by Daniel Stone — April 9, 2014
New York – On Tuesday, Bloomberg released a report that Google (NASDAQ:GOOG) has reached an agreement with Room 77 to license that company’s hotel booking software. Room 77 is a start-up that has been funded by Expedia (Nasdaq:EXPE). The licensing deal marks Google’s intention to re-enter the online travel market after a stop-start attempts in the past, including the introduction of Hotel Price Ads (HPA) in 2010, the acquisition of ITA Software in 2011, and the launch of Hotel Finder the same year.
Along with Expedia, the online travel market is currently dominated by Priceline (NASDAQ:PCLN), Orbitz Worldwide (NYSE:WWW), and TripAdvisor (NASDAQ:TRIP). According to the ITB World Travel Trends report published last December, online travel booking now accounts for almost 70 percent of all booking and mobile bookings is one to the fastest growing segments overall. In the United States alone, the industry is worth more than $ 300 billion and given the recent performance of many of the companies in the sector there is still room for growth.
According to analysts the licensing deal by Google is most likely an attempt to upgrade their HPA, which essentially operates as the equivalent of ITA, a proprietary airline booking software. Whilst HPA is aimed at hotel marketers, the software would essentially allow Google to complete the loop, by facilitating the customer booking. If this is the case, Google would be positioning itself to cut the middlemen, such as Priceline and Expedia, while providing hotels with a better return on investment when compared to typical paid search campaigns.
Furthermore, industry analysts believe the move was driven by the Department of Justice’s ruling that allowed Google to acquire ITA Software on several conditions, including Google must allow licensed competitors to continue using the software, Google must take measures to prevent snooping, and the company must continue to maintain the software for licensees.
Through the licensing deal, it could be expected that Google might make more forays into the industry as their ‘competitors’ have little if any choice but to continue advertising through Google. While there is little direct evidence to suggest that such a move would hurt Priceline, Expedia, and TripAdvisor, almost 90 percent of what they spend on marketing goes to Google. As such, the increased emphasis on travel could dramatically alter the online travel market in the long-run. Shares in Google were up $ 4.10 in pre-market trading on Wednesday morning.