Google to buy travel firm
2010-07-02 21:08
San Francisco - Google Inc plans to buy travel technology company ITA Software Inc in a $700m deal that would enable the internet search leader to steer more of the airline reservations booked on the web.
The all-cash acquisition announced on Thursday signals Google's intention to challenge flight-comparison services that are ITA customers, including Kayak, FareCompare, Hotwire and Microsoft Corp's Bing Travel. The deal is likely to face a rigorous review by federal antitrust regulators.
"There is clearly more room for competition and innovation" in online travel, Google CEO Eric Schmidt said in a conference call. "We will improve the way flight information is organised."
ITA Software, a 500-employee company created in 1996 by computer scientists at the Massachusetts Institute of Technology, sells technology that helps run the reservation systems of many airlines, including American, Southwest, Alaska and Continental. Its software also powers the tools that other travel websites use to track airfares.
The widespread reliance on ITA's technology means federal regulators are likely to spend six months to a year trying to determine whether the acquisition will give Google an unfair advantage in the rapidly growing online travel market, said Ted Henneberry, an antitrust lawyer in Washington for Orrick, Herrington & Sutcliffe.
Pro-competitive
"This is going to raise a lot of eyebrows," he said.
Schmidt declined to predict when the deal might close, but said he expected Google would ultimately win approval after regulators take a "fair amount" of time to review the deal.
"We are pretty confident that this is pro-competitive and pro-consumer," Schmidt said.
He declined to say how much Google will have to pay if the proposed purchase is blocked by regulators. Both the Federal Trade Commission and US Justice Department declined to comment on Thursday.
Online travel industry analyst Henry Harteveldt predicted the acquisition will be cleared because ITA Software isn't a direct competitor to Google.
If it clears the antitrust hurdle, Google will be picking up expertise that will help improve the quality of its search results in one of electronic commerce's biggest markets. Consumers and small-business travellers in the US will spend about $45bn on airline tickets booked online this year, and that figure is expected to rise to $59bn by 2014, Harteveldt said.
And with thousands of engineers at its disposal, Google conceivably could build upon ITA's success in the airline industry to expand into hotel, rental car and cruise reservations.
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Google is counting on ITA's expertise to improve the quality of its search results when people are looking to make airline reservations.
Schmidt predicted the biggest winners in this deal would be consumers, but he also predicted Google would be able to drive more traffic to airlines and travel agencies such as Orbitz and Expedia. Google would profit from ITA's technology by selling more ads alongside the flight data.
Bing has been picking up more traffic with features that help people figure out whether the prices of airline tickets are likely to increase or decrease. Like other search engines specializing in travel, Bing checks multiple sites at once for the best deals and sends users to those sites to book there.
Travel websites generally earn fees for sending traffic to flight booking sites, but Google appears more interested in improving its travel search service so that it can retain users and sell more ads.
"That's the allure for them," said Gary Reback, an antitrust attorney who has been trying to convince regulators that Google has been abusing its power. "They want to control all that traffic" that has been going to the specialty travel sites.
Google intends to honour all of ITA's existing contracts if the acquisition is approved. It is unclear whether Google would still want to work with some of its rivals after the contracts expire.
This isn't the first Google acquisition to come under intense scrutiny. Regulators took nearly a year to approve the company's $3.2bn purchase of online ad service DoubleClick in 2008 and six months to okay its recent $750m takeover of mobile ad service AdMob.
Those successes may have emboldened Google to buy ITA Software, too, Henneberry and Reback said in separate interviews. "If the government lets this one go through, then I don't know what it will take for them to stop any deal" by Google, Reback said.
- AP