Regulators bound to stack up over Google-ITA

Google's proposed acquisition of travel company ITA Software could shake up the industry, and will likely provoke a response from federal regulators.

Tom Krazit Former Staff writer, CNET News
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.
Tom Krazit
4 min read

When will the U.S. government eventually decide to confront Google?

That's really the only question that needs to be debated in the wake of Google's announcement that it plans to acquire ITA Software, the leading provider of flight information from airlines to travel Web sites, for $700 million in cash. As it stands, the deal would marry the world's leading Internet search company with a crucial link in the online flight reservation process, making life for executives at online travel sites such as Orbitz, Kayak, and Expedia a whole lot more complicated.

ITA Software's products power the reservations systems at travel sites and airlines such as Alaska Airlines.
ITA Software's products power the reservations systems at travel sites and airlines such as Alaska Airlines. (Click for larger image.) ITA Software

As usual, this acquisition is a case of Google seeing a search problem that its current strategy and talent can't answer. As any traveler knows, buying an airline ticket these days is both an art and a science: one of my dad's favorite jokes is, "Want to start a fight on an airplane? Ask the guy next to you what he paid for his ticket."

Google wants to use ITA's technology to create some sort of interface that makes it easier for people to search for flights on Google, where they are already searching for a lot of travel-related information, according to Google's Marissa Mayer. You can't really enter all the factors that go into a search for airline tickets--dates, times, destinations--into the Google query box, she said on a conference call following Google's announcement of the deal.

It also gives Google the opportunity to try some unique things with flight searches, Mayer said, such as the ability to enter a query like, "Where can I get in seven hours for this much money?"

So from Google's perspective, this is a user-friendly deal that will simply allow it to offer a better service. It also doesn't hurt that if Google turns into the predominant online destination for travel search, revenue from ads placed next to those search results will add to Google's already lucrative search advertising business.

But there are dozens of other sites that already offer these services by licensing ITA's software, including Google archrival Microsoft's Bing search engine and travel-oriented sites like the ones described above. So why didn't Google simply license the software as well? CEO Eric Schmidt said Google considered that, but concluded it would be unable to do the "deep integration" with search results and innovation in travel search that it desired without merging Google's technology and ITA's.

That comment about "deep integration" is what is causing online travel executives to reach for either the Tums or the Macallan this afternoon. The concern is that Google's control of this vital data link between airlines and travel sites could be used to give it an advantage in its own search results.

Earlier this week, in anticipation of a Google-ITA deal, Reuters quoted Kayak Chief Marketing Officer Robert Birge as saying, "They have dominance on the general search side. When you couple that with ITA's airline relationships there is reason to be concerned." Google took great pains in its public statements and during its conference call Thursday to say that it would honor ITA's existing agreements and that it had no plans to sell flights itself, although Schmidt wouldn't rule that out entirely either during a question-and-answer period with reporters.

These travel companies were so concerned as to consider forming some sort of coalition with Microsoft to bid on ITA in hopes of keeping it away from Google, according to a report in The Wall Street Journal Tuesday. Obviously, that didn't come to pass, but there's one other organization that might be thinking very hard about holding up a deal.

The Federal Trade Commission took a long, hard look at Google's proposed acquisition of AdMob during the first half of 2009. The six-month review over whether Google would have muscled its way into a leading role in the mobile-advertising market came tantalizingly close to formal hearings over the deal, but the FTC ultimately decided that Apple's decision to enter the mobile-ad market with iAds created enough of a foil for Google.

A similar review seems likely here. In general, government investigations of potential business deals kick off when companies that believe they would be unfairly harmed by those deals complain to their representatives. And in this case, the online flight-reservation market is more mature than mobile advertising, which was one of the main sticking points in the potential FTC review of the AdMob deal: it was simply too early to judge the potential competitive effects.

With this deal, Google will have transformed itself into one of the biggest power brokers in the travel industry. It will control the leading software for powering online airline reservations. It will be able to provide something in its own search results above and beyond what its competitors--who merely license the ITA software--will be able to produce. And it will become the leading online advertising buy for travel-related advertisers (assuming it wasn't already) if it doesn't butcher the rollout of user-friendly airline search tools within Google's already popular interface.

Google will argue that because these services will send larger amounts of traffic to those other sites (well, maybe not Bing) to actually purchase the tickets and add things like hotel or car rentals, it could be doing the Kayaks and Expedias of the world a great service by putting more business in their hands. But it is playing a game of chicken with federal regulators, daring them to conclude and then prove that Google is gaining too much control over commerce on the Internet.

At some point, there will be a showdown. Schmidt knows this, saying during the conference call, "We expect (regulators) will spend a fair amount of time going through it. Anything Google does, we tend to go through that anyway."

This is one Google deal that's destined to enter a holding pattern.