Updated from 11:05 a.m.
dipped its toe into the onrushing online travel business Friday with an investment in closely held Kayak.
AOL didn't disclose details of the multiyear marketing-and-technology agreement. But the Dulles, Va.-based unit of
said it and Kayak would "join forces to create a Web-based travel search property, which will be powered by Kayak's travel search engine, and will complement AOL's existing offerings."
The agreement dovetails with two different trends affecting the online economic landscape. One is the increasing degree to which travel-booking is being conducted online. The most prominent player trying to harness that trend is Barry Diller's
, which has assembled a fleet of travel sites, including Expedia and Hotels.com.
The other trend at work is the growth of search as a driver of commerce -- growth at work areas such as the rise of search-engine phenomenon
, and in AOL's recent launch of the Web-based comparison shopping search engine
AOL spokesman Brian Hoyt says that with the new site, which is scheduled to launch in the first half of 2005, AOL is trying to reach a segment of online travel shoppers who aren't particularly wedded to online agencies such as Travelocity -- a unit of
which is the premiere travel-booking partner on AOL's properties.
"There's a particular set of consumers out there -- and it's a large group of consumers, too -- that show no brand loyalty to where they buy travel," says Hoyt. "What they want to know is that they have in front of them the most comprehensive breadth of choices available."
The degree of demand for travel search engines, however, is subject to debate. Earlier this month, for example, Diller told analysts that "metasearch comparison shopping" in the travel field was a "niche service" -- one that IAC is trying to serve with its
These search engines, he argued, can't compete with what IAC is offering on its sites, such as a new feature enabling users to see in real-time how much money they are saving when they book particular travel packages. "It's pretty compelling -- a differentiator -- and that isn't ever going to be met by any metasearching technology," Diller said.
Nor could search engines duplicate what IAC can offer in terms of booking local activities for when travelers arrive at their vacation destinations, Diller said. "Somehow I just doin't believe any netscraper" -- slang for a Web property that searches for pricing and other information on other Web properties -- "is ever going to scale these heights of detail we've plowed into 9 years of developing Expedia and our other travel businesses," said Diller.
Hoyt argued Friday that airlines and hoteliers would be happy to cooperate with Kayak in an effort to reach customers who aren't loyal to their brands. "The suppliers are realizing they're losing market share to consumers who are searching," he said. "They might as well recapture some of that market share by signing up with a travel search engine like Kayak."
AOL was quick to point to Kayak's impressive online travel DNA. The Norfolk, Conn.-based company is run by the founders of the three big Web travel sites, Orbitz, Expedia and Travelocity.
The news comes as online travel exerts an increasing hold on the imagination of growth-starved tech investors. Online publisher
has turned into one of the market's unlikely heroes this year, posting a 1,000% rise based in large part on hopes for the industry and the company's thin float. Travel services giant
( CD) last month sewed up an agreement to pay $1.2 billion for Orbitz, and was slated to complete its acquisition Friday.
But the growing investment in online travel services has meant increasing competition as well. InterActiveCorp has seen its shares sink nearly 40% this year amid falling growth expectations.
Meanwhile, AOL has been searching for ways to expand its presence in the online advertising business. Paid search has been the growth engine for Wall Street favorites
and Google. AOL is seeking to develop Web properties as it struggles to stem the defection of narrowband subscribers.
On Friday, AOL parent Time Warner rose 17 cents to $17.42, while IAC dropped 34 cents to $23.90 and Travelzoo gave up 87 cents to $98.22.