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April 2017, San Francisco
Trump, travel and Google: search in the spotlight
Is Google really abusing its monopoly and what does that mean for consumers and the wider travel industry. Pamela Whitby has been finding out
In 2016 the projected travel advertising revenue from big, scary, fast moving Google is expected to be over $12.2bn dollars, almost double Expedia’s turnover just a year earlier.
But is Google abusing its monopoly status in search where it continues to tighten its hold on the budgets of digital advertisers? According to a new report from eMarketer, Google now controls 78% of the US market in search advertising and that shows no sight of abating, nor does its focus on travel. In 2016 US travel marketers spent an estimated $5.96 billion on digital advertising, which accounted for 8.3% of the year’s total digital ad spend. And increasingly that digital ad spend - an estimated 60% in 2017 - is being directed towards Google and Facebook.
Although Google remains evasive on its long-term plans it is, by its own admission, moving up the trip-planning funnel, as indicated by the launch of the Google Trips app last September.
So does this really matter to the travel industry and, perhaps most importantly, is it bad for consumers? After all, isn’t the travel industry’s winning formula supposed to be: consumer first, consumer first, consumer first?
While views on these tough questions may vary, what few will dispute is that the actions of the company brought under the parental umbrella of Alphabet Inc. in late 2015 by its two founders – Larry Page and Sergey Brin – has very significant implications for the wider travel industry.
What these are, and what to do about it, are themes to be hammered out at EyeforTravel’s upcoming San Francisco and European Summits by speakers that include Bob Healy, CTO of CarTrawler, Del Ross, Senior Advisor, McKinsey & Company and former Priceline exec Brian Harniman, now MD of strategy advisory firm, Brand New Matter Inc.
Where this trio do concur, is that Google is working on some compelling consumer products - aka Google Hotel Finder, Google Flights, and now Trips - the list goes on. They also, give or take, agree that Google is a hugely disruptive force in travel and poses a major threat to both suppliers and intermediaries. But whether Google is abusing its monopoly or whether this is bad for the industry and consumers is less clear-cut.
On the Google-bashing side is Healy, the outspoken CTO of CarTrawler, a tech firm with 100-plus airline clients. His biggest worry is Google’s self-confessed move up the trip-planning funnel, which is happening without consultation or reward sharing with the wider industry. “Google’s strategy is like Donald Trump’s tax return,” he says. “They are absolutely refusing to talk openly or have a debate about it.”
Google’s strategy is like Donald Trump’s tax return. They are absolutely refusing to talk openly or have a debate about it
Bob Healy, CTO of CarTrawler
Sitting in another camp is McKinsey’s Ross, who believes that Google is not intentionally trying to be a disruptor. “Google’s advantage, other than its size, is its relentless focus on meeting consumer needs more efficiently,” he says. “Ultimately this will be good for the industry because it forces some of these large and complacent players to innovate and rethink their value proposition, how they serve customers and why these inefficiencies came to be in the first place,” he says.
Pitching his tent somewhere in the middle ground is former Priceline exec Harniman, who points to Google’s chameleon-like character. On the one hand, he says, Google’s relationship with its advertisers goes something like this: ‘give us your entire budget, tell us how many customers you want, and we will figure out how to get you those customers’. On the other is the mantra that its sole purpose is to ‘deliver consumers with the best possible experience’.
“If you play those two things off each other you arrive at this: that Google wants optimal economics and they can do this by hiding behind the fact that they are doing what is best for customers, a lever they can also use to convince travel suppliers that by paying more, they can pull back share from the OTAs,” says Harniman.
This strategy is already being used to successfully win paying hotel customers, many of which see Google as a way to reduce their dependence on OTAs and drive more direct bookings.
Chameleons, conspiracy and consumer impact
While Google may pooh-pooh vocal critics like Healy as ‘conspiracy theorists’, Healy insists that there are worrying long-term implications, not just for travel suppliers and intermediaries, but also for consumers.
His argument is that Google doesn’t provide any additional value into the value chain for the consumer; all they are doing is adding cost. This is all down to Google’s monopoly in search, which gives them access to vast quantities of consumer behavioural data, and allows them to extract more and more revenue-per-booking, from partners like airlines, OTAs and hotels, further down the line.
“In the short term that affects the margin of travel aggregators, OTAs and so on. But in the long term that is coming out of the consumer pocket in higher airfares, hotels prices, and car hire,” Healy says.
On this point, however, Harniman and Ross disagree: “If Google has endless supply, there will be always be somebody willing to come in at a price point that consumers are willing to pay,” says Ross. And Harniman adds: “It might cost more [for intermediaries and suppliers] to acquire a customer but ultimately, if people have perfect knowledge of what is available, it could even drive prices down.”
While the jury is out on the consumer impact, all three do agree is that chameleon-like Google is a headache for intermediaries and suppliers alike.
The big airline dilemma
So what’s the deal for airlines? “Invariably Google wants to take secondary market place out of play and do all the work itself,” says Harniman, and Google Flights is a great example of how this is already playing out. “If you do any search today, you are starting to see Google flights surface in organic search and the idea is to keep that user within the Google World and take them directly to the flight they want.”
If airlines participate in Google Flight Search, and think a $7 GDS booking fee is bad, they ain’t seen nothing yet
The next step will be for airlines to hand over their pricing and inventory data to Google, which for airline strategist Healyis a very bad idea! As much as airlines love to bash the global distribution systems, they provided real distribution that airlines actually needed and that nobody else could provide. Google on other hand provides nothing to the airlines, other than competition to their own partners like Skyscanner and Kayak. In other words, they line up fares by price and that is it.
Healy, who is in the process of penning a blog on this subject, warns that: “If airlines participate in Google Flight Search, and think a $7 GDS booking fee is bad, they ain’t seen nothing yet.”
You only have to look at TripAdvisor’s share price, which plummeted 46% in 2016 to know that the threat to intermediaries is real. So if Google, as Harniman sees it, is the pot, and Expedia and Booking.com et al are frogs in the boiling water, what happens next?
Intermediaries understand the threat, which explains why they are working hard today to transform into consumer brands in order to subvert the search process.
“Every move any OTA makes towards the mobile market and in advancing functionality helps keeps them away from Google,” says Harniman, but is quick to add: “Still if a consumer is on an Android system, Google can do whatever the hell they want.” And while some firms, the low-cost carriers and the likes of Momondo and Skyscanner, may have a content edge today, “that is nothing that Google can’t recreate over time”.
If a consumer is on an Android system, Google can do whatever the hell they want
Brian Harniman, MD, Brand New Matter Inc
This is something European and US competition powers will be looking at closely. After all, the European Commission and US took a very strong stance against Microsoft embedding search in the desktop. But today, Google effectively owns an operating system, where they control pretty much everything that happens on the consumer journey, and can use this to gain market share.
Hotel wake up call
If we are talking boiling frogs, maybe hotels also shouldn’t be feeling so cool about any newly forged relationship with Google. Although many hotels see Google rise as an OTA-commission get-out card Harniman believes it will only be a matter of time before Google extricates more money from hotel customers.
But there may be more here to ponder. From a US perspective, where hotel brand loyalty is important, let’s just say a consumer uses Google to search for Marriott in Boston. They have self-identified as a Marriott customer so you might ask: why make it any more complicated than that? Simply take them from search straight to the Marriott website. Here Marriott wins, Google wins, and the consumer wins. Right? Maybe not, says Harniman: “Not if a consumer is simply using Marriott as a proxy for quality.” On an OTA site, they might find as good a hotel at a better price or for better value. Marriott may lose, but here the consumer (and, admittedly, the OTAs best-paying advertiser) wins.
The crystal ball
On the plus side, Google has had a history of failed experiments. So there is no guarantee that Google Trips, for example, will work. “Everybody was worried Google Plus would put Facebook out of business but in fact Google Plus is on life support,” says Ross. And by all accounts Facebook, which looks set to be a travel industry ‘companion’ into the next decade, will be a force to be reckoned with.
Going forward then, what can we expect? Without question, the ongoing fragmentation in the travel industry will result in more consolidation as recent wheeling and dealing – Priceline-Momondo, Accorhotels-Travel Keys, Airbnb-Luxury Retreats – highlights. There may well also be some casualties along the way.
Wholesalers will begin to integrate activities more intelligently and on the sidelines business travel agents could start to go beyond the booking function and look at curating trips
Del Ross, Senior Advisor, McKinsey & Company
Ross expects that wholesalers will begin to integrate activities more intelligently and on the sidelines business travel agents could start to go beyond the booking function and look at curating trips to improver traveller efficiency.
In the meantime Google will continue to face the heat from competition authorities both in Europe and across the pond. Only this week, another antitrust complaint was file by the Open Internet Group with the EU’s competition authority. It’s also facing scrutiny over random sharing of customer search data.
Heat on Google, or perhaps putting the runaway fire out, is something that Healy would most certainly welcome: “The definition of monopoly abuse is extension of monopoly into adjacent product areas and that is exactly what Google is doing. And that needs to be stopped. Period.”
Want to hear more? Join EyeforTravel for the San Francisco Summit (April 24-25) and/or the European Summit (May 3-4) to join the debate along with brands including Booking.com, Hilton, Lufthansa, ODIGEO and more