Good luck guys! Fresh off its insignificant $91 million IPO on NASDAQ, news is trickling in about Kayak.com’s ambitions in the Russian market.
Stories on the web actually started breaking on July 19th, the day before the IPO, after the Quintura blog noted that Kayak.ru is forwarding to Kayak.com and identified the Russia & CIS Managing Director through his LinkedIn profile. This was quickly followed by VentureBeat and TechCrunch postings about Kayak.com’s entry into Russia.
The company has not made any public statements about its entry into Russia, probably due to restrictions during the offering period. Quite a botched PR approach to the Russian market!
There is quite a sensible reason for keeping a low profile. Kayak.com is merely the latest in a string of foreign technology/e-commerce companies either entering or boosting their presence on the Russian market, including eBay, PayPal and Airbnb. All are woefully behind their Russian competitors.
Kayak.com operates essentially as search engine specifically devoted to travel, where users search for the best deals on air tickets, hotels, car rentals and more. It earns most of its money from online advertising and referral fees, similar to Google’s business model but without the contextual aspects. Companies offering all-inclusive vacations, for instance, are able to promote them on the Kayak site. It generally does not have direct commercial relationships with the actual travel service providers such as airlines or hotels.
Since Kayak.com has no direct customer relationships, the whole business is vulnerable to the latest, greatest, coolest, innovator. Personally, I regularly use the site but have never transacted or clicked on their links. I use it to make sure I’m not missing any bargains. If something would indeed turn up, I would bypass the site completely and transact directly with the airline or hotel. I don’t think I’m alone.
Let’s have a look at the competitive environment in Russia:
- Amongst foreign companies, Edinburgh-based Skyscanner has had a Russian version of its service since at least 2009, and pursues more or less the same strategy as Kayak.com.
- Locally-based Aviasales.ru (known internationally as JetRadar.com) is probably the most entrenched existing player.Jizo.ru, while having a questionable pedigree by virtue of its main funder, also does many similar things, although it has only been around since 2011.
- Large and established Russian portals such as Yandex (ticket.yandex.ru) and Rambler-Avia (avia.rambler.ru) are also in this space but take a more bare-bones approach and render their interfaces more like austere search engines, which is their legacy. If the market becomes larger, Yandex certainly has the resources to focus more on the travel sector.
- Finally, online “travel agent” sites like Expedia, Orbitz, etc. and their local equivalents in Russia (Ostrovok.ru, Oktogo.ru, Travelmenu.ru) represent another form of competitor, albeit more focused on direct bookings and customer relationships.
As I understand, Russia is not integrated into any global travel reservations market, so the Russian branch of Kayak would have to develop new systems to index all the relevant data on Russian travel, a 3-6 month project, at least.
That’s not to say there’s no room for Kayak.com. The online travel sector in Russia, as in most sectors of e-commerce, is in its early days and poised for tremendous growth, so there’s plenty of pie left for Kayak.com.
The main questions will be the company’s commitment to the Russian market, and whether the Russian operations will reach scale in the context of the entire company. The company’s US roots will certainly place it at a disadvantage compared to Skyscanner, as it needs to “learn” how to succeed internationally and such markets are arguably not material to its short-term success. Being a publicly-traded company only accentuates this short-term focus. This is not to mention the stiff competition from Russian-based companies.
Still, there are very few barriers to switching travel search engines, so apart from being the quickest, cheapest and most comprehensive, the services compete on their user friendliness. The more services which can be built to hook users, through personalization, rewards schemes or other means, the better for their long-term competitive advantage.
- Peter Leighton Prabhu is Partner in Interstice Consulting LLP and Head of the Russian office. This comment first appeared on Intersticeconsulting.com
