I work in the travel space and have worked on the business/marketing side for metasearch as well as dedicated hotel sites. Based on what's been shared by the Hipmunk team, I think I have a ballpark analysis of their rev-mets:
150,000 searches/month
40% CTR to Orbitz/Suppliers - 60,000 outbound clicks
15% Conversion to Booking - 9,000 bookings
$300/booking average revenue - $2.7M revenue (meshes with the comment that they generate millions of ticket revenue to suppliers per month)
$3 bounty/booking - $27,000 / gross rev per month
$324,000 annual revenue run rate
$180 average RPM (rev/1000 searches)
It's cash flow positive and has no external marketing expenses really. The ITA agreement will entail cost per search but they will make it up by having access to all fares which will give them near price parity with the likes of Kayak and others. Hope this breakdown helps.
Looks good, although a little Drake Equation-y. Would you mind telling us where your figures are coming from? The figures all seem reasonable, but there's a lot of room for error there.
It's all the more impressive when you consider that Adam only graduated from college this year. If he'd gone to work at a big company instead of starting his own, he'd still be merely a promising junior developer or something.
I don't know anything about Adam and the team at Hipmunk, but I no longer even consider other sites when it comes to searching for flights. The people who I've recommended Hipmunk to have said the same. Their focus on user experience is (even for a startup) uncanny.
The word disruptive is thrown around a lot and often way out of context. I believe Hipmunk and Airbnb are actually disruptive.
And so you know, Steve Huffman (Adam's cofounder) cofounded reddit with me. We also recently brought on Chris Slowe (keysersosa), our first addition to team reddit.
You chose wisely, aberman. In the event that she breaks up with you, though, email me (alexis@hipmunk.com) your mailing address and I'll send you something from the hipmunk to ensure you get through the trauma.
Haha! Well, If anyone is reading these comments - you can email me your mailing address too. No break-ups required! We don't want to encourage anything like that :)
Enjoy the trip to Malaysia! Can't wait to visit one of these days.
That could be a sign for hipmunk guys to watch/survey how non-geeks use it. If the number of people who don't get it on first visit w/o help is higher than expected, a video or some kind of guide may be needed.
I think there's a big difference between applying for a patent for protection vs. applying for a patent to wield it as a sword. If your company could get a patent that it could use as a defense against a big company that held other similarly-ridiculous patents, but with the deep pockets to sue you, you'd be foolish not to at least consider it. Not liking the rules of a game is not reason enough to ignore them if it means your opponent will leverage those same rules to knock you out of the game altogether.
The patent answer was a response to "how are you going to protect your intellectual property and keep your competitors from imitating you?" Doesn't exactly sound defensive, does it? Keep in mind, too, that if Hipmunk is bought out by (say) Orbitz, Orbitz suddenly owns all their patents and will use them if they can.
I guess I was trying to express the following: I believe that Sun's patents really were intended defensively, but upon their acquisition by oracle this got turned on its head.
1. I seriously doubt they will care that they've lost one user. The mass amounts of people who could care less about that sort of thing won't care either.
2. Read the comments...they aren't happy about it:
Re patents: it's a matter of corporate defense, much like insurance. If some big, entrenched competitor gets nervous about you eating their lunch, they'll do everything they can to stop you, including filing patent lawsuits. If you don't have any to fight back with (or cross-license with them), you could end up totally screwed.
That's not to say I'm happy about it; the current patent system is a joke.
3. If anything you should pissed about the person who asked the question in the first place: "How are you going to protect intellectual property?" I got the impression Adam was ready for the question and had to put his fake "professionalist face" (notice how he does the very solid affirmative double nod in response to his question)
I keep meaning to mention this in a context where Hipmunk people might see it.
One little piece of design advice I'd give you based on the reaction of every single person I've shown the site to (which is in the tens at this point), is that, initially, the display for layovers is unclear.
A flight with a single layover looks like three flights because it is three separate blocks. I think you could fix this by extending the color of the boxes on either side into the connection box region. As that may not be at all clear, I've mocked up what this might look like: http://dl.dropbox.com/u/144762/Screen%20shot%202010-12-22%20...
I think it makes it more obvious what's a flight and what's a layover. Just a thought.
I'm totally impressed with how aggressive Hipmunk is being. Picking a fight with Kayak is awesome. The hardest thing they'll have to do is avoid being acquired.
Kayak is a strange choice. Their real competitors are Expedia, Tripadvisor and Orbitz (plus priceline, hotwire and hundreds of smaller flight search sites).
I'm no fan of software patents either, but nowadays it really can be a matter of company survival. If some big, entrenched player starts picking on you with their patents, and you don't have anything of your own to defend with or cross-license, you're in bad shape.
The question was actually, "how are you going to protect your intellectual property and keep competitors from imitating you?" Patents is a fine answer to that.
I bought an AA ticket through them on Sunday and it sent me directly to the AA site. I seem to remember that they weren't even including AA results several months ago, so they must have some direct agreement in place already.
I'm not from Hipmunk but my guess is that yes, it affected them because they are sourcing their flight info from Orbitz. In fact, this is one of the reasons they probably struck a deal with ITA since that will give them access to pricing/availability without going through Orbitz. On the flip side, this probably means they will make no money on any flights referred to AA.com unless they have an agreement in place with them since before the AA pullout, they had been paid by Orbitz for the AA booking.
Am I the only one who thinks their business is completely indefensible? I haven't read their patent applications, but I'd be shocked if you can patent not showing information. What they've done is definitely clever, but it seems to me that the big guys could have one decent designer and UI person duplicate their entire business in a week.
I should add that I've already booked 3 flights through Hipmunk and recommended it to a bunch of friends. I hope I'm wrong.
How does Hipmunk make money? Commissions on flights are extremely, extremely low. That's why sites like Kayak, Orbitz, etc. are plastered with ads - they make the majority of their money through advertising and upselling.
I know these guys are smart, so I just hope it's not one of these cases where a couple of people think that some products are not well done but that they know how to do it right and clean, to realize later that the reason other sites are like this (plastered with ads for example) is because, in the long-term, there is no other way.
For example, AirBnB came out to solve a problem with short-term rentals, with real people and real reviews from other real people. In my experience, the reality is that most of the offers are actually the same professionals you find in regular rental sites, with sometimes the same unclear and deceptive rates, and without many reviews from real people. (YMMV) When I realized that, I felt that they started out with an idealistic goal that couldn't be really fulfilled. Hoping the same thing wouldn't happen with HipMunk.
They received VC funding of $1mm. So that will buy those 3+ [1] developers some time.
According to an Oct 2010 article by TechCrunch [2] "Orbitz pays Hipmunk the standard rate of $3 per flight sold". Hopefully they did some renegotiations recently or have some other contract in place that generates Hipmunk more income.
I thought I remember reading somewhere that Hipmunk was pulling in close to $1mm in affiliate revenues from Orbitz, but I can't find the source to back it up. Otherwise, perhaps that's just how much in sales they're generating to Orbitz.
Kayak makes around half their revenue from referrals and the other half from advertising. There's no reason Hipmunk couldn't settle for less revenue per search.
They have fixed costs (independent from the number of tickets bought) in the form of payments for search results to ITA plus whatever company overhead (maintenance, salaries, etc).
Whether Hipmunk can afford improvements in user experience while earning thinner margins than the competition is not entirely obvious to me.
Hipmunk will grow up living on whatever profit margins they end up being able to generate. Kayak at this point could not learn to live on significantly less.
HipMunk is doing something smart and focusing on the presentation layer to win. Design and presentation seems simple and just a "feature" to many, but that's because it's done well. In travel search and many other areas, all things are virtually the same + a commodity. By focusing on the presentation layer, they actually bring about a very very strong advantage, especially in a process that people hate.
Design is a strong advantage, but not sustainable one. Unless the design requires hard-to-replicate data or algorithms, design alone isn't a sustainable competitive advantage.
The data that Hipmunk displays is available to any other OTA. If the intent is to grow independent company they'll need to build that sustainable advantage (beyond UI patents).
I'm assuming it's too soon to tell in terms of hard numbers. However, empirically and from personal experience, the last 5-6 flights I've booked in the last couple of months have all been through hipmunk, and what I learnt is that:
Hipmunk has replaced Kayak for me (I only booked through Kayak before, it was the most convenient and easiest to use at the time)
Even though Kayak can show me the lowest prices, in Hipmunk I've booked flights that were not necessarily the cheapest (as I did in Kayak) but the least agonizing, by a price difference of about $50 saved myself 2 hours of agony.
I do pay a premium for nice presentation and design in this case.
The reason why the "non-stop flight" checkbox isn't checked by default on most sites is because flights with stops are much cheaper usually. Also hipmunk results are usually always more expensive than other traditional sites, at least for now. Maybe they should focus on getting the best offers, that's more important than UX on that kind of sites, I mean look at godaddy for example.
Different people place importance on different things. The "people who buy airline tickets" market is probably large enough to withstand some segmentation.
Time is the only thing I can't make more of. The deregulation of airline prices and the subsequent obsession over the lowest fare has led us to treat airlines as a commodity, and the airplanes have thus become cattle cars in the sky. I and most people I know are willing to pay $50 extra for a better experience. "Agony" is the correct sort for us.
The point raised in the presentation is that as Hipmunk is better able to achieve price parity (say, via the ITA deal which will make better search results available to them), the prime differentiation will be the usability of the product.
150,000 searches/month 40% CTR to Orbitz/Suppliers - 60,000 outbound clicks 15% Conversion to Booking - 9,000 bookings $300/booking average revenue - $2.7M revenue (meshes with the comment that they generate millions of ticket revenue to suppliers per month) $3 bounty/booking - $27,000 / gross rev per month $324,000 annual revenue run rate $180 average RPM (rev/1000 searches)
It's cash flow positive and has no external marketing expenses really. The ITA agreement will entail cost per search but they will make it up by having access to all fares which will give them near price parity with the likes of Kayak and others. Hope this breakdown helps.