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.