Kayak and Expedia say Google would dominate flight search if the U.S. Department of Justice approves the acquisition of ITA Software, and Google would have the incentive to degrade ITA’s airline pricing and shopping product for online travel companies if the deal goes through.
Expedia and Kayak, key opponents of the deal, went public with their concerns in a Tnooz interview hours after the launch of their coalition website, FairSearch.org.
In a post today on the Google Public Policy Blog, Google repeated its pledge that it will “honor all of ITA’s existing agreements,” but Kayak Chief Marketing Officer Robert Birge disclosed that Kayak repeatedly has sought assurances that Google wouldn’t degrade the ITA product over time for customers and hasn’t received any such assurances.
In other words, said Tom Barnett, an Expedia counsel and former assistant attorney general in the DOJ’s Antitrust Division, Google would have an incentive to forego licensing the most innovative version of its air pricing and shopping product in the future so it could dominate the space.
When Google says it would honor existing contracts, the company actually is saying that it “reserves the right to limit, undermine or cut off” ITA’s products in the future, Barnett alleges.
In its blog post by senior product manager Andrew Silverman, Google said it’s been encouraged by travel industry support for the deal, but “it’s disappointing that a number of travel companies have today announced their concerns about the deal.”
“Our reason for making this acquisition is simple: ITA will help us provide better results for our users,” the Google post said. “When someone searches for ‘flights from San Francisco to London,’ we’d like to provide not just ‘ten blue links’ but exact flight times and prices as well — just as our competitors do today.”
In countering claims by FairSearch.org, Google argued that:
- The deal would not lead to higher airline ticket prices because ITA merely analyzes data about seat availability and fares, and pricing is left up to the airlines;
- Expedia, Priceline and Travelocity use air pricing and shopping data supplied by ITA competitors so it’s untrue that ITA powers “most of the Web’s most popular travel sites;”
- The deal would not make Google the kingmaker in online travel because “Google does not plan to sell airline tickets directly;” and
- Merely licensing ITA data would not have brought about the best outcome for consumers because Google can “make more significant innovations and bigger breakthroughs in online flight search for consumers by combining our engineering expertise with ITA’s than we would by just licensing ITA’s data service.”
In an interview after today’s Google blog post went live, Birge of Kayak argued that an earlier Google July 1 blog post announcing the proposed deal and outlining its vision of the current travel ecosystem, was “extremely misleading” because three of the companies cited as ITA competitors, including Expedia, don’t currently have an airfare shopping and pricing product available on the market.
For example, Expedia’s Best Fare Search product, which was cited in the Google travel ecosystem, is not available commercially and Expedia has no plans to license it.
In addition, Birge argued, two other competitors mentioned, Vayant and Everbread, are startups without a mature product and no announced customers [NB: apart from an Everbread-Cheapflights deal].
“We wish them luck,” says Birge, referring to Vayant and Everbread, “but it took ITA five years before it was live on Orbitz in June of 2001.”
Barnett added that although ITA doesn’t have an incentive to steer consumers toward a particular supplier today, Google would have the incentive and this would undermine competitiveness.
And, Birge of Kayak, which uses ITA’s QPX product, sought to counter Google’s position that the deal wouldn’t lead to higher airline fares. Birge said Google is the dominant online advertising player and a leading distribution channel so higher advertising costs would get passed along to consumers in the form of higher fares.
FairSearch.org lists Expedia Inc., Kayak, Sabre Holdings, Farelogix and affiliated brands as supporters, and that’s a fairly small list of supporters when you consider the breadth of the online travel industry.
However, Brent Thompson, Expedia’s vice president of government affairs, cautioned that one shoudln’t read too much into the size of the supporter list, given that some companies fear Google’s clout.
“We are comfortable with the high level of concern across the industry,” Thompson said.
So where do things stand in the regulatory review?
Expedia counsel Barnett said he believes that this is about the mid-point in the review process, that the DOJ is taking “a very close look” at  the deal, and that members of FairSearch.org are engaged in an ongoing dialogue with the DOJ.
Barnett stated that what will be important to the DOJ are the facts — namely that the majority of the online travel world uses ITA for flight search, that online travel companies are dependent on ITA for data, and that the deal would give great Google leverage over the competition.
In fact, Birge argues that ITA has even more market clout than is generally perceived.
Birge noted that Travelocity.com and Expedia.com use their companies’ own flight search products, so when you remove these two large OTAs from the equation, then ITA’s market share would approach 70% of the U.S. online travel market.
But, Google would counter that there are viable alternatives to ITA.
As Google noted in its public policy blog post today, citing a Tnooz story and a Wall Street Journal article, respectively: “Kayak’s CEO called Expedia’s Best Fare Search alternative ‘awesome’ and Continental Airlines noted that ‘there are alternatives to the [ITA] shopping solution in the marketplace, both internally and externally.’”
So, now it’s up to the DOJ’s task to sort all this out.
Wow, it looks like Kayak and Expedia are really afraid of Google. I get why Kayak is scared……they lose their shot at an IPO, or at least major traffic to their site, but why is Expedia so upset? Travelocity and Orbitz don’t seem to care? Does Expedia own a large portion of Kayak or sit on their board?
This deal doesn’t hurt Kayak’s chances of an IPO any more than Kayak’s current situation — it is just another customer of a provider of a real innovation (ITA). Who wants to invest in that?
hmmm – owning the client?!
maybe getting closer to that [owning the travel client] is the essence of the ITA deal, given [currently] ota’s and suppliers mostly own those relationships.
perhaps its the ultimate currency i.e. owning attention.
is it C J B?
Good questions, Barack. The rhetoric from Mr. Barnett is interesting, but I don’t see why Expedia would be afraid of Google at all.
On the flip side, I wonder if Expedia’s involvement in FairSearch is diversionary. Kayak has incentive to protect its business model from the metasearch portion of Google-ITA, but unless the DOJ is going to force Microsoft to divest Farecast, what’s the precedent to block the deal?
Kayak’s valuation would certainly take a hit – so could Expedia be buddying up in anticipation of that and getting an inside track on acquiring Kayak at a bargain price? Expedia would get a great incremental traffic base and a referral model to diversify its transaction businesses.
And yes, Kayak’s traffic could suffer (hence the valuation drop), but with its network of media businesses (and Diller’s portfolio), Expedia could bolster Kayak’s traffic right back up.
Of course this would increase Expedia’s leverage with airlines and hotels even more, and since they’ve proven not to play nice and bias its hotel and air display results, should the industry and the DOJ be looking a little more closely at Expedia’s motives in addition to Google?
Just another thought…
Barack and Jonathan: I think Expedia’s angst about Google-ITA is heartfelt and not diversionary etc. Expedia fears that its advertising costs will go up and that it will become less relevant and lose traffic. Expedia’s TripAdvisor also uses the ITA Software product so there is concern about what would happen to that product in the future if it is to fall into Google’s hands.
Yes, Expedia and Kayak are tight. There were reports that Expedia considered investing in Kayak during the run-up to the Google-ITA acquisition announcement as a way to block the deal.
There hasn’t been anything publicly disclosed about any actual Expedia investment in Kayak. I doubt that Expedia has any equity in Kayak.
In the future, who knows……
Dennis: I do agree the angst is based in fear of traffic loss, etc. That’s a given for everyone. But it’s also myopic, and the arguments have too many holes (keep in mind I’m not pro-Google or anti-Expedia, just pro-wanting-this-industry-to-keep-getting-better…)
For ex, “Barnett added that although ITA doesn’t have an incentive to steer consumers toward a particular supplier today, Google would have the incentive and this would undermine competitiveness”.
If that even happened, it should increase competitiveness. Consumers will find the product, price and other factors they want. There are too many other options, and Google’s proven it wants to innovate with Google Instant, mobile voice search, etc, so let’s see everyone work on the lack of consumer friendliness constantly being decried about online travel too.
And isn’t steering toward suppliers just what some of OTA business models are based on? There’s no precedent to block Google-ITA for this unless you’re also going to change the entire merchandising world – eg, telling Wal-mart or Safeway they can’t accept slotting fees from Procter & Gamble.
Another ex, “[Mr.] Birge said…higher advertising costs would get passed along to consumers in the form of higher fares.”
I have a hard time seeing this. Would airlines allow it? They haven’t been able to effectively raise the kinds of fares you shop for via OTA’s in years and seem too focused on raising fares indirectly via baggage and ancillary fees.
Even if advertising costs go up a little, it will just healthily force everyone to lower other costs. If hotels keep having occupancy or ADR issues, that’s likely from irrational building the past few years and cuts in business travel, not a little extra advertising cost.
A little disruption can be good for everyone. Sure, as a manager I’d be concerned in the short-term from a business perspective, but if I’m a supplier, I’d be concerned as much about Expedia, Hotels.com, Hotwire, TripAdvisor, and Kayak as one entity influencing traffic, transactions and margins.
Dennis I think every business is concerned “that it will become less relevant and lose traffic”.
though i dont think trying to stifle competition is not going to be the answer for Expedia. (cant blame them for trying)
Effectively they allege that Google “Will do Evil”. I’m not convinced by their argument. I almost feel sorry for Expedia – not