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Comment by gruseom | Hacker News Reader

Given what you and martincmartin are saying, I am left wondering why Google was able to buy ITA for so little. How can such a thing be worth less than a billion dollars?

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Because there's a rather finite amount of money spent on air travel which means that the valuation of any one company in that sector will be well within Google's means?

Perhaps. But in that case it's a much smaller market than I imagined. Also relevant is that ITA raised $100M in 2006, so their $700M exit is hardly a home run by VC standards. It doesn't seem to match the astonishingly strong technical and market position you (convincingly) describe.

http://www.itasoftware.com/news-events/press-release.html?id.... Note that the round included Sequoia who are known for caring only about big markets.

ITA raised all that money to build a reservation system to replace the old mainframe systems that are fabulously expensive to run. That would have been a market of the kind that required outside investement from a company that was already profitable (I think ITA had more people working on the reservation system than the search), and that a big VC would love to bet on.

From what I hear it worked technically, but failed commercially due to the badly timed recession. It seems like a fair bet that Google's offer wasn't putting a lot of value on the reservation system. Even if it could be made to work, it's not the kind of a business that Google is usually in.

The margins in air travel are also slim. Google did a very smart thing here. There business model can support the ITA purchase, not many other businesses could do this. The kicker is they also just hired a lot of talent.

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