Annabel recently attended a Q&A with Steve Hafner. Steve was a founder of Orbitz, sold it for $1.25billion and two weeks later created KAYAK. The travel site recently announced its acquisition by Priceline for $1.8billion! The event focused on the story of KAYAK and was hosted by the Stamford Innovation Center in Connecticut.
Top takeaways from Steve:
Steve got the idea for KAYAK very simply. First off, he says that online travel e-commerce is bigger than every other e-commerce category combined! From his experience at Orbitz he knew that 90% of those on the site were searching and not booking. Plus the search results on Orbitz were incomplete because it didn’t have every airline participating on its site. And Oribtz’s business model of actually handling the sales transaction meant hundreds of employees were needed for customer service.
So, Steve saw a need for a search engine, minus the booking capabilities (i.e. overhead) and KAYAK was born. It gets revenue from advertising and has grown to become the third largest travel related site.
Steve has a strong marketing background and attributes much of the success of KAYAK to its focus and investment in branding and marketing (often against the better judgment of its venture capitalists). Marketing is KAYAK’s biggest expense. KAYAK spends $180million on marketing, 50% of its P&L and a little over $1.5million per employee.
How KAYAK chose its name
Adamant that the name was going to be the company’s biggest asset, the founders refused to follow the board’s suggestion to simply make up a name. Instead, they spent $0.5 million of their $2 million start-up capital on the services of a branding agency. The agency screened a possible 50,000 names with the brief to identify a name that was:
In its early days, KAYAK adopted a three-pronged approach to attracting traffic:
A year and a half after going live, management knew they had the product right. KAYAK was attracting 10 million queries a day and the company had started to turn a profit. The brand, however, still had very low awareness and consumer habits were proving hard to break. The time had come to invest in off-line marketing.
Start-ups are usually sold before they reach the point where off-line marketing makes sense so venture capitalists are typically not too familiar with the ins and outs of TV advertising. KAYAK’s investors needed a lot of convincing before agreeing to a $15 million first-quarter investment. For the first three months, it seemed the board’s reservations about a TV campaign were founded as there was little change in traffic to the website but once enough impressions had been made, it was as though ‘gasoline had been thrown on the fire’. KAYAK saw a 40% increase in business year on year.
While KAYAK is still to determine how to market effectively through social media, it is very committed to digital marketing. From Steve’s small SEM beginnings, KAYAK now bids on around 3 million ad words in 16 countries at a cost of $85 million.
Steve believes that KAYAK has done a better job of leveraging marketing than other businesses but, even so, recognizes there has been tremendous waste. He feels the best strategy is to partner with great creatives:
"TV is expensive. You can hire media planning agencies to help optimize your frequency reach or CPMs but the creative is a crapshoot. Commercials are expensive. They can cost $0.5m to $2m each. You make a couple of mistakes with your creative, your media spend isn’t coming back. We’ve made a lot of mistakes on our creative. We’re at about a 50% hit rate."