Something really major happened today. The New York Times reports: “Google has acquired ITA software, a 14-year-old company that makes software that organizes flight and pricing information, for $700 million in cash. ITA, based in Boston, specializes in organizing airline data, including flight times, seat availability and pricing.”
On the Google (NASDAQ:GOOG) blog, Marissa Mayer explains: “While online flight search is rapidly evolving, we think there is room for more competition and greater innovation. Google has already come up with new ways to organize hard-to-find information like images, newspaper archives, scholarly papers, books, and geographic data. Once we’ve completed our acquisition of ITA, we’ll work on creating new flight search tools that will make it easier for you to search for flights, compare flight options and prices and get you quickly to a site where you can buy your ticket.
We’re confident that by combining ITA’s expertise as the leading developer of flight information software with Google’s technology we’ll be able to create great user innovations in flight search.”
Readers of this blog know that I have called for this for years. In January 2008, I wrote The Gap In Google’s Defenses:
“In a lengthy review on my blog, I’ve laid out Google’s strengths and weaknesses. On the weaknesses side of the ledger, I see vertical search engines as the most potent long-term threat.
Imagine you are looking for a hotel near Piazza Espagna in Rome in the price range of $250 to $500. Try formulating the query in Google. You will get a lot of results, but the Hassler Villa Medici – voted Rome’s No. 1 luxury hotel by readers of Travel+Leisure – wouldn’t even be among the top ones.
Now try the same exercise in a vertical search engine called Kayak.com. The Hassler is right there.
Kayak.com can deliver more precise results because it is customized to search for hotels. Such customization is only possible when the user’s context is already known by the search engine.
While Google has been stubbornly defending its admirably simple one-bar user interface, a host of significant Internet brands have developed that can deliver context-sensitive search in major vertical categories. A lot of venture money has gone into this over the past three years, and some of these ventures are starting to look sizeable.
Kayak is one of them. It helps users comparison shop across travel portals and airline sites to find the best deals on tickets, hotels and car rentals. Started in January 2004, Kayak now receives more than 6 million unique visitors a month. It makes money mainly through advertisements and referral fees. Kayak also enables travel search for AOL, Comcast (NASDAQ: CMCSA), CNN, About.com, and USAToday.com.
This month, Kayak raised $196 million in financing to complete a merger with SideStep, its top competitor. The combined company will rank as the fifth-largest online travel operator, managing transactions estimated to be worth $3.5 billion and with revenues of about $85 million.
Kayak has an opportunity to use its search engine expertise and growing community of users to knit together fragmented content about travel such as reviews, ratings, and travelogues, whether professionally produced or developed by users, to enrich travel planning. Kayak also plans to launch a vertical advertising network customized for travel which it hopes will power sites such as Expedia (NASDAQ:EXPE), Travelocity, and others.
I expect an initial public offering for Kayak, and a chance to roll up smaller companies to stitch together a large Web 3.0 venture focused on online travel. (See:” Connecting With Your Inner Bot”.)
Opportunities for acquisitions will grow this year as the industry heads into what many believe will be a crash of Web 2.0 companies.
Kayak’s huge opportunity is underscored by the investment dollars that are being bet on it. “We can build a $500 million to $1 billion company focused on travel search alone in the next few years,” says chief executive Steve Haffner.
Google has left untouched not just the travel vertical, but other big areas including jobs, automobiles, real estate and health. If the roll-up I expect in travel also happens in these areas, Google will have a hard time competing.
Google will likely maintain its business and stock market performance momentum through 2009, but five to seven years out, the company may not look so invincible.”
Well, here you go. Google has decided that it is time to enter vertical search and not leave this gap open, which allowed Bing to enter the market and start stealing market share.