Martin Cowen considers the implications of a rumoured tie-up between the search giant and travel technology company ITA
Opinion: What would Google do with ITA Software?
Martin Cowen considers the implications of a rumoured tie-up between the search giant and airline-focused tech firm ITA
If Travolution was to launch a nightclub, it would be called Rumours, and the bar would be sponsored by Troogle.
Reports from the US are suggesting that the search giant is in talks with ITA Software over a possible buy-out, with Google rumoured to be prepared to pay up to one billion dollars.
The idea of Google getting higher up the travel purchase funnel and making money directly from transactions has been an intriguing/frightening prospect for the online travel sector, journalists included. Google has constantly denied any involvement in the sector beyond search.
My favourite response was the Google exec who said something to the effect of “We sell a lot of key words to the automotive industry but that doesn’t mean we are going to start manufacturing cars”.
As for Google/ITA, a few points that might be worth considering:
ITA has very little if any presence outside the US. A release from ITA this February announced an extension of a deal with Alitalia and named TAP Portugal and LOT Polish as its only other European customers, although ITA does have a European office, based in Amsterdam.
Google Q1s released last week said that revenues from outside the US were 53% of the total. Would Google pay a billion dollars for a business which effectively only serves less than half its market, or would a US airline-focused technology business give Google additional strength domestically?
Could Google grow ITA Software into a global technology business? How scalable, at this point in its development cycle, are ITA’s tools? Would Bing be trampled underfoot?
Airlines are incredibly difficult for intermediaries to make money from. If Google was really looking at making some money out of the travel industry, surely it would be looking at hotels.
The hotel pricing initiative which beta-launched a few weeks ago is more in keeping with what Google is about, which let’s face it is about making money from search. A lead for a hotel booking should be worth a lot more than the lead for a seat.
What would the business model be? How interested is Google in generating “IT provider” revenues? How much does ITA earn from its relationships with Kayak, Orbitz and fly.com?
Again – follow the money – Google’s Q1s last week talked about an operating margin of 36.7%. Most travel execs get a nosebleed if their margins reach double figures. Why on earth would Google spend all that cash to get into a business where margins are so low?
Having said all this, travel will remain a key vertical for Google. It has a huge warchest, and some of that could easily be spent on something to do with travel. But whether or not a billion dollars of that will be spent of a US-focused airline IT provider remains to be seen.
