Google has signed an agreement to acquire travel reservations software company ITA. The purchase price is reportedly about $700 million. We speculated about this and the likely travel industry and potential regulatory fallout earlier this week.
Google put up a site to explain and promote the deal. Indeed, Google knows it’s girding for a fight and is about to do a conference call with CEO Eric Schmidt, ITA’s CEO and Marissa Mayer. In addition Google PR just issued the following statement:
I wanted to let you know that Google has just announced that we have signed an agreement to acquire ITA Software, a Cambridge, Massachusetts flight information software company. Once we’ve completed our acquisition of ITA, we’ll work on creating new flight search tools that will make it easier for consumers to search for flights, compare flight options and prices — and get consumers quickly to a site where they can buy a ticket.
Though 49% of travelers purchase travel online, it is still time consuming and slow to search for travel options online. This deal will benefit passengers, airlines and online travel agencies by making it easier for users to comparison shop for flights and airfares online, and by driving more potential customers to airlines’ and online travel agencies’ websites.
Google won’t be setting airfare prices and has no plans to sell airline tickets to consumers. Our goal is to build tools that drive more traffic to airline and online travel agency sites where customers can purchase tickets.
Because Google doesn’t currently compete against ITA Software, the deal will not change existing market shares. We are looking forward to working with ITA’s current and future customers, and we will honor all existing agreements
ITA is behind the reservations systems for many major airlines around the world, as well as travel sites such as Kayak, Orbitz, Hotwire and many others. Bing Travel also relies on the software. Google, if allowed to complete the acquisition, would thus own the “infrastructure” behind its direct competitor’s travel product.
Thoughts and comments from the conference call:
Eric Schmidt and Marissa Mayer argued that deep integration with ITA software was necessary to create the kind of consumer travel products that Google wants to create. That was offered in response to a question asking why didn’t Google simply license ITA data and software as others do.
Google says it wants to “solve end user problems” around travel search and create new types of experiences that will “look different” from what exists today. Google was vague, however, about what sorts of products, user experiences or monetization would emerge from the acquisition, if approved.
Schmidt expressed confidence that it would ultimately be approved by regulators, although he didn’t want to speculate about the time frame. Schmidt said, “We expect this will go through the regulators. We’re pretty comfortable that this is pro competitive and pro consumer.”
A question about a potential “kill fee” if the deal doesn’t go through was deflected.
I think this will be aggressively opposed by those that see themselves as competitors of a Google travel search offering and potentially some of the airlines — although Google says it wants to drive more traffic to airlines. If provided with assurances, as I’m certain is going on, Google may secure airline support or at least neutrality.
It very much sounds like travel destination sites, aggregators and meta-search travel sites would be in a position to lose if Google is able to integrate ITA. However ITA only focuses on airlines and not hotels or rental cars. That could help Google argue that it won’t dominate online travel as a whole.
Schmidt reiterated that about 50% of airline tickets are sold online. That fact and ITA’s footprint will make this a tougher sell, in my mind, to regulators than even AdMob. There is no Apple iAd travel equivalent that I’m aware of here. (See postscript below, however.)
Though only one European company, Alitalia, appears to use ITA software some of the US companies using it operate in Europe. Google may thus face an even tougher fight there than in the US.
Postscript: I spoke with Google briefly and several points were made to me:
- ITA revenues in Europe are not large enough to justify European involvement. They don’t need to formally approve it. That’s a major headache for Google apparently gone.
- There are numerous examples of major sites buying segment or market leaders and being approved; eBay and PayPal is one of several examples.
- Google doesn’t have a travel offering to speak of and so, unlike AdMob, it’s not a “horizontal merger.”
The Europe “exemption” is a major point. And from a technical-legal standpoint Google may be on solid ground. But I still expect that there will be lots of scrutiny (likely from the Justice Department rather than the FTC) and vocal opposition from vested interests and competitors.
Yes, there are lots of ways in which Google can probably improve the travel experience but there’s a growing sense that the company doesn’t need to be in every business where there are consumer problems to solve.
Postscript 2: Gary Price has complied lots of great information and stats about ITA on ResourceShelf.