Where's Google Going With Big Travel Purchase?
Page 1 of 1
In a broad sense, Google's $700 million cash purchase of ITA Software, announced Thursday, fits with the search giant's long-held goal of organizing the world's information. Consumers may not be familiar with ITA Software, but the company's software for organizing flight information is used by major airlines and flight services like Expedia and Hotwire as well as search engines like Microsoft's (NASDAQ: MSFT) Bing. The Cambridge, Mass. company was founded by computer scientists from MIT.
In making the announcement, Google (NASDAQ: GOOG) said it will honor ITA's distribution agreements, including sales to competitor Bing. "Google will honor all existing agreements, and we're also enthusiastic about adding new partners," the company said in a statement.
But given its preeminent position in search, Google's addition of such a dominant supplier as ITA is sure to bring regulatory scrutiny to the deal and protest from competitors.
"All of these companies, ITA's customers, we're reasonably happy dealing with this quiet startup in Cambridge, but seeing a major segment of the online economy go to Google, that's another story," IDC analyst Hadley Reynolds told InternetNews.com. "Their only choice is to try and build the same assets themselves or go to an inferior supplier, so you can expect to hear protests."
Google said it expects the deal to be reviewed by regulators though it thinks it'll get a pass in Europe because ITA Software generates very little revenue there.
"We think this combination will benefit travelers as well as those seeking their business, but closer scrutiny has been one consequence of our success, and on that basis we wouldn't be surprised if there were regulatory review before the deal closes," the company said in an FAQ announcing the deal.
Marissa Mayer, vice president of search products and user experience at Google, said the company made the purchase because it thinks there's room for competition and innovation in online travel.
"Google has already come up with new ways to organize hard-to-find information like images, newspaper archives, scholarly papers, books and geographic data," she said in a blog post. "Once we've completed our acquisition of ITA, we'll work on creating new flight search tools that will make it easier for you to search for flights, compare flight options and prices and get you quickly to a site where you can buy your ticket"
IDC's Reynolds said he expects the Federal Trade Commission to "really give Google a hard time and a rigorous examination" of the acquisition. "But I was very surprised the FTC approved Google's AdMob buy, so whether they would actually disapprove ITA is something I can't predict. What I am sure of is that Google's competitors will lobby hard against the deal."
Google assurances aside, Reynolds said companies like Microsoft aren't going to feel comfortable buying services from Google and smaller travel aggregators like Kayak have to be concerned about any changes Google might make to ITA's services.
Reynolds said the ITA purchase is another indication that Google wants to make its home page a starting point for Web surfers similar to the stated aim of competitors like Yahoo (NASDAQ: YHOO). PhocusWright analyst Caroll Rheem agreed it's inevitable Google will look to tap ITA for improving its own search offering.
"While Google claims not to be building a new metasearch tool, comprehensive price aggregation across sites is inevitable. To not introduce it would be a pretty big waste of $700 million," Rheem said in a blog post.