If Google acquires ITA Software, then assuredly there will be a travel industry realignment and one of the consequences could be Kayak falling into Expedia Inc.'s hands.
Admittedly, this is speculation heaped upon speculation, but an Expedia acquisition of Kayak as a means to blunt Google and ITA Software cozying up would make a lot of sense.
Consider that as part of the bidding frenzy for ITA, Kayak, with backing from Expedia, offered to inject $200 million into ITA to keep it independent and out of Google's clutches. A source confirmed to me the veracity of those news reports yesterday.
This Expedia-Kayak tag-teaming to keep ITA independent coincides with the much more robust participation of Expedia.com in Kayak metasearch in recent times -- so the ties have warmed.
Before Expedia removed its air-booking fees in early 2009, Kayak had an exclusive online travel agency relationship with Orbitz, where clicking on a fare in Kayak's flight-metasearch results often brought consumers directly to Orbitz.com.
Today, Expedia.com is an active participant in Kayak's flight-metasearch results and Expedia.com often is a booking option along with Orbitz, CheapTickets or an airline website.
Bringing Kayak into the fold would be a defensive move for Expedia Inc., enabling it to soften the expected blow from a Google full-throttle entry into travel metasearch with ITA as its partner.
Pairing Kayak with Expedia's TripAdvisor in some fashion -- and having three leading global brands, Expedia.com, TripAdvisor and Kayak, under one umbrella -- also would be an interesting combination because TripAdvisor and Kayak already play in a similar hotel/media sandbox and they have flight-metasearch offerings in common, as well.
The combined clout of TripAdvisor and Kayak would also give them more muscle in wrangling higher compensation from Google because of their respective Google AdSense syndication efforts.
If Expedia bought Kayak, which would come with a hefty price tag in the ITA neighborhood of $700 million to $1 billion, Kayak's owners would secure their exit strategy and Kayak might be able to substitute Expedia's Best Fare Search product to replace the ITA QPX system that Kayak now uses.
UPDATE: Although Kayak would have to command $900 million to $1 billion to pay off its investors and make its exit, its valuation may be much lower than those figures. So, although Kayak would make a good strategic acquisition for Expedia or other OTAs, the question becomes how much would the suitors be willing to pay.
Expedia probably has the bucks and leverage to buy Kayak, which might be a cheaper merger than acquiring ITA, if you assume that Kayak's earnings are higher than ITA's.
If you think an Expedia-Kayak merger is farfetched, you probably can make your own valid argument, but rest assured that these sorts of scenarios are under active consideration today by large travel companies as they chart what to do about a shakeout should Google -- or Microsoft, Travelport or Amadeus -- succeed in their respective bids for ITA.
There would be six to 10 months after an ITA deal is announced for major players to get all their ducks in a row because an ITA acquisition, particularly by Google, would trigger a protracted regulatory review.
Some people are scratching their heads about Expedia's reasoning in offering to provide financial backing to Kayak so that Kayak might in turn invest $200 million in ITA to keep it independent.
Why wouldn't Expedia just toss $200 million into ITA on its own?
The answer, while not immediately apparent to outsiders, may have to do with Kayak's and ITA's overlapping ownership, or perhaps Kayak-ITA is a better cultural/technical fit than Expedia-ITA.
However, with all of the maneuverings under consideration, at least one financial analyst feels that some of the hype about ITA-Google is over the top.
Herman Leung, vice president of Internet Equity Research for Deutsche Bank Securities, acknowledged in an analyst's note that Expedia's stock price has been "tempered" by the fear that Google would use ITA, Google Maps and search to create its own travel channel.
But Leung paints these fears as "overblown," arguing that the threat is less to OTAs and more to pure metasearch companies -- like Kayak -- and lead-generation players than it is to OTAs.. He argues that Google lacks "domain expertise" and experience in developing long-term supplier relationships.
Also, Leung says, Google has little success in acting as a merchant of record -- assuming, which I don't, that Google would go that route -- and in providing customer service.
"Should Google try to displace the OTAs and take on a more aggressive travel approach, ad revenues generated by the OTAs could be at risk for Google," Leung writes. "So a fine balance must be made with this."
And, global travel businesses -- including Expedia, Kayak, Bing Travel, Amadeus and all of the rest -- are laying plans to figure out how to react, with a whole lot of jockeying for position hanging in the balance.