AOL Makes New Play For $52 Billion Online Travel Industry

America Online is partnering with Kayak Software to create a Web-based travel search site, the companies announced last week. Kayak, based in Norwalk, Conn., will power the search engine, while Dulles, Va.-based AOL will make a minority investment in the company.

Kayak, founded by former executives from online travel agencies Travelocity, Expedia, and Orbitz, launched a travel search engine in beta in September. Unlike online travel agencies, which provide airline tickets and hotel reservations to users, Kayak acts as a facilitator by sending its spider to about 60 travel-related Web sites, and returning lists of links to airlines or hotels so that users can comparison shop. But, rather than make the purchase from Kayak, consumers must click on the airline or hotel Web sites to make a purchase.

The deal, which follows on the heels of Yahoo!'s July acquisition of travel search engine FareChase, signals a resurgence of interest in search engines focused specifically on travel, said Forrester Research vice-president Henry Harteveldt. "You have a very ripe environment for the next generation of travel search engine," he said.

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Kayak will have its own stand-alone site at kayak.com, in addition to an AOL-branded site, according to Kayak spokeswoman Dana Galin. The AOL site, which is still unnamed, is expected to go live early next year.

By acquiring an interest in Kayak, AOL has obtained one more entree into the online travel market--estimated by Forrester Research to reach $52 billion for leisure travel this year--but might have also bought itself problems with another business partner, Travelocity. Through March 2006, Travelocity is AOL's exclusive "travel reservation engine provider" for travel deals, including airline tickets and hotel reservations, said Joel Frey, Travelocity spokesman.

Travelocity, as well as online travel agency Expedia, have already crossed swords with Kayak; both requested that Kayak no longer search their sites. Frey said that Travelocity made the request because it disapproves of Kayak's business model: "It's commoditizing travel at a time when we're working really hard with our suppliers to go in the opposite direction," he said, adding that Travelocity gives consumers access to reviews and other information beyond prices.

Kayak stopped searching the pages of both companies, said Galin. She added that Kayak intends to also provide users with access to editorial information relating to travel.

AOL spokesman Brian Hoyt said that Travelocity and Kayak could co-exist within AOL, in part because the companies appeal to different consumers. Travelocity, he said, is likely to be used by consumers who feel brand loyalty to the site, while Kayak is more likely to be chosen by those who just want the best price.

Separately, AOL told broadband consumers who also obtain high-speed access through AOL in nine Southern states to find independent carriers. AOL spokeswoman Anne Bentley said that BellSouth Corp. has agreed to give the customers discounted service.

In other AOL news, Business Week reported last week that AOL is expected to announce today that it's partnering with Valista, an Irish technology company, to enhance premium services.

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