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?