Google Going Great Guns!
Rita is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The world’s largest online search provider, Google (NASDAQ: GOOG) is becoming one of the most active companies in terms of innovation and self-improvement. The web giant tops the charts when it comes to online advertisements, smartphone and tablet OS, online maps and many more areas; this has been possible thanks to years of innovation and improvement. Better internet experience, better TV viewing experience, better smartphone experience – the company is attempting to make everything better. And this time the ‘Kaizen’ fan has made another move to improve its online search offering by making an acquisition which will enable the giant to “provide a review of every relevant place in the world.” Let’s check out the latest move from Google.
What did Google do this time?
Google has been looking at expanding in the around the world travel business for quite some time now as understood from the acquisitions of ITA Softwares, a flight-booking service provider used by airlines and travel sites, as well as from the failed acquisition of Yelp (NYSE: YELP). Last year, the company also launched its own flight-booking service. And now, with the acquisition of content-rich Frommer’s Travel Guide business from John Wiley & Sons (NYSE: JW-A), Google has moved another step up in the progress path.
Recently the online search giant announced its plans to acquire Frommer’s travel guide business and is expected to pay $25 million towards the deal, which is yet to be closed. However, the companies haven’t yet come out with the details. The acquisition will help the company to include Frommer’s travel guide contents and show them in the search results. With this move, Google now will be in an even better position to attract higher advertising revenue associated with travel guide contents and also improve its local and travel search results. Needless to say, now the giant will be in direct line of competition with other biggies of the space such as Yelp, TripAdvisor (NASDAQ: TRIP) and Foursquare. More than Google, the other players need to be worried as just the news of Google entering the space pushed down TripAdvisor's stock price by 4.6%, and Yelp stock price plunged 7.7%.
Lately, Google has been working very hard to improve the results from its online search by providing users with accurate and prompt answers to their questions instead of acting as just another site which directs them to other websites. Google plans to sync Frommer’s travel contents with its existing Zagat local listings and reviews. Zagat is a food guide the company bought in September last year for $151 million, and it now plans to merge the team with that of Frommer’s and thus create a harmony while providing local search related results. Through Zagat, Google provides a restaurant’s rating, address and contact number along with its search results, and now the results from Frommer’s travel guide can also be included, thus providing a better search experience.
How does this help Google?
In the words of Colin Gillis, a technology analyst for BCG Partners, “It’s just another push for Google to become more of a destination site from its roots as a search engine.” And this is absolutely correct. Google is at that stage of its life where it requires innovations and diversification to fuel its growth. The acquisition makes it very clear how important this transition from a ‘basic online search provider’ business model to a ‘result optimization centric’ business model is for the giant.
Like I already mentioned, Google can include the travel guide contents in its search results and thus can sell travel-related ads against it and enjoy even higher ad revenues. At present, Google enjoys around $2 billion of revenue annually by selling travel-related online ads through its hotel and flight booking service and search engine. This segment of the business functions in the US leisure travel space which displayed a year on year growth of 40.6% and is expected to grow substantially in the coming years. Again, the travel spending by US-based travelers stood at $100 million last year and is expected to grow by 10% annually. As the entire leisure travel space grows, there will be more of ads and now Google will be able to tap into this money source better thanks to Frommer’s offerings. In particular, Frommer's hotel reviews can turn out to be a real asset for Google as hotel bookings through mobile devices is expected to reach $2 billion by next year.
Competitive landscape wise also this step will benefit Google. The company is attempting to bring the better of two worlds –the world of book based travel guide and the world of customer-opinion based travel guide. Unlike Yelp and TripAdvisor, which help users plan their travel arrangements by bringing into light thousands of comments for customers only, Google is attempting to provide a more holistic view by bringing together the expert comments from Frommer’s offerings and the Zagat ratings and thousands of customer reviews already available on Google+.
However, Apple (NASDAQ: AAPL) and Google will not be away from each other in this space also. Even the iPhone maker is interested in this travel space and has already filed patents for a mobile app for storing airline reservation data which will be called iTravel. This will be complemented by Passport, a feature in the iPhone for storing boarding passes and few other documents.
Concluding thoughts
Just like a coin, even this move by Google has two sides. On the plus side we have better growth prospects and a wider span of operations and on the minus side we have concerns related to Google favoring its own contents above organic search results, and that is why antitrust regulators are keeping a close watch on the activities of the company. Though the firm has made it very clear that they don’t favor their own contents and clearly mentions their goal with local search is to help users find local information as quickly and as easily as possible, the FTC did not leave the matter to good faith and is investigating the company.
However, this is all in a day’s work for Google. The company has huge growth potential and there is no second thought on that. Google, with its ambition to better capture the online ads related to travels, is looking pretty promising. The company is going great guns growing itself by not only by diversifying, but also by digging deeper into its already successful businesses and developing them further.
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