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 commisions and travel insurance fees. Almost 17% came from merchant fees, and the remaining revenues came from advertising earned via KAYAK. As 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.

how-does-google-make-money
Google (now Alphabet) primarily makes money through advertising. The Google search engine, while free, is monetized with paid advertising. In 2021 Google’s advertising generated over $209 billion (beyond Google Search, this comprises YouTube Ads and the Network Members Sites) compared to $257 billion in net sales. Advertising represented over 81% of net sales, followed by Google Cloud ($19 billion) and Google’s other revenue streams (Google Play, Pixel phones, and YouTube Premium).

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.

Read Next: Booking Business ModelHow Does Opentable Make Money, How Does Trivago Make MoneyHow Does Airbnb Make MoneyHow Does RedFin Make Money.

OTAs Business Models

Airbnb

airbnb-business-model
Airbnb is a platform business model making money by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%. For instance, on a $100 booking per night set by a host, Airbnb might make as much as $15, split between host and guest fees. 

Booking

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 commisions and travel insurance fees. Almost 17% came from merchant fees, and the remaining revenues came from advertising earned via KAYAK. As distribution strategy, the company spent over $4.5 billion in performance-based and brand advertising. 

Expedia

trivago-business-model
Trivago is a search and discovery travel platform part of Expedia Group. Trivago is widely known as a trusted hotel comparison service. Trivago doesn’t charge based on bookings but rather through a cost-per-click (CPC) model, monetized when a hotel searcher clicks one of its advertiser listings. This referral revenue comprises most of Trivago’s income. Trivago also has another minor revenue stream via subscriptions to its Business Studio, a tool that helps hoteliers track impression and click data associated with their properties.

Google (Google Travel)

Expedia-business-model
Born in 1996 as a travel platform of Microsoft, it would be spun off later on. Expedia became among the largest online travel agencies (OTAs) which comprise a set of brands that go from Hotels.com, Vrbo, Orbits, CheapTickets, ebookers, Travelocity, Trivago, and others. The company follows a multi-brand strategy.

Kayak

how-does-kayak-make-money
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.

OpenTable

how-does-opentable-make-money
OpenTable is an American online restaurant reservation system founded by Chuck Templeton. During the late 90s, it provided one of the first automated, real-time reservation systems. The company was acquired by Booking Holding back in 2014, for $2.6 billion. Today OpenTable makes money via subscription plans, referral fees, and in-dining with its first restaurant, as an experiment in Miami, Florida.

Oyo

oyo-business-model
OYO’s business model is a mixture of platform and brand, where the company started primarily as an aggregator of homes across India, and it quickly moved to other verticals, from leisure to co-working and corporate travel. In a sort of octopus business strategy of expansion to cover the whole spectrum of short-term real estate.

Tripadvisor

tripadvisor-business-model
TripAdvisor’s business model matches the demand for people looking for a travel experience with supply from travel partners around the world providing travel accommodations and experiences. When this match is created TripAdvisor collects commission from partners on a CPC and CPM basis. The non-hotel revenue comprises experiences, restaurants, and rentals.

Trivago

trivago-business-model
Trivago is a search and discovery travel platform part of Expedia Group. Trivago is widely known as a trusted hotel comparison service. Trivago doesn’t charge based on bookings but rather through a cost-per-click (CPC) model, monetized when a hotel searcher clicks one of its advertiser listings. This referral revenue comprises most of Trivago’s income. Trivago also has another minor revenue stream via subscriptions to its Business Studio, a tool that helps hoteliers track impression and click data associated with their properties.

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