Summary
Last week, Google announced its acquisition of ITA, a Boston-based technology firm devoted to the development of technology to assist with the search and purchase of airline tickets. They reported a price tag of $700 million in cash.
I originally wrote about this transaction on April 23rd, in an article titled Travel Game Changer - What does Google's potential acquisition of ITA mean?
Analysis
The interesting thing about this transaction is that it is clearly targeted at expanding Google's influence in the travel industry, yet it includes a company that has invested primarily in technology to serve the air traveler, which only represents 15% of total overnight trips in the US (per the U.S. Travel Association).
It is curious that with the deep pockets of Google and its strong mapping and local content base, that it wouldn't instead focus its acquisition dollars in the travel industry on products or services to help expand its reach to the 85% of overnight travelers that drive instead of fly. As covered in my recent white paper, Dare to Differentiate, Google is not alone in missing the potential power of this underserved market segment.
There is of course a method to Google's madness. The air travel search market is still lucrative and the business model for aggregation of multiple sources of availability (known as meta search) has a nearly identical model to the basic search engine model followed by Google, Yahoo, Bing and others - payment based on click through to the source data. It allows Google to leverage its nearly 72% share of search transactions (per Experian Hitwise) and to be the arbiter of the transactions, versus companies like Kayak and Hotwire.
In May based on data from Compete.com, Kayak had 4.7 million unique visitors, up 10.59% from April, but down 29.65% year over year. In May, Expedia's Hotwire had 5.9 million visitors, up 8.7% from April, but down 17.7% year over year. Both companies' traffic has been trending very similarly over the past 12 months.
The challenge that Google will face is that with price-oriented shoppers, both Kayak and Hotwire are well established brand and consumers are used to searching for them by name, even within Google.
So if all Google were intending to do with ITA was to create a new super-metasearch capability, they would be navigating in that "bloody red ocean of rivals fighting over a shrinking profit pool", to quote W. Chan Kim and Renee Mauborgne's Blue Ocean Strategy.
I for one believe that they are not trying to compete with rival players in the travel industry, but instead trying to make them irrelevant. My money is on the combination of the obvious air search capabilities, with ITA's Needlebase technology mentioned in my earlier report.
Now if they will just shift their focus from the small niche of the travel market made up by those that travel by air, to the true mass market, the drive traveler, they may just have a blue ocean in the making.
