Home > Flight Search, Travel > Why Google needs to build a vertical experience in Travel and also acquire ITA

Why Google needs to build a vertical experience in Travel and also acquire ITA

Bill Gurley’s post “Google Acquires ITA: Will Deeper Vertical Integration Lead to Higher Revenues?” got me thinking about Google’s intentions.

Bill thinks that Google may lose revenue and makes his case by saying that:

1)      CPC pricing on Google is Irrational today because market places with less sophisticated customers leads to an edge for the market which is Google.

2)      Moving from a marketing channel to a transactional channel will lead to loss of revenue as the customers will stop paying for life time value and demand paying for current transaction value.

Both of these arguments hold for highly competitive markets with some less sophisticated customers where Google plays arbitrator. Secondly the vertical also needs to be an area where users come to Google first instead of going directly to a vertical site like Amazon.

The problem is that both those conditions don’t hold true for travel.

  • Kayak, Orbitz, and Travelocity market directly to the end customer on TV and drive traffic to their sites, which could be leading to a drop in the overall volume of travel queries.
  • Travel sites might also be realizing that a larger share of their customers are coming directly to their site and reducing adwords purchase budgets.
  • Finally, I would expect companies like Kayak and Orbitz to be sophisticated in paying for customer acquisition costs.

So Google needs to figure out a way to regain mind share in travel to grow revenues in this vertical. And the only way to do that is to provide a compelling flight search and comparison tool themselves. That is where the ITA acquisition comes into play.

The ITA acquisition will provide Google with 2 sets of data for free:

1)      Historical data to predict price changes which Microsoft has access to with the acquisition of Farecast. This will allow Google to provide strong recommendation to customers on when to buy their ticket.

2)      Free access to fare prices for all future dates to give recommendation to customers on when to travel. Usually when you search on Travelocity, you need to search one date at a time. If you look at the flexible date calendar for the next month, there are a lot of dates for which no fare is shown. Sites leave dates blank because they use only previous searches to fill out this calendar. If no one has previously searched for a date they will not have the price for that date. I assume they do this because the cost to search for ITA fares for 30 days is much more than the margin they make by selling a ticket. If Google own ITA they do not have to worry about that. And this information superiority will enable them to provide a better solution for their customers.

Finally Bing is investing in travel because it provides them a beach head to gain market share in search. And Google needs to make sure that Microsoft does not gain a foothold in any vertical that will eventually help them gain search market share.

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  • dhiren patel

    great post….

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