pokémon, and a handful of still-operating old-fashioned steam trains. This embrace of pop culture and nostalgia shows JR East’s flexibility to try new things, mixing high and low.

On the higher end, there is also the brand-new, ultra-luxury Shiki-Shima train unveiled in May, which runs from Ueno station to northeast Japan, with stops in vineyards and ancient resort towns along the way. Designed by former Ferrari designer Ken Okuyama, it boasts food by Japan’s first Michelin-starred chef, a piano lounge, and ticket prices starting at $3,000 (it’s currently sold out through next spring).

These initiatives point to JR East’s desire to innovate in the product category, but also the entire travel experience, radiating out to lifestyle in general. For most of its existence, JR East has been focused on railway business, with lifestyle services as a support, but in a recent interview, CEO Tetsuro Tomita noted, “Going forward, we must aim for an era in which the lifestyle service business drives the growth of the railway business.”

Though passenger ticket sales still account for 70 percent of JR East’s revenue, Tomita clearly foresees a future in which that may need to change. Therefore, the company is ramping up development in its other business sectors, which include train stations (they run the highest-volume transit hub in the country, Tokyo’s Shinjuku Station); exporting trains and engineering overseas; retail operations; restaurants and food products; hotels; travel agencies; credit cards; and large-scale real estate and urban development projects. New initiatives include the recently opened JR Shinjuku Miraina Tower, and the buzzed-about New Shinagawa Station that will launch in time for the 2020 Olympics, and transform a former rail-yard into a new destination district for southern Tokyo.

Adapting to a Changing Landscape

Investing in new business areas is only one way JR East is trying to secure the future of the company against challenges to come. In some industries, a product may become obsolete, or a brand may go out of style, but people will need transportation in and around Tokyo for some time (not to mention shops, restaurants, and other lifestyle spaces). It seems JR East’s biggest tests will come in the form of how many people, and in what regions, and other uncertain shifts of the literal landscape.

Climate change is of course a concern worldwide, but particularly in Japan, the government and corporate sectors are carefully planning for rising sea levels, severe weather, and other disruptions. The country is perhaps uniquely well-equipped for this, based on its long history of natural disasters like earthquakes and tsunami, but events like the 2011 Great East Japan Earthquake and subsequent tsunami and nuclear meltdown in Fukushima proved that even the best preparation is sometimes not enough.

15 On the day of the earthquake, JR East’s train lines suffered damage at 4,400 locations (with another 850 locations hurt a few weeks later during a major aftershock); total economic losses from the disaster due to interrupted service and massive reconstruction were estimated at $550 million. It’s clear that JR East, like any national infrastructure, is at risk from future climate change or other, less predictable natural disasters.

One of the biggest changes facing Japan in particular as a whole is its aging population, which will impact every aspect of the economy and culture.

Due to national longevity, along with declining birth rates and little inbound immigration due to highly constrained immigration rules, the “aging of society” (as JR East’s annual report puts it) has been a predicted concern for some time. Current projections estimate that the population will fall to 100 million by 2050 (in comparison with 126 million today), with 40 percent over the age of 65. In terms of train travel, one necessary change that JR East is tackling is improving train and station accessibility for the elderly and those with disabilities.

These and many other upgrades are planned to be in place by the 2020 Tokyo Olympics (for which JR East is an official partner), which is seen as a major test and turning point for Japan. Though tourism has been increasing over the past many years (19.7 million overseas tourists visited in 2015, up 47 percent from the year prior), the government wants to hit a target of 40 million by 2020 and 60 million by 2030.

“Promotion of tourism is one of the most important policies of Abenomics,” says Masahiko Takei, consul and infrastructure specialist at the consulate general of Japan in Los Angeles, referring to Prime Minister Shinzo Abe’s economic policies.

This goal can be seen as another way to compensate for an aging populace. As Japan’s population gets older, and shrinks overall, fewer people will be riding trains, so hopefully if fewer old people, and eventually a smaller Japanese population, are riding trains, they could be supplemented by foreign customers. But even with an influx of tourists, the reshaping of the economy and labor force will have an impact. It’s striking to note that many JR East employees are middle-aged and older to begin with, and a considerable percentage will soon start retiring. In their latest annual report, CEO Tomita has one slightly bleak suggestion: “I believe we can use robots to clean railway stations and provide customers with guidance information. In particular, robots are an effective way of compensating for manpower shortages and increasing productivity.”

Of any country in the world, Japan seems uniquely prepared to safely experiment with artificial intelligence and automated transport. Some are even bullish about Japan’s ability to innovate around the aging issue. “There are a lot of challenges for us, but Japan could be a pioneer to overcome a super aging society,” says Takei. After all, he points out: “It might be the same in the United States in the future.”

Beyond the demographic shift, there is also a geographic one: the shift of population from the countryside to cities that has happened for decades, and may now be accelerating. Though speed has always been one of the highest achievements of the Japanese rail, there is a growing ambivalence about its consequences.

By 2027, JR Central’s new Maglev train is set to begin operating between Tokyo and Nagoya, making the journey in just 40 minutes (less than half the current speed by shinkansen). Osaka will be next. This will be

16 faster for commuters, but also mean that cities in between may get skipped over as desirable commuter home bases (why live in the Bronx if you could live in the Hudson River Valley and commute for the same price and time?). Similar concerns have arisen in the conversation around Elon Musk’s proposed Hyperloop trains in the United States.

Then again, there may be great opportunity to revive rural towns due to the so-called “I-Turn” phenomenon, in which millennials fed up with city life are moving to small rural towns with the hope of opening bakeries, organic farms, and other LOHAS (“lifestyles of health and sustainability,” as the slang term runs) endeavors. “Small towns are now actively trying to lure in young people, by offering free residence, or even subsidizing them with some startup funding,” says Hideki Hara, director of the Japan Foundation in Los Angeles. JR East and the other JR Group companies have vigorously supported this trend, with travel discounts and other programs — which is perhaps striking if one imagines how unlikely it would be for Amtrak to support entrepreneurs moving to Detroit to start their own organic restaurants.

It’s good business to keep up transit between urban and rural areas, given how many rural lines are in economic trouble. But it also reveals one final aspect of JR East’s company philosophy that is not to be underestimated: its very real sense of responsibility to its region and the nation.

As stated by CEO Tomita in this year’s annual report, “The very existence of the JR East Group depends on the health of the east Japan area and of Japan as a whole.” This awareness of the interdependence of the company and community is necessary for JR East’s survival as a business, but also feels authentic to the public. Directly or indirectly, there’s a perception that JR Group ultimately makes decisions driven by its sense of duty (giri), not profit. Due to this authenticity, they’ve earned the ability to tap into the repository of emotions, nostalgia, and patriotism around trains.

“Growing up in the countryside, the train is something that feeds our imagination, because you know it’s connected to the big cities,” says Hara, describing the nostalgia felt by many in his generation. “Unlike a plane — when it’s gone, it’s gone — with the train, you have the rails and so forth, so you can visualize the path to bigger opportunities.” Trains have been part of Japan’s narrative of national progress for so long that they became highly personal in the process as well. “People feel it close to their hearts,” Hara adds.

JR East serves as a catalyst for these emotions, even during seemingly routine operations, in ways that most brands can only dream of. In early 2016, JR East retired several 250-series train cars from the Nambu line for export to Jakarta. On the last trip of one train prior to retirement, the conductor made a farewell announcement that ended, “We sincerely hope that you take all of your happy memories of being on this train home with you for safekeeping as well.” Passengers took to Twitter to express how moved they were by the speech, which quickly went viral.

One passenger tweeted, “I cried out loud.”

Samantha Culp is a writer, producer, and strategist based in Los Angeles after a decade in greater China.

17 The Oberoi Group 02 Rendering Service at All Costs By Ian Frisch

It all started with a plague.

In 1922, 24-year-old Mohan Singh Oberoi fled his hometown of Bhaun, India, in the Punjab province, now a region of Pakistan. He was penniless, but his mother, who raised him alone, urged him to escape the virulent outbreak overtaking their village and find work in Shimla, India, a nearby city. He spent the summer rambling around the countryside, desperately trying to land a job. One day, he walked into the Hotel Cecil and asked if there were any openings. To Oberoi’s surprise, the manager hired him as a front desk clerk.

A decade later, in 1934, Oberoi had an opportunity to acquire the hotel, and mortgaged his wife’s jewelry in order to buy the property. His next acquisition came in quick succession, after a massive cholera outbreak killed over 1,500 people in Calcutta, India, one of the country’s largest cities. After 100 foreign guests died from drinking water at The Grand Hotel, one of Calcutta’s most elegant destinations, the property was forced to shut down. The owners of the hotel were drowning in debt, and Oberoi took over the property in a leveraged deal for 7,000 rupees a month (about $53,000 in today’s money, adjusted for inflation).

18 Two years later, at the start of World War II, Calcutta became a major hub for British troops, and the army desperately needed housing. Oberoi opened his doors. The hotel was at capacity for years, and he made his fortune. “Cashiers unable to count the money were shoving it under the carpet to resume the task next morning,” journalist Bachi Karkaria wrote in Dare to Dream, her biography of the hotelier. In 1941, the British government rewarded him with the title Rai Bahadur, which roughly translates to “honorable prince,” for his services. “Taking over a cholera-ridden hotel had been a landmark in my career,” Oberoi wrote of the experience.

These initial acquisitions jump-started Oberoi’s legacy in high-end travel, ushering in a new way of looking at hospitality in India. The Oberoi Group has stood as a cornerstone of India’s luxury hospitality industry for over half a century and currently has 33 locations across Asia and the Middle East. “Their backbone has always been in the delivery of service,” says Manav Thadani, chairman of the Asia-Pacific market at HVS, a hospitality consultancy. “When you go into their hotel, their quality is at the level of the Four Seasons or the Ritz-Carlton, the mainstream brands in the luxury space — any Oberoi hotel takes them head-on at every level.”

Building an Empire of Luxury

Oberoi’s sense of luxury is pervasive — even extreme. One of their most luxurious properties, the Oberoi Udaivilas in Rajasthan, where a suite runs $14,000 per night, was voted the best hotel in the world by Travel + Leisure in 2015. Guests are carted to the hotel in a private, man-paddled boat; peacocks, wild boars, and white-spotted deer roam free on the 50-acre plot; and guests can ride camels on the grounds. There’s even an 18th-century palace on site. “It’s a pretty tough thing to be named both the top hotel brand and have the top-ranked hotel in the same year, but Oberoi Hotels & Resorts have made it to the top spots,” Travel + Leisure editor Nathan Lump said after the announcement.

At The Oberoi Amarvilas, two hours by train north of Delhi, guests are greeted with cold towels and drinks, and bowls of water infused with rose petals and sandalwood are stationed throughout the hotel for aromatic effect. Each patron even has their own private butler.

What started as a dedication to perfection from a young hotelier in northern India has blossomed into one of the most respected hospitality corporations in the world. “The Oberoi Group is seen as being among the most top-tier companies in the hospitality business,” says Sean Hennessey, assistant professor at New York University’s Jonathan M. Tisch Center for Hospitality and Tourism, and president of Lodging Advisors, a hotel consulting firm. “They are iconic in terms of quality of properties and service levels.” Today, Oberoi is widely known as the father of the Indian hotel industry. For anyone who travels to the subcontinent on a regular basis, his name is synonymous with one of the best hotel experiences that money can buy.

Not only did Oberoi establish himself, he moved to expand his empire as quickly as possible. Riding the wave of his high-profile investment in Calcutta, in 1943 he bought a controlling stake in Associated Hotels of India, then the country’s leading hospitality company, gaining authority over a chain of hotels throughout five cities in India and Pakistan. From there, he bought up and remodeled already-existing hotels in Nepal, Egypt, Australia, and other countries. “Building a successful hotel is always in the quality of the product, no matter where it is located,” says Thadani of HVS, adding that Oberoi’s vision of 19 hospitality translated seamlessly into other geographical markets simply by focusing on a simple bottom line: customer service. “If a rich sheikh or businessman stays at an Oberoi property and loves the quality of service, they’ll be thrilled to see the brand back in their own country.”

Over the years, Oberoi specialized in buying undervalued properties and, sticking to his guns, refurbishing them into his image of a modern and progressive 20th-century hotel. “They are uniquely focused on their core brand,” says NYU’s Hennessey. “They have avoided what most other companies have gravitated to, which is creating an array of brands to try and meet all the needs of a traveler, to capture the specific travel wallet in a given location. It’s impressive for them to dedicate to a singular vision, which has proven successful for them so far.”

Oberoi also understood that the longevity of his brand was not contingent upon how fast and how far he could expand, but rather relied on the accumulative quality of his properties. “I realised that it was not good enough to keep launching new ventures if old ones were allowed to suffer. Too often efficiency and high standards once established are taken for granted,” Oberoi once wrote. “This is a great mistake and my constant aim has been to preserve the reputation of my hotels at the highest possible level.” He was obsessed with detail — even, it’s rumored, keeping flower stems at a uniform sleeve length in his lobbies and restaurants. “It’s not common to come across a brand where every hotel on their roster has this level of consistency,” says Thadani. “I can promise you that, with other hotel groups, you’ll find one or two properties that are more or less average. But not with The Oberoi Group.”

Early on, Oberoi’s upward trajectory in the market also relied on modernizing his brand by going against cultural norms of the time. In 1957, after opening the Oberoi International in New Delhi, he became the first hotelier to employ women in India. He replaced the half-dozen male servants that were commonplace for cleaning rooms with female housekeepers armed with vacuum cleaners. Members of the Indian government balked at the idea. “Parliament shuddered in righteous indignation, honorable members conjuring up visions of lewd guests hollering, ‘As you make my bed, so shall you lie on it,’” Karkaria wrote in Dare to Dream. Oberoi even adjusted his own appearance by shaving off his beard, normally a mandatory grooming standard for Sikhs.

The group was also the first chain in India to offer in-room dining and international cuisine options for guests. Additionally, staff members are granted unusual freedom when it comes to dealing with guest problems: they are each allotted 1,000 rupees per day to use however they want, as long as it’s funnelled into the guest experience. The Oberoi Group even became the first hotel company to offer an internal hospitality school, which admits 50 students per year, ensuring its supply of expert employees.

“When you meet with an Oberoi candidate, that individual stands out,” says Thadani, who has hired graduates of the program for his consulting team. “The grooming and communication skills are far better than average. You can blindfold my eyes and I can talk to that person and I just know they are from Oberoi. They are so much more polished.”

20 These were the concepts that, to the company’s founder, drove innovation and success in hospitality, rather than adhering to a blanket determination for accumulating wealth. “You think of money and you cannot do the right thing,” Oberoi would tell people. ‘”But money will always come once you do the right thing, so the effort should be to do the right thing.” For Oberoi, it was this methodology that gave his brand longevity, and thrust it into the spotlight as India’s second-largest hotel corporation.

When Oberoi died in 2002, at the age of 103, The Oberoi Group held over three dozen hotels in six countries. “Some people refer to them as my Empire,” Oberoi wrote before his death. “A hotel is a small nation in itself and a chain does perhaps merit the name of Empire. This empire is not an imperialistic one, but rather based on the idea of rendering service,” he added. “This has always been my wish and my endeavour.”

After his death, Oberoi’s son, P.R.S. Oberoi, took over as chief executive of his father’s corporation, and held the position until 2015 when his own son, Vikram Oberoi, took over. Although the company reigns have been handed down the family chain, the brand’s ethos has stayed the same. “When my grandfather started his first hotel,” explains Vikram Oberoi, “one of the key principles that he followed that we continue to believe in today is best expressed in his own words: ‘The idea was never merely to make money. The compulsion was to think big and provide quality to our guests.”

To those watching from the outside, the trickle-down of mentality is a core element of the brand. “The Oberoi Group has always been about quality as opposed to quantity,” says Thadani. “That has been the original hospitality of the founder, and followed up by his son. And the next generation, the third generation, is also taking the same foot forward.”

Enduring Through Tragedy

It would be six years after its founder’s death, however, that India’s most unlikely hospitality superpower would endure one of its greatest challenges yet: the 2008 Mumbai terror attacks.

Just before 10 p.m. on November 26, 2008, two gunmen carrying automatic weapons entered the Kandahar restaurant in the Oberoi-Trident Hotel in Mumbai, India. They raised their rifles and immediately began firing into the crowd of patrons. It was part of a large-scale, organized terror attack spanning 12 sites in India’s financial capital, focused primarily on killing British and American tourists. At the 550-room hotel, the gunmen rounded up over 80 hostages and hunkered down for a multi-day siege. Two days later, over 40 hostages were freed, but 32 staff and guests were killed. In total, the operation claimed 164 lives.

The terrorist attack was something never before experienced by the company. To make matters worse, the hotel in Mumbai accounted for nearly one-fifth of the company’s revenue and was a flagship location for the brand. The financial crash of the same year also contributed to a drop in tourism to the country. “We were affected severely,” then-CEO P.R.S. Oberoi told The New York Times in 2010. “Then the attacks happened and [Mumbai] emptied out.” To some, the real trial was how The Oberoi Group would respond to the travesty. Could the same principles that brought them to this level of esteem also help bring them out of the catastrophe?

21 They vowed to bounce back quickly — to persevere after such a horrific event. “There is definitely a huge amount of sadness in everybody’s mind,” says Rattan Keswani, president of The Oberoi Group’s Trident Hotels, shortly after the attack. He adds that the staff was committed to reopening the hotel as soon as possible. “A guest walking in will find no trace of what happened. We believe the time has come to look forward,” he said. “Now, the fears of travelers and governments must be allayed so people will return to Mumbai.” It was a pivotal and testing moment for the company — one that could change its trajectory forever.

On April 20, 2010, almost two years after the infamous terror attack, The Oberoi-Trident Hotel reopened for business. The renovations costs $45 million, and included white marble flooring, sourced from the Greek island of Thassos, to replace the previously red-granite-lined lobby which was destroyed by gunfire and grenades during the siege. The restaurant where many guests and staff perished was renamed Fenix, a reference to the mythological Phoenix who famously rose from the ashes. “It symbolizes [Mumbai’s] recovery,” P.R.S. Oberoi proclaimed after the opening. “The wounds have healed.” Tourism also bounced back, with 1.56 million foreign tourists visiting the country in the first quarter of 2010, up 13 percent from the previous year. People were starting to come back to India again.

P.R.S. Oberoi, then 81, was on site for much of the flagship property’s renovation. He inspected the Greek marble, and personally rejected 70 percent of the tiles the company received, citing the need for perfection. Like his father, his dedication to minute detail was extreme — the reason why his family’s company has continued to be successful. If they were going to reopen the Mumbai property, there was no room for error. He commissioned handmade coffee tables inlaid with marble and precious stones for guest rooms and suites, built by descendants of craftsmen who worked on the Taj Mahal. Dozens of security guards now watch over the property, and guests’ vehicles are checked at an iron gate before being let onto the grounds.

In many ways, it was their longstanding ethos that helped them endure the tragedy. “From the evening of the attacks in November 2008 until the day The Oberoi Mumbai reopened, every employee stood by the hotel and contributed in every way possible to get the hotel ready to welcome its guests back,” says Vikram Oberoi. “Their sense of ownership towards the company and the brand manifests itself in the manner in which they conduct themselves and represent their hotel to guests.”

By focusing on quality — by coming back from the attack with a grander, more luxurious hotel than ever — their brand stayed strong, and customers stayed loyal. “If someone is an Oberoi fan, it’s very hard to break their loyalty to them,” says Thadani. “I was back there within a month after it reopened. At the end of the day, the attack would have happened anyway.”

Since the attack, the group’s hotels have been continually defined and praised by their opulence and high degree of service — overshadowing, to some extent, the attack in Mumbai. The group launched three new properties in 2017 and 2018, including a well-received resort and spa in New Chandigarh, India, and unveiled an overhaul of their New Delhi property after a $100 million renovation.

22 “Oberoi Hotels & Resorts has seen a year-on-year growth in revenue of approximately 10 percent during the last three years,” says Vikram Oberoi. “This has been driven by improvements in both occupancy levels and the average room rate.”

Much like their founder, whose rags-to-riches tale of fame and fortune has embedded itself in the lore of every Oberoi hotel, the will to endure through hardship — and the ultimate goal of brand longevity — is what has kept the hotel group at the pinnacle of India’s tourism industry. “This has been no mean achievement for the village boy,” Oberoi once wrote, “who left his plague-infested village in search of a job.”

It was this off-chance opportunity to be a lowly clerk that led to such profound advancement not only in India’s hotel industry, but in how the rest of the world views the country’s offerings in the realm of travel. All Oberoi had to do was walk in the front door, find the manager of the hotel, and say, “Hey, can I have a job? You won’t be disappointed — I promise.”

Ian Frisch has written for The New Yorker, The New York Times, The Washington Post Magazine, and Bloomberg Businessweek. His first book, on the secret lives of magicians, will be published in 2019 by Dey Street Books.

23 Southwest Airlines 03 An Original Disruptor By Peter Moskowitz

Southwest Airlines began operations humbly in 1971, with four planes serving three cities in Texas. Since then, it’s grown to be one of the biggest airlines in the United States. It’s now also the most consistently profitable — unlike nearly every other major carrier, Southwest has never entered bankruptcy, or even come close. And it has accomplished all that while remaining relatively well-liked by its employees and customers.

There’s the official Southwest tale of how that happened. The airline likes to say it kept things simple and focused on its customers and their experiences more than flashy offers and deceptively low ticket prices. And it always likes to say it puts its people before profit.

The airline also garnered plenty of goodwill over the years thanks to its former CEO, the tell-it-like-it-is, whiskey-swilling, Marlboro-smoking, all-around good guy Herb Kelleher. What he contributed is something most big corporations could only dream of cultivating.

Like most tales, there’s truth to the official Southwest story, but you don’t become the largest domestic airline in the world’s largest air market by playing nice — or, at least, niceness isn’t enough. Undergirding Southwest’s friendly image is a ruthless business savvy that has helped it dominate large swaths of the continental United States, often becoming the only viable airline in town. 24 Turning a Model Upside Down

Southwest remains a healthy company, but analysts say it might be resting too much on its lore: When the airline started, simplicity, friendliness, and low prices were a radical innovation. “The company was very much a maverick when it started, and it’s actually become very conservative,” says Seth Kaplan, managing partner at the industry magazine Airline Weekly. “That’s probably saved them from getting into fads and hurting themselves, but it also prevents them from competing effectively these days.”

When Southwest took its first flight in 1971, the airline industry was expensive, the province of the upper class. Someone who wanted to travel between, say, St. Louis and Kansas City, or Houston and Dallas, would usually drive. Back then, Southwest wasn’t competing against legacy carriers for passengers, but instead marketing toward people who rarely or never took airplanes. The approach made the airline revolutionary.

“We were a bit of a disruptor,” says Linda Rutherford, a vice president and the chief communications officer of Southwest who has been with the company for 25 years. “Travel was really reserved for the elite few; it was really expensive; it was something that was largely arranged by travel agents. We took that model and turned it upside down.”

By driving down costs on these short- and medium-haul routes, Southwest created new markets for the industry, and forced other carriers to lower their prices as well — what came to be known as the “Southwest Effect.” Studies have shown the Southwest Effect is real. Historically, when Southwest entered a market, it lowered average ticket prices by dozens of dollars, and sometimes by over $100. Southwest used its low-cost model as a public relations strategy too — it wasn’t just about making money, but about “democratizing the skies.” The company took that underdog approach to all its business strategies.

Southwest first operated flights out of Dallas’ Love Field Airport, close to the city’s downtown. In the mid-1970s, when the City of Dallas attempted to move Southwest and other airlines to the much larger and newer Dallas-Fort Worth Airport, Southwest didn’t budge. Instead, it sued the city and eventually won a lawsuit guaranteeing its stay at Love Field. For Southwest, the suit wasn’t just about ensuring its competitive ability — the airline was worried its customers would go back to driving to other Texas cities instead of following Southwest to DFW — but about showing how much it cared for its customers.

The airline still frames the court case as its “fight to fly,” turning it into a kind of David-against-Goliath narrative. “They see themselves as a sort of egalitarian product,” Kaplan says. “Nobody waxes poetic or gets teary-eyed about Spirit or United. People do for Southwest.”

That egalitarian culture extends to hiring practices: All employees are given a long history of Southwest when they’re hired, and people are only hired if they seem like they’ll be a good match for the culture. “If the company hadn’t developed that unique culture, it wouldn’t have survived the last 40 years,” says Xavier Pavie, a professor of Innovation in Service at the ESSEC Business School Singapore.

Several years ago, Pavie spent a week at Southwest’s headquarters at Love Field and wrote a case study on the company’s culture. He argues that egalitarianism — the feeling that every employee was in the fight

25 to be the best airline together — is palpable in every department. That’s translated into a brand image that resonates with customers. Today, though Southwest is the biggest domestic U.S. airline, many customers still see it as an underdog, the company trying to do good in a cutthroat industry.

“Southwest feels more democratic than the other airlines,” says Lucy Duncan, a 53-year-old Quaker community organizer who flies Southwest frequently. “Even if we increasingly live in an oligarchy, Southwest seems to still have a sense of fairness about it.”

There are tangible reasons for that fairness. The company has a one-of-a-kind profit-sharing program that pays out hundreds of millions of dollars to its employees in its peak years. Its employees are part of unions that have had fewer battles with corporate management than at virtually any other airline, in part because they’re very well compensated — especially their pilots, whose payroll and benefits packages work out to over $300,000 a year on average — compared to other airlines, and in part because the company’s manager-to-employee ratio is lower than at other airlines. Its customers can change or cancel flights easily, and of course there’s the airline’s famous insistence that every passenger be able to check two bags for free, even as virtually every other airline nixes the privilege.

Just like everything else the company does, its bag fee policy is as much about its image as its business model. Despite analysts and many shareholders insisting that Southwest unbundle bags from its ticket price, Southwest sees it as a strategic branding advantage.

“Our competition handed us a gift,” one Southwest executive told Pavie. “We were criticized by Wall Street for not charging bag fees. And we made a decision that rather than take the bait and take $300 or $400 million in bag fees, we would leave that to the other guys so we could go out there and say Southwest is the best value.”

Rutherford agreed: “That’s a product differentiator,” she said. “And from the time we announced that bags fly free, we saw a market shift of 1 to 2 percent. If analysts say we can make a billion dollars charging for bags, we say we’ve already made that.”

What all of this friendliness and insistence on simplicity and value hides is that Southwest is an economically ferocious airline. The same routes it created decades ago are now dominated by the company. If you want to fly St. Louis to Kansas City nonstop, you only have one option: Southwest. That’s true for hundreds of other routes too. The airline’s market share in its top 100 markets is 65 percent, meaning it flies two-thirds of all flights on its most popular routes. The industry average is closer to 45 percent. To put it more simply: Southwest finds markets, builds them out, and then ruthlessly excludes competition, whether it’s through price competition and customer benefits or via lawsuits — it continues to try to keep Delta out of a gate Delta leases at Love Field in Dallas.

“Southwest has succeeded to an enormous degree because they were the first to enter secondary markets and then sprawled like kudzu,” says Henry Harteveldt, the president of Atmosphere Research Group, which analyzes airlines. “They consume all the gates at the airports they fly to and effectively keep out other competition.”

26 Transforming Your Traditional Culture

But all that’s changing. Seth Kaplan said you can think of Southwest’s business in a few distinct eras.

In the early days, it won with low fares and new routes. In the 1990s, it beat out other airlines by expanding rapidly and dominating markets. In the 2000s, its profitability was largely because it made a smart bet and pre-bought jet fuel before oil prices spiked. Now, it’s less certain what Southwest’s next era will be.

There are several budget carriers, like Spirit and Allegiant, impinging on Southwest’s turf and winning on price. That means Southwest needs to look for other ways to keep shareholders happy, so the airline is entering new markets. The problem is that the most profitable markets are those with lots of existing competition, where Southwest can’t use its method of entering, dominating, and monopolizing. Its biggest expansions in recent years have been in major markets like New York, Fort Lauderdale, and Atlanta, where legacy carriers still operate the vast majority of flights.

With its strongest routes nearly maxed out, Southwest has had to become more like other airlines, offering popular routes at prices in line with its competitors, upping its amenities for business travelers (there’s still no first class or extra-legroom section, but loyal customers get early boarding and a free alcoholic beverage), and expanding into foreign routes.

It may add more longer flights soon. In 2016, Southwest began to upgrade its all-Boeing fleet by adding the lighter, more fuel-efficient and longer-range Boeing 737-7 MAX. The airline hasn’t said exactly how it will use the aircraft long-term, but Rutherford said its range opens hundreds more route possibilities to places like Hawaii, Canada, and Central and South America. It can even fly from the East Coast to the United Kingdom, though it seems unlikely Southwest will fly to Europe any time soon. The move was successful; in 2018, the company announced that they foresaw the 737-7 making up 60 percent of the fleet.

“Southwest has to transform its traditional culture to make sure they remain relevant today,” Pavie says. The airline still can focus on customer loyalty and friendliness, Pavie argues, but those mean different things today, when people are much more accustomed to booking their own tickets, choosing which bundles of amenities (like bag-check and meals) they want on a flight, and paying low fares.

Today, Southwest isn’t the cheapest carrier in many markets. Its brand of simplicity has competition from the likes of Alaska Airlines, and its friendly attitude doesn’t differentiate it much from an airline like JetBlue. If the airline wants to remain competitive, the next step for Southwest might be to remember that what has become tradition started out as innovation.

The strain Southwest has encountered in adapting to these new market realities shows: Southwest is no longer the most profitable airline. Budget carriers like Ryanair, Allegiant, Alaska/Virgin, and Spirit consistently outperform its earnings ratios. People might get teary-eyed about the customer service on Southwest, but at the end of the day many of them are still flying whatever’s cheapest.

Southwest’s challenge is that it could cause a backlash if it adopts many of the same money-making practices as other airlines, like charging for bags, asking customers to pay for assigned seats, and adding

27 a business class. Some customers have already ditched Southwest, or fly it less often, in favor of the barebones fares of other airlines. If it mimics other airlines more, Southwest risks alienating loyal customers who choose it because they don’t have to think about bags, fees, and seats.

But no matter what happens, Rutherford says Southwest is not in danger of operating like other airlines.

“What makes us different is we don’t over-promise and under-deliver,” she says. “More often than not when we hear from a customer why we don’t get chosen, it’s not because of bags or seating, but because we don’t fly wherever they’re going.”

It’s not out of the question that Southwest will adapt. Analysts note that JetBlue, one of Southwest’s biggest competitors, has evolved over the years, while earning a reputation as an airline that customers can trust. JetBlue was founded as an all-economy class airline with few fees, but today you can fly business class on the airline, at least on some routes, and can choose to travel without checked bags if you want to save some money. JetBlue has even trimmed some economy class legroom.

Of course, Southwest still edges out JetBlue in customer satisfaction most years, and it still has a dedicated following, especially in the places where it’s the only option. “Southwest is rarely the cheapest, and it’s sometimes not even the most convenient, but it’s just not as bad as other airlines,” says Charlie Topel, a grad student at New York University and longtime customer.

But “not as bad” might not be good enough anymore. When Southwest launched, it was different from any other airline both in ticket price and experience. The airline industry of the 1970s was designed for business travelers and wealthier Americans. Southwest changed all that. But now the airline has competitors chipping away at all the features that made it unique. Southwest now has a choice: Either hold on to the few things remaining that differentiate it from other airlines, or join the pack by trying to beat competitors at their own game.

P.E. Moskowitz is a writer based in Philadelphia who covers cities and politics.

28 Expedia Group 04 Two Decades of One Dat-com BySusie Cagle

29 30 31 Susie Cagle is a journalist and illustrator in California. 32 Autogrill 05 Reveling in Overwhelming Civility By Rachel Sugar

If you’ve been to an airport, or a train station, or a highway rest stop, and gotten a cup of coffee or a sandwich, salad, or fresh pasta, then it’s likely you know Autogrill. You may not be aware you know Autogrill, but you know Autogrill. You know it because Autogrill is everywhere. The Italian food and beverage conglomerate, which specializes in feeding travelers on the go, boasts nearly 1,000 locations across 31 countries on four continents. Last year, it served some 900 million travelers 67 million main courses, 83 million sandwiches, and 230 million cups of coffee, across a portfolio of 300-plus brands.

The surprise isn’t that you’ve been there. It’s how many times, and where. You’ve eaten with Autogrill if you’ve sipped a Puro Gusto coffee at the Athens airport, or if you’ve snacked on smoked reindeer at Pier Zero in Helsinki, or had barbecue at the Pork & Pickle in Kansas City International’s Terminal B. Maybe you stopped in at the Delaware Welcome Center Burger King for a Whopper, in which case, surprise — that’s courtesy of Autogrill, too.

But Autogrill, which generated $5.4 billion in revenue in 2017 through a mix of proprietary concepts and licensing agreements with a roster of familiar chains, doesn’t just dominate transit’s culinary landscape. It helped create it. In Italy, the brand is so ubiquitous that “autogrill” is a generic term for any roadside eatery; even now, Autogrill-branded autogrills account for 65 percent of rest stops nationwide. 33 Those original Autogrills date back to Italy’s post-World War II boom, when Mario Pavesi, an industrial entrepreneur from Novara with a baked goods factory, opened a small outlet on the Milan-Turin motorway — the autostrada — to promote his biscotti, inspired by the roadside rest stops he’d seen in the United States. Even today, they are beloved, even — or especially — by Americans traveling in Italy, who revel in their overwhelming civility.

“When you walk into Autogrill, they are making espresso and cappuccino to order, from beautiful machines. Even the lighting is pleasant!” says Gabrielle Hamilton, avowed Autogrill super fan and chef-owner of Prune in New York. “There is fresh arugula, and cured meats, and good bread, and a station with several extra virgin olive oils, a pepper mill!” Hamilton says.

And, she adds, Autogrills have local specialties. If you’re in Bologna, you might find the area’s signature tortellini in brodo, and if you’re in Puglia, there might be orecchiette from hard durum wheat. “It’s just an incredible uplift to be able to make a nine- or 10-hour drive through Italy and know that all along the way, at any time, you can pull over for a very good coffee, a very good meal with real ingredients, a bottle of very good wine from the region you are traveling through,” the chef enthuses.

The Autogrill “becomes a piazza of its own,” writes Frank Bruni of The New York Times.

A Harbinger of Modernity

To understand Autogrill’s unlikely journey to America (or Finland, or Bali), you have to go back to the Italian motorways where Pavesi, demonstrating both incredible foresight and luck, set up shop in 1947, a time before most Italians even had their own cars. And he wasn’t the only one. Other confectioners, Motta and Alemagna, were also getting in on the nascent roadside catering game.

As Italians embraced car culture, the Autogrills — and Motta-Grills and Alemagna Autobars — became a symbol of a newly mobile age, complete with their own iconic architecture. Nearly a decade after its initial location, Autogrill debuted the first of the American-inspired bridge-style restaurant that would become synonymous with the brand.

Stretching out above the motorway, Autogrill Fiorenzuola d’Arda was a harbinger of modernity, a hybridization between Italian culture and what Pavesi saw as the American way of life: fast, convenient, non- hierarchical, and cutting-edge in its consistency. Autogrill was to be Italy’s answer to Howard Johnson’s, a place anyone from anywhere could enter, and know for certain exactly what they’d get and for how much.

Even the menu was America-inflected. Working with the Institute of Physiology of the University of Milan, Pavesi conceived an array of “nutritious, light dishes” for the motorist on the go. The “motorist’s lunch,” for example, consisted of a zippy consommé, roast beef or grilled chicken with chips, crackers, butter, cheese, Pavesi soda, and a dessert made with Pavesini biscuits, per company lore — an extremely Italian take on convenience food. Travelers could get local specialties anywhere. What they needed on the road was speed.

The company started a trend: A year after Autogrill unveiled their bridge-style restaurant, Motta built theirs.

34 “They represented the future-gazing optimism of Italy in its postwar, industrializing boom,” Autogrill CEO Gianmario Tondato Da Ruos told Monocle. It was a rest stop, where you could get anything from a soda to a full sit-down meal, but it wasn’t just a rest stop. It was a cultural institution, a mini-grocery, and a sign of the times. According to Tondato, the Autogrill was so deeply ingrained into the Italian psyche that “people would hold weddings in the bridge restaurants to see the cars going by underneath.”

But if the 1950s and 60s had been the golden age of the Autogrills, the 70s brought trouble. “The oil crisis plunged Motta, Pavesi, and Alemagna into a crisis. Then, the state stepped in,” explains the company’s official history. (Less charitably: The state holding company, IRI, stepped in to rescue a bunch of disparate roadside pit stops from poor management.)

In 1977, more than 200 motorway restaurants were repackaged under a single brand: Autogrill SpA. And shortly thereafter, the company made a major play to move beyond motorways and into city centers. They didn’t necessarily stay urban — today, a whopping 97 percent of their business is in airports and motorways — but it was a pivotal move because, for the first time, Autogrill-the-company was developing new dining concepts that weren’t Autogrill-the-motorway-restaurant, expanding their brand. In 1982, it launched Ciao, an Italian self-service cafeteria-style concept; in 1989, in an attempt to get in on Europe’s fledgling fast-food market, it added a pizza concept called Spizzico. By the end of the century, Autogrill was operating 150 of them in Italy.

And yet, despite their off-road attempts, Autogrill was still mostly operating in the motorways of Italy, which didn’t bode well for lasting stability. To diversify, it started buying, making their first acquisitions abroad, moving into France with Les 4 Pentes restaurant group and Spain with a 50 percent stake in Procace, another motorway food and beverage provider.

When, two years later, Autogrill went private, with Editizione Holding — controlled by the Benetton family, of United Colors fame — as the majority shareholder, the brand’s expansion strategy became even more aggressive. “The Benettons were very astute,” says Giuseppe Pezzotti, a senior lecturer at Cornell University who helped advise Autogrill in the late 1990s. “They saw what was happening with the new generation. They were also Italian, like Columbus and Marco Polo. They always saw potential; it’s in their genes.”

“This was way in advance of what we consider the Euroland,” says Christopher Muller, a professor at Boston University’s School of Hospitality Administration, and former colleague of Pezzotti’s on the Autogrill project. “There wasn’t even a Euro currency until 2000, so for them to think that way [was] really quite remarkable.” For the most part, companies were “very structured in their nationalities. The Italians spoke Italian, the Germans spoke German, the French spoke French. And there was very little crossover.”

“One of the things you’ve got to put in this is that Benetton was a genius at early brand management,” Muller says. This is the group that created fast fashion, switching out the colors in their stores “literally within days of things changing in the marketplace.” If such dynamism could work for fashion, why not for food?

“So much of innovation, in any industry, but especially in restaurants, comes from someone who is not raised in the business,” Muller says. Before Benetton came into the catering space, “there was no discussion of brand management as a reasonable thing,” Muller says. “And these guys came in with a consumer products branding strategy and just changed the industry.” 35 Beyond expertise, the Benettons also had cash. When, in 1997, the Autogrill SpA went public, it raised “enormous amounts of capital when no one in Europe was going public,” says Muller. Call it the second golden age of Autogrill: The newly flush company began acquiring even more businesses in foreign markets — Sogerba in France, Weinerwald D in Germany, AC Restaurant in Belgium and the Netherlands, and in 1999, HMSHost in the U.S. It was, Tondato has said, “a real turning point.” In fact, HMSHost was bigger than Autogrill, and brought with it the new market of North America and a new revenue stream. Formerly owned by Marriott, HMSHost had begun on the North American railways and, when that petered out, had moved into airports, starting with a contract at San Francisco International in 1954.

No one saw them coming. “They basically caught everybody by surprise, to be honest with you, because they were Italian,” Muller says. They were expanding very fast — too fast, some critics said — but, despite their pace, they had a kind of underdog advantage. “I know a lot of people from Germany and France and they just thought the Italians weren’t going to be very good at it — how could an Italian run a business!” People “didn’t take them seriously, and all of a sudden they turned around and there they were.”

A Sandwich With a Sense of Place

Autogrill got into airports as they became the highways of the skies, a new spin on what established the company in the first place. While motorway catering offered limited growth potential and most of North America isn’t big on trains, people were flying at record numbers — the timing was perfect.

In the very early aughts, when Autogrill, through HMSHost, entered the market, airports were changing in fundamental and highly profitable ways, becoming places to hang out rather than just move through. “Now, you can’t conceive of an airport that’s not a shopping mall and a food court,” says Muller. If you’re going to be at the airport for a few hours — and as airlines move to a hub-and-spoke system, with fewer direct flights and more transfers, it’s ever more likely that you will — then why shouldn’t that waiting time be a pleasant part of your trip?

Meanwhile, the very meaning of airports has begun to shift. They’re not placeless, timeless vacuums anymore, but mini-cities in themselves. This, argues John D. Kasarda, a professor at the University of North Carolina’s Kenan-Flagler Business School, is the dawning of the “aerotropolis” — the age of the airport city, transforming passenger terminals into the airport equivalent of “urban town squares.”

It’s a concept Autogrill has enthusiastically embraced. “Schiphol Airport: from non-place to aerotropolis,” reads a headline on its website, heralding Schiphol’s “enormous airport park,” “real Dutch Market,” and in- airport library: all the amenities of a city that “welcomes life.” You “chill out” and “fulfil [your] desires” at the airport, but you can also have a business meeting. Or just catch a flight.

It’s a far cry from the airport experience of the late 1980s and early 90s. This, says Michael Oshins, associate professor at Boston University’s School of Hospitality Administration, was the age of “Gapification” — it didn’t matter where in the world you were, you could get the same baby-blue button down. And despite protests to the contrary, people still want that to some degree. Through its network of licensing agreements with familiar brands, Autogrill continues to ensure it has this consistency. Local may be booming, but there are limits, and in the right context, even adventurers choose comfort. Starbucks doesn’t traffic in surprises — that’s the point. 36 But now, travelers also want a sandwich with a sense of place. There is a move toward authenticity, or at least, a cleaned-up, well-managed version of it. If you’re at Helsinki-Vantaa, the feeling is, your options should be different, in a Helsinki-specific way, than if you’re catching a train at Utrecht Centraal, or newly arrived and starving at Chicago O’Hare. “All the things that people want in restaurants, they’re doing in airports,” Oshins says. “They want fresh food, they want locally sourced, they want to have a better dining experience. Now it’s like, where can I get something that’s not the same as everywhere else?”

“Airports and passengers are looking for more local themes,” says Darren Perry, a managing director and Partner at LEK Consulting who focuses on the aviation industry. If the experience you’re getting in, say, Boston, is specifically Bostonian, “people might have a greater willingness to try it, because when are [they] going to be in Boston again?” As pressure to invest in local businesses grows, airports have become increasingly interested in “small- to mid-sized operators” who, by virtue of their ties to local brands, might bring in “a bit more of a distinctive offering.”

But if Autogrill is a giant, it’s a nimble one, and the company is feeding that hunger for local flavor with their Bistrot concept, the current darling of the brand. Conceived in collaboration with the Italian University of Gastronomic Sciences of Pollenzo — a source of culinary credibility — the inaugural Bistrot debuted at Milan’s central train station, Milano Centrale, in 2013. Autogrill’s interpretation of the “modern city market,” it’s made up of various “counters” including a bakery with a “huge variety of breads made with sourdough,” a café counter featuring “genuine Neapolitan coffee,” a smoothie-and-salad station, a section with assorted “street foods” from the “local Lombardia tradition,” as well as a delicatessen and bar. The press release announcing its opening reads like a Milanese Portlandia sketch.

The Bistrot is a hyperlocal concept that can be adapted to anywhere. It is quintessentially Milanese, until you move it cross-border and add currywurst, and then it’s authentically German. This is Autogrill’s brilliance: It is simultaneously specific and placeless, local and global. You can have Starbucks, or genuine Neapolitan coffee. You can have a classic Italian market experience courtesy of Autogrill, or a prototypical Dutch one.

What Autogrill has done so well since Pavesi opened his first motorway café is to read a consumer climate and adapt to it, whether through partnerships or strategic original concepts or aggressive acquisition. Its modularity makes it adaptable: There is something in the portfolio for everyone everywhere, and if there isn’t, it’ll create it.

So when the Bistrot worked, the company did what it does: replicated it. A year later, Autogrill opened the first airport Bistrot in Dusseldorf. There are now Bistrots all over Italy, including at the famed Autogrill Fiorenzuola D’Arda, the most iconic of Autogrills, as well as seven other countries. There is a Bistrot at Urecht Centraal in The Netherlands and Trudeau International Airport in Montreal and even the McArthurGlen Provence outlet mall in France, each with its own rhapsodic list of place-specific offerings.

“If the Helsinki traveler can enjoy smoked salmon and sliced reindeer meat,” Autogrill promises, “the Utrecht traveler can take away a typical krentenbollen.’’ And the untrained eye will barely notice the little futuristic swish of Autogrill’s trademark white A that marks its territory, wherever you are in the world.

Rachel Sugar is a writer who lives in Brooklyn, New York.

37 South by Southwest 06 Anticipating the Times By Andrew Zaleski

Jesse DeFlorio always booked his trips to South by Southwest the same way every year, by flying into Austin three days early and flying out of Austin three days late.

For seven years beginning in 2009, the Los Angeles-based music photographer took his talents to Austin, shooting photos of bands performing at the annual, internationally known music, film, and interactive festival. DeFlorio spent his time backstage at PureVolume House, and later, the Hype Hotel, pop-up music venues where up-and-coming artists played shows, and took portraits of all the musicians. South by Southwest was always a working trip for DeFlorio, but he always built in extra time to enjoy and explore the city.

“It’s the live music capital of the world,” he says. “I’ve been touring for 12 years, and I’ve never seen another city with that density of music venues that close to one another.” In other words, making time for arguably the creative capital of the United States was just as important as being part of perhaps the most creative live event of the last 30 years.

What began as a small music festival in 1987 thought up by staffers of a local alt-weekly has morphed into a gargantuan gathering, a conference that incorporates a variety of events not only in the music industry

38 but also in film, technology, government, education, and about a dozen other industries, including gaming, fashion, food, and health. Speakers at the 2018 conference, more commonly known by the abbreviation SXSW and popularly name-checked as “South-by,” included Bernie Sanders, Ira Glass, and Susan Wojcicki.

“We’ve always just tried to put on the best event we could and then looked to see how many people were going to show up,” says Roland Swenson, one of the co-founders and current managing director of SXSW. “We never took it for granted that it would always work. We could have fallen off, and almost did a few times.”

South-by’s approach has always been about anticipating the times, making slight changes to an ever- innovating festival, and hoping that people kept coming back. For Swenson and crew, growing SXSW over three decades was as much about playing off of Austin’s appeal to outsiders as it was about letting those outsiders determine the festival’s scope. “Now we have a big health component, a big space exploration component, a sports track,” he says. “It’s mostly reacting to different visitors who showed up to SXSW, and that’s how we grew.”

By expanding its offerings while not losing sight of the fundamental goal — showcasing Austin as a creative hub — SXSW has expanded its audience year after year. Today, SXSW routinely pulls in well over 100,000 visitors (and more than 200,000, if you count guest-pass holders who visit the free public events) and more than $300 million in economic activity each March to the capital of Texas.

“SXSW is homegrown and it’s authentic, and it really is an expression of who we are,” says Molly Alexander, executive vice president of economic development at the Downtown Austin Alliance. “I think the most brilliant thing about it is that it does evolve and change.”

Making It Easy for People to Stay in Town

SXSW started as a music festival, but none of its organizers knew just how big it would become when they first came together in the late 1980s to begin planning for the first edition in 1987.

Among that early crew was Nick Barbaro, who moved to Austin in 1975 to attend the University of Texas at Austin. He would join forces with Swenson and others later, but in the mid-1970s Barbaro was just a college student in a small city, relative to the other cultural juggernauts of the U.S., who was told by the locals that he arrived a decade too late.

“Already I was hearing, ‘Aw man, you missed it. It’s not like the good ol’ days,’” recalls Barbaro, co-director of SXSW and publisher of the Austin Chronicle weekly alternative newspaper since 1981. “But there has always been a creative community here, and there has been a music scene here since before World War II.”

Austin’s musical heritage runs deep. It’s the place where seminal artists like Janis Joplin, Stevie Ray Vaughan, and Willie Nelson cut their teeth, and where renowned musicians from across the country came to play at Austin City Limits, the weekly PBS show begun in 1976 to shine a light on Texas music that has now morphed into another eponymous music festival held every year. Tourists today take tours of Congress Street and the 6th Street Entertainment District to get a taste of that musical legacy.

39 It’s that history and musical creativity that a handful of people at the Austin Chronicle first sought to highlight when they began having meetings in 1986, discussing the future of entertainment and the media, and scheming up ways to bring the best of both worlds to Austin, and possibly keep them there. “If you finished school and were casting around for things to do, there were all these creative things in town. We tried to set up an infrastructure to make it easy for people to stay in town,” Barbaro says.

The first SXSW kicked off in March 1987 with 177 artists performing. Barbaro, Swenson, and crew expected only the 150 attendees who had registered beforehand, but on opening day, 700 people arrived. Over that first half-decade, SXSW grew rapidly, with bigger crowds attending each year along with bigger names on stage: Willie Nelson, the Dixie Chicks, Townes Van Zandt. Festival programming combined with the charms of Austin managed to keep attendance growing and attendees interested.

“Austin was unique in that you could find every genre of music in different nightclubs: punk rock, blues, country and western, jazz,” Swenson says. “They were all relatively close together, so people could move from one club to another. That was a big part of our appeal.”

In 1993, the first year SXSW was held in the new Austin Conference Center, Ann Richards, then the governor of Texas, delivered the keynote. “Texas music has become much more than what you hear in a bar with the chicken wire stretched between the band and the patrons,” she said in a thick Texas drawl, just after telling audience members that it’s “literally the truth” that Austin during SXSW is the “center of the musical universe.”

While Richards’ speech focused on the city’s musical culture, it was nevertheless an early glimpse at how the festival would evolve to incorporate more than just music.

Baked into SXSW from the beginning was the idea that it would be more than a music festival. Many of the organizers, including Swenson and Barbaro, were alumni of the film school at the University of Texas at Austin. They founded the Chronicle, in part, as a way to publish their own film criticism. But early decisions they made at the the paper — like purchasing computers at the very beginning of desktop publishing, even though the machines were slow — would inform moves they made later with SXSW.

In 1994, SXSW introduced its Film and Media Conference, the same year the music side of the event snared Johnny Cash as its keynote speaker. One year later, the joint conference would split into separate film and multimedia conferences. A few years after that, the latter was renamed the interactive portion of SXSW, which technology executives, startup founders, and venture capitalists flock to today.

“That’s been a big part of our growth because we’ve just expanded the topics we can cover because of the nature of that [Interactive] festival,” Swenson says.

By the end of the 1990s, SXSW was drawing close to 900 performing musicians every year, and that was just on the music side. The symbiotic nature of having a multitude of creative minds descend upon one location for an intense number of days was already taking shape. It’s the same symbiosis that has benefited other large gatherings like Burning Man, which started one year before SXSW and now draws tech executives in addition to the usual freer spirits.

40 “We draw a lot of creative people,” says Swenson. “They’re all here looking for ideas, looking for new things in the culture, but mostly just to meet each other.”

Evolving With a City

SXSW organizers, visitors to Austin, and those in the economic development sector of Austin’s economy will tell you the growth of the event has mirrored the growth of the city, and vice versa. When it comes to Austin and SXSW, it’s the urban equivalent of the classic conundrum: Which came first, the chicken or the egg? “The two are intertwined inextricably,” Barbaro says.

Today there are more than one million residents in Austin. Taller buildings and a greater density of businesses and residents have transformed the downtown skyline. A new international airport and a new convention center — where former Governor Richards spoke during the 1993 SXSW — were built, further enabling SXSW’s expansion.

Downtown Austin Alliance’s Alexander points out that while Austin is still a second-tier U.S. city, both in terms of population and amenities, its association with the festival has drastically increased the city’s cachet and visibility. It’s unsurprising to see Austin on lists of cities where millennials might consider moving. According to Alexander, that type of recognition spiked as SXSW became a bigger event. “[The city] really emerged internationally when it added Interactive.”

In the first decade of the 21st century, SXSW became the place where apps and electronics converge. It was Apple that chose to launch its iPad 2 during SXSW in 2011. The event has invited speakers like Mark Zuckerberg. As the tech sector has ballooned in the U.S., a rapidly gentrifying San Francisco has made tech companies eager to branch out to new locations. Austin has been a direct beneficiary of that impulse. “Many major tech firms and companies are setting up their shops in Austin,” says Sumeet Shah, principal at Brand Foundry, a New York venture capital firm that just set up an office in the city.

It’s a centrally located city that also hosts SXSW’s interactive component, which quickly became a meeting place for top tech talent and new startups. It’s where Twitter took off: The social network took SXSW by storm in 2007 when it won Best Blog at that year’s Web Awards. (The rest, as they say, is history.) As early as SXSW 1995, a bandana-clad Willie Nelson took the stage during the closing party at the Austin Music Hall to sing about Microsoft.

Over the years, SXSW grew in popularity the same way Austin did: by not being averse to outsiders. Both the festival and the city were willing to take newcomers’ projections of what they were expecting into consideration as they designed new spaces and events for visitors and city transplants. From its earliest days, SXSW knew this would be a strength of its festival so long as they were willing to change along with the types of attendees who were streaming to Austin year after year. By 2014, SXSW was pulling in around 70,000 attendees.

A New Tricky Balance

Yet as SXSW and Austin have both grown, the event and the city have changed in ways that are not always seen in the most favorable light by either event attendees or city residents. When Barbaro moved to Austin 41 in the 1970s, he said it was a great home base for bands because of the dirt-cheap rent. Getting a loft, he says, would cost $150 a month, and it would be a space big enough for band members to both practice and live in. The city today is “hugely more expensive,” he says.

“I’m very much on the side that Austin has grown too much,” says Barbaro. “[SXSW] could take some of the credit, or some of the blame, depending on how you look at it. And I think we do have to take some of that blame or credit.” Over the years, visitors’ introduction to Austin has increasingly been through SXSW. They might have decided to put down roots in Austin afterward, but the city got on their radar thanks to a mega- conference that started out as a small music festival.

Los Angeles-based photographer DeFlorio credits the SXSW organizers with their vision for growth. “They were smart to not just try to make it a music festival,” he says. But with each SXSW he attended, he did notice that local residents, frustrated with a swarm of outsiders flooding into Austin yet again, were just waiting for the week to be over. And the changing nature of the event year after year has altered how bands, and their fans, experience the music portion of the event.

“There’s been a huge shift from it being just a music destination for small bands and up-and-coming bands. They’d grind into the ground playing seven to eight shows,” he says. “Now it seems you fly in, play the big corporate event, make your money, and get out.”

Or, if what happened at SXSW last year indicates, not at all. “I think the bubble has now burst,” says Justin Malone, operating partner for the Waller Ballroom and Waller Creek Pub House, to Digiday in an article published on the opening day of SXSW 2017. “In the past, corporations spent lots of money on SXSW, but when they looked at the bottom line they didn’t see return on investment. I think it’s hard to quantify how much they get from a conference.”

That’s the existential threat to a long-running conference. Where’s the point of diminishing returns for attendees who aren’t Austin natives? Today, untethered from the Chronicle, SXSW operates on its own and does a good business selling badges, which start at $825 and increase in price as South-by time draws nearer. But big brands like Yahoo and Microsoft stopped sponsoring large events in 2016. People know what SXSW is; they know what to expect from it.

In other words, the SXSW model has been around for so long that it’s easy for people to think it’s growing a little stale. Other, fresher cities are replicating its success. In New Orleans, the Collision Conference is billed explicitly as a tech conference — the segment of SXSW that garners the most media attention these days — and draws participation from Microsoft, Facebook, Google, and more. It also piggybacks on the annual Jazz Fest. The new 36/86 conference in Nashville is another example of an event marketed specifically as a tech event, and its selling points are virtually the same as Austin’s: Come to a growing, southern city with a vibrant music scene in a location that gets you away from San Francisco and New York.

Austin, by contrast, took a bit of a hit from the all-powerful tech economy at SXSW 2017. The source of the grumbling was the quintessential first-world problem — no Uber or Lyft, as the city had banned those services over a dispute about fingerprinting drivers — but it was enough to make the lack of ridesharing

42 one of the media themes from last year’s event. (It seems as though the state listened: Legislation signed by Texas’ governor last spring superseded the city’s ridesharing rules to allow Uber and Lyft the ability to operate once again in Austin.)

What’s more, festivals like New Orleans’ Collision or Nashville’s 36/86 also have the benefit of being fresh in people’s minds. Even if they do have similar themes to SXSW, the fact that they’ve only been around several years is actually a strength. SXSW runs the risk of diluting its own authenticity. When does a creative event become merely a networking opportunity? The conference sometimes seems more like an in-person version of LinkedIn: Saying you attended is more important than actually participating.

SXSW will have a tricky balance to strike going forward. It will continue to expand offerings, which was exactly what led to SXSW being such a long-running festival business. In 2018 SXSW featured its first Cities Summit, a two-day conference track with panels on urbanism, creativity, and technology. But the brand should expand carefully. Cities make sense for its core audience, but it risks losing track of its focus on music, film, and tech.

Still a Marquee Event for the Calendar

Given some of the pressures SXSW has faced in recent years, how do conference organizers let the event evolve to keep it going for another 30 years?

Swenson recalls the early days, when he and his fellow organizers were trying to anticipate how culture might change throughout the 1990s and beyond. They talked a lot about what entertainment would be like. They figured music and movies would always be around. They predicted that computers would play an expanding role across multiple industries. They didn’t know exactly what would happen, but they thought a SXSW that had a hand in each area would be able to thrive.

“We figured we needed to have a three-legged stool with a leg in each discipline,” he says. “The three events have been growing closer and closer together, and overlapping.” The overlap might make it hard to distinguish SXSW’s core events from each other. For those interested in just a music scene, wading through a packed week — and city — to find what appeals to them can be a challenge. But that overlap has also been a strength of SXSW, and likely the single major reason for its growth.

Tech, music, and culture didn’t have anywhere to meet before SXSW. And as technology has grown to become a bigger part of the culture, SXSW has proved to be a catalyst, and a testing ground. The conference is a place where companies can meet users, and where users can find the newest things in tech and culture, all in a fun, creative place.

That spirit of creativity and the convergence of innovation across different industries is what keeps people coming back. “I think for a lot of people it is a marquee event on their calendar,” says Swenson.

Andrew Zaleski is a freelance journalist in Washington, D.C., who has also written for Wired, Men’s Health, Popular Science, and the Washington Post Magazine.

43 About This Book

This anniversary book has been two years in the making and is the result of a collective team that included Skift staff members and a group of dedicated freelancers.

We’d like to thank Kyle Chayka for his efforts as a freelance project manager who was integral in coordinating our ideas for the company chapters with freelance writers.

The Skift editorial, design, and development teams were key to bringing this anniversary book to life. That effort included: Design and Development: Ping Chan and Mike Linden Editing: Jason Clampet, Tom Lowry, Dennis Schaal, Hannah Sampson and Sarah Enelow-Snyder.

Photo Credits: JR East (Flickr); The Oberoi Group (Commons Wikimedia); Southwest Airlines (Freeenterprise. com); Autogrill (Commons Wikimedia) and South By Southwest (Wikimedia).

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