Google's ITA Acquisition Could Launch US Anti-Trust Complaint

The $700 million acquisition of ITA Software by Google Inc. (NASDAQ: GOOG) has been opposed by other travel sites practically from the moment it was announced in July 2010. Now, Bloomberg is reporting that the US Department of Justice is considering an anti-trust suit against Google to block the acquisition.

The main opponents have joined together to form a group called FairSearch.org claiming to represent “greater consumer choice and economic growth” by supplying an environment of “competition, transparency and innovation in online search.” These companies, including Expedia, Inc. (NASDAQ: EXPE), Microsoft Corp. (NASDAQ: MSFT), Travelocity, Orbitz, Kayak, and others, fear that Google’s control of ITA will lead to anti-competitive behavior on Google’s part that will threaten their businesses. The companies have a point, but they fail to point out who stands to win if the Google acquisition is stopped.

Several of the Fairsearch companies already use ITA software, as do airlines United Continental Holdings (NYSE: UAL), US Airways Group, Inc. (NYSE: LCC), AMR Corp. (NYSE: AMR), and Southwest Airlines Co. (NYSE: LUV). The travel search companies operate as vertical search engines that offer detailed information about flights and schedules. General search engines like Google and Microsoft’s Bing function horizontally.

Google’s acquisition of ITA provides the search giant with an entry in to a vertical search market, travel, that currently accounts for about $80 billion in e-commerce sales and an estimated 8%-10% of Google’s online advertising revenue. Fairsearch claims that 30% of all travel searches already begin with Google searches.

If Google is allowed to acquire ITA, then it would be passing those beginning travel searches to its back-end engine and would be able, at least theoretically, to pull more searches and search advertising, collect more user data, and charge more for advertising. Google, of course, denies that it plans to do anything of the kind.

The online travel companies are afraid of this because they have been accused of doing very much the same sort of thing. American Airlines no longer posts its flight listings on Expedia or Orbitz following a dispute over how American flights were displayed in the search results. Sabre Holdings, which supplies flight info to Expedia and owns Travelocity, responded by pushing American flights further down in the search results and charging American higher service fees.

If Google should be prevented from completing its acquisition of ITA, it’s not immediately clear which companies would benefit the most. The dispute between American Airlines and the online travel companies is about control of what the airlines see as their products and how those products are presented. The dispute between the Fairsearch companies and Google is about the online travel services’ products and how they believe Google would present those products. Basically they think that Google would behave the same way they do.

If Google gets ITA, Microsoft and Bing really lose. But if the deal is undone, and unless Microsoft can then do its own deal for ITA, it’s not clear that Microsoft really gains anything if Google loses.

The airlines that use ITA have not weighed in on the issue, but it is probably fair to say that none of them would shed too many tears if Google is allowed to acquire ITA. Provided that the airlines could license ITA software from Google to offer their own online flight info and ticket purchasing, the airlines would likely be glad to see the online travel services suffer.

The online travel services stand to lose a great deal if Google acquires ITA. And they’re the only clear winners if the Department of Justice does file the anti-trust lawsuit.

Google owns no business remotely like ITA’s. Any anti-trust action at this point would be based on assumptions that have no basis in reality. If Google is denied, the government chooses the winners. That always works out well.

Paul Ausick