Thursday, May 5, 2011

Google-ITA merger plan ignites online travel firestorm

Thursday, May 5, 2011

ITA Software is hardly a household name for most consumers, yet this little-known company with fewer than 500 employees already plays an essential role in pricing and shopping for more than $25 billion in air travel annually. And ITA may soon be poised to capture an even larger portion of the air travel shopping and bookings business, if the U.S. Department of Justice (DOJ) approves a pending $700 million takeover bid by Google.

Founded in 1996 by a group of computer scientists from MIT, ITA currently powers air travel pricing for approximately 30 airlines and online travel shopping websites including American Airlines, United Airlines, Kayak, Orbitz, TripAdvisor and Microsoft's Bing search engine.

It was no easy task to convince the world's largest airlines and travel agencies that a fledgling computer company from outside the airline industry could actually develop an algorithm that was faster, superior in many ways and less expensive to operate than the big, clunky pricing systems the airlines invented and used for decades.

In 2001, Orbitz became the first travel booking site to use ITA software and America West (now US Airways) was the first airline to adopt the pricing/shopping software the following year. While Orbitz launched a brand new travel booking product including ITA software, most ITA airline customers had to find a way to weave this cutting edge software into their mainstay "legacy" mainframe computer systems.

Most air travelers lack familiarity with the ITA name because the software operates behind the scenes, but if you've ever searched for flights and fares on Orbitz, you've viewed ITA's innovative "matrix" display of airlines, flights and prices. This popular matrix display has been subsequently adopted or copied by many other travel commerce sites.

With the growing uptake of ITA's software by so many major travel industry players, it's no wonder they've attracted Google's attention. More than two out of three Internet searches begin with Google. A similar ratio of consumers commence their travel planning and purchase process using a search engine, and more than one in three travel-specific searches begin on Google.

Google and other Internet search engines already collect a substantial revenue stream from airlines and other travel suppliers for online advertising. This is why a number of online travel sites, like Expedia, Hotwire, Kayak, Travelocity and TripAdvisor, which are normally fierce competitors, have formed a coalition, called "Fair Search" (, to combat the perceived threat posed by a Google-ITA combination.

Although most Fair Search sponsors depend on the traffic Google brings to their sites, they also view Google as a potential competitor. The companies behind Fair Search fear that Google could redirect air travelers to its own travel pricing and booking engine if Google is allowed to acquire ITA, although Google claims it has no ambitions to compete for airline bookings with ITA software customers.

Not all Fair Search sponsors are ITA customers, but those who use the ITA software are also concerned that owning the ITA software will give Google an unfair advantage. These companies fear that Google could impose less favorable contractual conditions upon other ITA software users, or choose to retain the best ITA software upgrades and enhancements for its own travel business.

Perhaps the greatest concern for Fair Search ITA customers and non-customers alike is the leverage Google will gain in negotiating future contracts due to the sheer number of air travel inquiries and bookings passing through the combined Google-ITA pipeline.

To further complicate matters, one major ITA software user and Fair Search supporter is Microsoft's Bing search engine. Still a relative newcomer to the search engine business, Bing is currently Google's second biggest competitor behind Yahoo. Bing is not an online travel agency today, but it offers products to facilitate travel planning and shopping. Bing also maintains historical air fares and forecasts air fares for future travel, helping travelers determine the optimal time to purchase that airline ticket.

Even without launching a travel booking engine, Google could compete directly with Bing for shopping and travel planning traffic, while at the same time, the future of the Microsoft Bing travel business would depend exclusively on the use of Google's acquired fare search engine.

Add to this mix the likelihood that Google is not the only company with an interest in acquiring ITA and you can easily see why the acquisition of this otherwise obscure company has created such a tempest in the travel industry.

While this scrum for control of ITA plays out, it remains to be seen if the Google-ITA pairing will be good or bad for air travelers. On the one hand, integrating ITA's data with Google's existing search capabilities could yield innovative results. An influx of financial and technical resources from Google could expedite new product enhancements and upgrades to improve the air travel shopping experience. On the other hand, funneling such a large portion of travel inquiries through a single channel could ultimately reduce competition and increase booking costs that would most likely be borne by air travelers.

At this time we don't know how the DOJ will respond to the takeover bid. It is possible the acquisition will only pass muster if certain restrictions are imposed, such as a guarantee that Google will not become a travel reseller, and/or that all ITA airline shopping and pricing software will be made available to all customers on equal terms. Whatever the outcome, it is unlikely that a company with such a valuable product will remain an independent entity for long, and whoever acquires it will figure prominently in your travel activity.

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Send David your feedback: David Grossman is a veteran business traveler and former airline industry executive. He writes a column every other week on topics of interest and concern to business travelers. E-mail him at

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