Kayak CEO Steve Hafner Interview: keep it simple, focus on search, stay out of Asia..oh...and get back into offline marketing

Enjoyed a chance to catch up with Kayak CEO Steve Hafner last week. I had planned the call to be about the challenges of a traffic arbitrage business model. I had hoped to draw out of Hafner that there was pressure in the Kayak model fuelled by rising paid search costs, being late to the review game with the Travelpost revamp and tremendous marketing and product pressure from the drop/elimination of booking fees by the big online travel agents (OTAs). Instead Hafner was relaxed, confident and ready to push ahead with millions of dollars in offline (yes offline) advertising planned.

We touched on two main areas. His focus and plans for the next twelve months (including plans for Travelpost and why the OTA fee cuts don't phase him) and his thoughts on expansion outside America (not in Asia and measured in Europe). On the former there is a lot to be worked on for Travelpost to catch TripAdvisor but there are plenty of flaws with the TripAdvisor product and an accompanying disquiet amongst users. On the latter, the potential risk I can see is that they may be under estimating the challenges of growing in Europe where they have more competitors and less compliant suppliers.

Here is our exchange in detail.

On plans for the next twelve months

Hafner says that Kayak is exclusively focused on three things:

1. More focus on core search: The measures here are speed, accuracy and simplicity. Hafner is measuring his world in terms of milliseconds in response time. I asked if we was worried about price accuracy, database loads, hotel and switch look to book issues but none of these concerned him. For Kayak the true cost per query is falling to near zero through caching and the costs of bandwidth. This allows him to focus on the speed of search and the comprehensiveness of the results. His goals are big but simple - that the submit button results in a search in 15 milliseconds, that the results contain every bookable option and that the filtering and customer profiling gives the client the results they want. While this sounds obvious it was the simplicity and aggression in his focus that impressed me;
2. Driving awareness: Hafner believes it is the perfect time to get back into offline marketing to take brand awareness to the next level and compete with the OTAs. He believes that Kayak is "fully penetrated online" and that the costs of offline has "come down by about a third". Critically he does not want to leave the offline channel as the exclusive domain of the big spending OTAs, especially because (as he puts it) "the fee cut [by the big OTAs] takes margin away from their P&L and out of their marketing budgets". New CMO Robert Birge has a $100mm to spend on marketing and a CEO keen to see the brand in lights on TV (example below of their "trip idea" commercials from back in 2006). Right now Hafner is claiming that 8% of online shoppers have heard of Kayak (cf he claims Orbtiz number is 60%). In two years he wants the number to be 20%. ; and
3. Making Travelpost a viable competitor to TripAdvisor and Travelzoo: Kayak has followed the much smaller Uptake into the review meta-search model through a revamp of Travelpost. Prior to the revamp Travelpost (acquired by Sidestep) was a user generated hotel review site much like TripAdvisor. Now post revamp it aggregates reviews from around the web as well as allowing direct posting and commentating. He plans to go after both TripAdvisor and Travelzoo with this new product. He hopes within two years for Travelpost to be generating about half the revenue that Travelzoo is making from deals and to be 15% of the size of TripAdvisor's media revenue (up from 1% now).
   

On Expansion plans

An interview with Hafner is famously free from PR generated answer obfuscation. I asked a detailed question about the Asian market that started with a lead in on the challenges in the market, the earlier successes of Qunar in China and Wego in Singapore and Australia. Even made a reference to Sprice and Cheapflights. "So Steve," I concluded, "do you have your eyes on Asia too?". Two word answer - "absolutely not". In short he thinks the market is too small (in terms of search volume) and not mature enough (in terms of online advertising).

Europe is another matter. He admits that the change in MD "reflects a disconnect in aggressiveness" which I read to mean that the outgoing MD had a more aggressive plan than Hafner did (see the Travolution post on this for more details). This does not mean they are pulling out of Europe and he rejected any suggestion that Kayak had made a "false start" there. Instead they will keep on with the general three strategies above run by the two people in the London office. He conceded that there are product gaps in Europe (no Rayanair and some other low cost carriers) as well as higher costs from online marketing as Google is so much stronger but he is there for the long term even with no plans to replace the Managing Director role.

The competitors are coming fast at Kayak with big marketing budgets and constant model changes. Kayak's response is keep doing what we are doing only better and now on TV. What do you think. Good plan?

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Example of earlier offline advertising efforts by Kayak.

Voyij - Sidestep founders and staff re-enter the meta-search war with a discovery and inspiration twist

One of the first things you learn as a lawyer when doing mergers & acquisitions work is the importance of the non-compete clause, especially the term of the non-compete. That is the restrictions you place on the people selling a company from walking out the door with "your" money, their knowledge and immediately setting up the same or similar business elsewhere. There is not a legal standard for a time period for a non-compete after a sale as it depends on the amount of money paid, the geographies involved and more. That said you would expect any major deal to come with a minimum two year non-compete. One year is possible but for acquisitions of a decent size you would expect to see at least a two year restriction on shareholder/owner managers (ie not "regular" staff, just those with a substantive stake in the business) .

Why am I giving you this little trip down memory lane to my days as a lawyer (even though I have admitted that every now and then I miss being one)? Because in late December 2007 the online travel industry was "rocked" by the meta-search equivalent of Pepsi buying Coke with the announcement of Kayak Buying Sidestep for $200mm. It was pitched as a merger but quickly became clear that the Sidestep brand would disappear and much of the Sidestep management would move on (see my post deal interview with Kayak VP comm Kellie Pelletier for more).

Now some 15 months after the Sidestep sale (ie outside of 1 year but within the typical 2 years) I have come across an announcement that a number of ex-Sidesteppers are back in the travel meta-search business with the launch of Voyij.com (pronounced "Voyage" and much cheaper than trying to buy the inactive but clearly for sale Voyage.com).

The press release (care of Business Wire) dates the launch of Voyij as 13 May 2009 and is heavy in linking the likely success of Voyij to the Sidestep pedigree of the founders and staff. According to the Voyij blog work on the product started as far back as March 2008 (ie just after the acquisition). Listed on the Voyij website as founders are Sidestep co-founder Brent Stewart (Voyij CEO), Sidestep Software Architect Nick Atkins (Voyij CTO) and Sidestep UI engineer Paul Kim.

Former Sidestep CEO Rob Solomon is quoted in the press release saying some glowing words but is not listed in the About us section as being either a founder or on the advisory board. To be clear I have no information either way on the post acquisition obligations of anybody but love the idea of seeing former employees of a target company build something to battle back against an acquirer.

Post Sidestep machinations aside, Voyij are coming at meta-search from a different angle to Kayak/Sidestep. I am tempted to describe their approach as a mixture between meta-search and the travel discovery and inspiration sites that we have been discussing so much here at the BOOT. Whereas your typical meta-search business asks you to type in a To/From combination and produces a set of results, Voyij ask for your departure point and an indication as to when you are prepared to leave. It then recommends both deals and destinations. For example selecting SFO as a departure point selected "beyond August" as the departure date recommend flights to Long Beach as being the cheapest options. For Vacation deals the top recommendations were Southwest Vacations deals in Oakland and Las Vegas.

True to their Sidestep origins the Voyij UI design team have produced a well laid out site for refining the sort order by date, price, destination, facilities and more. However the discovering and inspiration pieces are much weaker than the dedicated players that I have looked at such as Triporati (interview with founder here) and Tripbase (interview with founder coming soon). The meta-search part is seamless and attractive but they will need to develop a lot more depth in the recommendation part other than simply selecting the nearest and cheapest option otherwise they will limit their market to nearby weekend get-aways.

Final world - the name is going to hurt them. In typing this post I must have misspelt the name more times that I got it right, even though it should be phonetically easy to remember. Similarly messed up the URL a few times (thankfully without unintended and unsafe at work consequences).

Let's all welcome the team from Voyij back to the meta-search war front.

PS - Dennis Schaal has some interesting thoughts on the Voyjig functionality and the perils of screen scraping here on his post here.

Kayak to take on UpTake (or is it the other way round)

Quick post, as I am running around today

Meta-search behemoth Kayak.com (poised to hit a billion searches in Q1 09) has announced that it is adding hotel review meta-search to its engine (care of HotelMarketing). Two interesting points caught my mind here:

1. Uptake.com (nee Kango) came to this model first and has raised money and profile to go after it. But Kayak clearly has traffic to burn; and

2. I interviewed Kayak's VP Communications Kellie Pelletier back in Jan last year after thier acqusition of Sidestep. At the time Sidestep had a lot of content assets (such as the now dead TripUp). Kellie made it clear to me that Kayak was not looking to pursue a content based strategy - rather would rely on their engineering lead to beat the OTAs and "regular" search companies. I am trying to decide if this move into meta-searching content is a change in strategy or not. On the one hand it is embracing content but on the other it is using engineering to collate and organise someone else's existing content.

Need to think about his more but Uptake - watch you back!

TripUp - "our site is dead, go to Facebook instead"

Sidestep bought TripUp in 2007 as part of the plan to add content and community and with meta-search. Then Kayak bought Sidestep and made it clear that they believed in affiliates and search as traffic generators not content and community sites. When asked by me what this meant for sites like TripUp, Kellie Pelletier of Kayak gave the not so coded code words of “evaluating all those relationships now” and “reviewing contracts and performance". That usually means you will see things being shut down in the next three months. Well here we are three months later and TripUp is dead. I wonder how the staff at Travelpost (another Sidestep Content acquisition) are feeling?

The page that used to be TripUp is now thirteen simple words

"Tripup is gone, sorry.
Maybe you can use Facebook instead, it's very popular."

I doubt even that page will last very long.

Thanks to to the Triptouch blog where I spotted the story.

Have attached a screenshot below

501 not out

Time has passed and the posts keep flowing. Time for my "not out series" - a regular summary of the last 100 posts that I first started with 101 not out and continued with 201 , 301
and 401.

Just like the 401 update it has been deals, deals, deals that has dominated the last 100 BOOT rants:

• Wotif evenutally managed to by Travel.com.au/Lastminute.com.au despite a fight from Webjet and a cunning move from AOT. Followed up almost immediately buying Asia Web Direct;
• TripAdvisor launched a new version and continued its targeted site buying spree with HolidayWatchdog;
• TravelCLICK was sold to Genstar and the BOOT called it first;
• The Asian acquisition bonanza continued as Priceline returned to the market though an acquisition of Agoda, ;
• Sidestep disappeared in a flood of newly raised Kayak cash; and
  
• Venere bought Worldby.
  

Cash flowed into online travel:

• Fastbooking took Euro35mm;
  
• Worktopia grabbed $5mm;
  
• Bezurk got "an undisclosed sum" from News;
  

I spent some interesting times on the phone doing start up interviews with:

• Yen Lee of Kango;
  
• Gregg Brockway of TripIt;
  
• Martin Symes of Bezurk; and
• Kellie Pelletier of Kayak.

In the weird world of quirky news:

• bags fell from the sky;
  
• The president of Sri Lanka got bumped and was not happy about it;
  
• Man fired dog and bragged about it; and
  
• nobody, I repeat nobody is doing anything naughty naughty in the new Singapore Airlines double bed suites.

Oh and Qantas turned from being the flying Kangaroo to the thieving Rat.

But I saved my most angriest post for number 400 - the last in this seasons. When the new Australian government said they were doing me a favour by continuing to allow Qantas to over charge me on flights to America.

If you're still reading then I'm still writing.

The Kayak Sessions: Interview with Kellie Pelletier of Kayak on the Kayak / Sidestep deal

You know about the Kayak and Sidestep $196mm "merger" (if you don't you can see my post on it here). I had a chance this week to speak with Kayak's VP Communications Kellie Pelletier about the deal, meta-search, online travel and a whole lot more. A couple of very interesting themes and ideas came from this interview.

Doing a deal with (OK buying) Sidestep

The deal is talked about as a merger and legally looks like one but is clear from the conversation that it is in fact an acquisition with Kayak in charge. The deal was done quickly. The idea emerged early in the third quarter initiated by the three key founders - Rob Solomon (CEO Sidestep), Stephen Hafner, Co-Founder and CEO, Kayak.com and Paul English the Kayak CTO. Discussions started early last year but really got going "late summer". Owners of Sidestep were all bought out - however Trident Capital (Sidestep's biggest VC backer) joined the funding of Kayak's buyout of Sidestep.

Kayak + Sidestep: The Integration Plan

Pelletier shared the integration plan for the combined products. In the US they will retain two brands. Sidestep will keep it feature and content focus (supported by search), while Kayak will keep its clean, uncluttered, pure search approach. Pelletier used a Google vs Yahoo! analogy to show the difference. A focus on engineering and search, search, search (Kayak) vs features, functionality, content and brand based connection with users (Sidestep). Quotes Comscore to say that the traffic cross-over between the two is only 10% which I found very surprising.

While they will maintain these brand feelings in the front end, the back end will be one system - dominated by the Kayak technology. There will be some enhancements in the Kayak engine drawn from Sidestep (ie packages and air guides) but in the end both brands will point to the same Kayak dominated engine. In the rest of the world (mainly Europe at present), the Sidestep brand will be set aside. Already the Sidestep.co.uk refers directly to Kayak.co.uk. Full integration should take around 3 months.

The content pieces of Sidestep are nice to have but not really core to what Kayak believes is key to success in meta-search - great engineering. Sidestep have content deals and have bought content companies (for example Travelpost). It is clear that Kayak aren't that interested in this content but when pressed on what Kayak will do with these side assets and deals Pelletier used a couple of good PR phrases saying that Kayak was “evaluating all those relationships now” and “reviewing contracts and performance”. My interpretation is that this means that the content assets were not part of the reason why Kayak bought Sidestep and Kayak would not have established these assets independently but at the same time don't want to just through them away.

Re the team - 20 of the 75 Sidestep staff have been offered/accepted employment contracts making a total staff of 60 (35 of whom are engineers).

Kayak to the World - We are here, were coming and we're willing to buy

Even though "everyone wants to be bought by Google", Pelletier says that the enlarged Kayak is not looking for a buyer or an exit plan. Does not believe that the OTAs can afford them anyway. Instead Kayak is gearing itself to take on the world with expansion plans for China and India "sometime in 2008". Additionally there maybe "newsworthy announcements later in the year". This is PR code word for plans to grow through further acquisition.

Sure we like search engines but there are plenty of other ways to get traffic

I have spoken in the past about how so much of meta-search is about traffic arbitrage - buying traffic from Google and selling it to travel providers. I was very interested to hear from Pelletier that PPC was only responsible for a third of Kayak's traffic. Affiliate deals delivered another third and (surprisingly) direct to the side was a full third of Kayak's traffic. Very impressive if true as indicates a customer loyalty I did not expect in meta-search.

My Thoughts

Kayak is hungry for more. Unless Pelletier was messing with my mind then Kayak are determined to stay independent, grow traffic, expand product and become the travel search company. But integration is never as easy as it sounds in the acquisition deck shown to the Board. Simple maths of the traffic puts Kayak + Sidestep in the traffic lead but they will need to prove that an combined company can rely on maintaining the combined traffic.

Meanwhile Yahoo! is offering up some resistance having finally put its Farechase product on the Travel home page (here is Kango's Yen Lee with more of the story).

Congrats to Kayak on this deal and I agree with the strategy. However - to end with a word of caution - Kayak will do well not to under estimate the challenges of integration and the potential for an inexplicable evaporation of traffic.

Kayak buys Sidestep for $200mm

Hot of the blogsphere care of TechCrunch and days after I pondered if an OTA would buy a meta-search provider we find that Kayak has raised $196mm, from pretty much everyone on Sand Hill Road and used the money to buy Sidestep for around $180mm (plus $20mm in cash reservers at Sidestep equals $200mm). Arrington has the full story here.

Sidestep will lose 55 staff (out of 75) including CEO Rob Solomon (after 60 day transition.

What are the possibilities here:

• Do they keep two brands?
• Do they merge the content businesses that each of them built or bought to do SEO?

The biggest question of course - is this a sign of strength in the market with one and two coming together to dominate or a sign of weakness that they need to get together to survive? Deal of the year at the last moment in the year.

UPDATE - Adam Healey over at VibeAgent has crunched some numbers on the deal putting the combined entity (or new Kayak) at a valuation of $450 million or a P/E of 35 (assuming 15% margin on TechCrunch's reporting of combined revenues of $85 million).

UPDATE 2 - Interview here with Kayak's VP Communications Kellie Pelletier about the deal,

Meta search vs OTA: Should an OTA buy a meta-search company?

Was asked an interesting question about meta-search and online retail by a share analyst reader. Paraphrased, the question was

We get plenty of Private Equity calls relating to meta-search companies. Most want to know if these companies would work in Europe and who would be interested in buying them. Do you think that an online travel agency could/would buy a meta-search engine?

The main difference between a meta-search company (Sidestep, Kayak, Bezurk etc) and an online travel agency (Orbitz, Expedia, Travelocity etc) is that the first group are media companies and the second are retailers. The common element is that each is after the traveller - wants to attract travellers to the site to commit to a revenue generating activity. However the meta-search media business requires very different approaches to marketing, customer retention and business development than the OTA. This is because the activity the consumer is engaged in is different, the tools for retaining customers are different and the revenue model is different. Will quickly touch on each and then look at whether or not an OTA should buy one.

Customer Activity - You would think that since the activity on both meta-search and OTA is search that there would be little difference in customer activity. However the difference here is what is going on in the customer's mind. A consumer on an OTA is experience hunting. Is looking for advice, support, connection - all of the things a consumer desires from a retailer. In meta-search the consumer is singular in their focus - give me the cheapest price on the exact thing I want. This is why OTAs invest so much in brand and customer care. Meta-searchers are traffic arbitragers - they survive by buying traffic at a cheaper rate than advertisers will pay for referrals.

Customer Retention - Retailers can work to keep customers by offering discounts, exclusive deals and targeted promotions - ie product. Meta-search retention comes through bringing consumers into the search experience through reviews, social networking and new inventory connections - ie content.

Revenue Model - commission vs pay per click; cash from consumers vs bucks from media buyers; selling travel vs selling eyeballs.

OTAs therefore have the advantage in customer retention and breadth of marketing tools. But meta-search has the advantage in ease of access to supply and significantly reduced operational costs (no need for customer care and reduced supplier relations costs).

It is because meta-search is media rather than retailer that the biggest meta-search deal around was Farechase being bought by a media company - Yahoo!. However this does not cancel out an OTA as a potential buyer of meta-search. We have a very power example of success in an OTA buying, owning and running a media company through Expedia's ownership of TripAdvisor. Any acquiring OTA just has to embrace being a media company.

I am a fan of the meta-model but (as with all web companies) it is all about good product and execution. There is lots of success in travel so far for meta-search but comparison experts like Pricegrabber have already failed in moving to travel. The fit with a media company is stronger than that of an OTA. Of course - haunting the whole sector is whether or not the general untargeted search people (ie Google) develop the more targeted tools of meta-search.

Sidestep can't stay out of the news - what will be next

Sidestep seemed very comfortable for a long time being a pure meta-search company (is arguable that they invented the model). The economics were simple - buy traffic from GYM (Google, Yahoo, MSN) cheaper than you can sell it to advertisers who will come to the site because you can deliver highly qualified traffic. However somewhere something started to break in the model, most likely this was that PPC costs for the best of the travel keywords were becoming too expensive. Traffic had to be acquired in cheaper ways. So Sidestep has gone on and acquisition and content deal blitz-a-thon.

The latest is today's announcement of the acquisition of travel social network TripUp (here is the paidContent story). TripUp has all the usual features of a social network around travel - reviews, videos, photos, community, interest matching etc. What it does not have is a way to search and book travel.

Rolling up all Sidestep's recent activity now they:

• own a social network;
• own a blogging/review platform (Travelpost);
• have a content deal with Frommers;
• have a blog content feed from RealTravel; and
  
• another round of financing banked.

That means content, distribution, meta-search and money. There are also very strong confirmed rumours of profitability.

So what is next for them? Not sure if it is time yet for a sale. To extract the most from their valuation they probably want to have a longer period of earnings growth. But I expect them to continue with content and distribution acquisition through either buying more companies or further licence and affiliate deals. On the product side there is more international expansion to do. I am also sure they are contemplating more in the area of video and photos (Hotelsbycity for example). To round off the speculation, what about a technology buy. Something that would improve their ability to push contextual deals in automated forms - think Google Adsense but for travel deals.

Hotelscombined joins the meta-search wars with a difference

Caught up for coffee today with Yury Shar of Hotelscombined.com. Yury is a fellow ex-Cendantite and former super-star from Travelport owned FlairviewTravel. He and his fellow Hotelscombined founders were the creators/builders of some of the best pay-per-click bid management systems I have ever seen. They are now back in the online game with two meta-search products - Productreview.com.au and Hotelscombined.

As the names indicate ProductReview is a broad product site (much like PriceGrabber that I commented on earlier) and Hotelscombined is hotel meta-search.

The Hotelscombined product is fighting in the same space in Asia as other meta-search players Bezurk and Sprice.com. They are also happy to take on the big guys - Sidestep & Kayak. They are trying to build a global business from Sydney. Yury tells me that currently 60% of traffic is coming from customers outside of Australia and they hope to raise that to 70% by the end of the year.

But Hotelscombined are more than a me too play. They have taken a different functionality/UI approach than the other players. They are keeping the traffic on their site for longer than the others. The typical meta-search player (if there is such a thing) sends the traffic over to the partner site relatively early in the search - just after the sort order results are displayer. Hotelscombined keeps the traffic for a click or two more. It sends the traffic over after the room type selection has been made.

The result is that they should:

1. have a larger number of page views per visitor producing interesting monetisation options; and
2. be sending traffic that is more qualified than the typical player and therefore producing higher conversions for partner site.

The major downside is that the searches take a little bit longer to complete. It also means that their layout looks different to the others. Sometimes difference can be good, but it can often confuse consumers getting used to a new model.

With their history and expertise expect Hotelscombined to be very aggressive and targeted in paid search. Well done Yury on a great product.

Hey - where did PriceGrabber Travel go and what does mean for the meta-search market?

Reader - Greg Morris - sent me a tip that shopping comparison site PriceGrabber.com has (with not a hint or announcement) shut down their travel comparison section.

PriceGrabber is a serious player in the comparison shopping game. According to Paid Content, they were founded in the boom (1999) and sold for US$485mm in Dec 2005 to Experian (no not Expedia, Experian). They are in the top leagues with (then) $60mm in revenues and (now) 11,000 merchants. Here is an Experian power point deck (in pdf form) if you want to know more.

Just before the sale, in Nov 2005 they announced the launch of a travel channel. The story went around very quickly: Gridskipper praised the integration with FlightStats; VerticalSearch carried an interview with Brett Snyder, the head of PriceGrabber Travel (most interestingly using the opening sentence that Shopping.com was leaving the travel sector); and the paper in pink - the Financial Times - even picked up the story. It seemed like all systems go for taking on the other meta-search providers I talk about so much in this blog.

Suddenly there is no reference to travel anywhere on the PriceGrabber site.

Three possibilities that I can think would cause this:

1. Execution - That PriceGrabber were simply no good at executing travel. It is clear they do comparison shopping well and Greg assures me (and Gridskipper agreed) that the engine was a good one. But maybe they were no good at marketing or promotion of this particular product. No way to know;
   
2. Brand - Could be that no matter how good you are at comparison shopping for "regular stuff" - electronics, clothing, music, books etc - the purchase of travel is too different a form of consumer behaviour to operate under the same brand. We know that Amazon's early efforts in online travel were a failure. We also know that large scale department store retailers have never been successful when trying travel. So maybe the brand of PriceGrabber just did not extend in the mind of consumers to travel; or
   
3. Meta-search is tough - I like the concept of the the meta-search model and there are rumours of profits at Sidestep and Kayak but it is way too early to call this a proven market and model. At the core it about traffic arbitrage - buying in traffic at a cheaper rate than advertisers will pay for referrals. There is plenty of room for error in execution but also the potential that there is not a wide enough natural gap between the untargeted search costs of Google and the targeted charges that meta-search needs to levy to survive. I don't believe that- I think the model should and will work but if a big brand and company like PriceGrabber can't do it, we need to stop and think about the market as a whole.

Most likely not one cause but all three. I don't think it should scare off people from investing in or using meta-search nor entrepreneurs from continuing to believe in their meta-search products but it does remind that brand selection, support and execution focus are critical.

Farewell PriceGrabber travel.