Google travel bid hits turbulence

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Google is making a play for your travel dollars, but first it has to clear security.

The search giant is looking to break into the travel business and compete with Orbitz, CheapTickets, Travelocity and the like. To do it, Google is trying to purchase ITA Software, a company that provides the back-end flight search capabilities to many of those sites.

But Google first must persuade Washington regulators to approve the $700 million deal, a feat nearly as difficult as connecting through O’Hare Airport on Thanksgiving weekend.

Competing travel sites have launched an all-out lobbying blitz against the merger, which they say will give Google too much control over the online travel industry — a major piece of the overall e-commerce market.

The proposal is another example of Google moving into business “verticals,” similar to its move into indexing digital books or building wireless operating systems, said Rebecca Arbogast, managing director of investment bank Stifel Nicolaus.

“This increases the anxiety level of the new set of companies that must now compete against Google, but it generally doesn’t trigger government action, and I’d be surprised if DoJ blocks this deal,” she told POLITICO.

That isn’t to say Google’s potential competitors aren’t trying. Expedia started by hiring Thomas Barnett, who led the Justice Department’s antitrust division during the George W. Bush administration, to explain the dangers of the merger to federal antitrust regulators.

Barnett has long attacked what he sees as Google’s growing dominance. In 2008, he blocked Google’s advertising deal with Yahoo, which later fell apart.

Expedia, Hotwire, Farelogic and Kayak also launched the " FairSearch.org” coalition to oppose the deal. The coalition has sent letters to lawmakers and bought media ad space in several publications, including POLITICO.

“The majority of online travel sites depend on ITA to execute flight searches,” Barnett said in an interview. “Google will have the incentive and ability to dominate the online travel search space in a way that will make it harder to find lower fares, that will make advertising and other costs increase.”

FairSearch says Google already knows a tremendous amount of personal information about consumers with its dominance in search, maps, e-mail, shopping and video. “What if Google combined everything it already knows … with ITA’s insider knowledge of airline inventory and pricing?” says a recent ad.

ITA is a key player in the travel industry, though few consumers know it exists. The 500-person company provides online air-travel bookings for a number of travel search websites such as Orbitz and Hotwire, as well as 65 percent of the online ticket sales for major airlines including Southwest, Continental and US Airways.

Google points out that plenty of players in the travel industry such as Orbitz, Frommer’s Travel Guides and United Airlines, are not against the merger. Google also says it will honor ITA’s agreements to license its technology to other travel sites and that the merger will actually send more business to travel sites across the Web.

“So far, the only voices complaining are competitors, not consumers,” wrote Andrew Silverman, a senior product manager for Google, in a blog post last week — the company’s strongest rebuttal yet to the messages of FairSearch.org. “And our legal system isn’t designed to protect companies from competition but to ensure that consumers benefit from it.”

Google says it shouldn’t be restricted from building a better travel search engine just because others have not yet tried to do so.

“With all due respect, this reflects a failure of imagination for what’s possible in flight search,” Silverman said. “Some critics apparently think consumers should be satisfied with the status quo.”

The fight over flight technology will very likely extend into 2011. The Justice Department has asked Google for more information regarding the merger, indicating that the investigation is widening.

“Our review is ongoing,” a Justice spokeswoman told POLITICO, declining to comment further. The department began its review of the merger in July, and the Department of Transportation may also choose to weigh in.

Arbogast said she expects Justice is “giving the deal a serious scrub to see whether there’s something special about the ITA assets that forecloses competition if they get into Google’s control.”

Barnett and opponents of the merger say Google should simply license ITA’s technology along with the other travel sites, rather than purchasing the entire company outright.

A possible condition could be to require Google to license ITA data to competitors, a condition Google may not welcome, Arbogast said.

The merger has other critics as well. Microsoft’s Bing search engine relies on ITA’s data to power travel search results, and the company says the merger could give its rival an unfair advantage.

Consumers Union is also watching warily. “Specifically, we are concerned that the Google-ITA acquisition has the potential to limit consumer choice in the already complex marketplace of online travel, particularly after such a deal were to be finalized,” said William McGee of ConsumerReports.org.

Correction: A previous version of this story misstated the size of ITA’s role in flight ticket sales through online travel sites.