Insights into how technology and the outsourcing of R&D are changing the software industry

Travel industry analyst firm, PhoCusWright, recently posted that “Kayak Takes on the Big Guys“, noting the apparent changes in their business model, and poses the question whether Kayak can still be considered a meta-search player.  Kayak’s introduction of ‘booking facilitation’ and ‘Private Sales’ are pushing them closer to becoming an OTA in some aspects.  However, Kayak CEO, Steve Hafner, maintains that is not the goal, explaining that they intend to evolve into a full service travel planning site, but will retain it’s advertising based revenue stream and ‘media company’ status.

Lorraine Sileo, PhoCusWright vice president, research has said “Kayak has become another intermediary or layer that never replaced any of the other steps in the search, shop, buy process. This move is important to their long-term success.”

Sileo’s comments about Kayak never replacing the other steps in the booking process  are even more important given a few items in the news this week that I saw:

• Speaking at the Goldman Sachs Technology and Internet Conference 2010 in San Francisco this week, Priceline President and CEO Jeffery Boyd noted that OTAs’ (Online Travel Agencies) decision to remove booking fees on airlines has really started to level out the playing field across direct and indirect booking channels.  So the primary consumer benefit behind meta-search, to find the best prices across channels and sites, seems to have been mitigated.  So is the NEED for meta-search reducing? Is that the reasoning behind the changes in strategy that Kayak is taking?
• The second item in the news was a report from Kevin May, editor for tnooz, that Google may have travel in it’s sights by extending it’s Comparison Ads pilot.  May even says that “Comparison Ads is effectively a metasearch…of products already in the AdWords system.  It looks and feels like a scaled-down Kayak in terms of functionality.”  I always believe that anytime Google sets its sights on a market, those in it should start to step up or change their game.  And if you’re a search company — that also relies on advertising as a primary source of revenue — is Google the one that you want to compete with? Direct, undifferentiated competition with Google doesn’t sound like a game most companies would want to play.

To me what’s most interesting about all of this is that it’s happening in advance of a much-rumored IPO for the company. Some thought that the IPO was a driving force behind the $60M TV ad campaign that Kayak recently undertook.   Of course it’s always better to make these changes prior to the IPO so that there’s some consistency in the earnings and therefore stock price…especially while restrictions are in place.  But how these changes may impact the company’s valuation are beyond my comprehension.  I’ll leave that to other folks smarter than me AND the investment bankers — just over a year ago, I might have clubbed the two together

So what do you think is in Kayak’s future?