Vertical Travel Search Engine Kayak CEO Steve Hafner (Part 3)

SM: When did you launch the service?

SH: It was October 2004.

SM: Can you give us an idea as to what kind of ramp you saw in terms of traffic building and adoption? The vertical search concept was still new in 2004.

SH: There had been folks who tried to do it in the past but they did not have the scale or traction needed. They were not ambitious enough, did not have the right capitalization, and did not have the engineering talent to do it right. It is very hard to do if you want to do it right.
When we launched everyone was aware of the deficiencies at Expedia, Travelocity and Orbitz. Everyone saw the value of the consumer proposition but the big question was how to commercialize it. How do you get paid for those referrals? How do you get consumers to become aware of your website and visit it?

The big online agencies spend hundreds of millions of dollars a year getting people to their websites and they already enjoyed 90% brand awareness. In the first year or two of Kayak we focused on building a great product. We felt if we built a great product consumers would stumble on it, like it, and tell their friends. When Orbitz launched we spent $20M in the first month on TV adds. As a result it was the biggest internet launch ever. When we flipped the switch on day one at Kayak we did 15,000 searches. In the first month we did about 500,000. Contrast that with this month where we will do 14 million searches. We are half the size of Orbitz in terms of search volume yet we spend next to nothing in marketing.

SM: You didn’t buy any traffic from Google?

SH: The problem with an arbitrage based approach is that it gets competed away. Traffic becomes expensive. We are of the mentality that for every dollar which could be placed into marketing we would rather place it into engineering and make the product better. If you do that then you will always have the best product. That means your audience will be more loyal then the next guy. You won’t have to spend money on Google, Yahoo or offline TV advertising. One of the things that struck us about Expedia is that they will spend about $1B on marketing this year but their website has not fundamentally changed in 4 or 5 years, and their company is essentially a website to consumers. We would much rather invest in the website than marketing.

SM: So you have built traction with organic word of mouth?

SH: It is a page out of Google’s playbook. Build a great technology, syndicate that out to other affiliates like AOL who already have audience and then keep innovating on the product to make folks come back to you directly.

SM: What other affiliate deals have you done besides AOL?

SH: We have over 10,000 affiliates. Our biggest are AOL, Comcast, USA Today, and a lot of really big affiliates.

SM: Do they drive a lot of traffic to your site?

SH: Not really. They used to. Affiliates are great at building a significant piece of business but affiliates never grow. Once you plug in AOL they do not grow their traffic channel for you although your organic traffic does grow. If you were to go back over the past four years and plot the affiliate share of Google’s total volume you will see that the Google traffic is growing much faster than the affiliate component.

This segment is part 3 in the series : Vertical Travel Search Engine Kayak CEO Steve Hafner
1 2 3 4 5 6 7