Robert Peck from Bear Stearns asked the following question in the Expedia conference call (trascribed by the Internet Stock Blog - excuse the typos, but I don’t currently have access to anything else. Read full transcript):
“I was wondering if you could comment a little bit about the meta-search engines and what Kayak and Sidestep have meant to you, any imitation [implication] its had on the business so far.”
Expedia CEO Dara Khosrowshahi answered:
“But with meta-search engines really, certainly a less of a deal in reality for us than they have been made in the press. I can’t, its – I think Kayak and some of the others have a nice product out there. But fundamentally I think if we do our job, which is to get great and broad pricing across our air product, across our hotel product, across our car product. I don’t see what they are offering other than kind of an economic model that doesn’t match our economic model. And I don’t see how they can gain any kind of real brand awareness or broad brand awareness. Are they going to go away no, are they going to compete with it, absolutely, I think it keeps us on our toes and I expect them to get better and better as time goes on, but I don’t see them as any kind of a fundamental threat to our business. So, I think that our business model is better and I think there is much, much more that we can do as far as improving our customer experience in getting broader selection, better information from our customers with our model.”
My comments:
-The economic model of the travel search engines is to provide travel suppliers with a way to connect directly with the customer thus circumventing the high fees of the booking engines and creating the potential for a valuable relationship with the traveler. Of course this economic model doesn’t mesh with that of Expedia which saw quarterly profit fall 43% from the prior year.
-Dara is absolutely correct. Creating brand awareness is one of two MAJOR challenges for the travel search engines (the other being the ability to develop economically and technologically viable relationships with the travel suppliers that allow for real time querying).
SideStep made a splash years back with its toolbar, but the rate of downloads has slowed. Kayak creates ‘cool’ applications which develop some buzz, but that’s not enough to steal mindshare away from huge branding campaigns by the OTAs. Word of mouth has been good to the travel search engines, but I don’t get the sense that it continues to grow at a pace that would allow the engines to forgo marketing channels like the PPC engines (Google Adwords and Yahoo! Search Marketing). Which leads to the same problem the shopping comparison engines have: acquiring loyal users and not depending on high click fees on Google and Yahoo. The PPC conundrum is more troublesome for the travel engines, though, because the OTAs can spend more to acquire each customer (as they make more on each booking).
-Travel search is not a threat to your business. Well, when your company is doing $15B in bookings, the travel search engines definitely don’t look like much of anything, but as they ‘keep you on your toes,’ I’m sure that you see them as potentially distruptive to your business model.
As was mentioned on the conference call “75% of U.S. travel shoppers online visit one of [Expedia’s] sites prior to making a purchase. Yet at the end of the day 5% of total U.S. travel expenditures [were] incurred at Expedia.com.” The Motley Fool points out: “It has to hurt Expedia that savvy surfers now know they can save $5 booking fees on many flights by going directly through the airlines. Satisfaction promises and price guarantees sound great on paper, but they’re difficult to rely on when modern online users knows what they’re doing.” The Fool goes on to make the obvious case for the travel search engines.
The travel search engines aren’t a threat NOW. But my opinion (and the mindset/framework from which this blog is written) is that the travel search engines have the potential to be a serious threat.
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February 17th, 2006 at 10:12 am
First off, I am ecstatic there is a blog focusing on Vertical Search, with Travel meta-search being a primary focus. This is a fascinating space which is going to heat up over the next few years. It will be great to monitor and participate here as things develop.
It certainly seems the OTA brass is downplaying the immanent threat the travel meta-search has on the online travel industry to the public. I can assure you behind close doors it’s a different story. It is true that meta only has a small fraction of market share, but they are growing rapidly and are making moves to position themselves as the next wave of online travel. How can the OTA’s not be worried? Yahoo purchases FareChase which is planning a big ramp up in ’06. AOL partners with Kayak to create Pinpoint Travel. SideStep launches a co-branded travel search section with Amazon. Google launches the “booking buddy” type model within their search results when a user searches for Departure and Arrival cities. The networks certainly seem to see the light and possibly the future of internet travel.
The meta-search model seems to make perfect sense. The suppliers want to own the consumer relationship. Through the OTA model, they don’t get this. From a technology and user experience standpoint, they are certainly behind the times but gaining ground quickly.
Expedia and Travelocity have primarily shunned relationships with the travel engines. Orbitz has taken on the opposite approach and has embraced the model fully. They have locked up direct relationships with just about all the major players in the aggregator space. It can be argued that SideStep wouldn’t be close to the position they are today without Orbitz becoming part of their supplier set back in the toolbar’s early days. Without SideStep’s success, where would Kayak, Mobissimo, and FareChase be today? Some may argue that Orbitz is the Julia Robert’s of the big three OTA’s by “Sleeping with the Enemy”. I think this is an outstanding short-term move to gain market share on Expedia and Travelocity. However, they may have a helping hand in the demise of the current OTA model. The SideStep’s of the world are locking up direct supplier relationships left and right which are making them less dependant on OTA’s results. How long will it be before travel search kicks Orbitz and OneTravel to the curb and goes in for the kill?
The OTA’s are hanging their hats on “Customer Service” and “Packaging Options”. I’m not quite sure how far this is going to take them given the consumers already get service through the suppliers and packaging only makes up 10%-20% of their bookings. It’s going to be interesting to see how this shakes out 3-5 years down the line.