how-does-kayak-make-money

How Does Kayak Make Money? The Kayak Business Model In A Nutshell

Kayak is an online travel agency and search engine founded in 2004 by Steve Hafner and Paul M. English as a Travel Search Company and acquired by Booking Holdings in 2013 for $2.1 billion. The company makes money via an advertising model based on cost per click, cost per acquisition, and advertising placements.

Origin Story

Kayak is an American online travel agency and search engine. The platform was founded in 2004 by Steve Hafner and Paul M. English as Travel Search Company, Inc. Through a mobile app and website, users can search Kayak to compare rates between car rentals, flights, and hotels.

After changing its name to Kayak in 2005, the company received $196 million in financing and went on to make a series of acquisitions. These included German travel search platform Swoodoo and online travel agency SideStep.

In 2013, Kayak was acquired by Booking Holdings – which at the time was known as Priceline.com – for $2.1 billion.

booking-business-model
Booking Holdings is the company the controls six main brands that comprise Booking.com, priceline.com, KAYAK, agoda.com, Rentalcars.com, and OpenTable. Over 76% of the company revenues in 2017 came primarily via travel reservations commissions and travel insurance fees. Almost 17% came from merchant fees, and the remaining revenues came from advertising earned via KAYAK. As a distribution strategy, the company spent over $4.5 billion in performance-based and brand advertising. 

Through a mobile app and website, users can search Kayak to compare rates between car rentals, flights, and hotels. The company also recently launched a corporate travel management platform, allowing business travelers to plan trips more efficiently.

Kayak revenue generation

Kayak operates on a CPC model. Let’s expand on this model below.

Cost-per-click

Popularized by Google, the cost-per-click (CPC) model (invented by goto.com later became Overture) is one of the most widespread online.

google-advertising-business
Google generated over $116 billion from advertising revenues in 2018, which represented 85% of its total revenues. Of those revenues over 70% came from traffic via Google’s main properties (Google search engine, YouTube, Gmail, and others). Google’s main properties are monetized primarily via a cost-per-click mechanism. Network member sites are primarily monetized on a cost-per-impression basis. Google also spent over $26 billion in 2018 to sustain its traffic on both its properties and as a revenue-share mechanism with its network members (AdSense and AdMob).

Kayak makes money whenever a searcher clicks on an offer on its platform. Here, the advertiser in question pays Kayak a small fee. The exact fee is dependent upon the agreement between each party.

Cost-per-acquisition

When a user both clicks on an advertisement and then makes a purchase, the advertiser must also pay a cost-per-acquisition (CPA) fee. CPA fees typically fall in the range of 10-20%.

This so-called distribution revenue is paid by travel companies, including airlines such as JetBlue and car rental agencies such as Hertz. The airline industry is particularly profitable for Kayak, with estimates suggesting it derives a third of its total revenue from the source.

Advertising placements

Kayak also generates revenue from banner advertisements on its platform. It can charge a premium rate for ad placement because of its proven ability to generate high numbers of leads.

The company receives a fee from the advertiser for every impression its ads receive. Note that an impression is simply an advertisement a searcher views while using the interface. There is no requirement for the user to click on the ad or make a purchase.

Expansion

Kayak now operates in dozens of countries and continues to acquire hotel aggregation businesses in significant European and Asian markets.

This allows it to increase revenue by maintaining its status as a trusted and comprehensive travel service. With more consumers flocking to the platform, travel companies become incentivized to use the platform to remain competitive.

Key takeaways:

  • Kayak is an online travel aggregation service. Founded in 2004 by Steve Hafner and Paul M. English, the platform is now available in more than 60 countries.
  • Kayak operates on a CPC and CPA model to drive the bulk of its revenue. Advertisers pay the company a fee whenever a user clicks on an ad or makes a direct purchase.
  • Kayak is also able to charge a premium for ad placements. This is because of its popularity with users and aggressive acquisition strategy to corner areas of the travel market.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"