As Kayak partners with Bing and readies an IPO, Kayak may be seeking to tidy up a nasty issue with Orbitz.
Kayak's core displays of Expedia's flight search results, which have been a bone of contention between Orbitz and Kayak, disappeared from Kayak several weeks ago.
“As of mid-February, we have temporarily stopped investing in the core search placements with Kayak, but we still invest with them in other areas and look forward to continuing our partnership," an Expedia spokesperson says.
The spokesman claims it was a routine move to optimize Expedia's search engine marketing.
Kayak and Orbitz currently are in arbitration over the display issue, as detailed in Kayak's S-1 filing for its proposed IPO.
The background is that Orbitz and Kayak signed a promotion agreement in 2009 which Orbitz believes gave it some exclusivity when it came to Kayak's displays of core flight search results for online travel agencies.
Sometime last year, while Kayak continue to only display OTA airfares from Orbitz.com and sister site CheapTickets.com, Kayak began showing Expedia.com, as well, although users had to "click to see rates" to view the airfares.
Orbitz apparently saw this as a contract violation, and Kayak hasn't publicly commented about its views on the matter.
In addition to disagreements about exclusivity provisions in core search results, Kayak says in its financial filings that it notified Orbitz that the OTA had allegedly breached the agreement for failing to accurately account for net revenues under the pact. And, in turn, Orbitz alleges that Kayak owes Orbitz some $2.5 million in overpayments.
“If we are not successful in defending against these claims, we may be forced to pay money damages to OWW [Orbitz Worldwide] and we may be required to stop offering certain advertising products to our advertisers, which for the nine months ended September 30, 2010, accounted for approximately 3.7% of our total revenues for that period,” Kayak disclosed in a Feb. 10, 2011, Securities and Exchange Commission filing.
At any rate, Expedia’s absence in Kayak flight search results over the last few weeks could pave the way for Kayak to get this issue behind it. With an IPO actively under consideration, this can be seen as a move to resolve uncertainty and any further litigation.
Of course, Expedia could have withdrawn its participation in Kayak's core flight-search results of its own volition.
Overall, when you consider Kayak's various flight and hotel programs, Expedia is a key advertising partner. Expedia.com, and sister companies hotels.com and Hotwire, accounted for 25% of Kayak's revenue in the first nine months of 2010, while Orbitz.com and sister companies CheapTickets and ebookers chipped in 19%, Kayak says.
Orbitz exclusivity as an OTA in Kayak is a key issue for Orbitz. In February, Orbitz attributed part of its “disappointing” financial performance in the fourth quarter of 2010 to reduced share from Kayak.
The Orbitz-Expedia issue also could have been a thorny one given Kayak’s new partnership with Bing Travel in which Kayak will power Bing Travel’s flight search results.
Orbitz has OTA exclusivity provisions in Bing Travel metasearch, as well, and it could have been a significant issue for Orbitz if Kayak-powered Bing Travel kept displaying Expedia in core flight search results, and reduced Orbitz share from Bing Travel.
With displays of Expedia in Kayak’s core flight-search results apparently gone, the issue becomes a less thorny one for Kayak, Orbitz and Bing -- although Kayak could take a revenue hit if it discontinues the advertising product that put Expedia into core flight search results.
Meanwhile, Orbitz argues that its exclusivity rights are on solid ground.
“We continue to have an important marketing partnership with Kayak and believe any existing disputes will be resolved to uphold our exclusivity provisions within our business agreements,” says Brian Hoyt, a spokesman for Orbitz Worldwide.
Kayak declined to comment about its supplier relations.