Reading about Google's proposed $700 million acquisition of Cambridge, Mass.-based ITA software in the Boston Globe and elsewhere evoked memories for me of tough decisions I made as a former Federal Trade Commissioner and Deputy AG in the New York State Attorney General's office. Google's proposed acquisition of ITA and potential dominance in the online travel market raises substantial questions I would ask as a former antitrust regulator.
Search engines form the gateway to the Internet, connecting consumers to information and commercial offerings, including travel. Already, 30 percent of all search engine traffic for online travel sites begins with Google. Even though most users complete their flight searches on online travel sites like Kayak and Expedia, Google's share of initial travel searches already gives it enormous sway over the $80 billion in travel purchases made online in 2009.
Most consumers have never heard of ITA, but have probably used its technology. ITA's QPX software powers the majority of online flight searches. Searching for flights is complex due to an almost endless combination of schedules, routes, availability tariffs, rules, fees and real-time information on seat pricing and availability. It took the MIT computer scientists who founded ITA nearly five years to create a commercial product. ITA licenses its proprietary technology and unique real-time access to data from the airlines on seat pricing and availability to many of the most popular online travel sites such as KAYAK, Hotwire, and Microsoft for Bing Travel.
The ITA acquisition would allow Google to collect more user data, command higher advertising rates and extract a greater share of online travel searches and search advertising. This deal would allow Google to dictate who gets a license to ITA's critical technology and strengthen Google's ability to steer search traffic in online travel. Allowing Google to acquire ITA would enable it to dominate both the front-end (search) and back-end (search advertising) of the online travel marketplace.
In light of that background, as a former regulator, I would pose several questions:
1. Google is under investigation by the European competition authority and the Texas Attorney General for allegedly altering search results to disadvantage competitive sites. How could an auditor determine that Google was not disproportionately favoring its own businesses, if the ITA deal closes?
2. What would prevent Google from using its trove of consumer information to become a data
broker to the airlines, essentially teaching airlines how to extract higher airfares from consumers by adjusting their pricing strategies? Google could combine the ITA data with the consumer data it has already collected and start offering targeted marketing campaigns to airlines: "Would you like to market your flights to Cancun to consumers making $100,000+ per year who have searched for "Mexico" and taken a trip in the last 12 months?" There have been reports of web sites already charging consumers higher prices based on past purchasing patterns, on a wide variety of goods and services (ranging from CDs to travel).
3. What would prevent Google's search advertising prices from increasing after the acquisition?
In Japan, after regulators approved the Google/Yahoo Japan deal, Google's keyword advertising rates reportedly increased by up to almost 5 times preceding amounts. Wouldn't the airlines pass along those higher costs to consumers?
4. Would the effect of Google's dominance in search and search advertising, combined with
the acquisition of ITA's unique technology and real-time access to airline data, give Google control of both the supply and demand side of travel search? Google would have access to the real-time seat availability and price information, the ability to extract higher advertising fees from airlines, the incentive to teach airlines how to discriminate among consumers, and enough consumer information to control what a consumer sees.
5. Finally, would the effect of the proposed acquisition reduce consumers' quality of information, reduce travel advertisers' choices and product variety (due to increased ad rates), and potentially diminish innovation in online travel search?
I'm no longer a regulator who can review this proposed transaction, but the world is certainly watching those who are. The government must act now to protect consumers, stop search deception and promote fair competition online.