|Priceline to acquire Kayak: unexpected and brilliant.|
Tuesday, 20th November 2012
Source : Carroll Rheem
It's not often that the travel industry gets a true bombshell; along with the many accomplishments the management teams at Priceline and Kayak can count, catching us all off guard is now one of them.
But as unexpected as Priceline's announcement of intent to purchase Kayak was on November 8, the tremendous potential of this collaboration is obvious. The move is not without risks, of course, but it is, quite simply, brilliant.
Just what the doctor ordered for Kayak
Kayak has grown to be a pretty big fish in a pretty big pond. As market leader of the metasearch arena in the U.S., it has proven its proposition against the likes of Google and successfully launched an IPO, which valued the company at US$1 billion.
But apparently that was just a warm-up. Not even four months later, the valuation has nearly doubled with Priceline's announcement of its intent to acquire the company at a valuation of $1.8 billion.
There is no ambiguity about what Kayak must do now to create value for its shareholders and justify its price. The company needs to venture beyond its pond and transform itself from a U.S. brand into a global leader, and time is of the essence. Kayak has struggled for years to replicate its success in other markets, while other players have been establishing formidable competitive brands around the world. This scenario is practically déjà vu of what the big four U.S. OTAs went through roughly seven years ago. Only one, of course, managed to break through the international barrier with phenomenal success Priceline.
Given its track record, there is no way Kayak could build major international operations without a serious injection of capital and talent. Its strengths lie in great technology and the ability to provide relevant search results that keep consumers loyal and advertisers satisfied. This core platform as valuable as it is means nothing, however, without advertiser partnerships and effective consumer marketing.
Speed to market is critical for Kayak at this juncture. Europe in particular is poised for major pop in metasearch in the next few years: Fragmentation has driven European travelers to use more websites on average than U.S. travelers1, creating an ideal environment for aggregation. Europe will therefore eventually represent a larger (probably much larger) market than the U.S. and Asia Pacific is not far behind.
But supplier and OTA fragmentation the very thing that makes metasearch such a powerful proposition outside the U.S. is like tar on a racetrack. Expanding breadth of partners and scaling operations is something Priceline has proven it can do extremely well and extremely quickly there is a great deal of unique knowledge and support it can provide.
The international marketing element is, of course, the other critical element Kayak needs to master to dominate global metasearch. Priceline's brands certainly have not achieved their astronomical growth without best-in-class marketing practices. However, it's no secret that Booking.com's unmatchable pace has been fueled by aggressive search marketing.
With the large margins characteristic of the hotel OTA space, Priceline can afford to buy all the traffic it wants. Metasearch, on the other hand, collects and operates on fundamentally narrower margins (due to a referral versus transactional model). While Kayak would benefit tremendously from Priceline's experience and capabilities on the marketing side, there cannot be a simple transfer of practices.