According to Bloomberg,?Google?(NASDAQ:?GOOG) ? (NASDAQ:?GOOGL) has now licensed Room 77’s hotel booking software. Room 77 is a start-up backed by?Expedia?(NASDAQ:?EXPE) , one of the leading online travel agencies, or OTAs. This is not the first time Google has tried to compete directly with OTAs such as?Priceline(NASDAQ:?PCLN), Expedia,?Orbitz Worldwide, and?TripAdvisor?(NASDAQ:?TRIP) for a piece of the highly lucrative online travel business.
The online search giant has several high-profile online travel deals and acquisitions to its name. These include the introduction of Hotel Price Ads in 2010, the acquisition of ITA Software in 2011, and the launch of Hotel Finder, also in 2011. ?Now, that list includes the Room 77 Software licensing deal. But, does Google really pose a big threat to highly dominant OTAs such as Priceline and Expedia? Just how potentially disruptive is the company’s latest move in the online travel industry? Let’s try to get some perspective into what Google’s online travel efforts mean for OTAs.
How the three platforms work
Hotel Price Ads, or HPA, is perhaps Google’s most prominent hotel booking platform. HPA are sponsored price listings that usually appear on Google Maps, Google+, and Google Hotel Finder. HPA is the hotel equivalent of ITA, a proprietary airline booking software.
The platform is aimed at hotel marketers who use it to leverage the opaque hotel pricing and reservation model. Opaque pricing refers to selling unsold hotel or airline inventory at discounted prices, but without revealing the identity of the supplier (hotel or airline) to avoid cannibalizing full-price retail sales. This is the pricing system for which Priceline is famous.
For example, whenever a prospective customer enters a search query about hotels, Google sifts through a list of hotel rates that have been submitted by hotel marketers using a real-time pricing feed. Google then produces hotel results with standard site ad copy, plus a drop-down menu listing available rooms within the hotel. Prices are submitted by OTAs as well as the hotels.
From a client perspective, HPA helps hotels cut out the middlemen (OTAs), and also provides a better return on investment than typical core paid search campaigns, although adoption rates are still low. From Google’s viewpoint, the platform has achieved less-than-ringing success, with lower-than-expected traffic volumes.
Room 77’s hotel booking software also uses the opaque pricing model. It is, therefore, aimed at competing with Priceline more than any other OTA.?ITA is an airfare search and pricing software that uses the proprietary QPX system. Many online travel companies such as TripAdvisor and Orbitz use the software in their airline bookings.
The Department of Justice allowed Google to acquire ITA Software on several conditions, namely: the company must allow licensed competitors to continue using the software, a firewall must exist to prevent snooping, and the company must continue investing adequate amounts of money in R&D to ensure the software remains up to date.
But, Google also got a major leeway from the DoD. The company can display results immediately whenever customers enter their search queries. This way, Google got a head start over leading travel sites such as Bing Travel, Kayak, and many others.
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Source: Joseph Gacinga (2014). Can Google Disrupt The Online Travel Industry?, Business Insider http://www.businessinsider.com/google-travel-industry-2014-4 published Apr 08, 2014. Viewed Apr 10, 2014.