Why Google Punished Expedia

Internet giant Google (NASDAQ: GOOGL  ) has shown investors once again the enormous power it has to control web traffic. The company, which owns more than 60% of worldwide search, may have punished Internet travel site Expedia (NASDAQ: EXPE  ) for trying to boost its search rankings by posting keywords such as "cheap flights" on external web pages like travel blogs.

After Google penalized the company for its "unnatural links," the online travel agency may have seen its page rankings drop by as much as 25% for travel-related searches, according to search-engine research firm Searchmetrics. How quickly can Expedia recover from this incident? Could this be a great opportunity for competitor Priceline.com  (NASDAQ: PCLN  ) to capture market share?

Google overdependence
SearchEngineLand reported that Expedia may have lost 25% of its search visibility. And by losing visibility on Google, Expedia's traffic could drop at least 20%, according to Searchmetrics founder Marcus Tober, who believes that Google is making manual efforts to penalize Expedia results. The report triggered a sell-off, with shares ending Jan. 21 down by 4.5%, as investors worried about Expedia's overdependence on Google to drive traffic.

Expedia lost 25% of its search visibility after Google's punishment | Source: Searchmetrics

This is not the first time Google punished a popular website. After Google learned that lyrics site Rap Genius had been using dubious SEO tricks to attain top spots in search results, it removed the Rap Genius website from its search results. The site's internal pages for individual songs and bands were also removed, making it very hard to find Rap Genius on Google. After the punishment, Rap Genius lost more than 70% of its traffic in a few days.

Easy come, easy go
These events confirm, once again, Google's enormous power to bring traffic. But, more important, they also confirm the urgent need for websites to diversify their sources of traffic as much as possible. Google and Facebook integration are usually great traffic-acquisition channels, but they are not that good when it comes to retention.

As the largest travel company in the world, with more than 50 million unique visits per month, Expedia's decrease in Google visibility should not lead to a huge decrease in traffic, like it did with Rap Genius. This is because Expedia's traffic looks more diversified, and has a huge community of members. 

However, the company needs to avoid attempts to inflate search-engine rankings. Providing any kind of benefit -- even a free template -- to bloggers who post Expedia links under hot keywords, such as "cheap flights," could become a reason for punishment. According to Bloomberg Businessweek, one good example of the type of link Google dislikes was found at the bottom of travel blog AirSnark.com. The blog had a link to Expedia's flight section for several years using the catchy keyword "Designed by the Expedia Cheap Flights Team."

Priceline.com and Expedia
Expedia's low visibility on Google could be a great opportunity for its main competitor, Priceline.com. Priceline outpaced Expedia in traffic, thanks to its emphasis on international bookings, which have grown 53% annually since 2007, according to Morningstar. In 2012, Priceline posted $23 billion in international bookings, well above Expedia's $14 billion. 

That being said, Google's penalties are often temporary. Even Rap Genius got most of its visibility back, as the company abandoned misguided SEO strategies. According to Cowen and Co. analyst Kevin Kopelman, if Expedia is indeed being punished by Google, the matter could be solved within a few weeks, leaving no significant negative effect on Expedia's financial performance.

Final Foolish takeaway
Expedia's recent punishment imparts a few lessons. First, the event confirms how important Google's role is in acquiring traffic. Second, when analyzing a tech stock, investors should also ask themselves this: How dependent upon Google are the company's apps?

Finally, if Expedia is being punished by Google, the issue should be solved quickly, and the company's financial performance may not be affected. 

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