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On Kayak getting acquired by Priceline

November 9, 2012

Ha! it had to happen.

Since Google acquired ITA some years back, the online travel industry has been shit scared. They formed a coalition to fight against Google under fairsearch.org . Here is a nice summary of their concerns:

http://www.fairsearch.org/wp-content/uploads/2012/01/Google-Flight-Search.pdf

Also note that leading players like Kayak, Expedia and Microsoft (Bing flight search) are all in that coalition: http://www.fairsearch.org/about-fairsearch/

Now this fear and hate runs in various directions and has lots of historical causes. Online Travel Agents (OTAs ) fear travel search engines like Kayak. Whom Airlines love but don’t declare it openly. Airlines, historically, have been dependent on Global Distribution Systems (GDS) like Amadeus and Sabre. Please note that the GDSes were setup decades before the Internet as we know it came in the 1990s.

And back then it solved an important problem of allowing travelers to make a phone call to a local travel agent and book on any airline. The GDS would have installed green screens (connecting to backend main frames in GDS’ facility) into the travel agent’s office, and setup leased lines upto them.

So the way it worked was that Airlines also became reliant on GDSes systems for their inventory. It was more convenient that way.

And surprise-surprise this way of travel distribution exists even today. The GDSes are still incharge for much of travel distribution in 2012. And even a lot of Airline websites have to pay GDSes per hit (into their system). Although there are a lot of Low cost carriers (LCCs) who have their own systems and do not distribute their inventory via GDS.

Internet happens in the mid 1990s, and enter the OTA. Two smart Microsoft hackers get an idea and code  it up and in 1996 we have the first online travel site – Expedia.

As time progresses more OTAs come into the scene. And they solve an important problem, of allowing travelers to book tickets both for airlines which distribute their tickets via a GDS, and also those airlines that don’t, by linking up with their systems using an API.

Few years pass and around 2000. A few MIT PhDs combine to form ITA software and start writing code in Lisp (and hence made Paul Graham love them even more [1], [2]) to develop their software called QPX. Which was supposed to have sound a death knell to GDSes systems running on mainframes.

But the men in suits were not about to give control to any pretenders and are not impressed by MIT degrees. They rely on slow change and being entrenched and having the Airlines with  their b–ls [3].

So ITA guys make slow progress. Sign up deals with some Airlines and get to move their inventory on QPX (ITA’s GDS if you will). But naturally most Airlines don’t move or can’t move. So they also need to take some data from the very same GDSes whom they hate.

But good thing is that their Lisp magic and commodity hardware architecture (Googley inspiration, I believe) make it very fast for the people who take their API. And http://matrix.itasoftware.com/ interface very popular among the geeks.

Its now 2004 and some more execs who want the future to happen now, leave OTAs and found Kayak, the one of its kind Travel search engine. Kayak wants to work directly with Airlines, but soon realizes it also needs to get data from GDSes, Airline’s can’t be bothered about technology needs, they have important things to worry about, like survival.

Other meta searches also spawn up every where in other Geographies, mostly inspired by Kayak.

Meanwhile for ITA software 10 years pass, and its now 2010. But they still haven’t managed to make the level of change in the Industry they wanted to see. GDSes and OTAs thrive while Airlines struggle to stay afloat[4].

Google acquires ITA in 2010, in the ambition to make the GDS free future happen now. Kayak and other meta search players feel threatened, and launch an attack using fairsearch.org. Google is still given a go ahead to acquire, and launches ‘flight search’ albeit a bit ambivalently.

Kayak, is forced to delay its IPO partly because of this acquisition. But 2 years pass and they do it in July 2012. But still they are not really really sure about the future, competing with Google still looks daunting, and the Industry has still not changed to the level, they would like to see.

So its but natural, that not having confidence in a good measure, they sell!

I think, what it will do is that it may slow down Kayak, and hence affect the progress of this change of direct sale of Airline inventory on the Internet. Also by this move the leading travel search engine, would have been acquired by an OTA (or an OTA like company). Its a  bit like the Villain buying out a Hero in a movie! So its sort of a moral victory for the GDS-OTA camp.

So in this ongoing war of Airline seat distribution. For it to happen in the most natural and straight forward way, as it always should be since the Internet was born, the straight forward way has lost a tactical battle.

Google (flight search) and Microsoft (Bing flight search) can only fight to a point. And definitely can’t fight like Startups can, as often they have so many things to worry about. And we never know, if Google’s ITA investment was just a hedge for some other fear.

In any case, some Startups fight on. And may we join and say, more power to them!

[1] – http://www.paulgraham.com/icad.html

[2] – http://www.paulgraham.com/gh.html

[3] – http://www.tnooz.com/2011/10/17/news/and-now-amadeus-enters-into-truce-with-american-airlines/

[4] – http://www.economist.com/node/21560866?frsc=dg%7ca

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