Google and ITA: deal confirmed, BOOT was right, read what the pundits think

While I was minding my business on a work trip in Taiwan, teams of Google lawyers were dotting i's, crossing t's, cutting cheques and making rich people of out of the founders of flight search software company ITA. Overnight Tnooz carried the story that the deal was done for $700mm. This makes it Google's fourth largest acquisition (behind Admob, Youtube and DoubleClick). At risks of self indulgence, the BOOT first broke the rumour that Google was planning a push into travel meta-search.

With the deal done it is time for the pundits to pontificate analyse. Kevin May at Tnooz central has quickly collected the thoughts and analysis of five (and counting) Tnooz nodes/pundits including me. You can catch all of our thoughts and feelings on this deal over here.

Here is what I had to say at Tnooz

In my view the Google/ITA deal is a response to two challenges Google is facing in search generally and travel search in particular

1. Search is no longer the number one activity online. Social networking is. Part of this is the rise of networking but part of it is that search continues to operate in an environment where one site has the answer. Where you type in a search term and Google points you to the one site with the answer. Search queries are becoming more complex and more open ended. The answer to an open ended search query is unlikely to be found on one site. Google knows this is especially true for travel. It knows that it risks losing travel open ended travel search queries to social networks and meta-search. China is a great example of this trend with social networking planning a greater and greater role in travel search and discovery activity. Google knows they need a means for showing multi-site answers to search queries; and
2. Meta-search is building loyalty. In the early days of meta-search, the business model was almost pure traffic arbitrage (I discussed this back in 2007). Meta companies bought traffic off Google for one price and sold it to suppliers and OTAs for another. Meta-search profitability was determined by their ability to buy clicks from Google cheaper than they could be sold back to OTAs and suppliers. But in the last year or so meta-search has started to built loyalty and alternative marketing channels. To generate direct brand traffic and affiliate partner referrals in particular. I have heard reports from a number of meta's of dramatic increases in customer loyalty and direct traffic. Kayak themselves spoke of this phenomenon to me as early as 2008 just after the sidestep deal. To combat meta's growing loyalty Google clearly felt the pressure to bring pricing and the details of offers one step closer in search results

While the deal may help Google solve these two challenges - in presents Google with two new challenges

1. Competing with customers: Meta and other travel search companies spend a lot of money with Google. So too the suppliers and OTAs. There will be a fear and concern here from all of these Google cheque writers the Google might be planning to go direct and cut out more and more of the intermediary market; and
2. Execution and retention: Travel search technology is very very complicated. This is proved by Google's decision to buy rather than build. But each time a company makes a buy vs build decision they open themselves to the challenge of retention and execution within the acquired company. Once you have made very rich people at the core of the asset that you have bought - you need to work very hard to either keep them engaged or train up your old organisation to know everything there is to know about the new one.

More analysis and commentary over at Tnooz.

[reminder my views are mine alone and not the views of Orbitz or HotelClub]