Why Google’s move poses a serious threat to travel intermediaries?
Tuesday 6, July 2010
Google has stated that it won’t be setting airfare prices and has no plans to sell airline tickets to consumers as the company chose to acquire ITA Software.
But Greenlight, an independent specialist SEO and PPC consulting and technology firm, says “travel intermediaries should be very concerned as Google moves towards becoming central to consumers’ travel purchasing behaviour”.
“It is only a little over seven months ago since Google made a similar move with property intermediaries,” Andreas Pouros, chief operating officer at Greenlight.
Last week, search giant Google signed a definitive agreement to acquire ITA Software, a Cambridge, Massachusetts flight information software company, for $700 million, subject to adjustments. The deal will allow Google to pursue the creation of new flight search tools that will enable users to find better flight information more easily on the Internet.
Eric Schmidt, chairman and CEO of Google, stated that ITA’s technology opens new possibilities for the company to “create new ways for users to more easily find flight information online”.
In his analysis, Pouros added:
In its early years the Internet was heralded as the great disintermediator – removing the need for middle-men across the entire spectrum of commercial affairs, and allowing manufacturers and suppliers to have direct interaction with their customer bases – present and future. This was Phase 1. It was rapid. There was a dramatic increase in market transparency that allowed people to see prices and products from multiple suppliers, allowing them to price compare, become more discerning consumers and buy direct from the producer/supplier of the product/service. The Internet however grew to a size that meant the consumer wasn’t getting the maximum market transparency that was possible; with thousands of sites selling a product/service, how could someone determine whether they were getting the best price?
This ushered in Phase 2, new companies with innovative technologies entering the fray to provide a new level of market transparency. Sites like Travelsupermarket and Kayak, aggregating data, and essentially reintermediating the supply chain. During this time search engines have become increasingly central to the consumer’s online experience, with most consumer Internet sessions beginning at one of the three major search engines.
If the likes of Travelsupermarket have good technologies, the likes of Google have incredible technologies, allowing them to usher in what appears to be Phase 3 in this history of intermediation. Being so central to people’s online experiences and having so much great technology (and money) has allowed Google to become the ultimate informational intermediary, essentially reintermediating an already reintermediated supply chain!
Travel intermediaries should be very concerned, as Google moves towards becoming central to consumers’ travel purchasing behaviour. All Phase 2 intermediaries should now be rethinking their business models in light of this move and at the very least determining how they should operate in the next few years.
According to sftgate.com, analysts at JP Morgan estimate that “around 10 percent of Google’s search revenue comes from the travel revenue”.
According to wsj.com, online travel agencies “are big, big advertisers and generate 8-10 percent of Google’s gross revenue world-wide” as per the estimate of Goldman Sachs analysts. Google might also want to avoid getting into the business of selling tickets “given the company’s struggling track record as a merchant” with its Nexus One phone and Google Checkout, Jefferies & Company analyst Youssef Squali points out. The report further added: Plus, it’s important to remember that ITA deals only with airlines, not hotels, rental cars and the like. For Priceline and Expedia, airline revenue is just a small portion of the business — 5-10 percent and 10-12 percent respectively, according to Michael Olson at PiperJaffray. Orbitz, however, could face more problems; it gets about 40 percent of its revenue from airline ticketing, Olson writes.
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