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Yahoo Buying into Travel?

The rumor that Yahoo has acquired FareChase appears to be true. There is an article on Internet Week confirming that the transaction closed on July 2nd. While Yahoo! representatives were quick to point out that this does not in any way endanger their exclusive deal with Travelocity, I have a hard time reading this as anything except for Yahoo! expressing a long-term desire to participate in the travel market.

This is a pretty interesting acquisition. Aside from “the majors” in the world of online travel (Travelocity, Expedia, Hotwire, and Orbitz), there are only a handful of interesting companies in the world of travel applications (I would put SideStep, Mobissimo, and FareChase in that category). If you think about what the modern Internet travel buyer wants, I think it can be reduced to three core values. First, they want low prices. That is pretty obvious. Second, and equally obvious, they want breadth of options — they would like to know that Southwest, JetBlue, Northwest, United, etc. are all being queried when they launch a search. Third, I believe customers want to be able to do some limited trade-off analysis once all of this information is aggregated. For example, I know I like to run the “what if” experiment and see how fares change if I take a red-eye vs an afternoon flight, if I take one connection or two, etc.

Nowadays, the name of the game in online travel is demand aggregation. Getting access to the large reservation database systems is a surmountable hurdle. Airlines, with the exception of Southwest and Jetblue, seem to want to go where the greatest number of passengers are. So why can’t Yahoo! be a travel company in its own right? They certainly have the potential to aggregate demand. They certainly have the technological infrastructure for search. And they have a real interest in boosting non-advertising revenue streams. The more I think about it, the more I would worry about disintermediation if I were running Travelocity. The only potential drawback I can see is the customer service overhead that goes with serving as an intermediary between big airlines and today’s harried passengers.

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