Flying under the radar on August 13 was the news Google (Nasdaq:GOOG) was buying Frommer's, the well-known travel guide currently owned by John Wiley & Sons (NYSE:JW.A). According to The New York Times, Google paid $23 million to acquire the brand. So why is it bothering with such a tiny acquisition? Because it wants to go up against the likes of TripAdvisor (Nasdaq:TRIP) and other travel-related websites; Frommer's gives it additional content. How long it's able to avoid the scrutiny of the Federal Trade Commission is another subject altogether. In the meantime, I'll examine what this means for some of the parties involved.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Google

In April 2011 Google acquired ITA Software for $700 million. ITA provides travel companies with technology platforms to operate in the ultra-competitive world of online travel sales, a $119 billion business (annually) in the U.S. Five months later it acquired Zagat Survey, the eponymous restaurant and hotel review site for $151 million. Now it's adding Frommer's to the mix in an effort to compete in the online travel business. Companies like Yelp (NYSE:YELP) and TripAdvisor are now directly in the crosshairs of Google, whose aspirations to marry content and commerce appear large.

SEE: 5 Surprising Companies Google Owns

As Lorraine Shanley, president of publishing consultant Market Partners International, explains, "When Google buys Frommer's, they're not really buying a book publisher or imprint, they're buying a database with both content and photography." Wiley didn't want the company any more as it's focusing on its textbook business, so Google was likely able to negotiate an attractive deal. Now Google has a trio of businesses that will allow it to compete effectively in both travel and local search. Where this ultimately leads is anybody's guess, but you can bet Google wouldn't have done the Frommer's deal without some sort of commitment to this segment of its business.

SEE: Acquire A Career In Mergers

TripAdvisor

This company generated $637 million in revenue in 2011, about two-thirds of which was unrelated to Expedia (Nasdaq:EXPE), its former parent. Regardless of where the revenue came from, its business is extremely profitable and growing rapidly. With Google's addition of Frommer's, its ability to grow its revenues in the future is somewhat threatened, causing its stock to drop by 4.5% on Monday. However, without knowing how Google will use the trio of companies in its travel group, investors are being presumptuous. Until we shave specifics of where this is going, TripAdvisor shareholders are best advised to hang on to their stock. It's got a good business model, and I doubt the addition of Frommer's will erode that overnight. Hang tight, and the urgency to do something will pass.

SEE: Patience Is A Trader's Virtue

Bottom Line

Google generates somewhere in the neighborhood of $2 billion to $3 billion each year from travel-related ads on its search engine as well as its travel-booking site. I find it hard to believe it would jeopardize those revenues and healthy margins simply to become more vertically integrated - at least not in the short-term. Eventually, it will have to figure out how it successfully navigates the fine line between content and commerce. If it doesn't, the FTC will decide for it, and I can assure you it won't be nearly as favorable a result.



At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  5. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  6. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  7. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  8. Investing Basics

    5 Reasons to Expect Lower Stock Returns

    Lower stock returns are likely here to stay for some time. Here are five reasons why.
  9. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  10. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
RELATED TERMS
  1. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  2. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  3. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  4. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  5. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  6. Impact investing

RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!