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Posted by Henry Harteveldt on July 2, 2010
In a move that had been speculated about since April, on July 1 Google announced it had entered into an agreement to buy Cambridge, MA-based ITA Software for $700 million — thus launching its own round of business fireworks ahead of the US July 4 holiday.
As an analyst, I believe this deal makes sense because:
Beyond the financial aspects of the deal, I believe that ITA will benefit from this acquisition in several ways — and will also need to prepare for change. Just remember, ITA didn't need to sell — Google needed to buy. Now 14 years old, ITA is a solid organization, with strong leadership and an impressive, creative approach to using technology to solve complex business problems. ITA has raised more than $100 million from investors, and has money in the bank. ITA counts some of the largest names in the travel industry as its clients. As I commented to Tnooz, there are only so many thoroughbred ponies, and Google got one of the best in ITA. Thus far, though, ITA has chosen to focus solely on airfare search. Jeremy Wertheimer, ITA’s president and CEO, said on the July 1 call announcing this deal that doing airfare searches has been “enough” for ITA. Understandable: focus has its benefits. But what’s been enough for ITA thus far may not necessarily be enough for Google in the future — especially when Google shelled out $700 million. Already testing hotel price search, Google could invest both human capital and technology to spur ITA onto developing the equivalent of a QPX product for hotels — and beyond that to other parts of the travel industry, like rental cars and cruise lines.
The Google-ITA deal simultaneously offers ITA’s clients, especially airlines and travel agencies, a major benefit while also causing concern.
Google’s proposed acquisition isn’t guaranteed. It’s subject to government anti-trust review. I’m neither a lawyer nor someone who makes a practice of trying to second-guess Washington, DC. Google stated that ITA will honor all existing contracts, but I wouldn’t be surprised if they will be required to commit to making ITA’s products available to all who want to continue licensing it, and at commercially acceptable rates (read: no price gouging, and no saying no to Bing Travel if they want to continue using ITA to power Farecast). It helps Google that companies like Amadeus offers its Metapricer fare search tool. It’s also possible that Expedia could choose to license its Best Fare Search technology to third parties. And, of course, Google-ITA will have to present the Websites of qualified airlines and OTAs in a flight’s organic search results without charge.
What do you think of Google-ITA (hmmm…“Googleita”…)? Did I miss anything? How much impact do you believe this will have on the online travel industry? Will it spur additional M&A? I’d enjoy hearing your thoughts.
Thanks, as always, for your time.