Might Google Be About To Enter A New Business?

Aug.14.12 | About: Alphabet Inc. (GOOG)

Today's news of Google (NASDAQ:GOOG) acquiring Frommer's travel brand from John Wiley & Sons (JW-B) might be more relevant than it would seem at first sight.

Right now these news are being interpreted as if Google is just seeking more lifestyle content for placing ads on. However, once Google gets travel guides under its portfolio, it's much more likely that Google will treat travel itself as the product to be sold. After all, the online travel agency model has gone full digital, with everything from charging for the travel to making the bookings now being automated.

By using back-end systems from Spanish Amadeus (OTCPK:AMADY) or one of the competing systems such as Sabre, Galileo or Worldspan, Google can conceivably provide the entire service from searching, to reviews, to booking and charging for the travel service without ever building a large physical distribution network.

What's more, the capability to search, review and book flights and accommodation is a prime target for inclusion in mobile devices, so it presents a further synergy and differentiating factor for Google and its Android system.

Consequences

Were Google to follow the path of integrating travel and accommodation booking into its operating system, this would constitute a huge threat for Expedia (NASDAQ:EXPE) or Priceline.com (NASDAQ:PCLN), whose main business is basically to provide a front-end for those same back-end booking systems.

A growing trend

This possible evolution of Google's business is smack in the middle of a present trend towards a changing paradigm in the sales of digital goods. The digital goods (music, video, apps, etc) are increasingly migrating from web-centric stores such as Amazon.com (NASDAQ:AMZN) towards OS-integrated stores such as iTunes in Apple's (NASDAQ:AAPL) iOS, or Google Play in Google's Android.

Not only are traditional digital goods migrating in that direction, but some services which up until recently needed a physical distribution network, such as insurance, travel, banking, brokerage, etc, are also turning full digital and being dematerialized. As this happens, these services, too, become candidates for inclusion in those same OS-integrated stores.

Conclusion

Google's foray into the travel review business might well portend a first step into a whole new business line for Google, namely online travel booking, with possibly severe implications for today's online travel agencies, since these don't control the most important step in travel booking - the 4 back-end networks which provide the booking services (Amadeus, Sabre, Galileo and Worldspan).

Disclosure: I am short AMZN.