While the online travel industry was watching out for Google’s (NASDAQ:GOOG) next flight search product leveraging the recently acquired ITA software’s flight search data, the leading search engine threw in a surprise with the launch of a hotel search tool called Hotel Finder. ((Google Launches Hotel Finder To Fight Kayak And Expedia, Business Insider, August 2’ 2011)) This new application does not use ITA’s technology and is being viewed as a threat to other travel search engines such as Kayak, Priceline (NASDAQ:PCLN) Expedia (NASDAQ:EXPE). Currently available only in the U.S. and said to be in the ‘experiment’ phase, the application enables users to easily draw circles around the neighborhoods they are interested in booking rooms rather than searching individual addresses.
While we currently value Kayak at over $900 million, here we take a closer look at the impact of Google’s new travel product on Kayak’s IPO prospects.
What does Google’s Hotel Finder offer?
Location-specific search: You can enter the zip code or name of the neighborhood and Google flashes a four cornered spotlight on Google Maps with hotels shown as blue dots within the area. The user can then narrow down the search on the basis of price, hotel class, ratings, dates availability etc.
Deal hunting: In line with the latest fad of deal hunting, all thanks to Groupon, Hotel Finder helps compare the current room rates with the average rate over the past year, something not offered by any other player. Users can see where they’re getting a bargain.
Quick comparison: Google’s Hotel Finder facilitates quick and easy comparison of fares sources from travel suppliers (hotels themselves) and third-party travel agencies, along with high resolution pictures and reviews. What’s more, it lets you ‘shortlist’ hotels for tracking the ones that interest you, without the need for opening more browser windows.
How does it impact Kayak?
While Kayak is a travel-specific search engine, Google undoubtedly enjoys significantly more recall and loyalty amongst users. With its new travel offering, Google could significantly draw search volumes away from Kayak.
This not only threatens revenues from hotel referral fees, which makes up over 28% of our Trefis price estimate for Kayak but also puts advertising revenues, which make up almost 53% of Kayak’s stock at risk.
Since Google Hotel Finder doesn’t accept booking ‘yet’ but only routes the search to the other websites, it doesn’t pose much of a threat to online travel agencies such as Expedia and Priceline (NASDAQ:PCLN).
What’s the way ahead for Kayak?
Kayak filed for an IPO in November 2010 but there are no signs of the company going public anytime soon. While the pending approval for Google’s-ITA Software acquisition was the cause of concern then, Google’s new Hotel Finder service is raising some serious concerns now. With every passing day, the possibility of the prominent venture capital and private equity firms, which had funded Kayak, such as Sequoia Capital, Accel Partners, General Catalyst Partners and Oak Investment partners now exiting via the public equity route is looking bleak.