As you probably know, I’m now posting all my non-shopping comparison engine related vertical search stories over at Search Engine Land. At the same time, I’m continuing to run ComparisonEngines and have successfully launched SingleFeed (hope to close a seed round - looking for $150K-$200K - in the next month).

At the same time, I’ve suddenly gotten a number of offers to buy www.verticalsearch.net. I’m now officially considering selling the domain…this doesn’t mean I’m leaving vertical search behind…just don’t need to post my thoughts here when I have platforms like Search Engine Land.

So, anyone interested?
-I obviously think there’s value in creating the premier vertical search blog - ComparisonEngines.com gets aprx. 300,000 page views per month on just shopping search posts which means if I got a $10CPM , I could make $36K off the site/year - VerticalSearch.net could hit a much broader audience (video search, picture search, travel search, local search, job search, news search, etc.) and therefore be much much bigger.
-A directory is a nice idea
-An Info.com type of service that aggregates vertical search services.

But I think there are even bigger opportunities. Yes, the .net extension isn’t ideal, but it’s still a pretty good domain name and the offers I’ve received have been fairly attractive.

If you’re interested, make me an offer: ‘brian at verticalsearch.net’. Maybe I’ll put it up on eBay.

The question for SideStep and all the other vertical search players is still how to gain loyalty in a world in which everyone (ok, not everyone, but you get the picture) starts their search at Google or Yahoo. How does SideStep or Kayak gain loyalty and reduce dependence on the PPC engines? Is it by offering a one stop shop, complete with cruise search? Sure, that’s part of it and the cruise market is nothing to sneeze about (aprx. $13B according to PhoCusWright), but I’m much more excited about the company’s distribution partnerships content generation (user generated, expert editorial) plans

SideStep announced a deal with Orange, one of the UK’s leading portals, a couple weeks ago. As opposed to the wasteful Amazon deal which was rumored to have cost SideStep a pretty penny (or 100m pretty pennies), this deal was set up with a much more reasonable up front fee plus a revenue share on ad sales and bookings. This will be the model for SideStep going forward. In this hot ad market, there are plenty of publishers looking for more inventory and a deal with SideStep provides just that.

And then there’s TravelPost and hopefully other similar user generated content (UGC) initiatives. While SideStep is very happy sending travelers off to partner sites to book, SideStep definitely has ambitions to become a destination. By aggregating expert editorial content and user generated content, SideStep is heading in the right direction. This content at its core is meant to provide color to a potential traveler’s itinerary and to gently push a person to book, but in the meantime, SideStep has no qualms with racking up the page views and charging high CPM advertising dollars from big brand advertisers who want to reach a targeted audience. I expect SideStep to add hundreds of these type of pages, enhanced with TravelPost content, over the next year. The more UGC it develops, the more pages there are for the search engines to crawl.

Ok, but everyone understands this. So why does a vertical search engine like SideStep excite me? Because the GDSs lost their battle with the airlines this past year and the industry hit a tipping point in early 2006 when travel search engines gained clear acceptance from the travel providers as just another way to efficiently distribute content. The travel search engines now have to figure out how to go from aprx. 4m uniques/month (SideStep, Kayak) to 10m uniques/month. You’re seeing the foundation for that with these portal deals (similar to what helped PriceGrabber become a top shopping comparison engine) and content aggregation plays (I would love to see Sam Shank blow out TravelPost, head up additional content acquisitions, and create a network of SideStep travel blogs, vlogs, and of course, a travel wiki).

According to the press release, “TravelPost.com has grown into a leading source for unbiased user-generated hotel reviews and ratings, travel news, information resources and travel blogs. The company has excelled at organizing travel information to improve the way people research and shop for travel.”

TravelPost, with over 500,000 hotel reviews on its site, might be the smartest little travel site you’ve never heard of. The coolest feature is the ability to filter hotel reviews by Age, Gender, Budget, and Trip Purpose. TravelPost requires the reviewer to enter demographic information before posting.

As Sam Shank, CEO of TravelPost explained, I’d take trips off of my friends’ advice or itineraries and have an amazing time because I’d stay at the right hotel or go to the right restaurant for me. [TravelPost] was a way to automate that word of mouth process.”

TravelPost already is a close partner of SideStep, providing a subset of the hotel reviews found on the site. SideStep also works with PowerReviews and offers expert editorial content. SideStep has been an advertising partner of TravelPost for the last 6-8 months.

According to Sam “We have direct relationships with the Online Travel Agents (OTAs) and direct relationships with a majority of the major hotel brands like InterContinental, Hilton, and Marriott. We don’t see any of that presentation changing on TravelPost in immediate future, but this acquisition lends itself to lots of experimentation.”

Asked if there’s a conflict with these advertisers since some of the major OTAs, Expedia and Travelocity, don’t work with SideStep, Rob Solomon, CEO of SideStep responded “we’re a media company – we want to work with the best advertisers in the space. We’ll continue to work with the OTAs. Expedia and Travelocity don’t participate in search on SideStep, but they spend money on SideStep in the form of deals and graphical media. While they [OTAs] say they don’t want to commoditize their offerings, SideStep had 5 million uniques over the summer. [The OTAs] will wake up and realize have to participate. Travel search is a very real model and a legitimate part of the travel ecosystem. We’re where NexTag, Shopzilla, and Shopping.com were 4 years ago.”

It’s interesting to note that Rob is the former GM of Yahoo! Shopping and Sam is a former employee of NexTag, so they both have plenty of experience with vertical search.

Sam and Rob both stressed the core of this deal is about user generated content. Sam explained “in travel, word of mouth and [recommendations from] friends are key. There’s no better source of information than other people like you.” Rob added “TravelPost really increases the corpus of information that’s out there by allowing users to express their opinions. When you combine TravelPost with our scale, the consumer ends up winning.”

Vertical search is a tough business. It makes perfect sense that a vertical engine can provide better results than a general search engine for a specific set of queries, but when everyone starts their search at Google or Yahoo!, then the vertical search engines run into the problem of acquiring eyeballs at a cost effective rate.

The three main acquisition channels for vertical search engines seem to be search engine optimization (SEO), pay per click (PPC) marketing, and partnership marketing. SEO is a game that every can and will play. Unfortunately for the travel search engines (and probably the job search engines), PPC marketing can be an extremely expensive acquisition channel as the established players (OTAs in the case of travel, Job Boards in the case of jobs) can spend more because they make more per action.

And then there’s partnership marketing which is all the rage these days because it opens up the possiblity of more ad inventory for the partner at a time when online advertising is hot hot hot.

Which leads to the point of this post. SideStep today launched its ’syndication platform’, a fancy way of saying that SideStep is developing a fairly flexible approach to distributing its listings to whomever wants them. From the release “SideStep’s site customization options for premier partners go far beyond traditionally limited banner changes, incorporating colors, navigation, page configuration, and the ability to customize page elements, such as SmartSort defaults and advertising units.”

Sounds nice. Want to see it in practice? Along with the release of the program, SideStep announced its first partner, Forbes.com, which launched a snazzy little travel site called ForbesTraveler.com (powered by SideStep).

This partnership is in stark contrast to the Amazon deal SideStep struck last November which was rumored to have cost SideStep around $1m. I’m sure Rob Solomon looked at that deal with disgust when he inherited it.

SideStep’s syndication program is a step in the right direction (well, anything is a step in the right direction after spending $1m to acquire no customers). When I talk with Rob and his team, he always brings up that he wants to follow in the footsteps of PriceGrabber. As opposed to Shopping.com, Shopzilla, and NexTag, PriceGrabber built up its business through BizDev deals, sharing click revenue with its partners. Well, if SideStep can roll out a slew of these deals, it’s on the right track. It’s not completely clear what the terms of the ForbesTraveler agreement are, but I’d assume it’s a basic revenue share on ads and booking revenue generated through the site.

What I’d like to see next from SideStep is an API program for the little (or big) guys. Kayak offers a Search API…I don’t think it’s taken off, but it’s not like Kayak is going to spend that much time pushing it when the company is thinking about big branding campaigns.

Another smart move would be to follow Mobissimo’s work last week in launching a module for Netvibes [the reason I didn’t write about this is because I don’t think it deserves a press release - it’s not a big deal by itself]. But SideStep should one-up Mobissimo and launch a module/gadget for Yahoo!, Google, Netvibes, Pageflakes, Start.com/Live.com, FireFox, etc. That would be a big deal. And while the company is at it, why not do something great for MySpace? Kayak has a general search box available, but there’s sooo much more to be done. Oh, and then there’s RSS.

If you’re a travel industry executive interested in contributing, please email me at ‘brian at verticalsearch dot net’.

The views expressed in Guest Commentary pieces do not necessarily reflect those of VerticalSearch.net.

In addition to having held executive positions with multiple venture backed travel start-up companies, Mike Fridgen has spent time at Expedia, NLG, and Alaska Airlines in various roles. Mike is currently the VP Marketing & Product at Farecast and is a strategic advisor to TripHub. He also covers emerging travel companies in his travelstartups blog.

Airlines are back
These days the skies are much brighter for many of the nation’s largest carriers. Reduced capacity and high demand (load factors) this summer culminated in airfare prices not seen since before September 11th. This, coupled with lower cost structures (bankruptcy threat resulted in major cost reduction efforts) has translated in solid earnings for many airlines recently. As a former airline employee, I’m thrilled to see that airlines are back. With this post, I want to drill into the evolving relationship between airlines and their distribution partners, specifically GDSs, and how it’s changing the landscape.

The balance of power between GDSs and airlines is shifting
For decades, the GDSs (global distribution systems) held all the leverage in negotiations with airlines. Times are changing.

In recent years, airlines have increased their share of bookings that bypass the GDS channel. Many carriers are now booking close to 50% of their seats direct via their websites. Some airlines have established direct connections into large agencies, such as Orbitz. GNEs (GDS new entrants) such as G2 Switchworks (founded by the former Orbitz CTO), Farelogix, ITA Software (raised $100 million last year) and others have emerged to offer agencies and airlines an alternate booking solution. For more detail on the GDS to GNE evolution check out a deck posted by Richard Eastman.

To apply further pressure on the GDS channel, Northwest Airlines (NWA) announced in August of 2004 that it would charge a “shared GDS fee” for tickets issued through a GDS by U.S. and Canadian online and traditional agencies. Although this move did not stick, it was no doubt effective positioning for the upcoming round of GDS negotiations and demonstrated that the airlines leverage was reaching critical mass.

And now, earlier this month, American announced that on Sept. 1st it plans to begin charging agencies a “booking source premium” of $3.50 per segment for all bookings made through Sabre and Amadeus (GDSs they have not signed new, long-term contracts with). Northwest, United, Delta, and Continental have followed, which means it is likely even more airlines will add the “booking source premium” fee in the weeks/months ahead.

Airline and GDS relationships will be redefined by new negotiations
As a result of the changing landscape and strong positioning, airlines have, in most cases, renegotiated more economically attractive agreements with GDSs. These agreements are generally long-term and provide airlines with lower segment fees. GDSs, in return, get access to airlines lowest fare content (on parity with their websites).

Sabre’s expiring set of agreements are called DCA-3 (direct connect availability) and their new agreement is called EAS (efficient access solution). Sabre has successfully signed EAS agreements with Delta, United, Continental, and Alaska Airlines. American has not signed the agreement.

Although on the surface this looks to be a win for Sabre, the economics of the new deal are not clear. How much more of the pie are the airlines now taking? And, who’s taking a bigger hit, the agencies or the GDS?

And, although Sabre is locking up agreements with airlines and agencies, other GDSs with less market presence may have a much harder time.

Who’s worse off?
1) GDSs will certainly feel the pain both in the short and long-term. First, they will lose market share over time as airlines encourage bookings direct and through lower cost channels, such as GNEs. Second, in order to get access to airlines lowest fare content in the next round of negotiations, they will be required to reduce segment fees. (Interestingly, on Sabre’s Q2 earnings call, management did not make any significant revisions to outlook based on the new economics of the EAS agreements. However, they mentioned a need to reduce their costs in order to make good on long-term goals – I’m sure airlines love hearing that.) Third, although Sabre’s scale motivates most carriers to come to an agreement, the second tier GDSs (Worldspan, etc.) may not be as fortunate.

2) OTAs will also see less attractive economics, as GDSs reduce incentive fees to compensate for the less attractive terms with airlines. (As Brian noted, TWP believes Expedia’s annual EBITDA could drop by $30-35M as a result. Also, for perspective, Michelle Peluso stated on Sabre’s Q2 earnings call that GDS incentive fees for the second quarter made up 16% of Travelocity’s overall revenue.) In addition, airlines will continue to apply pressure on any transactional or commission fees they may be paying currently – threatening removal of low fare content. Further, if low loyalty levels continue and TSEs gain share, some airlines may remove themselves from one or more of the three top OTAs in an effort to drive more business direct.

Who’s better off?
1) The horizon looks great for airlines. They will continue to lower distribution costs and establish direct, more valuable, relationships with their customers. As their direct to consumer share plateaus, they will likely look to exit non-direct channels (OTAs, GDSs, etc.) in order to force continue growth.

2) GNEs are bolstered as now agencies have an incentive to book via their direct channels. Although GDS technology was built in the 60’s and the new technology platforms being introduced by the GNEs are much more efficient, the GNEs lack the broad supplier and agency penetration to pose a significant threat to the GDSs in the short-term.

3) The TSEs (travel search engines), I would suggest, are slightly better off. It could be argued that as airlines become more agnostic as to the booking channel, as distribution costs by channel converge, they will be less likely to play with TSEs. However, I believe airlines will increasingly care about owning the customer relationship and assign more value to website direct bookings, which gives TSEs a growing edge.

In my first interview for ComparisonEngines, Brian Barth, the former CEO of SideStep explained “through working with us, [travel suppliers] develop closer relationships with consumers as users go directly to the airline site vs. booking through a Travelocity or Expedia call center.” For those of you who aren’t familiar with the travel industry (I’m posting this on ComparisonEngines and VerticalSearch), 3 years after the travel suppliers signed long term, unfavorable deals with the Global Distribution Systems (GDSs) due to poor overall health for the industry (9/11, SARS), the suppliers have played hardball in their current negotiations with the GDSs as they now realize the incredible benefit of direct booking and owning the customer relationship.

With ecommerce booming, retailers aren’t in the same precarious position that travel suppliers were in years ago. However, all is not perfectly rosy for retailers as many are addicted to Google AdWords for traffic, and I think many retailers are losing the loyalty game and paying Google Adwords for each sale (search is where the game starts). Now here comes Google, positioning checkout as a way for retailers to:
1) get better clickthrough rates on Google AdWords
2) increase conversion rate
3) process sales for free (for every $1 you spend on AdWords, you can process $10 in sales for free).

Sounds pretty attractive, but playing devil’s advocate, Checkout is just a way for Google to look a little less threatening to retailers already hooked on AdWords. More importantly, as Safa put it, the retailers have concerns about ceding customer ownership to Google. Before implementing Google Checkout, retailers would be wise to consider some lessons from history - in this case, what the travel suppliers learned in ceding control to the GDSs.

With Safa’s permission (thanks!), here are the relevant paragraphs from his note today on Google.

Proprietary Survey Indicates eTailer Caution. Last week we spoke with more than 30 online retailers at the 15th Annual eTail Conference in Philadelphia. 81% of the online retailers indicated that they probably will not implement Google Checkout primarily due to the concern about ceding customer ownership to Google. Specifically, online retailers were concerned that Google limits online retailers’ ability to market to customers directly. The online retailers we spoke with also expressed concern about disintermediation, lack of system flexibility and the perception that Checkout provides Google too much visibility into their business, especially relating to Google search driven conversion rates.

Concern about Ceding Customer Ownership to Google. Among the online retailers who are not using Google Checkout, 81% indicated concern about ceding ownership of a customer to Google. Specifically, online retailers were concerned that Google stores all customer information, and Google Checkout limits an online retailer’s ability to directly market to a customer via e-mail. Given the low cost of e-mail marketing once a customer has been acquired, the e-mail marketing limitations placed on online retailers who implement Google Checkout may slow the rate of adoption of Google Checkout. We note that the online retailers we spoke with may not have a complete understanding of Google Checkout as Google Checkout currently provides users the option to “Keep my e-mail address confidential or “I want to receive promotional material from X.”

Concern about Disintermediation. Online retailers also expressed concern that Google undermines the ability of an online retailer to directly connect with a consumer by requiring Google Checkout users to go to Google Checkout to make changes to orders and transactions instead of to the online retailer’s site. This requirement once again prevents an online retailer from marketing or cross-selling to a user when they return to the site to check order status or to make changes to an order. Similarly, some online retailers did not like how a Google Checkout transaction ends with a Google Checkout page instead of on the online retailer’s web page.

Kayak offers email based Fare Alerts where users can set a maximum price, but unfortunately the service looks at a full month (Sep 2006, for example) as opposed to a particular date. FareChase offers a Fare Alert widget, but does not allow the traveler to specify a date or even a date range. Orbitz offers ‘canned’ RSS feeds for deals (flight, car, hotel, etc.) and for specific destinations (Las Vegas, Orlando, New York, etc.), but nothing for a particular date and city pair. Travelocity offers FareWatcher, “a free, personalized subscription service that tracks the best round trip fares published by airlines for up to five city pairs of your choice.” Via email, travelers can get a notification for one of the following: 1) if fares go down by $25 for a city pair, 2) if fares go up or down by $25 for a city pair, 3) when fares go down by a user defined price. The traveler can also opt to just see pricing information in the FareWatcher Summary (in account section). Again, the user can’t specify an exact date range. Expedia has Fare Tracker which doesn’t really allow the user to do much beyond just track a city pair - the information isn’t date specific or fare specific. Not so useful. FareCompare lets you track prices for a city pair through RSS feeds and Widgets, but again, there’s no way to specify trip date.

So who are all these people with completely flexible travel dates who only want to know about a $25 price drop? What Farecast now provides is smart and actionable information for the traveler. Most people know when they have to go to NYC for a wedding or Chicago for Thanksgiving or South Beach for Spring Break. Farecasts’ RSS feeds allow the company to start communicating and building a relationship with potential customers far in advance of the actual trip. And it costs nothing. A marketer’s dream. With this in mind, if I were Farecast, I’d immediately develop a couple FareCompare-esque widgets/gadgets/plugins (Yahoo!, Google, FireFox) to complement this service. Think of Farecasts’ RSS feeds as the Web 2.0 version of SideStep’s Toolbar.

Oh, and here’s another idea…why not ride the coat-tails of the whole back to school blitz - everyone is in buying mode for back to school - why not get students and parents in savings mode for holiday travel? Test the grassroots on-campus marketing thing on college move in days for 5 schools. Oh, and use that MySpace page that you haven’t done anything with yet.

-Ok, now to the story everyone else put first…Farecast expanded to 55 departure cities from the initial 2 (Boston and Seattle). A number of people I talked to early on criticized Farecast for only launching with 2 cities as the company probably lost a lot of potential consumers. With all the travel search options out there, I think it’s risky to launch without a fairly comprehensive product (I’d say the same for shopping search sites). At the same time, Farecase got some nice PR/Buzz in the media and 90% of it might have been wasted as only travelers in Boston and Seattle could use the service. The company now has to convince a lot of people to give it a second shot AND figure out how to generate another round of buzz. On the bright side, I’m sure Farecast learned a lot from going super-local in its initial launch.

In a sign of the times, not one blog I quickly scanned this morning (GigaOm, SearchEngineWatch, SiliconBeat, TechCrunch) wrote anything about the accuracy of Farecast’s predictions. It seems the important thing is to post often and early as opposed to digging into the story. Farecast has been tracking flights departing from Boston and Seattle for a lot longer than flights departing from any other major cities, so Farecast is less confident of its predictions for these additional cities. Ok, before you take this statement and run with it, I’m confident the company wouldn’t have launched with these additional cities if it hadn’t achieved a confidence level it was comfortable with. Just important to note and pay attention to as the company continues to add departure cities.

Anyways, I was surprised to find out that both Farecast and Mobissimo are sponsoring the TechCrunch August Capital Party this Friday (bidding for remaining tix on eBay is up to $300). While these guys fit the Web 2.0 definition for a number of reasons, if I were them, I don’t know if I’d want to be associated with the Web 2.0 trend as so many ‘companies’ in the space don’t have real business plans. Yes, the travel search engines can make money and some are break even or profitable, but why fly with companies that don’t have a clue or a prayer?

My guess is that the TechCrunch party is where it’s at if you want to raise money.

What a concept!

Been busy starting up my new business. About ready to launch. Then I’ll be back.

Doesn’t matter if you’re at American, Expedia, G2 Switchworks, or Kayak…talk from whatever perspective you want. Travel Weekly has done a great job of covering the news, but I’m looking for someone to pull all the pieces together and explain what’s really going on and how this will effect all the players in the travel industry. Obviously I’d appreciate at least a footnote about the travel search engines, but it’s not a requirement.

If interested, email me at ‘brian at verticalsearch dot net’