Deep Dive Into Google's Travel Ambitions

33 Pages·2016·1.83 MB·English

Deep Dive Into Google’s Travel Ambitions
Weighing in at three times the size of our standard reports, this expanded trends report offers
exclusive insight into new Google travel products launched on November 19, 2015, as well as
exclusive interviews conducted at Google's headquarters in Mountain View, California this fall. In
addition, it includes industry analyst notes that are otherwise only available to clients and banks.
Table of Contents
 Executive summary
 Introduction
 Google’s Strategy
 Interview: Oliver Heckmann, Google’s Vice President, Travel, On What Sets Google’s
Strategy Apart From Competitors
 Destination Search With Flights and Hotels Mixed In
 Book on Google
 Google Hotel Ads Commission Program
 Google Hotel Ads
 Starwood Tests Commissions and CPC
 African Booking Site Jovago Likes Conversion Metrics in Hotel Ads
 Interview: Max Starkov, HeBS Digital on Why Book on Google Is A ‘Non-Event’
 Google Flights Is Sending More Clicks to Airlines
 A Veteran Airline Distribution Guy is Concerned About Google’s Rise
 Insights and Strategies
 Endnotes and Further Reading

by Dennis Schaal + Skift Team
Executive Summary
Google is already the dominant player in travel advertising but now, after four years of acquisitions and
product development, the search giant is finally integrating its flight and hotel products. It is also
ramping up Book on Google with the goal of making Google a go-to venue for travel transactions.
This report provides a first look at a new Google feature: its integration of flight and hotel products,
along with restaurants, into vacation-destination search on smartphones. Contrary to industry
speculation, a Google exec says it does not want to become an online travel agency like Expedia or
Booking.com, but it wouldn’t mind it if the percentage of travelers, currently 60 percent, who begin
their trip-planning with Google, rises in coming years.
This report features an exclusive, in-depth interview with Oliver Heckmann, Google’s vice
president of travel, who details Google’s strategy, describes changes in user behavior that Google is
addressing, and responds to criticism about the dominance of Google AdWords and Google’s own
products at the top of the fold in search results pages.
This report, which includes the perspectives of online travel figures such as Kayak co-founders Steve
Hafner and Paul English, a Starwood executive and the former distribution head of Northwest Airlines,
as well as public statements about Google and the rise of metasearch booking from the CEOs of
Expedia Inc. and the Priceline Group, features a raging debate about whether Google will eventually
dominate online travel or whether Google’s strategy is fatally flawed.
The report also features UBS analysts Eric Sheridan and Robin Farley interviewing hotel digital-
marketing expert Max Starkov, who argues that Book on Google is a “non-event” for the hotel industry
because Google approaches travel retailing as a “side show” and its volumes are a fraction of
TripAdvisor’s. This UBS interview was previously only available to UBS clients.
In addition to providing the exclusive interview with Google’s Heckmann from Google’s Mountain View,
California, headquarters and a first look at Google’s new travel features, the report outlines a key
business model difference between Book on Google and TripAdvisor Instant Booking, a difference that
is widely misunderstood in the industry.
The report, which examines Google’s new vacation-destination search, Book on Google, the new
Hotel Ads Commission Program2, Google Hotel Ads and Google Flights, also provides in-depth
insights and best practices about participating in Hotel Ads from metasearch-auction optimization
platform Koddi.
Of Google’s strategy, Heckmann says: “It’s a bit different than what the industry is doing, to exactly
focus on the needs of the consumers, in particular, with this type of micro-moments world that we’re
living in. Hotels and flights fits seamlessly into that [the new destination search]. I think that will
convince you that we’re taking this very seriously. It’s just not copying what the industry is doing. That’s
not a Google strategy. It’s also not our goal because we don’t want to become an OTA [online travel
agency] or anything like that.”

Introduction
Four years after Google acquired ITA Software as the foundation for Google Flights and launched
Google Hotel Finder, running them as separate entities, Google is finally putting the two entities
together, but is doing so in a quintessentially Google way.
Don’t look for T-shirts branded Google Travel, a marketing campaign or a special domain to find
Google’s integrated travel products. Instead, consumers will find the integration of Google flights and
hotels on their smartphones as part of destination searches in response to queries in English around
the world.
Here’s the first look at Google’s new vacation-destination search:
Search for “vacations in Italy” on a smartphone and you’ll find high-quality images and videos about
things to do in Rome, Venice and Florence; side-by-side comparisons of destinations by interests;
temperature and precipitation data by month; indications of the most-popular months to travel based
on location data; and editorial content about these tourism destinations from the team of scribes that
joined Google when it acquired Zagat in 2011 and Frommer’s digital assets in 2012.
From a travel-booking standpoint, though, the feature in destination search that will draw the most
interest from the travel industry is “Plan a trip on Google,” located on a smartphone underneath photos
and ratings of the top sights in Florence, for example.
Putting flights, hotels and restaurants together in this manner for the first time, the trip-planning feature
displays links to:
 14-hour flights around $1,550
 3-star hotels average $80, 5-stars $260
 Restaurants in Florence

In this way, leisure travelers with flexible plans can gauge the total trip cost and the optimal time to
travel to a destination and find a hotel. Tapping on the links brings users to Google Hotel Ads and
Google Flights, which has new filters to search by interests and flexible dates.
As the dominant search engine in North America, South America and Europe, in particular, Google is
leveraging Big Data to make smart recommendations based on traveler intent, location data, travelers’
itineraries mined through Gmail, and real-time flight and hotel pricing.
When Google announced it would acquire ITA Software for $700 million in 2010, a contributing factor
was that Microsoft had acquired airfare prediction site Farecast a couple of years prior and was
rebuilding a travel product after having spun out Expedia nearly a decade earlier.
Oliver Heckmann, Google’s vice president, travel, points out that Google’s new flight and hotel
recommendations aren’t based on mere predictions from historical data.
“This is not some price averaging that is done or historically you pay this or that,” Heckmann tells Skift
in an exclusive interview [see full interview below] prior to the rollout of the new vacation-destination
search. “This is really in the back-end. We pulled the data currently out of Google Flight Search and
hotel search of what’s available that you can book now. What’s the best flight? What’s a good hotel?
All of the stuff we have is the actual available stuff. If there’s a fare happening in that week you’ve
selected or expressed, it’s taken into account. If there’s a hotel that isn’t available anymore, it’s taken
into account.”
Google’s travel aspirations aren’t limited to the new travel destination search. As it is doing in Google
Shopping and other verticals, Google is intensifying its efforts to be seen by consumers as a booking
and payment destination in itself in the form of Book on Google. In ways that are similar — but not
identical — to TripAdvisor Instant Booking, Google is collecting travelers’ credit card information and
facilitating the booking of hotels and flights on Google.com and in its apps while the hotel, airline or
online travel agency remains the merchant of record and handles the customer service.
Google, of course, is already a major player in travel through Google AdWords. eMarketer
estimates1 that the U.S. travel industry spent $4.85 billion on digital advertising in 2015, with online
travel agencies, including Expedia and Booking.com, dominating the spend, and Google the leading
recipient.
But will Google’s plan to take things to the next level in travel via destination search and Book on
Google really work without Google trying to build a specific travel brand and identity?
In an interview [see below] that had previously only been available to UBS clients, Max Starkov, the
CEO of hotel-marketing strategy company HeBS Digital, dismisses Book on Google, in particular, as a
“non-event” for the hotel industry and “a side business” for Google because Google will be reluctant to
alienate its large travel advertisers and won’t go about trying to convince consumers in an aggressive
way that Google is a trustworthy place to spend their vacation budgets.
“It didn’t happen over the last four years since Google Hotel Finder was launched,” Starkov told UBS
clients in early October. “I don’t see it happening anytime soon. And then again, so in this sense for all
practical purposes, Book on Google is a non-event. Because it’s just a side business. It’s a small
amount of clicks, a small amount of eyeballs. It’s not the major, major, major channel in hospitality.”

Google’s Strategy
Heckmann counters that argument, saying Google is investing ample resources into travel-planning
features and it doesn’t have to — or want to — become an Expedia or Booking.com because Google,
as a search engine, is in the business of providing smart answers, and already has the consumer
eyeballs. Google also has 850 employees working on travel products and that doesn’t include sales
people.
“Sixty percent of users start their travel planning on Google, and we’re committed to give them the
best possible experience, and we’re happy if this number goes up,” Heckmann says. “You’ll see a
product [travel destination search with flights and hotels] actually now that we’re pouring significant
resources into. You’ll see that we’re actually doing stuff.”
Book on Google is designed to ease bookings for travelers as mobile has produced relatively small
screen sizes. Consumer trip-planning behavior has also transitioned toward what Heckmann calls
“micro moments,” short bursts of travel planning, in a few seconds here, a couple of minutes there,
spread out over weeks or even months.
Google has also debuted a Hotel Ads Commission program, enabling hotels that want to participate in
Google’s hotel metasearch program or Book on Google to do so by paying commissions at rates that
the hotel sets. This is especially useful for smaller hotels that aren’t sophisticated cost-per click (CPC)
advertisers. Google converts their commission payments into clicks so they can compete in the
metasearch auction.
In a further differentiator, and unlike TripAdvisor Instant Booking, hotels and airlines can participate in
Book on Google via CPC bidding or paying commission. TripAdvisor Instant Booking is commission-
only.
“It’s a bit different than what the industry is doing,” Heckmann says, referring to Google’s strategy. “To
exactly focus on the needs of the consumers, in particular, with this type of micro-moments world that
we’re living in. Hotels and flights fits seamlessly into that [the new destination search]. I think that will
convince you that we’re taking this very seriously. It’s just not copying what the industry is doing. That’s
not a Google strategy. It’s also not our goal because we don’t want to become an OTA [online travel
agency] or anything like that.”
One of the reasons Google chose to integrate flights and hotels in search rather than branding a
product or establishing a domain in a narrower approach is because of user behavior, Heckmann
says.
“If you just think about general travel planning it’s much bigger an interest than just finding a flight or a
hotel,” Heckmann says. “People end up using Google or other search engines as part of that planning.
If you are going to Thailand you need a visa, you need vaccinations and other things. There are plenty
of other questions that you end up using in search to figure out.”
There are a wide variety of opinions about the wisdom of Google’s strategy.
Steve Hafner, co-founder and CEO of Kayak, a competitor of Google’s in metasearch and booking
features, hadn’t seen Google’s new destination search when he talked to Skift because it wasn’t live
yet. However, basing his opinion on the description, Hafner said that he “highly doubted” it would be
“super impactful.” Hafner doesn’t believe it would provide consumers with additional convenience or
save them money because it doesn’t combine flights and hotels into packages.
It sounds “suboptimal and doesn’t change anything,” Hafner says.
On the other hand, Hafner takes issue with Starkov’s characterization of Book on Google as a non-
event. “I would never describe anything Google does as a non-event,” Hafner says.
Separately, Kayak co-founder and former chief technology officer Paul English, who is co-founder of
Boston travel-tech startup Blade, says he’s dubious about Google’s ability to create transactional
loyalty in travel.
“I’m skeptical that millions of people would ever give Google their credit card for travel purchases —
travel is too expensive and too-rarely used — to create brand affinity for a horizontal search engine to
be trusted by travelers,” English says.
Nicholas Ward, co-founder and president of Fort Worth, Texas-based Koddi, a bid automation
platform for metasearch publishers, thinks four trends — improvements in flight search,
comprehensiveness in hotel search, the rollout of search by interests and insights through tapping into
crowdsourcing and data — are converging within Google’s travel initiatives that will eventually create “a
killer travel experience.”
Ward says Google’s “flight search has gotten extremely good. It’s lightweight, fast, nearly
comprehensive, and just works. Hotel search is nearly ubiquitous. As a user, it’s passable and we
know Google has five to 10 features they can add at any time because they used to exist on Hotel
Finder. It’s just a UX [user experience] question and how it fits into the search results.”
Google’s contextual travel searches, meaning searches by interest such as beach destinations or
romantic hotels, will “get good to great,” Ward says. Google is making strides in adding relevant
destination content through crowdsourcing and leveraging “insights based off real-time data,” he says.
“When these four forces do converge, Google will have a killer travel experience,” Ward says. “They
would have to work hard to brand individual travel products. When it’s a great seamless experience,
that’s just Google being Google, and I think that platform will be more than enough to continue winning
users.”
For now at least, though, Google doesn’t intend to brand individual travel products.
Al Lenza, former vice president of distribution and ecommerce for Northwest Airlines and currently and
an advisor and consultant for online travel companies, also believes Google will become a huge force
in the travel industry.
“I think it is just a matter of time before they [Google] emerge as a big player,” Lenza says. “It is a little
like TripAdvisor. Their brand and customer awareness are huge. They are in a different playing field.”
Asked if Google will continue to approach travel in a less-than-rigorous manner to keep the peace with
its travel advertisers, Lenza doesn’t think so. Lenza points to global distribution system Sabre, which
had vowed not to compete with its travel agent customers and then launched Travelocity in 1996.
Google will find ways to minimize the fallout with advertisers, Lenza says, adding that the search
engine is positioned to succeed when answering customers’ queries such as “I want to fly from here
to there in July on any airline.”
“They have the technology to answer that question, they have the advertiser and consumer loyalty,”
Lenza says. “The only thing holding them back is them. It is just a matter of time.”
A lot of people would argue that Google holds all the cards to succeed, including controlling the real
estate of search results pages and giving preferential treatment to its own products, a phenomenon
that has attracted antitrust probes in the U.S., now concluded, and Europe. If you type in “Chicago
hotels” the search results page is dominated by travel ads, and the only organic results above the fold
are from Embassy Suites by Hilton Chicago Downtown and Hilton Chicago and they appear within a
Google 3-Pack unit. The 3-Pack, shown in part below, displays three hotel results in a box, along with
the nightly rate, user-review ratings, the star rating and amenities’ information.
Click on either of the two hotel results shown and users would navigate to a Google Hotels Ads page,
replete with a map.
When consumers search Google for “flights from chicago to paris france,” then the search results are
even more advertiser-heavy with the entire screen above the fold taken up by Google AdWords buyers
and the sponsored Google Flights with airfares visible from Lufthansa and United.

Asked about the way Google is handling search results pages, Google’s Heckmann says: “If someone
is searching for hotels, a lot of text is not the answer. That’s why we built this new [3-pack] unit where
hotels are showing up in there because that’s a better way of selecting a hotel. You can go to a full-
page experience, you have a map view of the situation because that’s often how you look at a hotel.
Clicking through 10 or 20 blue links and trying to figure out where the hell are they, that’s just simply
not going to cut it anymore. I would actually say that was never really a good user experience.”
“It’s even worse in a mobile environment,” Heckmann says. “That’s why we built that [3-pack] unit and
we put it on top of organic because everything in there is ranked organically. You can’t bid your way
up to the top of that unit. That’s the new way we show hotels. We also still show the 10 blue links but
that is the future of what we do. And that’s consistent with what Google is doing.”
This search environment makes it really tough for travel startups without huge funding to compete in
Google and even big-name travel companies can find the environment challenging.
Speaking during a CNBC interview3 on November 5, Expedia Inc. CEO Dara Khosrowshahi essentially
said that Google will play its cards and it’s up to Expedia and others to compete harder and faster.
“I don’t think you can hold Google in check one way or the other,” Khosrowshahi said. “You just have
to move faster than the industry and competition. And to some extent Google is a great partner of
ours. We advertise our brands very aggressively on Google and we get a lot of business from them.
And at the same time you gotta stay competitive with them.
“We’re very confident that with the innovation we’re driving, the investments we are making in
technology, the speed of our sites, we can be more than competitive with Google. And can see with
the volumes – our room night volume, our air ticket volume – our growth are at records so obviously,
you know, we’re growing, Google can grow. This is a trillion-dollar industry so we think there can be a
lot of winners.”

Interview: Oliver Heckmann, Google’s Vice President, Travel, On What Sets Google’s Strategy
Apart From Competitors
Oliver Heckmann, a Google vet of nine years, previously was vice president of engineering for
YouTube in Zurich. A year ago he took the helm of the 850-person Google Flights and Hotel Ads
product teams. Heckmann gave an exclusive interview to Skift from Google’s Mountain View, California
headquarters prior to the launch of Google’s new vacation-destination search. The new feature
integrates flight and hotel recommendations on smartphones in a way that Google hasn’t done before.
Heckmann detailed Google’s travel strategy, including for its new Book on Google functionality and
Hotel Ads Commission Program.
Skift: What’s ahead for Google Travel? As you know, you guys are already Google but does upper
management say to you, “Hey, let’s take this thing forward. We want to be the next Booking.com or
the next Expedia in travel?”
Heckmann: No, it’s quite different than that. We have a couple of things coming together nicely now. I
mean Google flight search, Google hotel search and Hotel Ads. Those are kind of the basic building
blocks that we’ve been working on in the last year, so we’re very happy with how they’ve turned out.
Flight search is still doubling [its] user base every year for years in a row. We’re working with our
partners so, we’ve increased the number of clicks that we send to partners by 250 percent in the last
year.
Skift: When you say you’re doubling the user base…
Heckmann: The number of monthly active users, for example.
Skift: Right, but it’s still relatively small in the ecosystem.
Heckmann: It has become quite significant in the ecosystem. When we talk to airlines, they take us
seriously now. We have some numbers that make us quite proud.
Skift: What has made the numbers increase? Is it just the quality of what you’re doing or something
else?
Heckmann: The flight search team has a strong focus on what’s good for the user. It is one of the
strongest user-focused teams that we have. We’re doing a number of things differently than the rest of
the industry. First of all it’s easy to use, tremendously fast, we put an insane amount of effort in making
it comprehensive and having the best possible data set that we can have in there. There have been a
number of technical innovations that we’ve been driving. Some of them were needed to make it really
fast, but we’re also basically trying to predict what users would normally do and want and execute, all
of that.
We automatically search within a number of days of where you’re looking for, we have a flex date
feature where we help you search over a longer period. And even if you don’t even need to express
that just by clicking on the calendar, and then the calendar goes up. Just a calendar going up will
immediately show you two months and all the prices for those two months. Immediately you’ll see, “Oh
look, if I’m actually going later in August, which I can completely do, I’ll actually be saving significant
money.” You can see all of that without having to actually query anything.
Skift: The data you have to determine what users want comes from Google search, right? From
people typing in “Los Angeles to Paris flights?”
Heckmann: Yes. And on hotel search, we’ve launched a new user interface. It’s nicer; it’s more
consistent with the rest of the Google look. Searching for a hotel you get a consistent experience as if
you’re searching for a restaurant, for example.
Skift: So hotel search results appear in a three-pack now?
Heckmann: Yes and it leads into a beautiful, immersive experience when you expand it. With maps
integrated, you see the prices in maps so that you can actually determine the typical trade-off between
location and price. You can zoom, you can scroll, as you’re used to with the maps.
Skift: What has been the impact of decommissioning Google Hotel Finder as a distinct entity?
Heckmann: There’s been a shift in metrics. By and large, the user metrics went up. The partner
metrics also improved with that change, otherwise we wouldn’t have done it. In the hotel space, it’s
also interesting to mention that the Google way of CPC is not how the industry works. If you’re a large
player in the industry, yes, you have enough data and you can deal with CPC and convert that, but it’s
just different than the industry thinks. So it’s not the optimal way of…
Skift: In terms of commissions?
Heckmann: Yes. So we’ve actually launched the Hotel Ads Commission Program. We have the first
significant number of partners using it, suppliers using it, and we’re extending and adding more.
Skift: Can you tell me a little bit about that? Where does it stand?
Heckmann: You’re really paying commission. You’re not paying per click.
Skift: What is the standard commission?
Heckmann: People give a commission.
Skift: Oh, they provide the commission amount?
Heckmann: And then we basically convert that into a click because you might be competing with
someone in the auction who’s actually using the CPC model, and we do all of that work for the
supplier.
Skift: So if the supplier says, “OK have a 10 percent commission…”
Heckmann: “Sir, I give you 10 percent commission for this item.”
Skift: And then they’re competing in the metasearch auction?
Heckmann: They might be competing with someone who says, “I’m giving you 10 cents per click.”
And then we do the heavy lifting and number crunching and then rank the two against each other.
Skift: Some people have put forth the theory that it would probably bring a better return on investment
for a hotel or for a large online travel agency to compete in metasearch rather than your Book on
Google program because their effective commission using CPC is probably a lot lower than if they
would agree to pay in a set commission.
Heckmann: You mention Book on Google; that’s an orthogonal [at right angles] thing. That doesn’t
have to do with the commission program. It’s an additional feature so we’re mixing two things here. If
you’re used to thinking in terms of commission, you can just give us the commission. You don’t have
to figure out what’s the likely click-through rate for this property and for that type of user. And now
what’s the cancellation rate and how do I convert all of that into a click and maintain the CPCs? So
that’s a simplification on that side where also we then actually are responsible for making sure all that
number crunching happens correctly. It has nothing to do with Book on Google.
Skift: What’s the latest on Book on Google? How is that progressing?
Heckmann: Book on Google is actually a big and important thing. So if you take a step back, one
trend that we see across all of Google when we look back across all verticals, including travel, but not
exclusively to travel, is a shift to mobile. Everybody is on his or her phone all the time. Whether they’re
standing in the supermarket, they’re sitting at their sofa at home, in a restaurant, in the bathroom,
wherever. People are on their phone all the time so there are multiple changes.
The obvious change was screen sizes are small, it’s harder to type stuff. The not-so-obvious thing is
actually the session lengths have changed. In the past I might have done travel planning at home in
front of my desktop computer the whole evening, or a full day on the weekend to plan everything.
That’s happening less and less. It’s increasingly happening in what we call micro moments, small
moments of time in between. There are many more of them, naturally, but they’re so much shorter.
Skift: Are these micro moments stretched out over more days?
Heckmann: It’s stretched out over many months. It depends exactly on the trip, not necessarily if I
have to fly next week on a business trip, then it’s not going to be stretched out over months. We see
micro sessions continuing on the same macro tasks over more than two months, for example. So
that’s an effect and it’s a big change. It’s also a great opportunity because there are so many of these
micro moments where an advertiser can kind of reach a user at the right time.
The small screen sizes don’t lend themselves to having 20 tabs open and explore all the flexibility that
at least a leisure traveler typically has when traveling. “Oh I could go first week of August, I could fly on