PCLN Gobbles Up KYAK

Priceline (PCLN) buying Kayak (KYAK) makes a lot of sense and has broad implications for the travel eco-system.

Kayak was able to exit an increasingly competitive marketplace and gain a healthy premium of $40/share, a 29% over yesterday’s close.  $39 is the IPO open price so insiders made out fine by collecting some cash and trading Kayak stock for Priceline stock – good move (take a look at GRPN today).

For Priceline, the only risk is that they over-paid and will suffer some near term value disruption.  PCLN is very experienced with integrating travel acquisitions, which is not an easy feat.  Booking.com and Agoda come to mind.  Kayak being located miles away will only help.

 PCLN gains or enhances many strategic advantages with this deal:
Diversification – PCLN now plays in travel search, agency and opaque channels, all with complementary business models.
Scale – PCLN gains even greater scale, which offers various advantages including technology investment.
Review Aggregation – PCLN has a great opportunity to aggregate their proprietary user reviews from Priceline.com, Booking.com, Kayak.com (to come).  This will improve site conversion rates, assist with SEO thru fresh content while hurting TripAdvsior and Google.
Mobile Development – PCLN gains great, local mobile user interface and development talent.  Kayak has the most popular iPhone travel app.  Both companies are based in Norwalk, CT.
SEO Authority – PCLN sites are all popular and adding Kayak.com to this linking eco-system will only strengthen each sites Google SEO authority.  This will drive more traffic from organic search and, perhaps, reduce reliance on paid search.
Paid Search Hedge – PCLN spends 24% of Net Revenue on Online Advertising – the lion share of this on Google AdWords.  This is projected to grow 21% per year thru 2016 compared to a Net Revenue CAGR of 14.5%.  Despite Jeff Boyd's comments on CNBC today, the synergies of this deal (highlighted above), over the long term, could reduce this strong reliance on paid search.
International Growth – PCLN has a lot of international experience and great presence in Europe and Asia.  They will be able to grow the Kayak brand in these markets.
Hurts Competition – this deal could be a blow to Travelocity who powers Kayak’s white label business.  This deal will also adversely affects TripAdvisor, Google and Expedia, among other travel upstarts.

For travel suppliers, this is another sign that the online third-party intermediary market is here to stay.  Trends include increased consolidation, technology and digital marketing investment and improved user experiences with these sites and apps.  Suppliers need to leverage these TPI sites appropriately, (i.e. differently) depending on their core competencies and sustainable advantages.  Treat them as “friend and foe” and focus on your business objectives.

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