Google Just Became a Real Problem for Online Travel Agents

Strategists with internet-based travel agencies Expedia (EXPE), TripAdvisor (TRIP), and Priceline (PCLN) might have shed a few tears when web-search giant Google tiptoed directly onto the industry’s own turf on Tuesday by announcing it now had its own hotel-booking platform.

goog-stock-google-travelIn retrospect, it should come as no real surprise that Google (GOOG) is getting directly into the online-travel booking arena; why help the middleman when you can be the middleman?

The move crosses a line that Google had seemingly been unwilling to cross before now. Priceline and Expedia together account for nearly 5% of the search engine company’s annual revenue, and angering them or their peers could prompt those agencies to abandon Google as a place to advertise. It now seems, however, Google doesn’t really care what names like Expedia or TripAdvisor feel — the monetary reward is worth the risk.

More importantly to investors, this creates a relatively big problem for the internet travel names that had become dependent on Google as a marketing partner.

Google Can’t Disguise its Travel-Booking Plans Any Longer

Google’s foray into the world of travel booking comes with its licensing of Room 77 software. Room 77 (once funded by Expedia, ironically enough) has already made a name for itself as the framework for a handful of hotel booking companies that provide opaque pricing information. Opaque pricing simply means a would-be traveler can see the rate for a room in a certain locale, but won’t actually know which hotel chain has been booked until the reservation is made.

The inclusion of Room 77’s software, however, is actually just a small part of the bigger mission that should have owners of EXPE or PCLN stock worried.

Google has actually been directly in the booking game since 2010, when it unveiled a program called Hotel Price Ads that — predictably enough — allows browsers to shop around for hotel deals via Google Maps, or more recently, Google+. Still, Hotel Price Ads (HPA) wasn’t taken seriously by too many people at the time. But things got more serious in 2011 when Google brought ITA Software into the mix in 2011 to drive airline ticket comparison-shopping, and launched its Hotel Finder tool.

More recently, Google has been forging relationships directly with hotels that are also interested in circumventing the middleman’s fees by buying exposure through Hotel Price Ads.

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In retrospect, it’s clear that companies like TripAdvisor or Priceline should have been watching more closely. With Room 77’s capabilities being added to Google’s HPA tool, and with the Department of Justice permitting the company to display its own travel-booking options when a traveler enters a search query, Google itself is becoming just as relevant and useful to travelers as Priceline or Expedia may be.

The Numbers Say It All

For perspective, on average, Expedia and TripAdvisor spent 42% of last year’s revenue on promotion and advertising — mostly online ads, which of course, plays into Google’s hands. About 90% of Priceline’s online-ad spending in 2013 was passed along to Google. It’s a figure similar to how much of the TripAdvisor and Expedia marketing budget is ultimately given to Google.

Theoretically, most — if not all of Google’s piece of that pie is in jeopardy if any of the online travel agencies decide they don’t want to feed the beast that’s now making life difficult for them.

Yet, it would be naive to think any of the internet travel agencies would stub up in that way. While most of them have upped their use of television advertising, Google is still an important means of connecting with travelers — nearly 70% of all travel arrangements are now made online, and Google’s share of the search market remains enormous. It would be destructive for the internet-based travel agencies to not utilize what’s still one of their best sources of revenue-bearing leads.

The maneuver also positions Google even better than other online-booking agents in the space where it’s increasingly important … mobile.

As it does in the world of searches performed on connected PCs and laptops (particularly in the United States), Google also owns a dominating 90% of the mobile search market. How does Google do it? It’s simple — 79% of currently-active smartphones are Android-powered phones, and the Android operating system not only displays search ads stemming from user queries, but also displays the company’s advertisements within apps.

The travel arrangement apps available through Android will be no different, and with paid mobile search expected to overtake desktop search by the end of next year, it’s clear that mobile will be the hot spot for growth in the foreseeable future.

But won’t PriceLine, Expedia, and all the rest of the online booking agencies still be featured in mobile ads? Yes, but, the fight for space on small mobile screens favors Google.

See, the lines between “search results” and “advertising” have already been blurred on Google’s search results pages, and with limited space to display (or even see) an advertisement on a four-inch screen, a person is likely to select the easiest and most obvious booking option available on a mobile device. That means the advantage goes to the top search result, and barring that, the choice made readily available within one of Android’s many travel-related apps.

It’s also worth noting that the Room 77 platform specifically caters to travelers looking to book a room quickly. That quick booking is more apt to happen on a mobile device than it is on a computer, again playing into Google’s hand.

The bottom line: This is big trouble for travel arrangement sites Expedia, Priceline, and TripAdvisor.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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