Is Google taking on Meta with ITA – PhoCusWright analysts weigh in

The fact that travel is a priority market for Google is well known. Over the past few months in particular, Google has made significant moves in the sector. Last month, Google added hotel sponsor links to Maps. Now, rumors of a major travel technology acquisition show that their pace is quickening in their quest for travel domination.

This week rumors surfaced that Google is seeking to acquire ITA Software at a price as high as US$1 billion. ITA provides search capabilities for airlines, meta-search sites (Bing’s Farecast, Kayak) and online travel agencies (OTAs). ITA’s technology would permit Google to vastly improve its air search capabilities, possibly allowing users to input destinations and dates to see available flights and prices, rather than a simple list of links. What could make this company, little known outside travel, become Google’s next big target? If a deal happens, will it be a game changer for travel distribution?

PhoCusWright’s Analysts share their thoughts and key insights:

Philip Wolf, President and CEO:
ITA has a history of solving some key challenges in travel distribution. Google’s interest shows that success in travel relies on your ability to improve the way consumers connect with suppliers throughout the entire search, shop, buy process.

Lorraine Sileo, Vice President, Research:
I can’t imagine that Google wants to threaten the OTA money-making machine but it does need to diversify, just as OTAs are diversifying with social media, mobile, and other outlets beyond search. I can see Google using ITA to provide more relevancy to the traveler and highly qualified leads and referrals to travel sites, but not becoming a full service OTA. It brings Google closer to the transaction, but fulfillment remains the purview of OTAs.

Douglas Quinby, Senior Director, Research:
ITA and its shareholders are more open to acquisition in the face of diminished near-term opportunities for their airline CRS. The ITA airline host reservation system was a big piece of the company’s strategy for several years until Air Canada put the brakes on the project last year. The end of that project, along with increased competition in the airline host market (United + Amadeus, AA + HP, and more wins for Sabre) make them a likely takeover target.

Carroll Rheem, Director, Research:
Speculation about Google buying Expedia has been going on for years – and that never made sense to me. This, however, makes a lot of sense. If Google unleashes a metasearch product, its brand power and pivotal position in the travel planning process give it the potential to impact consumer traffic patterns in a major way. And because meta is nontransactional, it would not compete directly with Google’s key sources of revenue – suppliers and OTAs. The initial dabble with hotel price listings seems a bit feeble but interest in ITA is a signal that the search giant is serious about building a robust travel offering.

Norm Rose, Senior Technology and Corporate Market Analyst:
The purchase may signal a significant shift from dedicated travel meta-search engines who have to spend significant dollars on branding, SEO and SEM to get noticed and to grow internationally to travel meta-search becoming a mainstream function of the two leading search engines. This doesn’t bode well for Kayak. Fly.com can play off its Travelzoo ties, but will need a stronger connection to its core brand. TripAdvisor is somewhat insulated based on its core review functionality.

Jake Fuller, Senior Research Analyst, Finance and Analytics:
This does represent an indirect threat to the OTAs because improved air search capabilities would likely shift organic traffic from the OTAs to Google and increase customer acquisition costs. Also, buying a now highly qualified lead from Google would likely cost less than the GDS fee and override commissions that are incurred for a ticket sold through the OTA.

Bill Carroll, Senior Hotel and Lodging Analyst:
This action is a signal that Google will likely show prices for travel services in their searches; the more “vertical” the search, the more likely that prices will be shown. This will start with air and migrate to hotel and car. ITA’s tools will serve this purpose.

A company like ITA may operate quasi-independently from Google so that their results will be broken out from the ad-based core Google business. This way, they can be jettisoned if they don’t work out or if they become a more valuable asset because of their association with Google. In the later case, they could fetch a better price in the asset market and serve Google competitors as an independent company.

Dennis Schaal, Research Analyst:
ITA withdrew from its burgeoning GDS business and got $100 million in funding to pursue airline hosting. ITA has poured a ton of resources into that venture and with the Air Canada deal on hiatus, there has been little to come out of it. Either ITA will have to sell its airline-business assets or concede that its big airline-res system push was a failure.

Google isn’t speaking about their plans yet, and the air is thick with anticipation as companies across the travel spectrum watch and wait. Chaos calls, will Google answer?

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  • http://www.rockcheetah.com/blog RobertKCole

    Great insights as always – I'll take the liberty of adding a few more:

    The big issue is the impact of structured data on travel search.

    Google has been providing specialized air search (DFW LGA May 1 May 4) for years with textual deep hyperlinks to the OTAs. Bing's integration of Farecast has been providing a much better consumer air search experience – and Microsoft has been using it as a key point of differentiation from Google. ITA integration streamlines that process.

    On the hotel front, Google is already assembling aggregated hotel descriptions on its Places pages – now they will be adding pricing & availability through Adwords to the Maps results, which share a platform with Places. The maps on web search results pages are generated from the Maps platform, so the hotel prices will undoubtedly wind up on the main search results pages as well.

    Search for something generic like “Coffee” or “Bottled Water” on Google and check out the Universal Search results. Google Checkout (including discounts and coupons) as well as multi-vendor listings are already online.

    It seems obvious that both image Adwords and video Adwords will be coming soon to the travel vertical. Mobile Adwords will also be important – especially with physical locations posting Google QR codes to link to their Places & Adwords accounts.

    An ITA acquisition makes perfect sense for Google – they have already gone on record saying that they don't jump aggressively into a specific vertical market hoping for incremental improvement. They target a 10x improvement in the user experience and the ability to monetize the functionality.

    It makes no sense for Google to go transactional – they have no expertise or interest in the non-scalable costs associated with supporting customer care. They learned from the Nexus One experience.

    I agree with Norm – The pure meta-search players like Kayak should be concerned. It's hard to compete with Google's scale, product integration and analytics unless a defensible niche can be established.

    Another interesting question is if Google will decide to disrupt the GDS' as the monetization of search results through Advertising could potentially reduce supplier distribution costs. Even more interesting may be how the suppliers will compete in the Adwords bidding process to drive direct traffic to their sites.

    The OTAs already derive a good portion of their traffic from metasearch, so that theoretically does not change the dynamic. Jake is right – The big change will be the number of people choosing meta-search (on a Google search results page) as the starting point for their travel planning as opposed to an OTA site.

    Since 50% of travel bookers use search engines and 40% of bookers are referred to transactional sites (source: Google/Compete) acquiring ITA helps Google provide more relevant search results and a more efficient path to the transactional site.

    Both Google and ITA share a heritage based on hiring the smartest people and promoting innovation. They look like a good cultural fit.

    Travel is the world's largest industry – it makes sense for Google to play in that sandbox.

    Finally, buying ITA structurally places Google between the travel suppliers and Bing (and Orbitz, and Kayak) which must be worth a couple hundred million premium from a purely emotional perspective…

    Next Tuesday, I am moderating a panel on The Impact of Structured Data on Travel Search at the Open Travel Alliance Advisory Forum in Seattle. The Google/ITA rumor, as well as Facebook embracing RDFa in its Open Graph protocol, will definitely be hot topics.

  • http://www.rockcheetah.com/blog/ RobertKCole

    Great insights as always – I'll take the liberty of adding a few more:

    The big issue is the impact of structured data on travel search.

    Google has been providing specialized air search (DFW LGA May 1 May 4) for years with textual deep hyperlinks to the OTAs. Bing's integration of Farecast has been providing true meta-search and a much better consumer air search experience. Microsoft has also been using it as a key point of differentiation from Google. ITA integration streamlines that process and more than levels the playing field against Bing.

    On the hotel front, Google is already assembling aggregated hotel descriptions on its Places pages – now they will be adding pricing & availability through Adwords to the Maps results, which share a platform with Places. The maps on web search results pages are generated from the Maps platform, so the hotel prices will undoubtedly wind up on the main search results pages as well.

    Search for something generic like “Coffee” or “Bottled Water” on Google and check out the Universal Search results. Google Checkout (including discounts and coupons) as well as multi-vendor listings are already online.

    It seems obvious that both image Adwords and video Adwords will be coming soon to the travel vertical. Mobile Adwords will also be important – especially with physical locations posting Google QR codes to link to their Places & Adwords accounts.

    An ITA acquisition makes perfect sense for Google – they have already gone on record saying that they don't jump aggressively into a specific vertical market hoping for incremental improvement. They target a 10x improvement in the user experience and the ability to monetize the functionality.

    It makes no sense for Google to go transactional – they have no expertise or interest in the non-scalable costs associated with supporting customer care. They learned from the Nexus One experience.

    I agree with Norm – The pure meta-search players like Kayak should be concerned. It's hard to compete with Google's scale, product integration and analytics unless a defensible niche can be established.

    Another interesting question is if Google will decide to disrupt the GDS' as the monetization of search results through Advertising could potentially reduce supplier distribution costs. Even more interesting may be how the suppliers will compete in the Adwords bidding process to drive direct traffic to their sites.

    The OTAs already derive a good portion of their traffic from metasearch, so that theoretically does not change the dynamic. Jake is right – The big change will be the number of people choosing meta-search (on a Google search results page) as the starting point for their travel planning as opposed to an OTA site.

    Since 50% of travel bookers use search engines and 40% of bookers are referred to transactional sites (source: Google/Compete) acquiring ITA helps Google provide more relevant search results and a more efficient path to the transactional site.

    Both Google and ITA share a heritage based on hiring the smartest people and promoting innovation. They look like a good cultural fit.

    Travel is the world's largest industry – it makes sense for Google to play in that sandbox.

    Finally, buying ITA structurally places Google between the travel suppliers and Bing (and Orbitz, and Kayak) which must be worth a couple hundred million premium from a purely emotional perspective…

    Next Tuesday, I am moderating a panel on The Impact of Structured Data on Travel Search at the Open Travel Alliance Advisory Forum in Seattle. The Google/ITA rumor, as well as Facebook embracing RDFa in its Open Graph protocol, will definitely be hot topics.