Calls for the breakup of tech giants like Google, Amazon, and Apple have been renewed as politicians jockey for position in the 2020 U.S. presidential election. With consumers angry about privacy violations and businesses fuming from operating at a disadvantage on digital platforms, the time seems to be ripe for serious change.
Presidential hopeful Elizabeth Warren, the Democratic senator from Massachusetts, called for the breakup of U.S. technology companies during an appearance at South by Southwest last week and detailed the framework of the approach she would take if elected.
What does big tech regulation mean for online travel? Well, the travel industry has been dealing with platform and distribution issues for not just years, but half a century at this point. The language of Warren’s followup post, though, could have huge ramifications for the status quo between booking sites and their travel partners should her ideas become law.
Warren’s proposed regulation would do two things in its current form. First, it would prevent online platforms from selling their own products on their digital marketplaces. No more Amazon Basics diapers undercutting Pampers, for instance, or iMovie for sale on the App Store.
“These companies would be prohibited from owning both the platform utility and any participants on that platform,” writes Warren. “Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.”
Owning a platform and also selling products on it gives these companies an unfair advantage, says Warren, and hurts other businesses on the platform. It’s unclear whether this would include things like free apps included with a phone or, in online advertising, being able to market a Google phone through Google search. It’s fun to speculate, though.
Second, more scrutiny will be given to mergers that snuff out competition and innovation. What this means is unclear, but in practice, such a mandate would seek to keep the Facebooks of the world from gobbling up Instagram, WhatsApp, and others.
What Warren’s proposal misses is that the selling of products to users, whether a toilet seat on Amazon or a tour through Google Travel, is uncoupled from where the tech giants really make their money.
Google’s surfeit of behavioral data gathered through digital surveillance powers its online advertising money printing machine, for instance. The companies have no need to compete on product for users or provide a fair marketplace for sellers when user data and the ability to influence buying habits are the real lucrative part of the operation.
While Warren’s arguments are provocative, the lack of detail in her proposal means it’s impossible to predict what the shape of future regulation would actually look like. The backlash against surveillance capitalism and big tech is here to stay, though, so where does travel sit as big tech becomes a target of serious regulation?
Travel distribution has been no stranger to regulation over the year. A couple of years ago I took a look at the evolution of travel distribution since the 1960s, and the sector has been marked by near-constant shifts in both competitive power and regulatory framework.
It’s hard to tell whether Warren’s plan would include online travel booking sites or global distribution systems under the auspices of its regulation, at least not according to their annual revenue numbers. For the sake of this analysis let’s say they both qualify as a target.
Let’s take a look at a 2016 report out of the European Union parliament that outlines one of the most knotty issues in online travel distribution. Price-parity clauses, which require a hotel to not offer lower rates on their own site than what’s available on a partner distribution platform, came under scrutiny for being anti-competitive.
“The increasing use of restrictive pricing practices by online platforms requires critical scrutiny by competition agencies,” concluded the report. “While some restraints may be justified to enable price comparison websites to operate, these clauses may also, especially when broadly designed, enable firms to exploit suppliers and exclude competitors… While we commend the commitments secured by National Competition Authorities from Booking.com and Expedia to drop the use of wide price parity clauses, we note that the asymmetries of bargaining power that characterize the online travel agent sector may mean that the effects of wide parity clauses persist in practice, even after the prohibition of these clauses.”
Beyond pricing, it is an open secret that travel booking sites and corporate booking tools prioritize and bury certain fares or rates for a variety of reasons. Warren’s phrase of “non-discriminatory dealing with users” opens a huge can of worms for agencies and booking sites in this context with respect to the relationship with travel partners and consumers alike.
A corporate agency may tweak an agent’s booking screen to promote fares from an airline that will result in the agency receiving a big payday at the end of the year, for instance, and online travel agencies obviously give fares and rates prominence based on advertising spend and other agreements.
It’s common for global distribution systems to give better deals to bigger partners that drive more volume through their platform. It is a major hurdle for small travel companies to even partner with the global distribution systems at times.
Would charging a smaller booking site or hotel chain more for the privilege of distribution be potentially seen as discriminatory, particularly if it reduces choice for consumers?
The mergers and acquisitions piece of the proposed regulations could also cause problems. There are countless examples across travel of one distribution company buying an upstart competitor that disrupted an element of their business and then letting it wither away or integrating only a small piece of its technology into the company’s platform. The strategy of capturing increased demand by gobbling up a competitor would now face more stringent regulatory approval.
So what to make of Google’s promise in travel should parent company Alphabet be broken up?
Google Travel is housed alongside Google’s search, YouTube, Maps, and Gmail products in Alphabet’s corporate structure. Google owns the top of the funnel for online travel shopping, and the separation of Google Search from its online advertising and track businesses would have a serious impact on travel marketing. Google’s travel operation is more of a metasearch site than an online travel agency, so it’s unlikely it would come under fire from regulators.
Under the guidelines of Warren’s proposal, these products could be functionally separated from Google’s marketing machines. This would send shockwaves through the travel marketing ecosystem, where giants and upstarts spend heavily on auctions to appear at the top of Google search pages.
Google is all about demand. People search to find stuff to do and buy, and Google uses data on their behavior to auction the ability to influence their purchasing decision to advertisers. If the search data and advertising operations are broken apart, the Google ecosystem will shift in an unprecedented way.
For now, travel tech giants don’t have to worry. It will likely be years before any serious regulation is enacted, if at all. But the conversation around the negative effect of big tech is here to stay, and players should take note.
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