Google's Gain is Somebody's Pain
Palwasha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google (NASDAQ: GOOG) has fast approached its 52-week high within a week's time. The recent surge in buying activity came after Google’s announcement to acquire Frommer’s, a travel guide brand which is owned by publicly traded publishing company John Wiley & Sons. J. Wiley is willing to sell as they don’t see Frommer’s in their long term strategic roadmap. Google is willing to buy as this merger may prove to be the ticket to its big time entry in the online travel industry.
Terms of the merger remain undisclosed but one thing is certain, the Frommer's merger will complement Google's acquisition of restaurant review publisher Zagat that Google acquired last fall. The move will likely prove a boon to Google in the long run. Should competitors and other industry players be scared? Most definitely, yes.
Unlocking synergies
The merger will allow Google to formally enter the online travel review industry--with a bang! Zagat mostly provides reviews on local restaurants. Frommer’s will fill the gaps with info on hotels and global destinations. In addition to an extensive website and a vast portfolio of guidebooks for global destinations, Frommer’s also caters via mobile apps available on a number of platforms. Putting it in Google's words, “The Frommer’s team and the quality and scope of their content will be a great addition to the Zagat team.” It wouldn't be wrong to say that together the two will help grab an even bigger market share for Google than what it already holds of the online travel review industry. (see graph below)
Graph sourced from Statista
Losing is not an option when your opponent is your traditional rival
Google+ Local, a mobile compatible feature, allows users to review places in their locale and submit their own reviews as well. After Zagat’s acquisition, Google integrated it into Google+ and Google Maps. The next move for Google will be to integrate Frommer’s likewise. With a company owned search engine, attracting user traffic would be a piece of cake for Google. Since about half of Google’s mobile map traffic comes from Apple’s iPhones and iPads, Apple’s (NASDAQ: AAPL) new mapping service will pose a big threat to Google Maps. If Google is able to deliver on a more integrated, visual and review-backed travel search experience on its Google Maps--something like, or better than, Apple’s iOS 6 3D mapping service, it should be able to beat rival Apple in the travel mapping arena.
Your social network gets more MAUs, mine gets more ad revenues
One of Google’s motives behind acquiring Zagat was to gain wider share in local-business ads. Google competes with Facebook to capture user traffic for businesses that post ads on it. Unlike Facebook, Google has a more comprehensive and targeted advertising methodology which can help it attract consumers who browse the web looking for reviews, recommendations and general information on local businesses including restaurants, hotels, resorts, shopping stores, spas, gyms and clubs. This will be made possible using the bigger travel information hub, with Zagat and Frommer's combined.
Getting even
The biggest losers from this merger will, however, be the immediate competitors of the online travel industry. Two such, in particular, are Yelp (NYSE: YELP) and Expedia’s spin-off TripAdvisor (NASDAQ: TRIP), both of which are travel review websites.
Google intended to acquire Yelp for a half a billion dollars back in 2009, a deal which Yelp walked away from. Last year, Yelp sued Google on antitrust grounds citing Google’s monopoly in web search. According to Yelp, Google favored Yelp’s competitors, taking away traffic from Yelp. Although, from most of the reviews available on web, one can safely deduce that the majority trusts Google’s reviews over Yelp’s. Yelp has notoriously extorted businesses in the past by having them pay for ad fees in return for positive reviews and filtered positive reviews for companies that refused.
Expedia (NASDAQ: EXPE) was another party to the suit that accused Google of the same. By the end of last year, TripAdvisor was spun off from Expedia and formed into a publicy traded company. TripAdvisor also owes to Google for a large percentage of its traffic. If Google formally models Zagat and Frommer’s into an integrated online review-based one-stop on Google Maps/Google+, this could mean virtual death to the two suitors.
Once Google sets the ball rolling, many competitors, despite their core businesses unlike Google’s, may get adversely impacted because of Google's stronghold of web search, which it can use anytime to redirect visitors to its own webpages. Travel stocks having review-based models will likely be the ones most severely hit.
PalwashaS has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and TripAdvisor. Motley Fool newsletter services recommend Apple, Google, and TripAdvisor . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
