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Good Profits and Bad Profits: Kayak Rowing in the Wrong Direction

Published: September 17, 2008

Author: David Rodnitzky

One of my favorite travel Web sites for many years has been Kayak.com, the AJAX-based travel aggregator that scours multiple Web sites to find you the lowest prices on airfare and hotels. I liked Kayak because I could trust the site to find me the lowest fares, unlike many travel sites that tack on “service charges” or try to push their “recommended choices” first because these happen to give them a bigger commission.
I assumed that Kayak made their money from users choosing to purchase their ticket from a Kayak partner, like Orbitz or CheapTickets, and the fact that you could go straight to the airline was just a nice, user-friendly feature that drove “eyeballs” and customer loyalty. Good interface, user-friendly options – its just the sort of thing that makes an online company successful.
Over the last few months, however, Kayak has slowly been changing, and not for the better. First, I noticed that when you did a search there were several text boxes auto-checked at the bottom of the page. If you didn’t uncheck these you got new browser windows full of offers from Priceline or Expedia. Pretty much glorified pop-ups, not what any user likes to see.

More recently, I noticed that Kayak has removed the option of going straight to the airline booking site altogether. In other words, the low price you now see on Kayak includes a service charge from another travel Web site.

I’m sure that both the advertiser pop-up and the link to a service-charge based booking site increase Kayak’s revenue per visit, but the long-term impact of this short-term profit gain will likely be quite negative. In Fred Reichheld’s latest (and very awesome) book The Ultimate Question: Driving Good Profits and True Growth he draws a stark contrast between “good profits” and “bad profits.” First, here’s what he says about “bad profits”:

Whenever a customer feels misled, mistreated, ignored, or coerced, then profits from that customer are bad. Bad profits come from unfair or misleading pricing. Bad profits arise when companies save money by delivering a lousy customer experience. Bad profits are about extracting value from customers, not creative value. . . When complex pricing schemes dupe customers into paying more than necessary to meet their needs, those pricing schemes are contributing to bad profits. (emphasis added).

Now compare bad profits to good profits:

If bad profits are earned at the expense of the customers, good profits are earned with customers’ enthusiastic cooperation. A company earns good profits when it so delights its customers that they willingly come back for more – and not only that, they tell their friends and colleagues to do business with the company.

As I see it, Kayak started out as a “good profits” company and is rapidly descending into a “bad profits” company. As you might expect, companies that live on bad profits eventually lose customers, market share, and employee morale. Companies that thrive on good profits go the exact opposite direction. It’s never too late to become a “good profits” company and I hope Kayak will see the light and turn the boat in the right direction again!

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