Kayak feels the Google-ITA pressure

The company announced an IPO in November but faces fresh competition from Google's potential acquisition of rival ITA. Now, a source reports, a quarter of the company may have been laid off in a cost-cutting effort.

The likelihood that Google may acquire travel search technology company ITA Software has been causing waves of nervousness across companies in the existing travel search market--many of whom count themselves among ITA's existing clients.

Now it appears the heat has been turned up a notch at one of those companies, Kayak: According to a source with knowledge of the situation, the company may have quietly laid off as much 25 percent of its workforce last Thursday as it forges toward an IPO.

Kayak representatives did not respond to multiple requests for comment. A news outlet called Tnooz reported on Monday that it would be "scaling back" operations but did not have precise details about layoffs.

Google's proposed $700 million acquisition of ITA was announced this summer, and almost instantly, both travel companies and regulators began to speak up in opposition: Because ITA's software powers many airfare search companies, from Microsoft's Bing Travel to the fledgling Hipmunk to many airlines' own search features, there have been cries that Google ownership would be anticompetitive. The site sprung up as a protest coalition of multiple travel sites, including Kayak, who say that "if the transaction is approved, consumers should expect to face higher prices and less choice when searching for travel online."

And indeed, the U.S. Department of Justice has begun to look into the proposed acquisition and may pose regulatory challenges for Google.

Yet DOJ scrutiny may not be enough to quell fears at companies like Kayak, which filed for its $50 million initial public offering in November, several months after the Google-ITA acquisition was announced.

The layoffs, the source indicated, likely eliminated about 30 employees (a quarter of the company) and may have hit marketing employees, "non-core" engineers, and the Norwalk, Conn.-based company's entire California office (which Tnooz noted). Another source with knowledge of Kayak's operations could not confirm this detail, but said that the company has considered closing that Sunnyvale, Calif. office for some time now. A few of those employees were left over from Kayak's 2007 acquisition of SideStep, which happened at the same time that it raised $196 million in venture funding, but the source said that very few remained anyway.

Here's what's unusual: According to multiple sources with knowledge of Kayak's financial situation, the company is not performing poorly at all. Yet the specter of a Google-run competitor seems to be turning up the volume. The reported layoffs, an insider speculated, may be due to pressure to slim down operations prior to the IPO, given the possibility that Wall Street could be skeptical of a travel search company's offering as a Google-owned rival potentially looms ahead.