Google's Hotel Moves Worry Travel Sector

Recent partnerships by Google Inc (NASDAQ:GOOG) with hotel chains have raised concern among others in the travel industry that the search giant is trying to grab more advertising dollars.

"To the extent that the travel industry is spending advertising dollars with Priceline (NASDAQ:PCLN) or Expedia (NASDAQ:EXPE) or TripAdvisor (NASDAQ:TRIP), Google is well aware of that and they'd like to steal some of that," said Douglas Quinby, vice president of research at PhoCusWright, a travel industry research firm.

Google already owns ITA software, a flight information provider, and has a hotel price ad program that routes consumers to hotel websites for booking.

In recent months, hotels have agreed to test Google products, and last month, Google reached a licensing agreement with a startup called Room 77 that lets guests compare hotel prices and book rooms.

While many analysts don't think Google is a big threat to online travel agencies in the immediate future, such agreements have sparked buzz about what it could eventually do in the travel sector.

Industry researchers don't believe Google is looking to get into the business of processing purchases done by online travel agencies, which are some of its biggest advertisers. They add the transaction business would require certain capabilities that would bring new overhead and fixed costs. But Google would like to court more travel advertising revenue, they said.

Carlson Rezidor Hotel Group, which includes the Radisson and Country Inns & Suites chains, announced a pilot program late last year allowing guests to search, shop and pay for hotel stays using Google Hotel Finder, Google Business Photos and Google Wallet payment applications.

The Best Western chain also signed up to have interactive photos appear in Google search results.

On its earnings conference call last month, Google said its travel efforts were meant to provide "more and more detailed information when people do searches" for hotel bookings or tickets.

PhoCusWright's Quinby said after its recent moves, Google is directly competing with hotel search companies like TripAdvisor inc, Priceline Group Inc Kayak.com and Expedia Inc's trivago.

Of the $4.7 billion spent on U.S. travel advertising last year, 52 percent went to websites and other digital channels, according to PhoCusWright data. Of that, hotels spent the most, followed by online travel agencies and airlines.

While Google's moves could put some ad revenue from online travel agencies at risk, Quinby said the online agencies won't cut ties with the company. "Google is just a huge source of traffic," he said. "It's not like some of these big (online travel companies) are suddenly going to stop advertising on Google."

Henry Harteveldt, an industry analyst with Atmosphere Research Group, said Google doesn't want to process travel bookings because there are better profit margins in travel advertising and search engine marketing, less complicated businesses.

"Google wants to be more actively involved in travel advertising and search. They want to do everything except be that travel agent or the airline or the hotel," Harteveldt said.

Still, he said Google was a threat because its search capabilities enable it to collect data on consumer interests and habits that could make it a more compelling business partner than an online agency for destination marketers, airlines, cruise companies and other travel sellers.

"Travel companies tell me they are deeply concerned about Google's potential strength," Harteveldt added.

Google declined to comment.

The biggest online travel agencies said Google is a valued partner that helps drive business their way.

In a statement, Expedia called Google "an important source of traffic and highly qualified leads." Expedia said it works with many search engines and added "to the extent Google can play a constructive meta role, so much the better."

Priceline Group Chief Executive Officer Darren Huston said his company had a "really good partnership" with Google and added he doesn't lose sleep pondering what it might do.

He said that should Google decide to compete more fully with online travel agencies, it would find a business that takes a lot of work, given the capabilities needed to process transactions.

"Travel is one of many areas that (Google) may want to do more on, and they'll be surprised if they do come down in the space where we operate (to see) just how hard it is," Huston said in an interview.

"We're not just an Excel spreadsheet. We have customer service, credit control, hotel people and 135 offices around the world doing really hard day-to-day work to maintain the specialness of this product."

(Reporting by Karen Jacobs in Atlanta; Editing by Jeffrey Benkoe)