Monday, 12 July 2010


On July 1st, Google took over ITA, a leading flight information software company, which provides services to airlines, meta-search engines and online travel agents alike. Kayak and Expedia were among the firms competing to acquire the company, but ITA executives were already deep in discussions with Google, who in the end closed the deal. The question that is on everyone's lips is what will this acquisition mean for the Travel Industry, its suppliers, distribution partners and consumers overall?

We have a few thoughts (and speculations) on the matter and thought we'd share.

First off, let us say this - who knows what Google has in store. With ITA under their control there are a number of possible scenarios and ways in which Google can play this. Unfortunately for the upper echelons of the travel industry many of these options look more like nightmares than opportunities.

So what are the conceivable possibilities?

Direct Competition

Since ITA is currently only specialised in airline tickets and information, it is not clear whether Google's acquisition will pose a threat to the wider travel sector including the GDSs (Global Distribution Systems). However, let's play Devil's Advocate for a minute. Airlines' usage and booking fees have traditionally represented the biggest chunk of revenues for the GDSs, so could this revenue stream be the reason why Google has acquired ITA? Do they have a long term strategy to provide similar services to airlines, hotels and other hospitality and travel products providers, despite their statement to the contrary?

The distribution of travel and ticketing information and the sales of the same is a multi-billion pound industry for the GDSs, meta-search engines, and the OTAs. The GDS reservations systems alone connects more than 600,000 travel agents and allows searching and booking of airline tickets, hotel rooms, car rentals, cruises and other travel products and services in one place. With ITA now owned and controlled by Google, Google is in a position to leapfrog ITA's current offering and develop this further by adding other products and services.

Google would thereby stand to put some real pressure on the travel industry suppliers, who are understandably worried how Google might use this power. That, of course, would mean a potentially awesome challenge for several verticals including the GDSs, OTAs, TMCs (Travel Management Companies) as Google with its seemingly endless resources, both financially and in terms of their intellectual capital, has the potential not only to steal market share, but could even jeopardize the very existence of some of these players.

If we leave the possibility of Google going into direct competition with the Travel sector for a minute, there are other ways Google could play this acquisition that could indirectly damage and change the industry.

Indirect Competition

You might recall that Google experimentally added hotel pricing information to the search results on Google Maps a while back (check out the article about it here). This move created a great deal of excitement and for many OTAs (online travel agents) the would-be hotel pricing information service hit dangerously close to home. More specifically, this information service would direct bookings straight to hotels, and hence detract attention and potentially also bookings from intermediaries. Also, many OTAs are used as search portals themselves, which would then also be under potential threat.

Furthermore, a would-be ripple effect of this hotel pricing search service could be that hoteliers would be encouraged to take the online sales channel more seriously and further their investments and thereby increase their independence from other indirect channels - further damaging the intermediaries control and market share.

Along the same lines of thought, the acquisition of ITA could signal that Google wishes to take another step onto the travel search and information display stage, by incorporating airline rate displays into the search results and encourage a more direct approach.

More dramatically, this move would impact not only the travel sector in the form of competition, but could also potentially change the way consumers search and purchase travel products online. By integrating search and pricing into one, consumers are encouraged to book their travel then and there, possibly merging search and booking. Rather than what is happening now, where consumers make the additional step of going to an intermediary to review prices and make their booking.

Any such move would arguably benefit consumers, hotels, and airlines by allowing a more direct approach, which costs less both in terms of time and money. As was highlighted by Google's in the press release; "Google's acquisition of ITA Software will create a new, easier way for users to find better flight information online, which should encourage more users to make their flight purchases online."

So whichever way Google plays it, according to the two scenarios above, they stand to become a dominant player in the travel market with control over travel information as well as general search and business information on the web - and that is the worry of many watching this from the sidelines. Google continues to grow in importance and dominance and seems to be an unstoppable force seemingly intrinsically linked with this decade's progress. So where does that leave us?

To consumers and the hospitality and travel industries (the actual providers of the products and services) Google's move may come with several important benefits. It does however come with the price of increased reliance and dependency on Google, their technology and their seemingly relentless company strength. There is always a bit of worry when one company holds so much power in one or several marketplaces regardless of who they are.

As with all such acquisitions, it will take time to see how this will shape the industry, what Google will do with its newly acquired travel information power, and to what extend Google will get involved and alter the current search and travel booking process or ITA's business model. That said, the speed and ease with which change is adopted within the search markets coupled with consumers' willingness to adopt changes in their consumption habits, the impact can make itself known faster than we might think.

If we look from an outsider's perspective, Google is likely to use ITA's expertise and relationships within the travel industry and create a new search experience, which may be more compelling, convenient and wider ranging than anyone ever imagined. And, if we revert to the principals of cold market economics, those who cannot stand the test of time or take on the heat of competition should get out of the proverbial kitchen.

By purchasing ITA, Google will with no doubt increase the role it plays within the travel sector. Also, by experimenting with real-time and dynamic rates in the search results Google may attempt to become a singular doorway to all and any travel searches online. How they will achieve this is still unknown - in fact little is known about what Google has in store and how it is planning to imbed ITA and their products and experience to strengthen Google's place in travel sector. One thing is clear however: the online travel industry is evolving and Google is doing what it can to innovate and create opportunities in this and other industries where it sees an opportunity.

As the old adage goes; change is inevitable and resistance to it may be futile. However, one way to counter the powerhouse that is Google has become is to encourage other companies to get into the innovation game and not leave all the work to search giant.

To download or print a PDF of this article click here

No comments: