google-ita-deal-background-forecast-analysis-of-current-situation

Google-ITA Deal: Background, Forecast, Analysis Of Current Situation

Quite a while ago Google proposed its acquisition of technology provider ITA for $ 700 million. This caused turmoil in the industry and led to an investigation by the Department of Justice to find out if this acquisition violates antitrust law.

Since experts assume that there will be a judgement soon, it is time to review all the facts, analyze the current situation and the implications this acquisition might have for the travel industry.

Google’s mission is “to organize the world’s information and make it universally accessible and useful”. And that is basically what ITA does for the travel industry; it provides airfare search software that allows creating an up-to-date database of airfares. So acquiring ITA seems only natural for Google.

With ITA Google can develop innovative flight search tools with real-time pricing and real-time inventory and thus, Google would not have to send users to other travel search sites, as they do now, but could provide this service on their own. And with more users staying on Google for a longer time, Google will become even more attractive for advertisers. Therefore, Google would increase its revenue through advertising and referral fees. These referral fees are paid by suppliers such as airlines every time a customer who has been referred to the supplier website by Google, completes a booking.

However, many fear that Google will abuse its power and manipulate travel search results. That’s why leading industry players, such as Kayak, Microsoft and Sabre, founded Fairsearch, an organization that opposes the ITA-acquisition. They claim that Google might use its dominant position in the search engine market to disadvantage other competitors and ultimately make flight search less transparent by biasing its search results and favoring partners who pay Google.

In support of Fairsearch we have to admit that this is really possible. And taking into account that Google has just launched its Groupon-clone Google Offers, which offers hotel deals among other things, we should also consider Google’s general position in e-commerce. So the Department of Justice should not only look at the implications of the ITA acquisition for the travel industry, but also for the entire e-commerce market.

Google, of courses, denies these accusations and blames its opponents for simply fearing the competition. This is a good point in so far as Google would seriously harm meta search engines like Kayak, because most people start searching with Google and with ITA’s technology Google would offer the same, maybe an even better service than Kayak, thus making Kayak unnecessary.

We need innovation. However, there is always a delicate balance between competition & innovation by new market entrants and the development of monopolies, which could be the case with Google. The level of innovation in the travel industry is not the highest and major players decided to negotiate instead of innovate. The industry itself created a gap which might now be filled by a player outside of the community, because the travel industry as a group did not have the courage to work together for a better user experience. The industry has been resting on its laurels. Google might do in our industry what Apple has done in the music industry: Revolutionize it.

Google can be good for the consumers, but it remains to be seen, if the travel industry as a whole can benefit from this acquisition. Google certainly can enhance innovation, but it could also destroy competition and increase prices for advertising etc. An interesting aspect could be the change in Google’s board, with Larry Page as the new CEO. Maybe with him as a CEO Google will really “not be evil” and contribute to prosperity in the travel industry. Right now, it seems most likely that this acquisition will be allowed under certain provisions and regulations.

Image by Kritchanut

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