How can kayaking make money

Travelers who use travel search engines and fare aggregators such as Kayak may wonder how these companies make money since Kayak’s services are free to consumers. Companies such as Booking Holdings (BKNG) (formerly Priceline, acquired Kayak in 2013) generate billions of dollars in annual revenue. Kayak makes money through advertising, introducing customers to online travel companies and other partner providers, and through additional commissions.

Kayak was founded in 2004 by the company’s chief executives Steve Hafner (Steve Hafner) and Paul M. English. According to TechCrunch, by 2007, Kayak had raised nearly $200 million in investor funds. The company had an initial public offering in 2012 and was acquired by Priceline for US$1.8 billion in 2013. Since then, Priceline has changed its name to Booking Holdings. Today, Kayak operates seven international brands and provides websites in more than 20 languages ​​worldwide.

The key to understanding Kayak’s revenue stream is to understand who the company’s customers are. Kayak’s customers are not travelers who search their website, but companies that travelers find on Kayak.

Kayak has more than 2 billion website searches every year.

Kayak’s business model

Kayak provides consumers with travel information and prices on vacation packages, flights, hotels, car rentals, and other travel services by providing information collected from travel providers and travel agencies. As of 2019, the company has processed approximately 2 billion travel inquiries through more than 60 websites.

Co-founder and CEO Steve Hafner helped launch another similar travel service website Orbitz in 2001, and then founded Kayak in 2004. The main business model change that Hafner made when setting up Kayak was to stop providing information and actual ticket sales. Kayak is more like a search engine that searches for the best prices because it does not directly deal with sales transactions for travel services. Instead, it refers Kayak users to other websites to complete the transaction. At the same time, Kayak cancelled the transaction fees common to other travel service websites; effectively, Kayak became free for customers.

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Compared with Orbitz, the simplified information-only business model makes Kayak’s website users less likely to look for lower prices elsewhere. It also reduces Kayak’s operating costs, thereby improving financial efficiency. Not processing transactions requires less work and fewer employees, and virtually eliminates the need to provide customer service to Kayak website users. In general, the success of the site is reflected in Kayak’s ability to attract a lot of business from advertisers.

Kayak’s two main sources of income are distribution and advertising. The company also generates revenue with other Booking Holdings subsidiaries through various types of commissions.

Key points

  • Kayak earns revenue through advertising and distribution channels.
  • When users visit their website through Kayak’s search engine, travel providers and travel agencies provide Kayak with distribution revenue.
  • In addition to the main Kayak services, Kayak also operates six other brands.

Kayak’s distribution revenue

Kayak’s real customers are not users who visit its website to search for travel deals, but Kayak recommends its users to travel companies that it buys, such as Delta Air Lines (DAL) or Hertz Global Holdings (HRI) tickets or other travel services. Kayak receives distribution revenue from travel suppliers or travel agencies that website users click to complete travel transactions. Sites like Kayak are considered part of the distribution channel of travel service providers. Essentially, these sites pay Kayak when Kayak sends customers to them. Because Kayak is very popular, travel service providers are encouraged to include their products in Kayak’s search, otherwise they risk being ignored by travelers.

About one-third of Kayak’s revenue comes from recommendations from airlines, and another 15% comes from recommendations from hotels and car rental companies.

Kayak’s advertising revenue

One of Kayak’s largest general revenue sources is online advertising. The company provides advertising placements on its website to travel agencies, travel suppliers, and other related businesses. Revenue is generated by charging advertisers a cost-per-click (CPC) or cost-per-impression rate, similar to the revenue generated by many other websites that sell ads. Advertising revenue is the company’s main source of income, and it is also one of the characteristics that distinguish Kayak from other Booking Holdings subsidiaries.

Due to the large number of potential customers Kayak provides, Kayak can charge advertisers a premium. The company was acquired by Booking Holdings, which helped expand Kayak’s global exposure and popularity, thereby increasing the revenue of the two companies. Kayak is committed to improving Booking Holdings’ bottom line and overall cost efficiency. Kayak can use a lower level of advertising costs to attract the same number of website visitors as many competing metasearch engines in the travel industry.

Kayak provides services in more than 60 countries/regions around the world.

Future plan

In recent years, Kayak has been expanding its products and geographical representation in a positive way. For example, by acquiring Momondo Group in 2017 and HotelsCombined in 2018, the company aggressively entered the European and Asian markets. Kayak is likely to continue to increase its service offerings through similar expansions in the future.

Important relationship

Kayak’s business model allows it to maintain an important influence among consumers and travel service providers. Consumers have begun to trust Kayak to provide an easy-to-use and free service that provides comprehensive information about travel pricing. In turn, Kayak has been able to prove to travel service providers that it has the ability to provide important access to its customer base. Looking to the future, Kayak may work hard to protect and develop the relationship between the two parties in this model.

Main challenge

Since Kayak’s relationships with consumers and travel service providers are critical to its success, they also represent important challenges for the future. For example, if a travel service provider decides to allow the contract with Kayak to expire, it may weaken the customer’s trust in the Kayak search engine, thereby weakening the company’s attractiveness to other travel service providers. The company must strive to maintain a balance between these two sets of relationships.

The ever-changing world

Other large-scale challenges also remain. For example, competing metasearch companies that aim to provide similar services may attract users, thereby weakening Kayak’s appeal to advertisers. In addition, if global social, political or economic events lead to widespread changes in travel habits, Kayak may face serious threats to its business model.

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