Google goes vertical to thwart Bing

 

In a very typical low key move Google acquired ITA Software, a 14-year-old company that makes software that organizes flight and pricing information, for $700 million in cash.

The significance of this acquisition is far reaching. With this, Google now becomes the critical intermediary between the provider of flight and pricing information and all their users including all the travel websites, airline websites and travel search engines. With this acquisition, Google now does not want to just send the search to another website, but also want to process the information for you in a meaningful and relevant way by organizing results (by giving flight options, price options etc.) As it goes into the “deeper search” and organizing information, it inevitably marginalizes the value being created by other travel web sites and travel search engines.

From here, Google could pursue 2 clear directions:

1. It could become a travel portal itself, which is unlikely since it could attract regulatory action because ITA Software is being used by airlines and travel portals. It may not want to be seen as a “Big Bully”.
2. It could add a new revenue stream to its well known advertising business – moving from cost per click (CPC) to cost per action (CPA) which definitely will be premium priced.

One thing is certain though: Bing (Microsoft’s search engine) which was headed in the area of vertical search will face more competition.

I believe that this acquisition is merely the beginning. Google can easily replicate the vertical search model in many areas including real estate, automobiles and other areas where the current Google search doesn’t give relevant results and where the potential for CPA exists.