In buying travel software leader ITA, Google Inc., the self-described "biggest kingmaker on this earth," seeks to expand its ever-expanding digital information empire into the $80b online travel market and establish a dominant "Google Travel" vertical.
What's most critical here is pattern recognition in order to get perspective on what this Google-ITA transaction means more broadly.
Pattern 1: Extension of market power via strategic acquisition of first-mover potential competitors.
This proposed ITA acquisition is the latest example of a well-established Google monopolization strategy -- i.e. to buy the dominant or first-mover player in a strategic vertical as a platform to extend its search market power into those markets much faster than it could organically. Note the pattern in the examples below. Google's:
- 2004 acquisition of Keyhole map software combined with Google self-dealing the top Google search map result placement for itself -- propelled Google Earth/Maps' to dominance;
- 2006 acquisition of first-mover YouTube, combined with Google's preferred search placement quickly made YouTube the second largest generator of searches in the world and catapulted Google to ~14 times larger share than any online video competitor;
- 2007 acquisition of Feedburner to track blog readers combined with Google's search advertising market power and Blogger service increased Google's dominance of blog advertising;
- 2007 acquisition of DoubleClick's dominant display ad serving and analytics business enabled Google to extend its market power in search advertising into display advertising and take abnormally high share from Google's only real competitors in display -- Yahoo and Microsoft; and
- 2010 acquisition of first-mover and strong mobile in-app ad leader AdMob, effectively will cede over half of the mobile advertising business to Google.
Pattern 2: Isolate, then divide and conquer.
Google has been successful in completing these acquisitions via a crude form of a divide and conquer strategy. The soft underbelly of antitrust, that Google understands very well, is that if one has a strategic long term view and is patient, and if one buys "vertical" companies that are not direct competitors or are first-mover competitors in a "nascent" emerging market, antitrust law/precedent is ill-equipped to address this ingenius Google-opolization strategy to exploit the soft underbelly of antitrust precedents.
- Google appears confident that because ITA is not a direct competitor in normal market measurements, and because antitrust authorities have not discovered the real source of Google's monopoly power -- i.e. dominant access to key wholesale market relevant data and the power to exclude competitors from this business-critical data -- that this merger will be extensively investigated, but ultimately approved.
- (A side note: It appears that Google may have made its first strategic mistake in this otherwise brilliant antitrust arbitrage strategy. Google has made two fundamental public committments in this deal. First, it pledged "Google will honor all existing agreements." Second it pledged: "Google does not plan to sell airline tickets directly." If antitrust authorities are consistent with past practice, they would want to ensure that they could enforce these committments not to harm competition, in a court-enforced consent decree with Google -- in order to approve the deal. Significantly, this would be the first time Google would be subject to direct antitrust oversight and supervision by antitrust authorities. Having watched Google very closely for years, it is highly uncharacteristic for them to make any effective antitrust concessions up front. It signals they have much deeper concerns about this antitrust review than they are letting on.)
Pattern #3: "It's the data stupid!" (With acknowledgement to James Carville)
Google's strategy of framing the antitrust issue around only the "tree" of this deal, and not the "forest" of their broader monopoly behavior and market power, allows Google to avoid antitrust scrutiny of how they are indeed monopolizing the broader digital information market and economy.
For any market to function competitively there must be competition for, and transparent access to, the underlying market relevant information that make competitive markets work.
Google has long known and acted upon what antitrust authorities have not fully understood, and that is that in the network-effect-driven Internet marketplace, which is rife with free Web 2.0 products and services to disrupt/defeat competition and to rapidly accumulate audiences/users, real Internet market power is not appropriately measured by traditional revenue market share.
- Google's real Internet market power is best measured by how much market-relevant information Google can accumulate and exclude competitors from.
- That market-relevant information exclusion power comes from Google having:
- Vastly more Internet users, advertisers, and publishers to mine information from than any other competitor by far; and
- The capability to collect information (via dominant Search, DoubleClick, YouTube, Books, Maps, News, Finance, Blogger, FeedBurner, Picassa, etc., that become ever-increaslingly dominant because Google can self-deal itself the top search result, which is what generates 34% of the traffic from Google search)...
- And routinely exclude competitors from this market-relevant information (competitors can not crawl YouTube, Google Books, Doubleclick, Google analytics, etc.)...
- Effectively yields Google enormous market power.
- Google's user/advertiser/publisher dominance combined with its exclusion power, means that Google, a purported honest broker of information, knows most everything competitively about all their competition and everyone in every market segment, when Google's competitors know but a fraction of that market relevant information.
- This is highly relevant to Google's acquisition of ITA, which Google describes as an "organizer of airline data," because Google will be able to gain access to, and exclude competitors access to, the underlyiing meta-data that ITA generates.
- With this monopoly control over critical wholesale data to the online travel market, Google will be able to self-deal or discriminate in favor of preferred Google partners as it "will drive potential customers to airline and online travel agency websites" per Google's own words in defense of the deal.
In sum, this Google-ITA acquisition follows a pattern of acquisitions that exploit the soft underbelly of antitrust enforcement and cumulatively enable Google Inc. to extend its monopoly power over more and more digital information and distribution.
- At core this acquisition will further enhance Google Inc.'s self-described "Kingmaker" power in the online travel market.
If antitrust authorities' investigation of Google-ITA raises serious anti-competitive or monopolization concerns, they should not address it in the context of a merger review, where the process favors Google Inc., but in the context of a broader Sherman Section 1 & 2 monopolization case against Google, that favors antitrust authorities, because they can bring together the copious amounts of evidence of Google's ongoing and successful monopolization of digital information and distribution.
- Hopefully, antitrust authorities will see the forest for the trees here.
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