Traveling to Online Market Dominance

Google’s intent to acquire ITA Software, the airline flight database company, poses unhealthy risks for consumers.  Google’s financial depth and technical breadth are highly relevant, and the Department of Justice should be concerned.  Google’s search service dominates the consumer Internet search market with over 80% share and growing.  Bolstered by 3rd quarter 2010 revenues of $7.286 billion and a cash horde of $11.275 billion, Google is plunging headlong into consumer hardware devices, operating systems and retailing services that allow Google to extend control over how consumers use search results.  Google’s search dominance means that it can direct consumers to its top ranked sites and advertisers, thereby influencing what we read and where we shop online.  Because it could drive search traffic to its products, Google’s search dominance also gives Google a major advantage over competitors in developing online markets.

 

In software, Google’s Android-powered cell phones grew from 89% (year-over-year) and now leads in smartphone market share.  Expect Google’s share in mobile search to blossom.  Along with the very successful Android operating system, Google released its Chrome OS.  But, the cell phone required that you have a Google Gmail account, that allows Google to scan and retain content from your messages for targeted advertising.

 

In 2010, Google introduced its CR-48 Chrome Laptop.  This computer relies on Wi-Fi to deliver its software and Internet connections. But in a design reminiscent of Apple’s imperious iPad configuration, no Ethernet, no USB or no SD connections are permitted.  The Chrome Laptop requires you to sign in with a Google account (think Gmail) and have your picture taken by the inbuilt camera.  Chrome Laptop establishes a setup for Google to enforce consumer dependence on Google Search, Google Books, Google Documents, Google Spreadsheets, Google Maps, Google News, Google YouTube, and more to come.  Groupon and ITA services are examples of concern.

 

Groupon is a successful Internet consumer coupon provider (dollars off retail price).  Google recognizes it as a tightly coupled follow-on transaction to consumer search – something Google could sell to its advertisers for positioning their coupons preferentially.  Google began negotiating to buy Groupon, but when discussions failed Google announced it will build its own coupon dispensing unit.  Consumers can expect to see a Google-owned coupon dispenser soon, but not necessarily all the brands, conditions, or discount levels that could be offered.  And Google’s search dominance may allow it to crowd out Groupon and others serving consumers, lowering the service standard.

 

Regarding online travel, ITA is a specialized database of current airline routes and prices used by a majority of the airline ticket search and booking agencies.  As with Groupon, Google no doubt sees consumer travel search handled by ITA Software as an opportunity to optimize revenues from Google’s airline advertisers getting preferential placement.  The results of that placement “deal” won’t necessarily include a convenient or low fare for the consumer.  

A similar problem already arose with Sabre and American Airlines.  Sabre booked $7 billion of American’s flights in 2010, but began charging American more and showing its flights less prominently than those of American’s rivals.  When American sued, Sabre agreed to cease disadvantaging American in placements and charges.  American is still in litigation for similar issues with Travelport Inc. who owns 48% of Orbitz. 

 

Most consumers start their travel plans with a search and most buy their travel tickets online.  Combine Google’s search dominance with a flight and price database bolted into Google-advertiser “deals” for airline flight prominence, and consumers are likely to be the losers.  If Google is able to use its market dominance to drive traffic to its own travel business, that will result in less competition overall.  If online travel becomes less competitive, consumers should expect to pay more.  This deal needs close scrutiny by the Department of Justice. Hopefully, the current Administration’s close ties to Google will not cloud their review of this deal, because consumer protection must be our first consideration.   

 

 

 

OTHER REFERENCES

·         Google financials reported in Marketwatch.com, 2/2/2011.

·         “Seeking Alpha / SA Currents on GOOG,” stock quote and news, 2/2/2011. seekingalpha.com/symbol/goog?source=search general&s=goog.

·         Google Chromebook: The Good, the Bad and the Beta,” Howard Wen, Network

       World, 2/2/2011, pcworld.com.

·         “Google plans service similar to Groupon,” John Letzing, Marketwatch, 1/21/2011

      Marketwatch.com.

·         “American Airlines, Sabre Delay Litigation,” Mike Esterel, WSJ, 1/24/2011.

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