‘Tis a complex business when businesses seek priority on Google searches. The travel business industry appears to be a new area for questions about how priorities are set.
The structure of the online travel industry, which has replaced the brick-and-mortar travel businesses, is now dominated by OTAs (online travel agencies) such as Expedia, Priceline, and Travelocity. OTAs do business by buying up blocks of hotel rooms and offering them at cheaper prices or a part of package deals that include airfare, rental cars, and tourist package items. OTAs make their money from commissions that hotels pay for every room booking they make for the hotels (about 20%).
With this business model, snagging traffic first is important. And 60% of all travelers begin their search for hotels and flights on Google. “Google-Hotel Travelopoly,” Wall Street Journal, December 28, 2017, p. A14. Google sets its “first appearers” in response to a search using two different methods. Businesses that wish to advertise bid on key words. For example, “San Francisco Hotels” or “Hotels in San Francisco.” Google then makes its decision on the first site to appear based on which business is willing to pay for each click that results.
Google also has a meta search. Meta search results appear below the auction ads but above the generic search results. The meta search box has a box with OTAs that allow travelers to shop and compare the various OTA hotels and prices. The OTAs have to pay per click for the box status, and Google often asks for 10-15% of the OTAs’ commissions in exchange for the priority placement
However, Google is also operating its own OTA through work with the hotels.
The hotels, increasingly facing competition from Airbnb, find the OTA commissions are eating into their profits. And Google would like a leg up on the other OTAs. The result has been that Google is enforcing hotels’ requests that OTAs not be permitted to bid on or use search terms that include the hotel brand name. The result is that consumers are not permitted to know brand-name hotel deals and pricing.
In addition, Google has been requiring OTAs to provide it with information that then allows Google to know inventory, pricing, etc. that allows its OTA to makes its pricing more competitive.
Google maintains that the travel industry is booming and no one is curbing that thriving market. However, the OTAs maintain that they are being cut out because of their inability to use brand names in winning key word search or meta box positions. Also, smaller hotels and motels simply cannot afford to pay the Google commissions and that part of the market is then cut out from consumer searches.
Like so many areas of the law, antitrust applications have not quite caught up with search-engine monopolization, market allocation, or pricing. The sheer volume of activity, information, and transactions make investigations difficult. For now, the Google Travelopoly is a market to watch to determine Google’s effect on OTAs.
Explain Google’s processes for determining who has priority positions in travel searches.
What antitrust violations could you see developing?