Google Places now is officially a risky business for Expedia and its hotel review site, TripAdvisor.
In Expedia's Inc. 2010 10-K report, published Feb. 11, 2011, the company cites Google Places as a risk factor to its businesses. Expedia states:
"For example, Google, through its launch of Google Places and its proposed acquisition of ITA Software, if completed, as well as Bing, through its launch of Bing Travel, each took steps during 2010 to appeal more directly to travel customers, which could lead to diversion of customer traffic to their own websites or those of a favored partner, or undermine our ability to obtain prominent placement in paid or unpaid search results at a reasonable cost, or at all."
Later in the report, Expedia states that in 2010 Google "made changes to its hotel search results, including promoting the use of Google Places. To the extent these actions [including Google's proposed acquisition of ITA Software] have a negative effect on our search traffic, our business and financial performance would be adversely affected."
Google Places, introduced last year, tends to give hotel reviews and other hotel information aggregated by Google precedence over organic search results.
TripAdvisor's Steve Kaufer has vehemently blasted Google for allegedly abusing its power in Google Places, but Expedia Inc.'s citing Google Places as a risk factor takes the issue to a new level.
In Expedia's fourth quarter of 2010 earnings call Feb. 10, Dara Khosrowshahi, president and CEO, said removing TripAdvisor links from Google Places "really has not had that signficant effect on TripAdvisor at all."
However, the search engine optimization wallop is at the heart of the issue.
"What affects us more is Google favoring [Google] Places, its own internal results, so to speak, over organic results," Khosrowshahi said. "So to the extent that Google is favoring its own results, Places, and automatically putting them on top of organic results which are, call it third-party results as we've seen, that pushes third-party results down. We don't think it's a good consumer experience because clearly, consumers do like to look at reviews, et cetera. But that's really the traffic driver, it's not traffic through Places but it's traffic through the SEO links that's very important for TripAdvisor. Even with all that, you can definitely see TripAdvisor's revenue growth is still very, very healthy, and we expect quick growth in 2011 to be well in excess of 20% plus. And we expect TripAdvisor revenue growth to continue."
The Google Places initiative has not gone unnoticed in the financial community, of course.
Deutsche Bank Equity Research financial analyst Herman Leung, in a note to investors Feb. 11, cited "pressure on TripAdvisor by Google Places" among other factors behind a downgrading of Deutsche Bank's rating on Expedia stock to hold from buy.
"While Expedia is still positioned to benefit from secular online travel trends and remain a strong distribution channel for suppliers, we are moving to the sidelines given higher investment spend in both its core and media businesses and pressure on TripAdvisor by Google Places," Leung wrote.
Leung added in his note: "... TripAdvisor US, where a majority of revenues are generated, is seeing early headwinds from increased competition from Google Places."
In an interview, Leung said Google's lowering of TripAdvisor listings toward the bottom of the page would reduce return on investment in marketing spend.
"I think there is an impact and that impact will only get more aggressive," Leung said.
Leung pointed to the new Make a reservation ads that Google has rolled out for Google Places and Google Maps. These ads link to hotel websites.
Google Places is no longer a test and the company is becoming more aggressive in integrating its hotel business throughout Google properties, Leung said.
"It will take one or two extra steps to get to a TripAdvisor review, assuming it is still there," Leung said.
Similarly, fears of Google favoring its own -- or certain suppliers' -- flight search results with ITA Software in the fold has spurred much of the opposition to the acquisition.