Deal Radar 2008: Kayak Consolidates Travel

As we have discussed, Online Travel is a large category, and active in entrepreneurship. Web 1.0 produced giant companies (Expedia, Travelocity, Orbitz, Priceline), and in Web 2.0 we have a couple of vertical search engines that are pulling ahead.

Kayak, the world’s largest travel search engine, receives more than 6 million unique visitors per month. Kayak makes money mainly through advertisements and referral fees. Kayak also enables travel search for AOL, Comcast, CNN, About.com and USAToday.com. Kayak’s CPM range is $2-$6, and it gets between 50 cents and $1.00 per click.

SideStep, founded in 1999, also receives more than 6 million unique visitors per month. SideStep operates TravelPost.com, a hotel review community, and TripUp.com, a social travel network.

Last week, Kayak raised a $196 Million Series D Round to complete a merger with SideStep, and pursue an aggressive worldwide expansion. Prior Kayak investors Sequoia Capital, General Catalyst Partners and Accel Partners led the financing round along with SideStep investors Norwest Venture Partners and Trident Capital, and new investors Oak Investment Partners and Lehman Brothers Venture Partners.

Kayak had previously raised $30 million in three venture rounds. SideStep was privately held and had raised more than $30 million in funding from Trident Capital, Norwest Venture Partners, PAR Capital, Saints Capital and Leader Ventures.

The combined company will be profitable with $3.5 billion in transaction volumes and will be the fifth-largest online travel operator. Revenues are estimated around $85 million (Kayak $50 million and SideStep $35 million). The current deal is rumored to have been done at an approximate valuation of $700 million or 8 times sales.

Kayak now becomes a formidable player in the travel metasearch space, and can be a key acquisition target for leading travel sites like Expedia and Orbitz and large Internet companies like Microsoft, Google and Yahoo.

The more interesting possibility is of an IPO in the coming months and Kayak’s own Web 3.0 roll-up opportunity. It already has a strong presence in Vertical Search, and a growing Community effort. Kayak should use its search engine expertise and bring together fragmented Content (both professionally produced, through syndication deals, and user generated content), to help in the Context of travel planning research.

It could also roll-up other Online Travel companies such as Groople (Group Travel), which would bring them Commerce revenues and an additional, differentiated Context.

In 2008, as an industry, we are preparing for a Web 2.0 crash. This will present opportunities for those companies that have built critical mass to pick up assets (features) for cheap from the carnage. There are also a few established sites with strong momentum like Venere (Hotel reservations) and Virtual Tourist (Community, Travelogues), which could be part of such a roll-up, alongside international sites like Yatra in India.

Finally, Kayak can build a Vertical Ad Network, and bring together a large community of long tail travel writers, whose Content could add tremendous value to the user experience.

Overall, Kayak is certainly THE company to watch in Online Travel.

This segment is a part in the series : Deal Radar 2008