Kayak's business model upended by iPhone

Developers are learning that iPhone users want sophistication and features in their apps, not watered-down functionality. A report in GigaOM shows that not only are companies finding that slimmer isn't better when it comes to apps, but that one company is actually changing their business model based on what they found out about how iPhone users were using their app.

Travel search service Kayak based its first iPhone offering on the assumption that a mobile user would most likely use the app if her flight had been canceled and she needed a replacement reservation. As a result, the initial app didn't have features like flexible date search.

While the Kayak app [free, iTunes link] was very successful for the company, with over 600,000 downloads since February now accounting for 5% of Kayak's search volume, users demanded the full functionality that they found on the company's website.

Kayak went back to the drawing board and recently released version 2.0 of the app, with some major improvements. However, since Kayak is a search engine, iPhone users still end up being pushed to other travel websites, which means that they have to put up with tiny renditions of full pages and non-loading Flash sites. This "concierge" model obviously needed some work for the iPhone client.

The growing movement towards iPhones and other handheld devices becoming laptop replacements has forced a change in Kayak's business model. In 2010, Kayak will introduce an iPhone-friendly wallet system that will give users the chance to book travel from their devices. That wallet will save credit card, frequent flier, and flight preference information. Kayak will use the wallet to enter data into travel provider sites, and then send the users an alert when the booking has been completed. This change, forced by the growing use of iPhones, will most likely be reflected on the main Kayak website as well.

Do you know of any other companies that have had to change their business model because of the success of the iPhone? We'd like to know -- please leave a comment below.
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