Kayak Checks Into Direct Hotel Booking as IPO Approaches

Online travel search aggregator Kayak is now handling hotel bookings itself, rather than just referring customers to partner sites like Expedia (s expe) and Orbitz (s oww). The move, confined to just hotel rooms for now, marks a significant turn as Kayak shifts from simply aggregating travel deal information into being a destination where users can complete their purchase.

Kayak is rolling out the “Book Now” feature in limited beta and will enable full functionality on the website and on its iPhone (s aapl) app in the coming weeks. The decision to offer direct hotel bookings through Kayak comes as the company prepares for an initial public offering and suggests Kayak is ramping up its revenue streams ahead of its planned $50 million IPO.

Kayak will not actually process the transaction but will rely on white label provider Travelocity Partner Network to book the rooms. It will also continue to offer users the option to book hotel rooms through partners, which will pay Kayak through referral fees. But the move to get into hotel bookings will put Kayak in direct competition with its partners for the first time.

Kayak CEO and co-founder Steve Hafner, said the move was aimed at offering more choices to users and improving the experience, especially for mobile users who make up an increasing amount of travel searches on Kayak. Instead of being directed to another site to complete a transaction, users will now be able to stay on Kayak all the way through the process.

“Our users value that we give them choices on where to book, though some people would prefer to complete their purchases without leaving Kakak,” said Hafner. “We’re excited to offer a simple booking process on our sites and mobile applications in addition to the same choices we currently offer. For people who use Kayak’s mobile app in particular, this will make booking much easier.”

Kayak brought in $128 million in revenue in the first nine months of 2010, a 48 percent increase over the same period in 2009, and processed 469 million travel queries during that period. The company, however, saw its net income drop to $6.2 million in the first three quarters of last year, down from $10.4 million in the same period in the prior year. The challenge is on for Kayak to not only grow its revenue but also defend itself against risks presented by competitors like Bing (s msft) and Google (s goog), which is in the process of trying to buy travel information provider, ITA Software.  Kayak earlier this month reached a deal with Bing, which will now feature U.S. flight search results from Kayak in Bing.

Kayak’s expanding focus highlights the growing importance of its mobile operation. We talked previously about how the company has worked on improving its mobile app, which is becoming a major entry point for customers. The latest change appears aimed at helping turn that traffic into transactions. Kayak told Tnooz that mobile apps represented 8.2 percent of searches but only 1 percent of revenue in 2010. Kayak hasn’t said if it will expand direct transactions to flights but you can imagine that if hotel booking goes well, flights and other deals could be next.