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What the Google-ITA Deal Really Portends
Much of the discussion about Google's bid to buy ITA Software, including here, has been limited by the lack of understanding all around about how airline search and reservations actually work now, and what it is exactly that ITA Software does. Travel expert Edward Hasbrouck wrote a detailed 3-part piece on his blog explaining the back story, what ITA Software does, and what it means for travelers. "...because CRS/GDS [Computerized Reservation Systems or Global Distribution Systems] companies are generally invisible in their intermediary role (and currently all owned by groups of private equity investors, so they need not report publicly on their finances or operations), few analysts outside the travel tech industry know how to interpret the implications of Google's decision to invest $700 million in this sector. Frankly, I'm not at all sure Google itself understands what ITA Software does (and doesn't) do, and what they are getting for their money. ... What will this deal mean for travelers? The short answer is that it is likely to be a bad thing for travelers ... because it is likely to exacerbate the trend toward personalized and less transparent pricing of airline tickets (and other travel services) and the de facto disappearance of key consumer protection principles embodied in the definition of a common carrier and the requirement for a published tariff applicable equally to all would-be customers complying with the same rules."
Is it me, or is everything reported that is IT related these days a conspiracy? LOL! Actually, this story was informative and helpful. It could have done without all the pretense though.
ITA Software's main business is taking the various fare/schedule tables put out by the airlines, and then combine and standardize them so they're comparable, and finally put a user interface on top of all of this so the average user can figure out what their options are for getting from Airport A to Airport B during the time frame the user was interested in.
They're not a travel reservation system... although some of their customers add that themselves to ITA's flight selection tools. Google already has some simple flight tracking tools in their interface, and Bing has been trying to sell their "Decision Engine" as a tool for selecting flights and predicting fare movement, so this seems like a natural acquisition to add to Google.
I wouldn't consider myself an expert on this issue, but I have done a few years of development work for the travel industry in the past, including direct interface with the GDSs (basically, the central systems such as Worldspan or Sabre which provide airfare pricing/availability information for the flights on most airlines). The article (probably unintentionally) misses a few important things:
1) ITA's software is, by far, not the only way to get at the flight/reservation information from the GDSs. So, yeah, maybe Google has the power to analyze your data and say, "Hmmm... this guy just bought a luxury car, I'm going to mark up all the flights I offer him by an extra $100", but there still will be a bunch of other people willing to sell it to you for something closer to the "real" price.
2) Some carriers opt out of the GDS system entirely. For example, as far as I know, Southwest is still opting out of it, which is why you typically can't find Southwest flights for sale on most travel sites. There are some big advantages to being part of the GDS system, mainly in that it puts your product out for sale in a lot more venues -- but even if all the providers of GDS data somehow colluded to artificially raise fares, it would only make the fares of non-GDS airlines even mroe attractive.
I'm not someone who believes in the power of the free market to solve all problems, but in this case, barring the growth of some kind of ridiculous super-monopoly that the government would almost certainly break up, it really can correct for almost any kind of insidiousness on the part of Google or anyone else that I can imagine.
The exit is right over there.
Am I part of the core demographic for Swedish Fish?
Do these people even think before they type? Do they really think google would spend $700 million on something that they have no idea what it really does?
Posting anonymously as I work for an airline and wrote a fair bit of the code which keeps ITA's software in realtime.
ITA's core product is a fares shopping engine. Basically, as laid out in the blog posts, the price you pay for your seat is a function of an airline's published fare for a particular "fare class" (there are 26 fare classes per flight in the SABRE GDS, with about 21 functional) and the willingness of the airline to sell you a seat in that class (due to seat allocation). So what happens is that as seats are purchased in real-time, ITA's software must get an update from the airline in real-time so that it constantly knows whether a particular fare is still available to be purchased. Otherwise, the fare you are presented would be rejected by the GDS when you attempt to make your purchase.
This real-time querying is a huge coordinated effort between the airlines and ITA, which basic functionality being that the airline will publish fares to ITA nightly (with push adjustments to these fares as airline analysts make changes throughout the day) and real-time seats sold information, with all information flowing as compressed XML via standard messaging protocols.
Obviously in a scenario like this, there is momentary lack of synchronization between the GDS and ITA's shopping engine, and in these windows exist the possibility for a failed booking as the GDS deems a class non-sellable but ITA's database has yet to receive the pushed data. The major goal of ITA and the airlines in this scenario is to reduce the booking failure rate to 0%, which is of course unattainable, but each percentage point north of this counts as major lost revenue to the airlines. Anything north of 5% booking failures is considered unacceptable and generally sends the rats scurrying in attempts to resolve the synchronization issues.
As someone who is unfamiliar with this part of the industry, I appreciate the articles and the clarity it brings to the different issues, including Google's probable interest in ITA Software. With that said, I find the conclusion - that Google is primarily interested in offering personalized ticket prices - is, while at least somewhat plausible and certainly disturbing, pretty unlikely. First, there's the whole thing about how that's illegal (though granted, few in the justice department would be able to decipher the technical aspects and come to that conclusion), and second, while Google is getting its hands into everything, I (at least) have yet to see a situation where it's doing it in an actively malicious way that does not benefit the consumer. Search? Makes $, but provides good service. Gmail? Increases market share, but again provides good service. Android certainly has increased competition and innovation in the mobile arena, say what you want about the fragmenting of the platform. Even the Nexus 1 at least tried to do good things with unlocked phones and service competition, despite its hardware and software flaws, and its use of 2.1 probably accelerated the development of current phones like the latest Droid devices. I find it hard to believe that Google would try to actively and maliciously take advantage of consumers in the process of making a buck better than an existing company makes a buck. Is there $ in it for Google? No doubt, but I also don't doubt that there will be a reason for consumers to use the service-there almost has to be, because anything less would hurt Google's reputation, and that would be far more damaging than the failure of almost any possible product they could put out there.
Posting anonymously because I, um, have some experience with this stuff.
One of the big things that this could do is further segment the market for air travel. For those who don't know, airlines already have revenue management tools that allow them to predict the best mix of customers they can get out of any given flight. Airlines make money only when a seat is full, but they don't make money if they can't sell enough seats above the break-even price for operating the flight. Besides the obvious difference between coach and first class, most carriers have tons of "fare classes" that are used to sell the same type of seat at different prices and/or restrictions. For example, let's say there's 140 coach seats on a typical NY to LA flight. Some booked way in advance or reserved for group travel at a travel agency are going to go for $125 or so, most are going to go for the $400-800 range, and last minute travellers get to pay full fare, almost as much as first class for a coach seat. (This is why "complimentary upgrades" are offered on full-fare (Y) seats.) Bottom line is that you may have paid $300 for your seat, but the guy next to you might pay $1200+ for the same class, same time, same flight.
The calculated mix of prices is extremely complex, and based on history and future predictions. Google seems to be incredibly good at predicting consumer behavior online. Therefore, this is a natural fit. Airlines will sign up to be included in this because it means a more reliable predictor for pricing. Well-run carriers keep the gouging down to a "reasonable" level, others squeeze every single nickel out of passengers. A system like this that pairs consumer behavior trends with the pricing model will allow a carrier to do either of these.
Example: When you were signed into your gmail account last, you searched for golf clubs, pricey restaurants and luxury spa getaways. You're probably more likely to care less about the price of your ticket than the guy who searched for hostels, cheap rental cars and other "budget" websites. Taking that data in the aggregate and pairing it with the airline searches people are doing gives airlines another data point to play with. Taking that specific data (yes, yes, I know there's a privacy policy) would let the carrier present different fares for different search profiles. Airlines would absolutely love a no-privacy-policy, complete history of what you look at online, the same way an insurance company would love to get information about you that they can't obtain publically. I believe the polite term used is "not leaving money on the table."
I fully expect the day I get turned down for life insurance because of my Dunkin' Donuts, Tim Horton's and Starbucks coffee habit.
In the second part of his series he reveals that he has worked in the past for AirTreks, and continues to be involved with them. AirTreks appears to be a competitor to ITA, so while these articles are interesting, I think you need to take his conclusions with a large grain of kosher salt.
Speaking of Bing, does anybody else think that its proud self-label as a "decision engine" is highly pretentious? People rather often want someone or something else to tell them what they should do, but it seems to me that in many of these cases, they don't realize this and may be offended by the suggestion that they don't know or don't care what's best for them?
But hey, it's not my money, and I don't use the service.
" ... because it is likely to exacerbate the trend toward personalized and less transparent pricing of airline tickets"
Its already way too late for that my friend. There are millions and millions of public fares ('tenders for offers') on the market at any one time. Many are never even available, any many are locked down to only specific groups. The systems are so crazy that companies spend millions of dollars on systems just to figure out their -own- fares. That's just to see if I can make an offer for a fare. When we worry about booking a fare, we have the wide variety of travel agencies that each have their finger in the commission pot, so who knows how much savings are being passed on to the actual consumer and how much the agent is swallowing. Don't forget the 'tax' (aka surcharges, not a real tax) that more and more airlines are tacking onto their flights. This is usually highlighted in a less visible font $500 .. .... (+ 300 tax ) .. ouch
Here is what usually happens when buying a ticket online:
Consumer - Types in their From/To & dates
Internet Booking Engine - Searches through the GDS' for the most appropriate itineraries for the dates / passengers / etc.. (This is the expedia / travelocity / etc..)
GDS - Ties in with fare management systems (reading published fare data for compatible fares & surcharges), scheduling firms (when / where flights are coming and going), reservation systems, and few other smaller sources to find an itinerary that matches whatever criteria you specified in your journey
Airline's Reservation System - Confirms availability and makes the booking and reserves a placement on the plane (usually a single airline company per system, though there are shared hosting systems for small guys)
My best assumption is that the want ITA to better refine the Google experience of the "Internet Booking Engine". To be fair, every time you see the annoying spinning "seaching for cheap fares" messages from sites are usually the result of querying GDS systems for appropriate matching fares/itineraries. I suppose some smart caching can speed that up, but can lead to false positives for bookings.
PS: Dirty little secret for those not in the know: Reservation Systems book seats with the assumption that people won't show up to flights, so they quite often oversell if they get the chance. If you've ever been bumped to a different class or off the plane, this is most likely why
Bye!
Maybe we'll all fly for free on jets that drag a giant banner ad across the sky!
I refused to read this just because the word "portend" was used. Are you telling me that /. is getting so classy to where no other more commonly used word could be use din the title??
With ITA Google doesn't just get a database, ITA's QPX system does much more than that. It could be thought of as a variation of real-time search--ITA gets fare updates thoughout the day (4 times a day, if I remember correctly). ITA has been working on making their fare search engine more general purpose, and I don't think it's a stretch to think of it as another way to improve Google's real-time search capabilities outside of the travel area.
Wow, nice unbiased articles there. At least the author is up front about his conflict of interest.
I bet they will do a better job. Most of what they do turns out pretty good. But it's getting a little scary that we depend on Google for so many net infrastructure pieces now. This will be just one more. I can imagine a future in which something goes wrong and the gov't would have to step in because of the risk to society if some of their most critical services were allowed to fail. Or, in which Google is broken up after having monopolized too many industries.
And maybe even personalized fares make sense from the perspective of what *I* want a "personalized" fare to be versus the evil, how-much-can-we-take-him-for idea of personalized fares.
For example, I have a gazillion frequent flyer miles; when searching for flights, I want to find the cheapest coach seat I can upgrade to first class via miles. I'd love a flight search that gave me that data as my "personalized fare" (ie, cost + miles). It's a total PITA to do that now on the airlines web site.
Just because you think they're not out to get you, doesn't mean it's true. Technological development has ran rampantly unchecked for some time; as evident by erosion of personal privacy and rights.
ELOI, ELOI, LAMA SABACHTHANI!?
IMO everyone in this thread has missed the point entirely of why Google bought this company.
This article posted at giga-om covers the real story.
http://gigaom.com/2010/07/19/meet-the-web-database-company-google-just-bought-hint-not-metaweb/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+OmMalik+%28GigaOM%29&utm_content=Twitter
Google will try to integrate NeedleBase with Freebase, and eventually AppEngine. Structured Data is going to become the basis for APIs and commerce on the web and this is a part of Google's strategy to remain relevant in the market.
Lisp is now supported language at google. ITA is one of the largest Lisp shops in the country.
Plato seems wrong to me today
... you've used ITA's search engine. A lot of the major airlines have licensed it for their own websites as well.
Unless you are one of the licensees, I don't think anybody has anything to worry about from this. The tech has already been out there for some time.
currently all owned by groups of private equity investors, so they need not report publicly on their finances or operations
This is actually inaccurate; Amadeus (one of the 3 big GDSs) was put up on the Madrid stock exchange earlier this year.