Software firm gets $100m in backing

CAMBRIDGE -- ITA Software Inc., a decade-old company whose systems for searching and shopping for airline fares have come to be used by millions of people daily, has closed on a $100 million infusion of venture capital, apparently the biggest New England software venture deal in five years.

The deal, being announced today, comes as the $5 billion US market for computerized airline ticket-booking systems used by travel agents and corporate travel buyers is poised for an epic shakeout in the coming year. ITA backers are betting heavily that the company can make deep inroads against existing suppliers like Sabre Travel Network and Cendant Corp.'s Galileo service, whose typical fees of $12 or more per ticket are pushing financially strapped airlines to look aggressively for less expensive alternatives.

ITA's funding, the first venture money it has taken after funding its growth solely from operating profits, is coming from a syndicate of investors led by Battery Ventures of Wellesley, a $2 billion firm. According to figures supplied by the MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association, the $100 million funding represents the region's single biggest software venture capital deal since CentrePath of Waltham, which sells systems for computer data center management, raised $120 million in early 2001.

The only bigger local deal since the beginning of 1999, according to the MoneyTree survey, was a $138.9 million investment in energy software supplier Excelergy Corp. of Lexington in 2000.

Battery Ventures general partner Scott Tobin said the size of the round reflects the magnitude of the aviation industry information technology markets, which easily total $10 billion a year globally. ''Boston needs more and more great, large technology companies, and this is a unique opportunity to build a very significant technology company based here," Tobin said.

ITA chief executive Jeremy Wertheimer said the 175-person company is poised to hire another 125 people in the coming year. It was originally founded in 1996 by Massachusetts Institute of Technology computer scientists.

ITA's software is already used by the corporate websites of US Airways, Continental Airlines, and Alaska Airlines to offer travelers ways to search for flights, and it powers travel search-and-comparison websites including Orbitz.com and Kayak.com.

Over the last year, ITA began developing and selling systems that also let people book and pay for tickets, and it is looking at a whole range of new products that would help airlines run call centers, reservation systems, and other IT functions, Wertheimer said.

Today, more than 42 percent of all travel industry purchases happen online, including not just airline tickets but hotel and rental-car reservations, according to PhoCusWright, a Sherman, Conn., independent consulting firm.

Airlines continue, however, to rely heavily on so-called global distribution systems such as Sabre, Galileo, Worldspan, and Amadeus, to sell millions of tickets through travel agencies and corporate travel bookers. Such systems remain popular because they function like the equivalent of a shopping mall, where almost all airlines' seats are available along with hotels and rental cars, instead of requiring travel agents or planners to shop among multiple individual airline websites.

Most of the major airline deals with these vendors expire this year, and airlines are hammering the global distribution systems operators to slash costs and are considering deals with cheaper upstarts like ITA and G2 SwitchWorks Corp. of Chicago. Because rivals such as Sabre operate on systems that date back to 1960s mainframes, ITA can charge airlines 75 to 90 percent less per ticket sold through ITA's system.

John Slater, a managing director at Continental Airlines overseeing e-commerce, said the Houston-based airline has been ''a happy customer of ITA, and we're equally excited that they're going to be getting into the GDS business."

''It's time for a change," Slater said. ''The GDS's have failed to answer the call for efficient, low-cost distribution."

In many ways, Slater said, the challenge ITA poses to existing ticket-booking-system vendors is comparable to the threat new low-fare carriers like JetBlue Airways Corp. and Southwest Airlines Co. pose to Continental and other old-line carriers, because the upstarts have newer, cheaper airplanes and technology and much lower operating costs.

Incumbent ticket-booking-system providers contend they offer many benefits new entrants do not, such as hotel rooms and car rentals as well as airline travel.

''We build new technology every day because it's an important enabler, but in this business the hard part is building and maintaining an efficient marketplace that works for the travel industry and travelers," said Hugh Jones, Sabre senior vice president.

''We've spent decades building deep relationships with travel agents, millions of consumers, and with travel companies beyond just airlines. We think it's going to be hard to replicate the value our marketplace brings," Jones said.

But Michael Moritz, a partner at Sequoia Capital, a Silicon Valley venture firm also participating in the $100 million round, said, ''Most airlines still depend on software and systems developed before Woodstock. The only airlines that will prosper in the future are those that embrace fresher technology and the Internet [to] strip cost from the industry."

In addition to Battery and Sequoia, other investors in the ITA Software deal are General Catalyst Partners, PAR Investment Partners, and Spectrum Equity.

Peter J. Howe can be reached at howe@globe.com.