If publicly traded companies such as Google are bound by fiduciary duties to shareholders, then Google, which already has one of the largest travel businesses in the world, larger than the Priceline Group, TripAdvisor and Ctrip combined, would be foolhardy to shoot its advertising business in the foot to become an online travel agency.
When is Google finally going to tie all of its travel products together and become an online travel agency to rival Expedia, the Priceline Group and, increasingly, Ctrip?
Not anytime soon or even in the foreseeable future. We’ve been saying this for awhile — for years, actually — but now we can use some dollar estimates to back our theory and fine-tune it with comments on the subject that a Google executive made at the Skift Global Forum in Manhattan in September.
Why would Google want to become an online travel agency when its existing travel-advertising business — including all of those paid links that dominate its search-results pages — likely produces more revenue than the Priceline Group, TripAdvisor, and Ctrip combined?
One investor group dissected publicly available information, made some educated guesses, and confidentially shared its rough estimates with Skift on the scope of Google’s existing travel-advertising business. Google would probably generate at least about $12.2 billion in revenue from travel advertisers in 2016, with about $6.2 billion of that coming from just four travel advertisers, namely the Priceline Group, Expedia Inc., TripAdvisor and Airbnb. [See the end of this story for how the $12.2 billion estimate of Google’s estimated 2016 travel-advertising revenue was arrived at.]
To get an idea of the scope of Google’s projected $12.2 billion in travel revenue for 2016, you can compare it with the actual 2015 revenue of the four leading, publicly traded online travel companies: The Priceline Group ($9.2 billion), Expedia ($6.7 billion), Ctrip ($1.6 billion) and TripAdvisor ($1.5 billion)
So Google’s existing revenue from travel advertisers is already considerably larger than that of the Priceline Group; is roughly twice the size of Expedia’s, and Google generates more travel-advertising revenue than that of Expedia, Ctrip, and TripAdvisor combined, according to this analysis.
And Google undoubtably takes that travel-advertising revenue and achieves a much higher profit margin on it than do the roster of its online travel, airline, hotel, car rental, and cruise partners, most of which are much more dependent on lower-margin transaction revenue.
So the next time people tell you that Google’s launch of a new travel app means the world’s largest search engine is finally getting into the travel business — you can laugh in their faces because Google’s travel business is bigger than online travel behemoth Priceline’s.
But What About Becoming an Online Travel Agency?
If Google indeed became an online travel agency, it would further alienate its largest travel advertisers, namely the Priceline Group and Expedia, and up-and-coming ones such as Airbnb, and jeopardize a chunk of its travel revenue. TripAdvisor and Yelp are already very miffed at Google but they really have no choice but to use Google for advertising. Likewise, the largest travel companies would have to continue using Google for advertising for awhile because Google is the most important game in town but some companies, including Expedia, are fervently trying to diversify their spend into Facebook and other social media platforms.
The fear that Google could start to do travel transactions on its own is perennially on the minds of rivals because Google has most of the pieces –minus the customer support staff — to assemble a full-service online travel agency. Google’s travel portfolio already includes Google Flights; Google Hotel Ads; Book on Google for a handful of airlines and hotels; Google Maps; hotel and restaurant reviews and content acquired from Frommer’s and Zagat; the Android mobile operating system; a “Plan a trip” and travel guide feature on desktop and the mobile Web, as well as the new Google Trips app for itinerary management of flights and hotels plus tours and activities recommendations.
Speaking at the Skift Global Forum in September, Google’s Oliver Heckmann [video here and embedded below], who heads up its travel products, was candid about Google’s master plan, arguing that Google sees itself as an “answer engine” and “connector” to the right partner at the correct time, whether through free or paid links, rather than becoming a trip-planning site or booking engine.
In fact, Heckmann said, although Google wants consumers to begin their travel planning in the earliest stages through its search engine and associated products, it does not seek to become a trip-planning site.
“We don’t have plans right now to make this a travel-planning app,” Heckmann said, referring to Google Trips and acknowledging that doing bookings is a top request. “That’s a very different thing. We believe Google is the best place to start your travel planning.”
The Google Trips app seeks to be an “assistant” and “a good guide” and that’s why it includes information and recommendations about tours and activities, Heckmann said, adding that Google is not planning to sell flights on its own, although it is doing facilitated bookings for Lufthansa, Virgin America, WestJet and hotels as a way to optimize the mobile experience.
Google does not want to sell flights on its own or become an online travel agency, Heckmann said.
As we’ve pointed out above, Google’s becoming an online travel agency in its own right would jeopardize the largest travel advertising business in the world — and one of the largest travel businesses in its own right.
Book on Google is Misunderstood
Heckmann said that Book on Google should probably have been named something else because it is widely misunderstood.
With Book on Google, the airline or hotel is the merchant of record, although the booking is processed on Google. Google shares data with the partner, which handles the customer service.
Heckmann said one of the reasons Google launched Book on Google, which it uses in verticals beyond travel, as well, is because of the widely varying quality of partners’ mobile sites, and the desire to optimize the mobile experience. For example, Google recently found that the duration of user sessions on mobile are decreasing as consumers are increasingly bombarded or distracted by so much digital noise, and this hurt conversion.
It’s not, he said, because Google wants to become a booker in its own right.
All of this doesn’t preclude Google from one day — if circumstances change — becoming an online travel agency. It just isn’t in the cards now or in the next few years.
As one investor told Skift: “The Google app won’t add booking. They want to keep the robust auction between Priceline and Expedia. Google already makes a killing in travel [maybe more than $6 billion from just Priceline and Expedia] so why screw that up?”
See the following video of Heckmann’s talk at the Skift Global Forum in September 2016 and below that how the estimate of Google’s travel revenue was calculated.
A Rough Estimate of Google’s 2016 Travel-Advertising Revenue
- The Priceline Group and Expedia Inc., including their wide array of brands, spent around $4.9 billion for total online advertising in 2015 and are on pace in 2016 to bring that total to around $6.8 billion. If roughly 90 percent of the total goes to Google, then Google would attract some $6.1 billion in revenue from just these two companies.
- TripAdvisor would conceivably spend around $500 million on Google in 2016; TripAdvisor’s total online spend in 2015 was $507 million. Airbnb’s spend on Google, based on public rumors and educated guesses, might total some $300 million in 2016.
- That means Google would take in $6.2 billion in 2016 from just these four advertisers — Priceline, Expedia, TripAdvisor and Airbnb.
- Roughly around half of Google’s travel advertising is considered to come from suppliers, namely airlines, hotels, car rental companies, cruise line and destination marketers.
- Adding the spend of its largest online travel agency partners plus suppliers, Google’s travel advertising business, which is said to be its largest vertical, could then easily be around $12.2 billion or more.
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Photo credit: Google has a variety of its own travel products, including its new itinerary management and tours and activities app, Google Trips. Google / Google