What Google’s $700M Acquisition of ITA Means to Boston, and to Competition with Expedia, Bing, and Kayak

7/6/10Follow @gthuang

This deal has a little bit of everything. A compelling startup story, technology used by millions of consumers, big company strategy and competition, antitrust issues, and, on top of all that, a really significant local innovation angle.

I’m talking, of course, about last week’s $700 million acquisition of Cambridge, MA-based ITA Software by Google. ITA’s technology powers the flight itinerary search and pricing engines for major airlines and travel sites like Orbitz, Kayak, and Bing Travel. Yes, this deal means Google, the Internet search king, is now trying to carve out a specialty in the lucrative travel search business, for better or worse. (For more reportage on the deal, you can read the New York Times, Bloomberg, Wall Street Journal, Forrester Research, Tnooz, and others.)

Unfortunately, Google and ITA aren’t saying much of anything interesting publicly. It’s probably hopeless to guess what Google’s true intentions are, or why it waited until now to enter the sector. Travel search is an area in which Microsoft took an early lead over Google in 2008, after the Redmond, WA-based software giant acquired Farecast, a Seattle-based airfare predictor startup. My guess is that Google is staying mum partly to keep its competitors in the dark, and is allowing ITA some time to adjust to its new owner.

So instead of talking to the principals on the record, I’ve been talking with outside sources in the travel and consumer tech industries. The impact of the deal is definitely being felt all around the country, including in the Seattle area, which is known for its travel giants like Expedia and Bing Travel, and upstarts such as InsideTrip, Raveable, Yapta, TripHub, Off & Away, and TravelPost.

Here are three threads to watch, both locally and nationally:

1. Google just got much bigger in Boston.

If you’ve been away from the MIT area for a couple years, like I have, you’ll find things have really changed when it comes to the search giant’s presence. First of all, Google’s Kendall Square office has been growing fast since late 2007, when it had about 100 employees. Now the ITA deal—assuming it passes a federal antitrust review—means Google will have a huge presence in Kendall Square, more than doubling its local staff. Adding roughly 500 new employees from ITA should have a positive effect on Google’s relationships with MIT grads and other techies, and certainly won’t hurt recruiting. Plus, from what I’m hearing, the culture of ITA and Google should be a good match—they’re both heavily populated by well-meaning engineering geeks. What’s more, this is just a huge win for Boston tech startups.

2. Kayak, Expedia, and Bing Travel will adjust.

Google is entering a hornet’s nest of competition with airlines and travel shopping sites, not to mention starting a side war with Microsoft’s Bing. It’s safe to assume those parties will band together to oppose the deal, and antitrust laws will be an issue—but most people I’ve talked to think regulators will approve the deal. So where does that leave players that use ITA’s system, like Connecticut-based Kayak, and those that don’t, like Bellevue, WA-based Expedia (which also owns TripAdvisor in the Boston area)?

Google has said it will honor ITA’s existing contracts, but those are for a set amount of time. Within a year or two, look for Kayak and Bing to get the flight data they need from other sources like Worldspan, Sabre, or even directly from airlines. Nevertheless, the deal is a pretty serious challenge to Kayak, which may need to lean more heavily on other aspects of its business, like hotels, cruises, and rentals. Those are areas that Google may take longer to get into because of all the relationships required (ITA doesn’t have them)—but that’s probably coming, because of the huge market for leisure travel. Similarly, Expedia can’t be too excited to be competing with Google now, but the Seattle-area firm has plenty of options and resources—did I mention TripAdvisor, which by all accounts has been printing money for the better part of a decade?

3. Look for more travel startups, not more consolidation.

Some observers have speculated that the Google-ITA deal will trigger other mergers, between companies like Expedia and Kayak, for example. But most sources I’ve talked to don’t see it that way. Kayak, they say, needs to prove its value (beyond its technology) anew. Other travel and search technology startups like Everbread and Imagini, both based in the U.K., are probably too young to get acquired yet. At least one travel analyst, Henry Harteveldt of Forrester Research, emphasizes that the Google deal gives startups and their investors “a lot of confidence,” and validates the need for new technology in the sector. “It shows that travel is a complex beast, it has not been solved, and there is opportunity,” he says.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

By posting a comment, you agree to our terms and conditions.

  • Bob the Chef

    “well-meaning geeks”? That’s the stupidest phrase I’ve heard in my life. What does that even mean?

  • http://www.xconomy.com/author/ghuang/ Gregory T. Huang

    Bob the Chef, you sound a bit like Bill Gates, and for that I commend you. It means people who want to solve tough technical problems, and who might take “Don’t Be Evil” as their motto.

  • http://www.mensworkout.org Zan

    Why did ITA cost $700 million whereas Farecast cost just $20 million? For what each company offers looks like Microsoft got a much better deal.

  • http://www.xconomy.com/author/ghuang/ Gregory T. Huang

    Zan, Microsoft bought Farecast for $115 million. But still much cheaper than ITA. I think the offerings are fundamentally pretty different.

  • Pingback: Google Makes Its Travel Search Move: Buys ITA Software For $700 Million