Analyzing the Merger of Kayak.com and SideStep.com

On December 21st it was announced that the two largest Meta Search Engines in the travel industry, Kayak.com and SideStep.com, will be merging. The larger of the two, Kayak, will be simultaneously raising $196 million in a new round of financing and using a portion of those funds to purchase SideStep. For those who monitor online travel distribution trends this is a major development. Given the scale that Meta Search Engines are reaching in travel, this deal is among the most significant news items of 2007 with regard to the online channel in travel.

Compete studied trends at both Kayak and SideStep and developed the following analysis of the two sites to shed light on their usage levels, performance, and implications of the acquisition.

The following is an excerpt from that study:

Kayak is the largest Meta Search Engine among U.S. consumers with nearly 3.2 million site visitors in the seasonally slow month of November, down from a summer high of 4.2 million in July. This compares to 2.7 million visitors to SideStep.com in November, with its July high at 3.4 million.

While SideStep has been in business for far longer, it took Kayak just 2 years from its Q4 2004 launch to grow to the several million monthly visitors needed to take the leadership position in late 2006. Kayak’s ascension shows no immediate signs of slowing, with traffic up an average of 55% compared to a year ago. SideStep’s traffic is down 5% over the same period.

Among supplier-direct sites, Both Kayak and SideStep deliver the majority of their leads to airline carriers, however Kayak is significantly more concentrated here than is SideStep. An overwhelming 90% of the leads that Kayak delivers to supplier sites go to airlines, whereas this represents just 67% of SideStep’s leads. In both percentage share as well as absolute volume, SideStep is notably more effective at generating leads to the hotel chain and car rental agency categories than is Kayak.

With hotel rooms not commoditized the way that airline seats have become online, SideStep’s strategy of building out its content through acquisitions of sites like TravelPost.com may have proven to be a winning formula for non-air categories. In this regard, a transition to Kayak.com’s platform could be a risk to the performance of SideStep.com in generating hotel and car rental leads.

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Within the air category, individual carriers are generating about twice the traffic from Kayak as they are from SideStep. In the seasonally slow month of November, large carriers such as AMR's (AMR) American Airlines and Delta (DAL) generated over 50,000 leads from Kayak, compared to about 30,000 from SideStep.

From a financial perspective the transition of SideStep.com onto Kayak.com’s technology platform may significantly improve the effectiveness of SideStep at generating leads for its advertisers without an increase in site traffic. Revenue per site visitor could increase notably within the air category. SideStep, though, is currently a better performer within the Hotel, Car Rental, and Vacation Package categories and any technology shifts could potentially disrupt this performance advantage.

With low user overlap between the sites, the combined entity will attract over 5 million monthly U.S. website visitors (significantly more in peak summer season), launching it past the traffic levels of sites like Priceline.com (PCLN), Hotwire.com, and Hotels.com. 2008 looks primed to be the year where Meta Search, led by the new Kayak, has its true coming out party.