Online travel business: Are Google’s algorithms stifling competition?
Friday, January 19, 2018
Antitrust has become a key term dominating the tech industry these days, and Google is particularly feeling the pressure. In 2017, the European Union thrust a stiff $2.7 billion fine against Google over its shopping business.
Now, U.S. regulators are taking a closer look at its travel business practices. A recent op-ed in The Wall Street Journal calls upon Google to change its allegedly anti-competitive practices and asks for scrutiny.
It’s not a new issue. The U.S. Federal Trade Commission conducted a thorough probe on Google's advertising practices in 2012. Despite mixed reports, the FTC ended up not taking any action against the giant. Some antitrust staffers thought Google's search and advertising practices harmed consumers and prevented innovation.
The WSJ op-ed calls these strong-arm tactics the Google-Hotel Travelopoly.
Google's detractors are crying foul. They believe that the internet giant is competing unfairly and biasing search results in favor of its flight and hotel metasearch businesses. They are profiting from their algorithms but also causing harm to their competitors' businesses. If they continue to do so, regulators may soon consider whether they are abusing their market power.
According to Skift Research, Google's travel business is worth $100 billion and will generate $14 billion in revenue this year. According to the Skift report, "A Deep Dive in the Google Travel Ecosystem 2018," Priceline Group and Expedia Inc. have shelled out more than $4 billion on Google advertising in 2016 while North America hotel chains chipped in $1 billion to $1.4 billion in 2017.
Competition is natural in business. The online travel and hospitality business is a cut-throat one, and one can only expect the rivalry to grow fiercer. But detractors claim that Google has banded together with major hotel chains to stifle competition from smaller online travel agencies. Their focus was to stay ahead of the game, but it seems that the consumers got the wrong end of the stick here.
The algorithm prevents online travel agencies from bidding on and using the hotels' trademarks in their advertisements on Google. Earlier they could use the hotel trademarks and logos of major online travel agencies in their Google advertising, but the bigger chains hated that practice.
Use of the trademarks is a way to authenticate the booking — users feel assured they are paying to the right entity — and this has been a conflicting legal issue for some time.
The American Hotel & Lodging Association has long argued that the use of hotel trademarks allowed online travel agencies and their affiliates to hoodwink customers. Users believe they are booking directly with the hotel only to fall prey to hidden fees from the middle agents. That is why the industry association called upon Google to restrict the use of trademarks.
It seems Google has bowed under pressure and changed their rules to prevent smaller online travel agencies from using hotel trademarks at will. To be fair, these restrictions could protect the consumer from fraudulent websites. But industry experts now say this has allowed the more prominent brands to inflate the price and harm the consumer in the process.
Google responded by saying that WSJ and others have "mischaracterized" how some of Google's advertising products work. But several OTAs say the AdWords rules restrict trademarks in their hotel ad titles and URLs.
While this is a confusing state of affairs indeed, the real issue is the algorithm. It is difficult to fight the competition when it owns the algorithm.
Some associations may have urged the move for the restrictions mentioned above, but most others seem wary. Some have complained that Google is burying organic search results in favor of paid advertisements.
At the same time, Google's travel metasearch products, like Google Hotels and Google Flights, seem to fare quite well. According to The Wall Street Journal, this is detrimental to healthy competition and bad for consumers.
Companies that rely on organic search results aren't visible on the first screen of the Google page most of the time. They are finding it more and more difficult to attract site visitors from the search engine now.
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