Kayak Will Now Compete Directly With Expedia by Launching New Hotel Booking Option

Kayak.com is now giving its customers the option to book a hotel room directly through its Web site.

In doing so, it moves from an independent third-party aggregator to a competitor of the hundreds of travel sites it compares on a regular basis, such as Hotels.com, Hotwire, Priceline and Expedia.

The feature was released today in a limited beta, and will be fully functional in a few weeks, both online and on its iPhone application.

Since Kayak was founded seven years ago, it has been aggregating airline and hotel listings from hundreds of sources to give visitors the best options and price. But it was not known for selling directly to the consumer.

The company, which has filed for an initial public offering, traditionally has earned revenue from sending referral traffic to companies like Expedia and Orbitz. In fact, Expedia accounted for 25 percent of its revenues in the first nine months of 2010, and Orbitz made up 19 percent of its revenues.

In that period, it generated $128 million in revenue and processed more than 469 million user queries for travel information.

Now, the Norwalk, Conn.-based company has decided to go head-to-head with some of its biggest customers.

To do so, the company is partnering with the Travelocity Partner Network, which will be processing the transactions and providing customer service to anyone who books directly on Kayak.

In an interview, Paul English, Kayak’s co-founder and CTO, told us he believes the two businesses can co-exist because they still provide an extremely low-cost lead generator for all of their partners.

While the feature is being rolled out online and on mobile, he said the decision to start booking directly had more to do with the consumer’s experience on the mobile phone.

In a statement, Steve Hafner, Kayak’s CEO and Cofounder, said: “Our users value that we give them choices on where to book, though some people would prefer to complete their purchases without leaving KAYAK…For people who use KAYAK’s mobile app in particular, this will make booking much easier.”

Currently, if a customer is searching for a hotel and wants to book something, they will be kicked out of the app and redirected to another company’s web site in the browser in order to pay for it.

The poor experience causes many people to drop off, and conversion rates are low.

If the transaction can be completed inside the application, a user’s payment options can be stored, and it can be completed in a couple of clicks.

English would not say how much traffic its mobile application is getting, however, as one of the more popular travel apps on the iPhone, it makes up a notable number of its three million daily searches, he said.

So far, its mobile applications have been downloaded more than five million times, and he said there are some users who only search Kayak from the phone.

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