Travel meta-search sites continue to grow, be it for queries they are generating or revenues they are garnering. As intermediaries they are, therefore, managing their respective brands quite well. Additionally as specialists in the traffic trading business they also stand out for the quality of search results.

The recent acquisition of Kayak by online travel group Priceline comes at a stage when the meta-search player has been working on several key initiatives. These could be anything from the mobile portfolio and offering consumers choice to booking hotel accommodation, car rental reservations and so on directly through Kayak – and without ever leaving kayak.com. This is in addition to distribution revenues earned by sending referrals to travel suppliers and OTAs, and advertising revenues from advertising placements on kayak’s websites and mobile applications.

One of the most intriguing aspects of this deal is how Priceline will grasp the opportunities presented and, of course, the implications for the travel meta-search category. Here EyeforTravel’s Ritesh Gupta talks to Lincoln Merrihew, managing director of Automotive and Travel at Compete, about kayak.com’s operations.

EFT: How do you assess this strategic alliance in what is a hyper-competive space?

LM: This hyper-competitiveness is driven largely by the volume of transactions in the travel space, which total more than $100 billion in sales.  At some point the number of players grew faster than did the overall revenue, so smaller slices of the pie. That happened offline with the airlines and is now happening online—even while TripAdvisor gains momentum and Google puts a toe in the water.  Another consideration is the relative strength and footprint of each brand globally, notably markets where one of the brands has a stronghold and the other does not.

EFT: We have started to see Kayak consumers book without leaving the site. How do you assess the role of meta-search evolving now that this new deal has been signed?

LM: The Priceline/Kayak deal at the highest-level allows Priceline’s honed booking engine technology to be applied to Kayak, though integration may not be a trivial process.  At some point, one could assume all meta’s would offer direct bookings through OTA partnerships to best recognise their full revenue potential.

EFT: This time last year the industry was talking about the quality of traffic and the power of brands when Google entered the travel meta-search space. It is still and issue but what is the impact of this?

LM: The brand issue comes down to whether consumers are aware or care that Kayak has a new parent (in other words were they more likely to use Kayak as an ‘independent’) similar to consumer awareness that many hotel corporations have several brands within their portfolios. 

My guess is that any change in consumer perception of Kayak associated with the buy will be minimal from a brand perception level.  Google approaches the space from a different perspective: they already have tremendous consumer trust and engagement from their search and other businesses and are looking for new ways to monetise that, including in travel. Kayak and more traditional players, started with a focus on travel, and then worked to build their brand equity specifically in that space.  On quality of traffic, a key opportunity will come from looking at traffic that Priceline and Kayak collectively lost to other sites or brands and indentifying the best way to keep those customers in the fold going forward.  For example, if there is a segment of people that Kayak regularly loses to Expedia? Is there a way that those people can now be channeled to Priceline?

EFT: Kayak processed 302 million queries in the third quarter and over billion in the first 10 months of 2012. How will Priceline capitalise on this? 

LM: The simplest answer is optimising the share of Kayak traffic that books with Priceline or a desired Kayak partner versus books elsewhere. Other opportunities include a potential lower cost-per-click for traffic from Kayak to Priceline (a kind of a friend and family discount). The willingness to do that in part hinges on whether in the long run Kayak is run as a separate P&L. If not, expect lower CPCs; if it remains separate any CPC discounts are likely to be lower but would be washed in any overall revenue consolidation (ie: the more charged by Kayak to Priceline would simply be an exchange of funds with a consolidated revenue statement).

EFT: OTAs and meta-search engines have been trying to instill confidence to web searchers by offering both expert and user-generated content. How can Priceline benefit from Kayak’s content?

LM: Competitive research has shown that people value consumer generated content more than content from professional travel reviewers.  However, Kayak review content is currently pulled dynamically from TripAdvisor and Travelocity.  The most likely scenario is Kayak integrating Priceline user generated content, which could augment or even replace all or some of the other UGC.  Another scenario could be Priceline integrating TripAdvisor ratings, similar to the way Expedia has both Trip and Expedia ratings on their site.

EFT: How can Priceline improve on its marketing costs and benefit from this alliance, especially considering that online travel intermediaries are big online spenders with Google?

LM: Economies of scale is one simple answer.  And through shared learnings, each brand should benefit from the best practices of the other.   For instance, Kayak may benefit from Priceline’s expertise in destination-specific SEM (via Booking.com) while Priceline may find added value in Kayak’s mobile app success.   Longer term, it depends on how differentiated they want to keep the brands.

EFT: What do you make of product development synergies in the growing mobile arena?

LM: Some travel companies are reporting over 10%, or closer to 20% growth.  Because a lot of mobile technology is new, not legacy, there are likely greater opportunities for product development synergies for Priceline/Kayak in the mobile space.  That includes apps and mobile sites, but also Internet TV.  There may also be a higher cost because there is limited existing technology on which to build from and because smartphone/pad capabilities are evolving so fast.  Kayak built a smart, highly touted mobile app. Theoretically, Priceline could see incremental lift in mobile traffic and bookings if they secure premium placement in Kayak’s mobile app.  On the flip side, Kayak might be able to leverage Priceline’s success in mobile website development.

EFT: How do you expect the online travel space to evolve going forward?

LM: As long as the industry’s total online revenue remains high, which it will, there will be new ideas and new companies vying for a slice of the pie.  That will prompt both innovations—technological and partnerships—but only some will succeed.  For example, ‘deal’ sites promised to be the next big thing and many could argue they have not lived up to their potential.  Facebook was going to become an auxiliary booking engine and so on.  Mobile definitely has a key role in travel’s future as well.

The key question is whether the industry’s knowledge base of how consumers research across sites and platforms keeps pace.  That is, is the industry savvy enough to apply all the research tools at their disposal to make smarter, more cost-effective decisions?