New SideStep web site threatens online travel companies

by: David Jackson

Travel search engine company SideStep released a web-based version of its travel search covering flights, rental cars and hotels, at (Story via ClickZ here.) SideStep plans to make money by selling ads next to search results. It has a pay-per-click (NYSE:PPC) deal with Overture (owned by Yahoo!) and also plans to sell its own PPC and graphical cost-per-page-impression (CPM) ads.

SideStep is the oldest of the travel search companies, which include, Mobissimo, and Yahoo!'s FareChase. According to the ClickZ
story, over 7.5 million people have downloaded SideStep's desktop
search software, and 3 to 3.5 million people use it every month.

The travel search companies pose two threats to the established online travel companies:

  • Potentially better functionality. Travel search includes
    results from companies that refuse to pay commissions to appear on
    Expedia, Travelocity and Orbitz. Search for a flight on SideStep, for
    example, and the results will include flights from Jet Blue that don't
    appear on the other sites.
  • Disintermediation. Online travel sites are fee taking
    middle-men that sit between the travel providers (hotel chains,
    airlines and car rental companies) and their customers. The travel
    search companies, in contrast, don't take commissions for helping users
    find travel products, but instead generate revenue in other ways. The
    travel search engines could therefore lower the cost of buying travel
    by disintermediating the online travel sites.

Thoughts on stock impact. Improved category-specific search is one of the five Internet danger signs to watch for in 2005.
The most likely victims: intermediaries in industries in which the
suppliers have a relatively concentrated market structure. The number
of airlines, large hotel chains and car rental companies, for example,
is limited, and the companies tend to have strong brand names. So
category-specific search engines should find it relatively easy to
disintermediate the travel market over time. Investors in CD, CTRP,
IACI, PCLN and TZOO therefore need to monitor the growth of the
travel-specific search engines, and to watch also for the entry of the
mainstream search engines into travel-specific search.