Web companies fear Google's reach

By Jia Lynn Yang
Monday, December 13, 2010; 12:37 AM

Google this year has been gobbling up Web companies that look nothing like Google, from a social gaming start-up to a firm that powers most online sales for the airline industry.

As the tech giant spreads its reach, it is making new enemies who fear that once Google steps onto their turf it will use its almighty search engine to quash them. Now, these critics are pushing antitrust officials to block some of Google's mergers or build a blockbuster case against the search behemoth, reminiscent of the government's battle with Microsoft.

Yet as Google expands its ecosystem of products - a spread that already includes e-mail, a digital bookstore and cellphone software - it's only become a bigger puzzle for regulators.

Antitrust law was crafted with bricks-and-mortar companies in mind, companies whose business lines fit into neat categories, not a firm like Google whose influence is spreading lightning-quick into different markets that are connected only by the Internet.

Google says its acquisitions help the company build a bigger menu of useful products for consumers. And the tech firm accuses competitors of waging their battles against the company in Washington, rather than going toe to toe on the Web.

"We're a big company. We're disruptive. We're going to get scrutiny from governments around the world, and that just comes with the territory," said Adam Kovacevich, Google's senior manager of global communications and public affairs.

Antitrust enforcers at the Justice Department and the Federal Trade Commission are examining Google carefully with each big merger it proposes. But they have yet to allege the company is acting illegally as a dominant player on the Web.

Regulators in other countries have begun to act. The European Commission said last month that it is investigating charges that Google is suppressing search results for firms offering rival services, such as price comparisons for shoppers. The Texas attorney general is looking into similar allegations.

Antitrust officials everywhere are essentially turning over the same question: Can Google compete fairly with other companies when its go-to search engine determines what users find - or don't find - on the Internet?

Nowhere is the debate over Google's growing reach more apparent than in the Justice Department's ongoing review of Google's $700 million bid to buy ITA Software, a little-known company that probably powered your last online flight search.

ITA's technology, which is used by Web sites such as Orbitz, Kayak and Microsoft's Bing, transformed travel by letting consumers search directly for flights offered by multiple airlines, without the aid of an agent. American, Continental, Southwest and United airlines also depend on ITA for their online flight sales.

Critics say Google will have too much control over searches for flights if it controls ITA. In recent months a number of companies have told regulators that Google - which says it wants to build its own flight-search offering - could manipulate the results from its search engine to give its travel service a higher ranking than its competitors'. They point to the fate of such companies as AOL's MapQuest, which shriveled in the face of Google Maps, which regularly lands at the top of Google searches.

Even worse, the flight-search companies fear that Google could somehow hamper, or even cut off, their access to ITA's technology.

Google says that owning ITA outright, rather than just licensing the technology, will give it the expertise needed to build the best flight-search engine on the Web. The company argues that its end product will only benefit consumers. And moving into flight searches is also part of the company's strategy to create a comprehensive world of products that users will submerse themselves in every time they go online.

"No site today has a good answer for the query 'Where can I fly in January for under $500 that's somewhere sunny?' " Kovacevich said.

Google also has promised to honor the existing licenses between ITA and its customers. It also points out that there are alternatives to ITA. Expedia, for example, does not use the company's technology.

Sen. Herb Kohl (D-Wis.), chairman of the Senate Judiciary Committee's antitrust subcommittee, sent a letter this month to Christine Varney, head of the Justice Department's antitrust division, urging her to examine the deal closely.

Justice and the FTC declined to comment or share their views on Google. But the agencies are watching the firm's moves closely. Google revealed in August that the Justice Department had requested more information from the company as it decides whether to green-light its merger with ITA, which was announced in July.

There also are hints that federal officials are concerned about the company's growing dominance.

At a conference this month organized by Consumer Watchdog, an FTC lawyer laid out potential arguments to prove that Google is illegally abusing its market power.

"You may well see something soon from the U.S. agencies," said Melanie Sabo, assistant director for anti-competitive practices at the FTC's bureau of competition. She said she was speaking for herself and not the agency. "But I can't promise anything."

Antitrust enforcers, however eager to pursue Google, face a number of legal challenges as they look at the company's mergers and its position on the Web.

For decades, courts have resisted blocking marriages between companies that do not compete head to head - precisely the kind of deal Google has been pursuing ever since the Justice Department threatened in 2008 to sue the company over a proposed partnership with direct rival Yahoo.

This year Google has been on a tear, acquiring all kinds of companies, paying a total of $1.6 billion for 40 firms through the end of the third quarter.

In addition to the ITA deal, Google also paid $179 million for Slide, a start-up that makes games and applications for social networks such as Facebook and MySpace. It also reportedly tried to buy Groupon, a dominant social-networking coupon site, for $6 billion, though the offer was turned down.

Experts say the federal government's legal approach to these kinds of mergers is outdated.

"We need a new framework that takes into account the way the world works today," said Albert Foer, president of the American Antitrust Institute. "As we deal with cases like Google-ITA, maybe we'll begin to advance some more realistic theories."

Even if Justice lawyers do not block the ITA merger outright, they could add conditions to the deal limiting some of Google's actions - an approach the Obama administration has adopted with other companies.

Google is so complex, however, that government officials are still educating themselves on basic questions about the company.

"You can have a lot of fights over what market you're worried about when you're dealing with the Google world," said a senior official familiar with the company who requested anonymity in order to speak freely about the issue. "It's a little bit more complicated. Is the market advertising? Is the market search?"

Rebecca Arbogast, a tech analyst for Stifel Nicolaus and a former Justice Department lawyer, points out that with every big merger that Google pursues, the government has a chance to peak under the company's hood and ask questions, potentially laying the groundwork for a bigger case down the road.

"The FTC, the DOJ and the E.U. will be scrubbing every acquisition they make going forward," Arbogast said. "What we all have to remind ourselves is that it took years for the government to craft the case against Microsoft, so there's no reason to think that anything will move quickly."

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