Google to acquire Frommer's travel guidebooks

14 Aug, 2012

Google Inc is buying the Frommer's line of travel guidebooks, the latest move to amass a trove of publishing content that could strengthen the No. 1 Internet search company's push to become a major online travel broker.

The sale by John Wiley & Sons Inc comes nearly a year after Google's $151 million purchase of Zagat Survey, which offers reviews of restaurants, hotels and nightclubs in cities around the world.

Google and Wiley & Sons did not announce financial terms for the deal, which is expected to close shortly.

The deal will meld the 55-year-old travel publisher's deep database of hotels and sights into a search giant that is seeking to position its services across the entire trip-planning process, from searching for a holiday destination and looking up hotel reviews to booking tours and restaurants in far-flung cities.

As a result, analysts said, Google is increasingly threatening a range of companies, like review site Yelp Inc and flight and hotel booking service TripAdvisor, which are scrumming for a slice of the growing online travel market.

US online travel sales are expected to reach $119.2 billion this year, up from $107.4 billion in 2011, according to eMarketer.

"It's been Google's overarching strategy to dominate the travel vertical," said B. Riley & Co analyst Sameet Sinha. "They want to dislodge these vertical search engines that may have gained over the last few years."

Shares of Yelp fell 7.7 per cent to $23.87 on Monday after the deal was announced. Online travel website Expedia Inc's stock slipped 1.1 per cent to $53.83. TripAdvisor fell 4.5 per cent to $33.52.

Shares of Google, which on Monday announced plans to lay off 20 per cent of its recently acquired Motorola Mobility business, rose 2.8 per cent to $660.01. Wiley & Sons shares were off 1 cent, or 0.02 per cent, at $47.58.

Going local

Last year, Google closed a $700 million deal to acquire ITA Software, which provides search technology to companies like Kayak Software Corp .

But Google's aspirations in travel are just part of its broader ambitions. For years, the company has tried to help broker commercial transactions between its roughly 1 billion monthly users and small, local businesses.

Google's local search efforts - headed by its high-profile executive Marissa Mayer until she left to head Yahoo Inc last month as chief executive - has been a priority for the search engine.

Since acquiring Zagat, Google has given more and more space on its search results page to business listings from Zagat, a practice that has drawn regulatory scrutiny and criticism from competitors like Yelp.

By teaming up with Frommer's, which publishes 350 titles and covers over 4,000 destinations, Google could further expand its reach internationally and beef up information on local hotels and tourist activities across the globe.

"They want to marry content with commerce, and content is an important part of that equation," said Sinha, the B. Riley & Co analyst.

In recent years, Google has not hesitated to offer top dollar for other properties that it believed could strengthen its local commerce offerings.

In December 2009, the company unsuccessfully offered more than $500 million to acquire Yelp. One year later, in late 2010, Groupon Inc, the daily deals company, turned down a $600 million offer from Google.

Europe on $5 a  day

For an acquirer like Google, the most valuable part of Frommer's is its extensive database of business listings and tourist hotspots that have been maintained and curated for years and can be integrated into Google's deep pools of data, analysts said.

"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," Lorraine Shanley, president at Market Partners International, a publishing consulting firm in New York.

A Google spokeswoman said that over time, the company would integrate the content acquired from Frommer's with Zagat. But initially, Google will continue to offer the reviews of hotels, restaurants and sights across the world on the Web under the Frommer's brand name.

The spokeswoman said there was nothing to announce regarding whether Google would continue to publish the print guidebooks.

Wiley, which also publishes the "For Dummies" series, acquired the Frommer's line in 2001.

The publisher had been looking to offload Frommer's in recent months as it consolidates its business around its textbook offerings, said Morningstar analyst Michael Corty.

The latest acquisition by the Internet giant caps a 55-year journey for a series that first appeared in the early years of commercial air travel. In 1957, Arthur Frommer, a former US soldier, released his European sightseeing book, entitled "Europe on 5 Dollars a Day," after fellow GIs snatched up a similar guide that Frommer had distributed while he was stationed in Germany.

Written in a breezy style and appealing to the budget-conscious, the slim book encouraged Americans across a broader economic spectrum to venture overseas in the flush Postwar era.

His guide, Frommer wrote in the first edition, was meant for American tourists who "own no oil wells in Texas" and have "never struck it rich in Las Vegas and who still want to enjoy a wonderful European vacation."

In the 1970s, tattered copies of Frommer's book accompanied a new generation of young American backpackers across Europe. And in the years since, other publishers like Lonely Planet have also found considerable success printing thick bound guides for the independent traveler. Lonely Planet is now owned by the British Broadcasting Corp.

But the golden days of travel book publishing may be over, given the rise of always-connected tablets and e-books that can be easily updated with the most current maps and listings, said Shanley, the publishing consultant.

"People still want to take a travel guide with them when they go on a trip, but presumably that will erode over time," Shanley said. "I'm not going to sound the death knell of travel books, but the expense of creating a new edition and then printing it and distributing it is becoming prohibitive."

The Motorola challenge

Google Inc will slash 20 per cent of the workforce of Motorola Mobility in the Internet search giant's largest job cuts ever as it moves to make more smartphones and fewer simple mobiles.

The news sent Google's shares up nearly 3 per cent but analysts said it was unclear if the cuts were enough to restore the fortunes of Motorola, whose last hit was the Razr flip-phone launched eight years ago.

"I think it's still going to be challenging to navigate the waters (of the handset business); how do you keep your partners happy and how you push your own smartphone devices at the same time," Morningstar Inc analyst Rick Summer said.

"This is the obvious step. The things that are harder are how do you drive profitability, how do you carve out a niche for Google devices, how to end up delivering solid returns on capital."

Google bought the money-losing cellphone maker for $12.5 billion last year - its largest acquisition ever - aiming to use Motorola Mobility's patents to fend off legal attacks on its Android mobile platform and expand beyond its software business.

By pairing Motorola's smartphone hardware business with its Android software, Google may have a better chance of mounting a direct challenge to Apple Inc's popular iPhone, technology market observers believe.

But the acquisition has also raised concerns on Wall Street as investors fret that Google, the world's No. 1 Web search engine, is entering a business with much lower profit margins and in which it has little experience.

Motorola's mobile devices unit has lost money in 14 of the last 16 quarters. In the second quarter, Motorola reported an operating loss of $233 million on revenue of $1.25 billion.

While many questions remain about Motorola's strategy, Morgan Stanley upgraded Google to "overweight" after the cuts.

"We believe that Google is planning to reduce Motorola Mobility's smartphone portfolio to a few reference Android devices, and perhaps a couple of tablet devices," analysts at the brokerage said.

Google had evaded questions about its plans for Motorola Mobility when it reported quarterly results last month, saying it had yet to complete its homework on the various businesses.

Recent media reports have suggested that Google is shopping Motorola Mobility's television set-top box business which is not the best fit with Google's high-profit-margin Internet business.

What size fits?

In a regulatory filing announcing the job cuts on Monday, Google said it planned to simplify its line-up of mobile products, "shifting the emphasis from feature phones to more innovative and profitable devices."

The moves, Google said, are intended to return Motorola's mobile devices unit to profitability, but warned investors to expect "significant revenue variability for Motorola" for several quarters.

As Google restructures the Motorola business to fit Google's strategy, many of Motorola's legacy businesses will be "wound down," said BGC Partners analyst Colin Gillis. He cited low-end "feature phones," which lack the wide, color touchscreens and computing capabilities of smartphones, as the most obvious example.

"If it can't display a Google ad, then Motorola is probably not going to be making it for much longer," he said.

Google makes the majority of its revenue from online ads that appear on its search engine and other Web services. As consumers increasingly access the Web from mobile devices in addition to their PCs, Google is taking steps to ensure its money-making online services remain easily accessible.

Google's moves to cut 20 per cent of Motorola's workforce is larger than the typical 10 per cent layoffs that companies often make when restructuring a business, Gillis said, but he added that he expects Google to make further investments in Motorola's smartphone and tablet PC businesses.

Morningstar's Summer said he does not expect mass layoffs at Motorola, but said things might change as Google reviews all of the cellphone maker's units and tries to sell the TV unit.

Others were similarly unclear about the right size for Motorola, which will close nearly a third of its offices.

"They are still learning what makes it a leaner meaner machine. I think as we move into the new year, there maybe more right-sizing," said Susquehanna Financial Group analyst Herman Leung.

Google said in a regulatory filing it expects to take a severance-related charge of up to $275 million mostly in the third quarter, but with some possibly trailing through to the end of the year. It warned there could be some other significant charges yet to be calculated.

Google shares rose 2.8 per cent to close at $660.01 on Nasdaq, after rising as high as $660.15 earlier.

One-third of the jobs lost will be in the United States, but the company has not specified where or what facilities would be affected.

Earlier, the New York Times reported Google's plan and said it was looking to shrink operations in Asia and India, by not just exiting unprofitable markets, but also stopping making low-end devices and focusing on a few cellphones instead of dozens.

Motorola Mobility, which has 94 offices throughout the world, will center research and development in Chicago, Sunnyvale, California and Beijing.

In addition to the planned cuts, Google has downsized Motorola Mobility's management, letting go 40 per cent of its vice presidents, but has also hired new senior executives, the New York Times said.