Thursday, October 28, 2010

Google Stirs Up Travel Distribution Market

Google’s deal to acquire ITA Software for $700 million creates the potential for the search engine giant to shake up airline travel distribution, although Google has not detailed its plans. That leaves airlines, online travel agencies and other players to wonder whether this should be viewed as an opportunity, a source of angst or both.

“Speculation and even paranoia abound as travel companies grapple with the implications of the convergence,” says PhoCusWright, which studies how consumers buy travel. Part of the reason for that concern, PhoCusWright Research Director Carroll Rheem says, is just that Google is so big and influential.

ITA is key in the air travel distribution world, having created some groundbreaking flight, fare and seat-availability search capabilities and with a client list that includes many of the major U.S. carriers, Virgin Atlantic, online travel agencies Hotwire and Orbitz, “meta-search” aggregator Kayak, Trip Advisor and Microsoft’s Bing search engine. Some industry observers question whether an ITA client such as Kayak will want to continue using a product owned by a competitor. But Google Chairman/CEO Eric Schmidt emphasizes that Google plans to “honor all existing agreements [with ITA] and add many new partners.”

Schmidt also says Google plans to use ITA only to create flight search capabilities, providing results that would direct users to airline websites or online travel agencies (OTAs) to make the booking. Google does not plan to have its own booking engine.

“We think we can drive even more business to airlines and online travel agencies, and, as a result, we think this will also benefit Google’s overall search capability,” boosting its users and usage, he says.

Schmidt also adds some uncertainty on the matter, however, by vowing that the flight search capability Google offers will be different than anything currently seen, including Kayak’s aggregate results from multiple airline and OTA sites. “Part of the goal of the merger is in fact to do something quite different than what is available today,” Schmidt says.

What that would be is not clear. Google is not yet providing much insight into where it believes it is heading, other than one example it provided in which a user could query, “Where can I get within seven hours and with this price?”

Google’s Marissa Mayer, vice president of search products and user experience, describes that as one of the “innovative” possibilities, but it actually is not new. Late last year Lufthansa debuted a new Amadeus flight shopping tool, Affinity Shopper, that lets potential customers search for flights with criteria such as price, type of trip and region or country. Kayak offers a similar feature that also includes criteria such as average temperature and languages spoken.

Google, however, could catch consumers very early in the travel-buying process—or even before they are thinking of buying, if, for example, a search query or g-mail message indicates interest in a particular country or destination. Its travel search tool is likely to be integrated into its search engine, not confined to a separate tab or page, Rheem says.

While Google is not providing much detail on its direction, the acquisition—which will be reviewed by antitrust regulators before it can be completed—has the travel distribution community buzzing about the potential impact.

One risk for airlines is that their websites will be hit with more searches that do not result in bookings, as Googlebot crawls their sites in response to queries. With Google’s global reach, that could be a lot, notes Henry Harteveldt, vice president and principal analyst for Forrester Research. That global reach, however, also presents another opportunity for airlines to grab more customers, adds Harteveldt.

Airlines are also concerned that Google might aim to make money off the searches, beyond the standard industry model of the seller paying “per click” or “per acquisition” for consumers who come to their site via a Google search.

For now, Schmidt says only that the “economic structure” is something “we’ll sort out later.” That vagueness worries sellers, Rheem says, because the more relevant Google search becomes and the more reliant consumers become on it, the more power Google will have over advertisers, since it also sells ads based on search keywords.

Rheem says Google’s entry into the travel market is not likely to alter the competition between airlines and OTAs for bookings because Google is known for search result neutrality. But Harteveldt says that within minutes of the Google-ITA announcement, he heard from travel industry marketing and distribution professionals concerned about how Google would present airlines and OTAs when a user makes a flight query.

On its general search page, Google sells keyword-triggered ads that separately list sponsored links in the search results. The big OTAs have more money to spend on marketing than individual airlines, so they could have an advantage, Harteveldt says.

But there are also are potential opportunities for airlines, he adds. That is because Google’s new flight search tools—which presumably will include flight dates and other criteria—could give them better insight into the intent of consumers and help them more effectively target their keyword-related marketing dollars.

For example, he says, an airfare search for travel within the next three days may indicate either a business trip or last-minute vacation, and a travel seller can choose to bid more for related keywords if those types of trips suit its strategy.

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