Vacations Blog

In a world of unwritten rules, one would never attempt to eat sushi with a fork or show up to a job interview wearing a costume unless you happen to be applying for a position as a clown (or wanting to be clowned).

One particular travel site, however, is taking a different approach than the rest of the players in an elite group of meta search engines in the online travel space. Mobissimo has embraced social networking and personalization tools to a degree that far exceeds its competitors (Kayak, Sidestep and Farecast).

I checked out Mobissimo’s Share Space called MobiShare (available directly on a tab on Mobissimo’s home page). Powered by Plum, this area of the site allows visitors to create a space to share all their travel-related urls, images, videos, notes or documents. It’s like a scrapbook of travel ideas. With MobiShare you can create shared folders where friends can contribute and anyone on the site can comment on the content or discover new places to visit.  MobiShare adds to Mobissimo’s MobiFriends travel community where you can meet travelers from around the world and share the fares you find on Mobissimo.

Other than including a “Deals” section on their sites, true meta search engines have been known to keep a minimalist’s approach in design so that the main focus is on their bread and butter – search. However, with travelers taking fewer trips this year, consumers want to make sure they’re getting the most out of every trip so Mobissimo’s strategy to differentiate by adding a fully integrated social networking component may well pay off.

Historically, Kayak/Sidestep and Farecast (with much greater funding) have had stronger overall U.S. traffic growth than Mobissimo, whereas Mobissimo has had stronger international brand awareness. As a result, Mobissimo’s social networking initiative to grow organically within its own ecosystem may also prove to be a good sticking point for its worldwide user base, keeping visitors engaged longer and driving incremental customer acquisition.

It seems like just yesterday that the travel sector crowned Kayak the undisputed heavyweight champion of price comparison search following their acquisition of SideStep. But wait! It looks like Yahoo has (finally!) unveiled FareChase, the price search engine they acquired back in 2004. On the Yahoo Travel homepage, the Travelocity booking engine is no longer the default search option, it has been re-labeled ‘classic search’ and FareChase is the default search.

Yahoo is a formidable, albeit very delayed, entrant to the price search. It searches more supplier sites then Kayak directly, which presumably leads to better prices for consumers. And Yahoo is the fourth largest travel aggregator, behind only the ‘big three’ of Expedia, Travelocity and Orbitz. Greg at Compete.com estimates that the combined entity (Kayak-SideStep) will attract over 5 million monthly U.S. website (unique) visitors – about 60% of Yahoo’s footprint.

Presumably this brings a new competitive element that Kayak might not have expected (let’s be serious, four years after the acquisition, did ANYONE expect Yahoo to finally launch FareChase?). With their market share, Kayak is in a strong position as the suppliers perceive Kayak to be an important channel in the continued battle with aggregators for market share. But they aren’t the only player anymore, which as Tim at BOOT suggests, would have made it easier to move from a position of strength to an IPO. Perhaps, as Sramana at Seeking Alpha suggests, they might do additional roll-ups on their way to the IPO. On the other hand, Yahoo plunging into this price search is good validation to Wall Street that price search is still important.

Another implication is that a potential operating benefit from the acquisition might not fully accrue for Kayak. Both Kayak and SideStep depended heavily on acquiring consumers through online marketing. Buying SideStep should have allowed Kayak to acquire those consumers more cost efficiently, but having Yahoo-FareChase also competing might make the acquisition costs higher then anticipated.

Stay tuned, it should be an interesting year.

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?