Meta-search in the Online Travel Ecosystem
Entrepreneurship and Innovation Strategy: Section 1
Andreas Apostolatos
John Gardner
Anirudh Gorur
Jeff Hluchyj
Eddie Howard
Part I: Context
The travel agency industry has experienced dramatic change over the last 16 years. The
first online agencies, SABRE’s Travelocity and Microsoft’s Expedia, hit the market in 1996, the
same year that fare deals advertiser Cheapflights.com was founded in the UK. Around that
time, airlines also began selling tickets on their own websites. These innovations dramatically
disrupted the travel industry by removing intermediaries such as traditional travel agencies and
providing consumers with tools to compare and choose options on their own. Nevertheless,
consumers still had to spend long hours combing through airline websites and online travel
agencies (OTAs) to find the best ticket for their needs.1 This paper examines the
entrepreneurial opportunity created by this consumer need and how meta-search firms
innovated to meet the need.
Markets and Industries Affected
By scraping information from a variety of websites and presenting it in one place, metasearch firms offered a solution to the information gathering problem facing consumers. These
sites provided a way to get all of the information needed to make a purchase decision in one
search. The meta-search firms thus changed the dynamic for a variety of players in the travel
ecosystem: they rendered traditional travel agents even more obsolete, provided airlines,
hotels and car rental agencies with a new marketing stream and gave online travel agents new
competitors (who also happened to be vital partners).2
1
2
Jeffery Mark, “Air France Internet Marketing,” Kellogg School of Management Case Study, 2009.
Air France Internet Marketing (Kellogg Case)
Technological and Organizational Issues Raised by the Advent of Meta-searchers
Although this innovation had implications for a wide array of stakeholders in the travel
agency industry, it disrupted some players more than others. Traditional travel agents were
particularly affected, as their business model depended on their formerly superior access to
travel data. On the other hand, airlines, hotels and car rental agencies were able to maintain
their existing online systems and operations and only had to set up systems to pay the metasearch firms for successful leads. OTAs benefited from the traffic directed to their sites by the
meta-search sites but also had to deal with lost share of the primary search market (a consumer
who may have used Travelocity first in the past now might initiate the search on Kayak).
Consumers greatly benefited from much better data, greater efficiency and smarter purchasing
decisions.3
Market Opportunity
The consequences for this disruption are great. As the leading segment of the
eCommerce market (representing 44% of the market), the global online travel industry
produced roughly $300B in revenue in 2011. Online travel booking continues to erode the
market for traditional travel reservation services and accounts for 60% of travel bookings in the
U.S., and 30%-40% and 15% of reservations in Europe and emerging markets,
respectively. Thus, while the services of online travel agents, airline reservation websites and
fare meta-searchers are firmly entrenched in the travel consumption habits of global
consumers, there is still significant room for growth, especially outside of the U.S. The continued
erosion of off-line travel commerce is expected and has been expected since the early 2000s, at the time
3
Air France Internet Marketing (Kellogg Case)
of the launch of the meta-search firms. The online segment is expected to grow at 10% in 2012, roughly
double the pace of the overall travel market.4
Within this market, there are two primary ways that online booking providers make
money. While traditional online travel agents such as Orbitz and Priceline derive revenues
exclusively through referral commissions that result from purchases on their partner airlines
and hotel partners, a distinguishing feature of meta-searchers like Kayak is their additional
revenue from online advertising. While Kayak certainly competes for revenue with online
travel agents on the referral side of its business, it is a player in the same market as Google,
Bing, Facebook, Yahoo or any other high volume internet property that commands advertising
sales. 5
Surprisingly, of the roughly $33B in annual travel advertising expenditures, only $5.5B
(17%) is currently allocated to online outlets.6 The disconnect between the increasing number
of bookings executed online (30-40% globally) and the relatively small amount of online travel
advertising suggests that there is significant room for growth in the advertising arena. Analysts
estimate growth of global online travel advertising from $5.5B in 2012 to $8.5B by 2015 (12%
CAGR). Within the US, this growth is expected to be even more significant at a CAGR of 17%
between 2011 and 2016 (see Exhibit 1 below). As a result, online travel companies such as
Kayak that are not dependent on referral commissions, but stand to gain from increased
advertising spend are favorably positioned. Kayak currently generates roughly 55% of its
4
Morgan Stanley Research, August 2012; Piper Jaffray Research, August 2012
Morgan Stanley Research, August 2012
6
Ibid
5
revenue from advertising, and 45% from distribution and referrals.7 The market sees this
opportunity: Kayak's June 2012 IPO valued the company at $1.0 billion - since then it has
increased to $1.2 billion.
Exhibit 1: U.S. Online Travel Advertising Spend (U.S. $, Billions)8
Further contributing to this anticipated increase in online advertising is the reality that
current online advertising expenditures lag behind consumer consumption of the internet as
compared to other media outlets. In 2011, consumers spent 24.1% of their “media
consumption” time on the internet, yet only 20% of advertising expenditures were allocated to
the internet. As this gap closes, high traffic-driving websites such as Kayak will benefit (see
Exhibit 2).
7
8
Piper Jaffray Research, August 2012; Morgan Stanley Research, August 2012
Piper Jaffray Research, August 2012
Exhibit 2: Projected Share of U.S. Advertising Spend
Innovation Timeline: Evolution of Players in Online Travel Sales
According to Jeffery Jackson, the former CFO of SABRE and a venture capitalist backer of metasearch startup Hipmunk.com, “travel is a huge ecosystem and the ecosystem has impediments or
barriers for different players.”9 Since 1976 a series of technological innovations and new player entries
has altered the travel sales ecosystem.
Traditional System (1976-1994)
9
Jeffery Jackson, Interview held in Hanover, NH, November 7, 2012.
In the 1960s, American Airlines and IBM developed a technology called SABRE that used
computers to track airline inventory and manage reservations. Starting in 1976, external travel agents
were able to access airline pricing and inventory data electronically on GDS systems from companies like
Sabre, Amadeus, and Galileo/ Worldspan to book travel (which often also included rental cars and hotel
rooms) for consumers.10 In return, the agents and GDS providers received commissions from airlines
when they booked a ticket. Consumers also booked travel by calling airlines directly or visiting airline
offices throughout the world.
Mid 1990s: Emergence of Online Travel Agents (e.g. Travelocity, Expedia)
The growth of the internet in the 1990s offered airlines a new opportunity to reach consumers
and reduce the cost of selling tickets. Airlines initially tended to have a weak web presence, so it was
useful for the airlines to sell tickets through OTAs. OTAs allowed consumers to electronically search for
flights between certain cities, evaluate a variety of different options, and purchase the flight. The OTAs
took a commission from the airlines and some also charged a fee to consumers. GDS companies
powered the search and transactions for OTAs and they received a commission under this system.
10
Sabre Holdings Company History, http://www.sabre.com/home/about/sabre_history
Consumers benefitted under this arrangement because they could easily see flight times and avoid the
hassle of a long call to book travel with an agent or airline. Airlines benefitted because they sold more
tickets while paying commissions as they had previously done. Traditional travel agents suffered
because these developments began to erode their business.
In some cases, players from different parts of the ecosystem moved into the OTA business to
protect their interests. For example, GDS provider SABRE launched Travelocity.com. To respond to the
development of OTAs, five of the six major US airlines funded the development of Orbitz.com, which
launched in 2001.
As airlines developed their own websites, they found that they could lower and even eliminate
the commissions they paid to OTAs. As a result, the OTAs began charging fees for travel booking or used
airline tickets as a loss leader to book higher margin travel services like hotels, rental cars, travel
insurance, and travel packages. Savvy consumers learned to check the airline website in addition to
online travel aggregators so they could get the lowest rate. Airlines also began to use paid search on
search engines like Google to drive traffic to their websites.
2004: Launch of Meta-searchers (e.g. Kayak.com, Sidestep.com)
Meta-search sites like Kayak.com separated the aggregation of travel information from
transaction services and exclusively did travel search.11 Because it avoided transaction services, Kayak
was relatively inexpensive to develop compared to OTAs. Jeffery Jackson estimates that the cost to
launch Kayak was $14 million, about 5% of the $280 million Orbitz cost to launch a few years earlier.12
The elimination of transaction services also allowed Kayak to pull data from ITA, a travel data company
that that offers flight information without the transactional services traditional GDS companies handle.
Since transactions were not done with ITA, Kayak did not have to pay a commission to a GDS for
bookings that originated on the site. When a consumer found the right flight, booking occurred on the
airline’s website or on an OTA if the flight was offered through the OTA. Airlines paid meta-searchers to
be included in search results and gave the meta-searchers origination fees for bookings.
Part 2: Analysis of the Innovation Strategy Used to Commercialize Online Travel Meta-search
Although several online travel meta-searchers have been successful, they had to overcome
many challenges within the travel booking ecosystem in order to commercialize their product. By
contributing additional value to all of the key players within the ecosystem, the meta-searchers were
able to reconfigure the ecosystem to their advantage, eventually becoming the travel booking platform
through which many travelers initiate their airline, hotel, and car rental purchases.
Co-Innovation, Adoption Chain and Execution Challenges for Meta-searchers
As described in the preceding sections, online travel meta-searchers sought to disrupt several
major players involved in the travel ecosystem. In order to consider companies like Kayak’s early
success and likelihood of continued prominence in this market, it is necessary to identify the degree of
11
12
Jeffery Mark, “Air France Internet Marketing,” Kellogg School of Management Case Study, 2009.
Jeffery Jackson, Interview held in Hanover, NH, November 7, 2012.
co-adoption and innovation that was/is required by other ecosystem participants. A summary of this
analysis is presented in Exhibit 3 below.
Exhibit 3: Co-Adoption and Co-Innovation Risk of Meta-search Ecosystem Participants
Co-Adoption Risk
The biggest co-adoption threat to meta-searchers is clearly online travel agents, followed closely
by airlines and travel providers. Part of the value proposition of meta-searchers is their ability to be a
“one stop shop” for the universe of fare data. Achieving this degree of comprehensiveness requires
cooperation not only from travel providers themselves, but also the online travel agents that compete
within the same ecosystem. While meta-searchers make money from advertising (55% of sales in the
case of Kayak), a significant portion of their revenue continues to be driven by referrals of high-quality
customer leads to other booking websites (both direct to airlines and to online travel agents). Given
that meta-searchers compete for referral revenue, they are in direct competition with online travel
agents that ideally would be earning commissions from the airlines themselves. Thus, travel agents’
consent to have their fare offerings disseminated through meta-searchers is a key co-adoption
challenge.
What has likely enabled this co-adoption on the part of online travel agents is the additional
exposure that they gain for their offerings through meta-searchers. Kayak’s unique ability to generate
high-quality leads that are skewed towards the purchase execution phase (i.e. greater likelihood of sale
if user has decided to be routed to Expedia from Kayak, as they have identified Expedia’s offering as the
most favorable), has made the meta-search value proposition compelling to online travel agents. As a
result, despite the competition for referral money, online travel agents are willing to play the metasearch game.
Similarly, while airlines and other travel companies would prefer to have users book directly
through their websites, the exposure they gain via meta-searchers (and online travel agents) compels
them to offer their fare data in exchange for referral commissions. Airlines recognize the value
proposition that meta-searchers provide the end user (i.e. not having to independently search on
multiple websites), and know that they would be disadvantaged if they did not participate.
While the data provided by GDS companies is an additional critical requirement, these
participants are not considered a significant barrier as they have every incentive to engage with
additional buyers (i.e. meta-searchers) of their consolidated fare data. They have already mastered the
technology associated with transmitting this data transfer to online travel agents; presumably the
additional dissemination of this information to meta-searchers is of marginal technological
consequence. The one caveat is in situations in which a particular GDS has a vested interest in keeping
its doors shut to a given meta-search provider. For example, given Google’s recent purchase of ITA, a
company that accounts for nearly 40% of Kayak’s query data, one could imagine restricted access to this
query data as Google attempts to enter the travel meta-search market.13 However, Department of
Justice rulings at the time of Google’s acquisition of ITA stipulated that the company’s distribution of
travel fare data continue to be provided to customers such as Kayak and other fare aggregators through
201614. Nonetheless, a softening of these provisions and additional consolidation of GDS providers with
internet companies attempting to get into the travel market, could present a significant co-adoption
barrier for meta-searchers down the road.
Co-Innovation Risk
Thanks largely to the development of the online travel agent industry, the vast majority of the
technological innovation associated with meta-search capabilities was already in place by the time
meta-search hit the market. The incremental step that was necessary for meta-searchers was simply
the ability to consolidate fare data from a multitude of sources (direct from airlines, GDS, online travel
agents) into one centralized clearinghouse. This is not regarded as a significant innovation challenge,
and regardless, relates more to the execution challenge that meta-searchers faced, rather than requisite
innovations on the part of other ecosystem participants.
Execution Risk
The main execution challenge associated with meta-search is the problem of aligning all
providers of fare information to buy into the value proposition. In this regard, Kayak’s execution risk is
closely tied to the co-adoption challenges of each party described above. With willing participation, the
13
14
Morgan Stanley Research, August 2012
ZDnet, http://www.zdnet.com/blog/btl/doj-approves-googles-ita-purchase-with-conditions/47077
technological execution challenge of consolidating this information is not significant. Granted, Kayak
has introduced some technologically innovative ways of segmenting fare data to provide users with
more compelling deals (such as its use of “hacker fares,” which comprise of two separate one way
tickets from different sources in a consolidated cheaper round trip offering). However, again, the
degree of execution challenge associated with this offering seems minimal.
Additional proof of this low execution challenge lies in the entry of numerous competitors to the
meta-search landscape, most notably FareCompare and Hipmunk. Given the low degrees of both
innovation and execution challenges, Kayak has benefitted modestly from early entry into the metasearch market; however, while it is still the dominant player, the ease of replication of its business
model, coupled with the minimal barriers associated with co-adoption and co-innovation has enabled
the recent entry of competitors.
Value Blueprint: Meta-search
The value blueprint for meta-searchers like Kayak is interesting because airlines and online
travel agents (OTAS) are both suppliers and intermediaries for the meta-searcher. In the first phase, the
airlines and OTAs provide their flights to the meta-searcher for listing in the search results. The metasearcher uses the flight information from its data provider and access to airlines and online travel agents
to provide the traveler with a set of flight options. When the traveler chooses a set of flights, the metasearcher sends the traveler back to the airline or OTA to serve as an intermediary for the final booking.
Meta-searchers have been successful operating in this ecosystem because every player gains some
value from the arrangement:

Airlines gained a new venue to sell off their flights without paying a commission to a GDS as they
had to do with OTA sales, making the cost of sales lower. Transacting the sales on the airline
website also gave airlines access to more information about the customer.

OTAs benefitted because meta-search exposed them to new potential customers. At the same
time, the growth of meta-search risked rendering OTAs obsolete as travelers moved to metasearchers for travel inquiries.

While incumbent data providers like SABRE would be reluctant to give up booking commissions,
new entrants like ITA were happy to provide flight data for a fee rather than a commission.

Travelers benefitted from the ability to do powerful, fast searches on a wide variety of airlines
and book the most convenient and competitive flights directly from airlines.
Leadership Prism: How Meta-searchers changed the game starting in 2004
Partner
Relative Benefit
- Total cost =
Surplus
Airlines
5
3
2
Online
Travel Agent
2
4
-2
1
5
-4
4
0
4
Meta-search
Value
Proposition
GDS Data
Providers
Other Data
Providers
In the ecosystem the four players listed in the figure above are the key stake holders. The reasoning for
the cost and benefit numbers are as follows:
Airlines:
They were now able to generate more leads without commissions previously paid to GDS data
providers. An added benefit was that because booking was done on the company website more
customer data was available. However now travel providers needed to pay for inclusion in search results
which was previously free with aggregators.
Online Travel Agents (e.g. Expedia):
These companies got lead referrals from meta-searchers which gave them some benefit,
however similar to traditional travel agents the competition level was increased.
GDS Data Provider (e.g. Sabre, Amadeus, and Galileo/Worldspan):
As meta-searchers began diverting users to airline sites directly, in many cases they bypassed
the GDS data providers which led to the GDS providers losing commission on those sales.
Other Data Provider (e.g. ITA):
ITA was not a beneficiary of the old ecosystem and hence has no costs. In the new ecosystem
pioneered by meta-searches ITA becomes a partner and reaps benefits.
Summary:
The biggest winner in the new ecosystem is the meta-search website, closely followed by ITA and the
airlines. The online travel agents and GDS data providers face significant losses from the changes.
Five Levers of Ecosystem Reconfiguration
Meta-searchers such as Kayak aimed to differentiate themselves by using an alternative
business model from traditional travel agents and by utilizing unique technology architecture15. The
traditional travel agents and online travel agents combined search for travel services with the service of
booking the travel for a commission. This meant that they would need to commit to inventory holding
costs in a volatile, price sensitive market. Kayak was an exclusive travel search service and linked
customers and travel providers (Airlines, Hoteliers). The unique technology architecture of Kayak
enabled it to relocate some of the processing to the consumers computer and away from central
expensive servers. The chart below shows how the 5 levers of reconfiguration were used by meta-search
companies.
The new value blueprint for meta-searchers like Kayak.com:
Lever
Separate: Are there elements that are currently
Change

combined that could be productively separated?
Meta-searchers separated travel search
from travel transaction services by
directing consumers to airline websites for
final purchase
Combine: Are there elements that are currently

separated that could be productively combined?
Meta-searchers charged travel providers
for inclusion in search results, which
aggregators had not previously done
Add: Are there elements that are currently absent
whose addition would facilitate productive new
15
Air France Internet Marketing (Kellogg Case)

Meta-searchers add new players such as
ITA for data provider roles (as these
connections?
players currently do not have any role,
there is potentially more room for
negotiation)
Subtract: Are there elements whose elimination

Meta-searchers subtracted the GDS
would add more to viability than would be taken
commission from the transaction by
away from value creation
removing transactions from their site.
Relocate: Are there elements that are currently

Processing of the searches was split
bundled in one location that could be more
between expensive central servers and the
productively bundled in a different location?
customer’s computer which results in cost
savings.
Conclusion: The Future Outlook for Meta-searchers
Online travel meta-searchers were able to successfully commercialize their websites by
reconfiguring the travel booking ecosystem in a way that offered value to both consumers as well as the
key partners within the ecosystem whose cooperation was necessary for the meta-search model to
work. Although meta-searchers have been able to capitalize on the rapidly increasing number of online
travel bookings, the online travel space has become more competitive as airline websites, online travel
agents, search engines, and meta-searchers vie to become the point at which consumers initiate their
travel purchases. Each of these players have already made moves that threaten to squeeze metasearchers out of the ecosystem with Southwest not listing its fares on meta-search sites, online travel
agents offering special travel packages exclusively on their own websites, and Google purchasing ITA.
These strategic moves threaten the long-term sustainability of the meta-search business model, so
meta-searchers will need to continue to innovate and offer new value to each player in the ecosystem in
order to maintain relevance in the online travel space going forward.
Furthermore, as Kayak focuses on expanding its position in the industry, newcomers are arriving
on the scene to carve out different niches in the meta-search marketplace. In 2010, Adam Goldstein
and Steve Huffman founded Hipmunk, a travel meta-search company that presents flight results
chronologically in a Gantt chart for a cleaner visual interface. Hipmunk automatically sorts flights by
Agony, “a combination of price, flight duration, and number of stopovers,” and hotels by Ecstasy, “a
combination of price, amenities, and reviews.”16 According to Hipmunk investor Jeffery Jackson, “Kayak
was the last big innovation in the travel space, but the consumer experience is not very
intuitive…Hipmunk’s incredibly cool user interface matches the way people actually think about
travel.”17
Even as Hipmunk attempts to differentiate itself from Kayak, the company uses a remarkably
similar business model and occupies the same place in the travel ecosystem as Kayak. Hipmunk has ITA
power its search results, refers customers to airlines or OTAs for transactions, and uses airline sales as a
loss leader for booking higher margin services like hotels. Although it might be a Kayak clone with a
fancy reskin, Hipmunk is wise to streamline a process that is often painful and irritating. For the
traveler, meta-search engines are only valuable if they make booking travel easier, so the improved
interface Hipmunk offers could offer the company some advantage in a competitive marketplace. As
the online travel marketplace becomes ever more competitive, it will be important for meta-searchers
to continue to innovate in such ways to offer value to their stakeholders above what is offered by other
travel sites.
16
17
Hipmunk FAQ, http://www.hipmunk.com/faq
Jeffery Jackson, Interview held in Hanover, NH, November 7, 2012.