Vacations Blog

Question: Why the new interest in online travel? Isn’t online travel “done”?

Based on the number of analyst and due diligence calls I received recently, it looks like there are a number of new travel sites looking to help consumers research and plan their trips. Is this the sign of a Web 2.0 Bubble in Travel?

My Answer: Yes and No. Online travel is only partially “done.”

After all, travel is the biggest e-commerce category at $91B. But, growth rates are slowing and price shopping and online bookings are increasingly concentrated at a few sites. Travel is partially “done” – for consumers who know what they want to book. There is little need for another travel offering of this type. The world doesn’t need another Expedia or Orbitz.

However, there remains a huge unaddressed consumer need–helping consumers decide what to book.

There is an increase in awareness of this unaddressed consumer need. When I ran Yahoo! Travel I saw clearly what consumers were searching for: information like things to do, places to stay, consumer advice, photos, locations, maps etc. Consumers have a lot of needs that are not being served by online travel agencies like Expedia or Travelocity. The “first click” doesn’t start at Expedia…it starts at Web search.

Want to address this need? Make sure you meet these three criteria.

Based on our travel experience and consumer research, we believe three key criteria need to be met to address this “what to book” problem:

1. Offer comprehensive information - offer one stop shopping of places to stay, things to do and detailed information (e.g. descriptions, photos, maps, location, reviews, etc.) Consumers should not have to sift through multiple sites to find relevant bits of information on possible places to stay and things to do.

2. Provide filters and personalization – enable consumers to search based on who they are traveling with and why they are traveling and don’t assume they already know where and when they want to go. Give them the filters they need to get relevant results.

3. Make word of mouth easily available – people prefer information & feedback from other people (reviews, blogs, ratings, etc.) Unfortunately, most sites that have reviews, blogs etc. still force their visitors to browse to find the most relevant feedback and do not yet analyze that word of mouth to make specific recommendations.

The travel site that meets these three criteria will become the “first click.” Why? Because once these three criteria are met the “what to book” decision can be made easily and travel planning can be a more enjoyable and efficient experience. It is quite simple for a consumer to then move into the booking & price comparing phase of trip planning.

That’s how we think about it. How about you?

OK, so we put our cards on the table. What are other innovators in travel thinking? What problem are they trying to solve? What opportunity is there to go after where “travel” is not done? Is there solid consumer need out there (and for what) or is everything getting just a bit too frothy for your taste?

Travel insiders have known that major changes are inevitable for the online travel industry. While most assume that online travel is already “done” by Expedia and the likes, people who have been in travel like Henry Harteveldt, Gregg Brockway and I are more excited than ever before about future opportunities to improve the consumer travel planning experience online. The consumer travel planning process is usually broken down into four or five steps: 1. Research – learning more about their options for where to go, what to, and where to stay 2. Compare – checking prices and availability 3. Book – booking your flights, hotels and activities 4. Share – adding reviews, blogs etc. to share your experiences with others. and

It’s clear that the online booking sector, dominated by the suppliers and the “big 4” OTAs (2) is maturing. With the announcement of the Sidestep and Kayak merger, the comparison sector demonstrates it is starting to mature – with a couple of interesting caveats. First, the surprisingly low overlap in traffic between Kayak and Sidestep suggests that there is more growth possible; especially if the merger means they can increase investment in product and marketing to accelerate relatively slow growth. Second, there are new companies, e.g. Farecast, trying to drive further innovation in the comparison sector. Finally, rumor has it that in early 2008 Yahoo is planning to make some big, exciting and long overdue moves with its dormant FareChase price comparison product, a product that is actually more comprehensive then Kayak. With Yahoo Travel’s position as the fourth largest aggregator and their strong market share and growth in the critical hotel segment, this move could throw the comparison sector back into flux. [update: see the bottom of this post for additional notes]

The Web 2.0 trend has been very prevalent in travel with the explosion of consumer-generated reviews, blogs, photos, video etc. making it easier and more fun to share but also making it difficult for you to assess which sites and reviews are most useful and trustworthy. TripAdvisor is the most successful example of a hotel review site, but its very success leads to an overwhelming number of reviews to sort through.

Market surveys by industry analysts tell us that the first step of travel planning – research – is the hardest. According to a 2006 survey commissioned by MSN and conducted by Harris Interactive, approximately three-quarters of U.S. adult respondents who have ever taken a vacation say they visit three or more Web sites when researching and/or booking their vacation plans. “The fact that three out of four vacationers spread their online research across multiple Web sites—with some visiting 10 or more—points to the huge timesaving benefits that a truly full-featured online travel planning site can deliver,” said Jim Quilty, vice president of travel and tourism at Harris Interactive. The SideStep/Kayak merger will not solve the most frustrating and time consuming aspect of the online travel experience—researching a trip.

Before a customer can compare prices or book a flight they must decide where to go, what to do and where to stay. This is not a problem if someone needs a flight for a short business trip to Atlanta with a meeting in a hotel near the airport. But, if a customer is seeking a specific kind of experience – romantic things to do in San Francisco or family friendly hotel in San Francisco they still have had to find, collect and organize data from many sites to decide and plan a trip. As Henry Harteveldt of Forrester Research discusses in the Bob Tedeschi-written New York Times article and Diane Clarkson of Jupiter Research discusses in her blog, the online travel industry needs to improve the consumer shopping experience and enable you to get recommendations based on your preferences.

That’s what Kango is doing – simplifying that research process by collecting everything you need to decide in one place, enabling you to filter down to your most relevant options based on your preferences, and helping you decide what to price compare/book based on our natural language analysis of reviews from all over the web. Kayak and SideStep do meta-search for prices, we do smart meta-search for reviews and (non-price) travel information. There is over $700B spent annually on travel in the U.S. (3), and “only” $80 billion booked online…there is plenty of opportunity to do remarkable things to enable people to have better trips. And Kango’s mission is to be the first step to planning better trips.

Notes:

1. Gregg Brockway’s Tripit helps you organize your itineraries after you have booked.
2. Expedia, Orbitz, Travelocity and Priceline (and their respective sub-brands)
3. Travel Industry Association of America

Looking for more on this story? We have rounded up the news & blog coverage thus far:

Blog Highlights

• TechCrunch broke the story and did an excellent job of digging into the details of the deal, key operating metrics and the fate of the SideStep team
• Webpronews highlights the less than 10% overlap in visitors between the two company
• Searchengineland mentions the overall size of the online market at $80 billion according to Comscore
• Downloadsquad reevaluates their position that the online travel space will consolidate to only a few sites in travel
• JoeDuck is a fan of Kayak
• Les Explorers highlights non-American players and quotes Adam Healey’s blog
• GigaOM highlights pessimistic forecasts about the online travel market in 2008
• HotelMarketing highlights the turnaround aspect of the SideStep story
• VentureBeat brings together all the funding details in detail
• PaidContent highlights new players like Kango and Kosmix
• RedHerring covers the long period of courtship between the two companies
• Adam Healey of VibeAgent reviews the financial metrics and potential multiples at exit.

Other blog coverage

• VijayDandapani quotes henry harteveldt that 12-15% of online leisure travelers use metasites
• Xconomy suggests “Kayak and Sidestep will travel together in rare east buys west acquisition.”
• Gadling is “concerned that their new powerhouse corporate entity will overshadow their original grassroots mentality.”

Additional coverage

• SearchEngineWatch
• TheAlarmClock
• 23Musings
• SiliconTap
• UndertheradarBlog
• Gigaom

News Reports

• Tjacobi
• InfectiousGreed
• TravelStuff
• Travolution
• Tim’s BOOT
• KelseyGroup

[update] What’s a few hundred million dollars between friends? Speculating about the Kayak & SideStep deal

Wow, did I ever get a torrent of calls from travel industry friends and colleagues and analysts wanting to discuss the Kayak acquisition on Thursday night and Friday. Life was a lot quieter when we were in stealth mode and folks didn’t know we were doing meta-search or we were in travel! We had conversations with two groups of folks about the deal.

The first were travel and search insiders and Yahoo alum I knew who wanted to get our take on the deal and its implications. I certainly have some opinions – see below for my unfounded speculations.

The second group were folks who made a connection between Kayak and Kango because we both do meta-search in our own fashion. Kayak searches many booking sources to help you find the lowest prices. Kango searches many review and information (e.g. descriptions, photos) sources directly to help you find the right hotel or activity (and soon, the right destination). Then you go to Kayak to price compare or Expedia, Hilton, Southwest etc. to book. At Kango, we don’t do the real-time meta-searches for price and availability that Kayak does. And Kayak doesn’t structure unstructured content (e.g. reviews, blogs) and extract meta-tags like we do. Oh, and they are a $500M company…and we’re not!

Those conversations above were based on facts. The rest of this post isn’t I have several opinions on the Kayak-SideStep deal below. I haven’t spoken w/Rob or Steve Hafner about the deal yet, so these are just conjecture.

First, assuming the comScore’s unique visitor tracking for Kayak and SideStep that TechCrunch showed is accurate, these are not two companies growing their user bases quickly. Eyeballing Nov YOY figures, it looks like YOY growth of 15, maybe 20%. hmmm…

This means revenue growth is being driven by generating more revenue per user…our second takeaway. Rob and SideStep have executed very well. It looks like he is monetizing as much as 75% better then Kayak. i.e. according to TechCrunch, SideStep is generating $35M in revenue from $1B in ticket sales and Kayak is generating $50M from $2.5B in ticket sales. Let’s assume there is some exaggerations in the Kayak ticket sale numbers. It still looks a significant positive delta. But the delta looks like it goes away on a revenue per unique visitor basis. hmmmm… But Kayak is keeping SideStep’s ad sales/monetization team, so there must be something worth going on?

Third, contrary to popular opinion, SideStep was doing price meta-search before Kayak was conceived. Rumor has it that SideStep has a patent or two that are potentially troublesome for other price meta-search players.

Finally, what range might Kayak’s IPO be at given the operating metrics reported? I have talked to a VC involved who says Kayak will do a “billion” dollar IPO in 2008. Well, that might be necessary for the VCs who invested in the last round assuming Kayak raised ~$150M in equity (and the remaining ~$45M in debt) for 25% of Kayak. Let’s do some back of the envelope analysis. The dominant online travel agency, Expedia (owner of Hotels.com, TripAdvisor, HotWire…) trades at 3X revenue. Assuming 40% growth on their current revenue of $85M and a multiple of 6 instead of 3 because of a faster growth/higher margin story, perhaps an IPO range of $700-800M?

What’s a couple of hundred million dollars between friends?