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
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 trafficI 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.
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.