Google moves into the travel space - so why are we all so surprised?

16 July 2010

It’s clear that Google have now rattled a lot of travel players and especially the price comparison sites. The latest news that Google has acquired ITA Software, a travel technology player for $700m is a big story and there are those predicting the demise of the travel meta search players and those who reckon it will be what every consumer has been waiting for.

Google has the benefit of some smart brains back at their US headquarters who have cut their teeth in the travel industry. It has slowly but surely developed its capability and insight from looking at the patterns of travel search. However you only need to see the recent developments in Google maps to see what was coming. The beta trial they have been running has been visible for all to see where hotels were able to load more information than just their location.

For any travel company still hugely dependent on Google for their traffic the next challenge is to work out smart ways to reduce your dependence on this search engine for your future customers. I remember being taught in business school never to have too many eggs in the same basket. Just as we never want to be reliant on one customer so we don’t want to be dependent on one sole channel of distribution, especially in these times of economic uncertainty. The latest ONS travel trends for 20101 showing we’ve just had one of the worst years for outbound travel from the UK with 13% decline to yr ended April 2010 on previous year with business travel down 20% . Inbound travel to the UK was also down 5%. There is a need to focus on innovative ways to build a greater share of the customer wallet rather than throwing more money at pay per click. As we all know if we did our pareto analysis there are probably 20% of customers delivering 80% of the value to a business – it’s just a case of identifying who they are and targeting more of them. If you have a website open search function and a database of FAQs you could also, like Google better understand what customers are looking for and track your performance using insights like data from Skyscanner showing the top 50 search travel destinations from UK2.

Many industry colleagues complain to me that pay per click (PPC) has been delivering increasingly poor returns. It appears that the largest companies who can benefit from the large economies of scale in monthly online ad spend exceeding several hundred thousands pounds per month are the ones winning in this game. However it’s not worth Google just focusing on these players as they know that the UK economy is principally made up of SMEs which is where their future growth lies, hence their smart move to make PPC more pervasive. My view is that this will drive advertising costs up not down as a larger number of players compete on price on their enhanced platform using ITA.

Many companies have diverted spend away from PPC into SEO3 and social media as a consequence. You can see this trend markedly in the US where a Nielsen report shows advertising spend in travel on social media increased by 384% from August 08 to August 09 whereas digital spend across all travel sites decreased 11% over this same period. Even the latecomers to the digital marketing space such as the FMCG players have been busy talking to the social media networks and Unilever last week announced its plan to double its digital spend4.

Google is not going to risk its advertising revenues with the big online travel agents (Expedia, Orbitz and Travelocity) which Goldman Sachs claim in Travelmole last week5 are worth up to 8-10% of its global revenues. Google recognises that it has failed to engage with many SMEs and convince them of the benefits of their pay per click model and it wants to build scale so it sees a chance to take a bigger slice of the total advertising pie. Who can blame them, but I would love to see the arguments that Microsoft will surely be making as the acquisition is approved by the US authorities. How the tables have now turned!!!!

1 ONS produces the Annual International Passenger Survey source: http://www.statistics.gov.uk/statbase/Product.asp?vlnk=8168
2 http://www.skyscanner.net/news/articles/2010/06/006915-skyscanner-flight-trends-june-2010.html
3 SEO= Search Engine Optimisation focused on improving your page rankings in Google based on a combination of using the right keywords, the right linking strategies and the right website structure making it search engine friendly.
4 Times Sat 3 July, Business section
5 http://www.travelmole.com/stories/1143090.php?news_cat=&pagename=searchresult
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