How Kayak Makes Money

Travelers who utilize travel search engines and fare aggregators such as Kayak may well wonder, since Kayak's services in particular are free to consumers, how such companies make money. Companies like Priceline (PCLN), which acquired Kayak in 2013, bring in billions of dollars in annual revenue.

The key to understanding Kayak’s revenue stream is understanding who the company’s customers actually are. Kayak’s customers aren't travelers searching their website, they're the companies that travelers find on Kayak.

Kayak provides consumers with travel information and rates on vacation packages, flights, hotels, rental cars and other travel services by offering information collected from travel suppliers and travel agencies. The company handled approximately 2 billion inquiries on travel through more than 60 websites, as of 2018.

Kayak's co-founder and chief executive officer (CEO), Steve Hafner, had already helped launch another similar travel service website, Orbitz, in 2001, before going on to create Kayak in 2004. The primary business model shift that Hafner made when setting up Kayak was to cease providing information and actual ticket sales. Kayak was set up more like a search engine for the best prices, since it doesn't directly handle sales transactions of travel services. Instead, it refers Kayak users to other websites to complete transactions.

The streamlined information-only business model made Kayak's website users less likely than those of Orbitz to look elsewhere for lower rates. It also reduced Kayak's operating costs, making it more financially efficient. Not handling transactions requires less work and fewer employees, and it has virtually eliminated the need to provide customer service to Kayak website users. Overall, the site's success is reflected in Kayak’s ability to attract large amounts of business from advertisers.

Kayak's true customers aren't the users who go to its website to search for deals on travel, but the travel companies, such as Delta Airlines (DAL) or Hertz Global Holdings Inc. (HRI), to whom Kayak refers its users to purchase tickets or other travel services. Kayak receives distribution revenue from the travel suppliers or travel agencies that website users click on to complete travel transactions. Sites like Kayak are considered part of the distribution channel for travel services providers.

Kayak derives approximately a third of its revenue from airline company referrals, and another 15% from hotel and rental car company referrals.

One of the largest general revenue sources for Kayak is online advertising. The company offers ad placements on its site to travel agencies, travel suppliers and other related businesses. Revenue is generated by charging advertisers either a cost-per-click (CPC) or cost-per-impression rate, similar to the revenue generated by many other websites that sell advertising. Advertising revenue is a key income source for the company.

Kayak can charge advertisers premium rates because of the number of potential leads it provides. The company’s acquisition by Priceline has helped expand Kayak's exposure and visibility globally, thus increasing revenues for both companies.

Kayak works to improve its bottom line and the overall cost efficiency of the Priceline Group. Kayak can attract the same number of site visitors as many competing meta search engines in the travel industry using a lower level of advertising expenses.