Let’s say, hypothetically speaking, that you’re looking to make a splash in the travel market. Sure, you already might have some products which allow your users to display a boarding pass or track flight status, but you are always thinking bigger. You want to have a fully integrated reservations system, not just displaying bookings made elsewhere; you want to fully own the process. You’ve also got a few patents which seem overly broad in some ways, but which should cover the unified booking, management and actual travel process through a single interface. Oh, and you’ve also got more than $145 billion sitting around, looking for a useful outlet. What’s your next move?
The key component to the booking and management process is the Global Distribution System (GDS) platforms which work as the middle-men between travelers and service providers. There aren’t too many players in that space and there are plenty of reasons to be wary of their profit potential, especially from the airline side of things. Still, if you want to build a massive travel solution having your own GDS is a pretty efficient way to approach the situation. Why bother negotiating API integration and fee structures when you can simply own the whole platform? Especially when there are other, ancillary benefits which might come with that purchase?
There are arguably three major players in the online consumer market today: Microsoft, Google and Apple. In April 2008 Microsoft purchased Farecast, integrating the historical fare data and prediction algorithms into their Bing Travel platform. Google made their move a couple years later, snapping up ITA Software in 2010. The ITA platform is much closer to a full GDS than what Farecast offered, though it doesn’t have the direct-to-consumer front-end aspect of things in place. Apple has been competing with Google in many areas recently and getting a leg up in the travel space – a market with huge amounts of money (and customer affinity) in play – is not such a bad idea. The only real company in play right now is Sabre and the company is once again raising the idea of launching their IPO; if Apple wants in on the action now is the time to act.
To be fair, the patent details are mostly focused on how to use NFC or similar technologies for the passengers’ mobile devices to talk with other systems so that check-in and boarding can be handled more smoothly, not about the overall booking process. But making reservations is mentioned several times and, if history is any indicator, Apple’s desire to control the whole process makes this sort of transaction quite feasible. Building a fully integrated booking interface from scratch is a ridiculously complicated undertaking and there is very little up-side to that approach. Apple would still have to negotiate access to all the underlying data, in addition to building out the management and processing systems and user-facing interfaces. That last bit is likely something they would want to redo anyways, but the back-end stuff is major work and buying a functional version in situ is a nice way to get a head start. It is also worth noting that Sabre is a lot more than just the GDS platform. Through its history Sabre has acquired or launched many other businesses, including travel agencies, online communities (IgoUgo) and booking engines (Travelocity). Yes, buying them outright would have a significant cash cost, but getting all the parts at once rather than assembling them piece-meal means the project would be live much sooner.
If Apple is going to get into this market they’re already facing an uphill battle. Roughly 75% of the travel agency market (including OTAs) is dominated by 4 key players. To break in to that space would require a disruptive shift, the type of move Apple has embraced in the past. They could play it slow, depending on travel providers to integrate into their Passbook application but the adoption has been somewhat slow. Also, there isn’t a ton of upside for the company for depending on partners to integrate into their ecosystem; Apple likes to control the whole experience. If Apple wants in on the hundreds of billions of dollars in annual online travel revenue, going slow into the market is a bad move.
Is Apple going to buy Sabre? I honestly have no idea. But there are rumors of such circulating (I didn’t come up with all of this all by myself) and, quite frankly, it wouldn’t be the stupidest thing they’ve ever done.
It sure is fun to imagine what they could accomplish if they did, though…
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Hmmm, very interesting…
I dunno, I think part of the reason that there is so little competition in this space is that the data is so “dirty”; getting their hands dirty doesn’t seem like it fits the Apple, smooth white shell way of life. But if they could abstract the dirty-ness away from the consumer and wrap it in that white shell… I have to admit, that would be something!
You are one smart dude.
As an investor and a consumer I like the idea of this………..
Interesting analysis. If distribution channels like American’s Direct Connect take off and spread, would that negatively impact the value of any potential deal here? I don’t know, and am probably not thinking it through… just curious.
Having worked for a few GDS’ myself, I’m just going to say that buying one would be a very bad, and costly move. Google was very, VERY smart to buy ITA as that company had a 21st century workforce with the necessary up-to-date 21st century technology.
The three major GDS’ operate under a very different and old mindset (aging employee base is one factor), let alone the outdated technology. The GDS’ are not nimble, young technology companies like Apple and Google, but rather dinosaurs that dominate the landscape. And not due to innovation (GDS’ are notorious for the lack of it), but because the cost/barriers to entry for a new startup in the space are so high. ITA has been the most successful to gain traction to date, but as you noted above, they do not come close to the sheer global power the 3 GDS’ have and monopolize.
I could see the benefits, but Apple needs to stay far away from these companies, or it will see quite a culture clash come its way.
Interesting idea! But Apple has too many other things going on and hasn’t been very successful as a software company thus far.
@Chase, if ITA (Google) is such a “young” successful, traction-gaining company (your superlatives), why did it just shut down it’s 8 year, 700 person attempt at a PSS to rival Sabre? They failed. And scrapped hundreds of millions of dollars of software development. Decades of man years. They couldn’t rebuild what Sabre has (sorry Air Canada).
Apple isn’t dumb enough to make that mistake. If they are serious about making the wireframes Seth posted (and who knows if they are) buying a Sabre is the ONLY option. Building is a fools errand and anyone in travel tech should know that. You damage your own “GDS credentials” by suggesting otherwise. Plus, with APPL’s cash, a bet on a sub-billion $ deal like Sabre is an easy one.
Additionally, Sabre Airline Solutions is killing it of late- winning big name airline deals away from Amadeus. If Sabre could only shed the profit-sucking Travelocity monkey off their backs they would be a blue chip enterprise software platform for the aviation industry A-listers.
Oh, and you don’t think TPG and Silver Lake want to unload this thing to Bain Capital and a brand name acquirer after 5+ years of downsizing pain? Private Equity- look it up. Not the most patient capital. The alternative is a Sabre IPO- who wants in? Exactly…
Charlie has the correct analysis in my opinion. Sabre was the major innovator when it began back in the mists of the late 1970’s. Were Apple to buy it they just might make it an innovator again. Chase is 100% correct on culture clash, though, so this will not be easy to pull off. The payoff might be large if Apple can find a way to reduce air carrier costs, optimize consumer and corporate experiences while still turning a profit.
Very improbable to do it on their own. However, they could make some sweet deals with rapidly growing carriers (EK?, DY?) to act as GSA. That would not be the GSA’s of old, but could be interesting too.
Personal history with Sabre and a GSA give me a skeptical bias, like Chase, but deep pockets and determination can go a major part of the distance to make the improbable actually happen.
Kudos for posting this, Seth. This post is the best of all your posts for me.
@Charlie,
GDS and PSS are two completely different business divisions, do not mix the two. If Sabre is making a ‘killing’ as of late (and again you’re talking about PSS, not GDS), why has Sabre never been able to obtain a single tier-1 airline for its Sabresonic product? Google is your friend if you don’t know what a tier-1 airline is. AA is the only tier-1 client it has and they are still on native, TPF Sabre, not it’s latest product (Sabresonic).
So before you attack me, you need to research the facts.
@Chase Didn’t meant that as an attack. You have more knowledge on this stuff. Really just want to see those schematics come to life and I don’t see another way forward (in my lifetime)
Google bought a company that couldn’t scale immediately (ITA Software) – took 18 months before it could launch internationally.
fyi, this is from 2008.
https://www.google.com/patents/US8215546?pg=PA1&dq=US+8215546+B2&hl=en&sa=X&ei=_6-bUez3EoWz4APFlYCIDg&ved=0CDcQ6AEwAA