Google dives into the travel industry with ITA Software acquisition
On 1 July, Google announced that it had signed an agreement to acquire ITA Software in an all cash transaction for US$700 million. ITA Software organizes and searches flight information, such as schedules, seat availability and pricing. It licenses its software to travel industry players, including Orbitz.com, Kayak.com and Microsoft’s search engine, Bing.
The deal is subject to regulatory approval, which could take between six and 12 months. Since Google and ITA Software are not direct competitors, it is highly likely the deal will receive approval. However, Google may be required to allow anyone to license its current software at a fair price to ensure that competitors, such as Microsoft and Kayak.com, continue to have reasonable access.
Company executives were hesitant to outline a clear future path at the time of the announcement because of the pending regulatory approval. However, they did say that the company intends to improve users’ search experience and innovate in the travel space with this acquisition.
Filling a large gap to stay competitive
Google is the dominant search engine in the US, accounting for 64.4% of on-line searches in April 2010 according to comScore. Yahoo! and Bing (Microsoft’s search engine launched in June 2009) trailed with market shares of 17.7% and 11.8% respectively. However, both of these search engines have robust travel websites.
According to Experian Hitwise, Yahoo! Travel ranked fifth in the number of visits to travel agency websites behind the four major on-line travel agents, demonstrating its popularity.
Acquiring ITA Software will allow Google to build its own Google Travel website with innovations that may lure users away from Yahoo! Travel and Bing Travel. Given Google’s commanding lead in search, this may be a minor shift at best.
However, Google Travel could stem user defections and will certainly keep Google competitive with Yahoo! and Bing. Google Travel would likely encompass several pages for booking, reviews, and destination guides. A full build-out will give the company more opportunities to sell advertising—likely the main driver behind the acquisition.
Additionally, a travel element is necessary for Google to be a leader in the mobile space, which is the next frontier for travel bookings and advertising. This is especially important given the rumours of a possible Itravel application with booking capability on Apple’s Iphone.
Expanding travel search offerings
Although many analysts speculate that Google will work with ITA Software to expand its travel offerings beyond just flights, Google would not confirm this during the announcement.
It is almost certain that Google will expand its offerings into hotels, car rental, tourist attractions and packages to compete with other search engines and meet consumer demand for a one-stop shop for their travel needs. It appears that ITA Software may already have the capability to do this with its Needle platform, which is in beta-testing.
Needle aggregates and organizes information published on the web. One of its case studies involved aggregating over 60,000 festivals and events in the US from a variety of on-line sources into a searchable platform. This could be the first step in the expansion into offering price comparisons for other types of travel products.
Meta-search engines need to worry…
Google is expected to build what is a meta-search engine—running price comparisons for the user and then directing them to another website to conduct the booking. This will be a major threat to meta-search engines.
With such a high share of searches, Google could easily drive traffic to its Google Travel meta-search engine by linking to it on its home page in the upper left hand corner or displaying a booking entry first in its search results for a travel query (similar to what currently exists).
The easy access, coupled with yet-to-be-seen innovations, could render existing meta-search engines obsolete. To compete, they’ll have to invest in offline advertising to drive traffic directly to their websites and retain customer loyalty as well as lead in innovation.
Kayak.com, a popular meta-search engine, is currently running a significant advertising campaign with the tagline, “Search One and Done,” with the first television advertisements running in November 2009 in the US. It also just launched the Explore function in June 2010, which shows flight prices from a user’s origin airport on a map and allows the user to choose metrics to help select a travel destination.
….but OTAs may benefit from better traffic
In its announcement, executives from Google assured the public that it had no intention of selling travel products directly. This is likely to remain true. Travel retail is a complicated business often with tense relationships between direct suppliers and intermediaries.
Furthermore, on-line travel agencies have invested heavily in their brands, loyalty programmes, customer service and consumer and supplier relationships over years. It would take significant resources to replicate these initiatives, which are well outside of Google’s core business model.
As a result, on-line travel agencies are not likely to see a new competitor merge from the acquisition. In all likelihood, Google will look to combine its existing tools, such as Google Maps and YouTube, with ITA Software’s platforms to build the best meta-search engine and look to sell better, more specific advertising spaces to on-line travel agencies and other industry players.
On-line travel agencies may benefit from better traffic leads generated by Google’s travel website and get higher conversion rates. However, this may come at a higher price.
In 2009, 53% of Google’s revenues came from outside of the US. With a solid travel portal and existing in-country infrastructure, it is likely to launch country-specific versions of its travel website. However, it will face a dilemma on whether to acquire other meta-search engines or to customise its own website.
For example, Kayak.com, which is present in 10 countries, acquired the meta-search engine swoodoo.com in Germany in May 2010 and tries to acquire where possible.
It is now rumoured that Microsoft is trying to decide which approach to take and, as a result, the international launch of Bing Travel has been delayed indefinitely. It is likely to be a couple of years before Google is ready for an international launch and by that time, acquisition opportunities may be few.
Regardless of how Google launches its travel tool internationally, there are certainly a lot of opportunities – both on-line and mobile – to refer traffic to direct suppliers and on-line travel agencies, especially in Western Europe and Asia Pacific.
More Travel and Tourism Industry Research from Euromonitor International