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Kayak IPO points to growth, challenges in mobile travel industry

July 25, 2012

The Kayak iPhone app

Kayak attributed a strong mobile presence to its initial public offering last week, showing both the healthy appetite for consumers to make travel plans from their handsets and the challenges that the industry still faces, according to experts.

Kayak’s IPO opened at $26 last week, more than experts predicted for the travel metasearch engine. Coupled with mobile numbers that the company has released about traffic and application downloads, the news is indicative of not only how the medium is playing out for Kayak but also how the online travel industry is becoming a mobile-first game for some companies.

“The fact that there was a rally on opening day shows that people do ultimately believe in the scalability of their business model,” said Nima Samadi, analyst at IBISWorld, Santa Monica, CA.

“Mobile is the next frontier when it comes to booking online travel,” he said.

Mobile ambitions
During its first day on the Nasdaq Stock Market, Kayak ended at approximately $33.18, marking an increase of 28 percent from the $26 IPO price.

According to Kayak, its mobile apps have been downloaded 15 million times since debuting in March 2009. Kayak’s mobile apps were downloaded 2.3 million times in the second quarter of 2012, marking a 40 percent year-over-year growth.

Additionally, queries made from Kayak’s mobile apps and sites made up 14.1 percent of total queries in 2011, compared to 8.2 percent in 2010.

The challenge for Kayak will be to monetize this growth however, which includes improving the mobile user experience, per Jeffrey Breen, cofounder of Atmosphere Research Group, Cambridge, MA.

“Kayak’s success draws attention to a different take on travel selling and that’s the metasearch players,” Mr.Breen said.

“Anyone entering the travel space needs to find a way to provide value to customers to the extent that they will attract more customers and everyone can be profitable, including the travel sellers,” he said.

As a metasearch engine, Kayak’s primary role is to find the best prices for consumers on flights, hotels and cars. However, once the deal is found, the company kicks consumers to the travel company’s site to finish the transaction.

This process can be particularly frustrating on mobile with Kayak. For instance, if a consumer finds a flight that they are interested in, they may be directed to the airline’s homepage instead of a filtered page with the search results.

According to data from Atmosphere Research Group in October 2011, 27 percent of smartphone users are interested in booking a flight, rental car and hotel from their devices, showing how consumers are looking for a mobile experience that lets them book a comprehensive trip.

“The tech advantage for online travel agencies is not to be underestimated, so it will be interesting to see how Kayak can improve the booking experience,” Mr. Breen said.

“Kayak is forced to be ten times more innovative and clever than a travel agent, making it harder to provide a streamlined experience,” he said.

Kayak’s iPhone app

Book on apps
Online travel agents and accommodation brands have been quick to launch mobile services to capture quick bookings. Although some sales might be impulse buys for consumers, the majority of companies have designed apps and sites to make it easy for consumers to make travel plans when they are in a time of need.

Therefore, the quality of an app plays a critical role in how consumers buy from their devices, according to Josh Martin, director of app research for the global wireless practice at Strategy Analytics, Newton, MA.

However, because of the infrastructure that is involved in developing a great travel app, the category is not as competitive as other app categories such as games.

For example, the company that that gives users the most compelling product, which could include being able to book a car after making a hotel reservation or using near field communication to pay will be the key player, for example.

“I don’t think mobile is the end all, but it seems like for this company it is presenting some opportunities for the company that weren’t there before,” Mr. Martin said.

Final Take
Lauren Johnson is associate reporter on Mobile Commerce Daily, New York

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