This story (link) about Ryanair's rift with several online travel websites caught my eye. The outline of the story reads like a typical business dispute, the likes of which U.S. cable TV consumers have regularly experienced, such as when Disney channels were taken off the Charter network (link). In Ryanair's case, the back story is fascinating, bringing out the contradictions and tensions in the modern tech industry, and that's what I want to discuss today.
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Ryanair is a budget airline based out of Ireland, one of the largest airlines in Europe. A few online travel sites (Booking, Kayak, Kiwi) have recently suspended selling Ryanair tickets. This action escalates an ongoing feud between the two companies. Ryanair is unhappy that online travel sites "trick" customers using an impossibly low fare, and later tag on extra fees. In addition, Ryanair won an injunction to stop a third party called Flightbox from scraping pricing data from its website. Flightbox supplies the scraped pricing data to online travel sites. Ryanair is also annoyed that these online vendors hide customer email addresses from the airline, and has countered by launching a "Know Your Passenger" initiative.
The removal of Ryanair's listings may have negatively affected Ryanair's sales during this past holiday season, although only slightly, while the dispute is not expected to negatively impact Ryanair's profit during the quarter.
That's a lot of grievances to unpack.
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In the air travel industry, airlines are the "manufacturers", online travel websites are the "retailers", and passengers are customers. Online websites collect commissions for selling air tickets from the airlines to the customers. The airlines also sell directly to consumers, setting up competition with online travel websites. Such competition is routine in digital commerce; many manufacturers have direct presence on Amazon, for example.
Online travel websites such as Travelocity, Kayak and Expedia have been around for many years. At first, they pitched themselves as "disintermediating" the industry. Travelers would be better off buying plane tickets online, cutting off the "intermediaries", who were travel agents relying on airline commissions. In the late 1990s, Expedia started out as a do-it-yourself travel planning tool inside Microsoft that refused to serve travel agents.
Eventually, it emerged that these startups did not so much remove intermediaries as take their business. These online travel websites are now the ones earning commissions from airlines. When we purchase these sites, we aren't buying directly from manufacturers. Similarly, Amazon has displaced big-box retailers by becoming the mega-big-box retailer. Square or Apple or Google has not disintermediated payment processors; they just substituted previous players, and worse, in some cases, as when a website processes Visa transactions through Square, the new players inserted another middle layer that collects even more intermediary fees. Many of these websites also now serve their former adversaries: some brick-and-mortar travel agents use these websites to serve their customers. Many real estate agents list their short-term rental properties on AirBnB.
The disintermediation story never made any sense since the intermediate layer fulfills some functions, e.g. comparison shopping, and search tools, that aren't possible when a customer buys directly from an airline's website. Running websites that provide such services costs money.
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These intermediary businesses go to unsavory lengths in pursuit of revenues. Some years ago, mom-and-pop restaurant owners that use Grubhub were surprised to find "fake" websites and phone numbers created in their names by Grubhub. When potential diners search for their favorite restaurants, Google sends them to these Grubhub websites, so their orders are effectively intercepted and rerouted, allowing Grubhub to charge restauranteurs tolls. (More on this here.)
Typically, these websites justify their fees (as high as 30%) by claiming they generate sales leads for restaurants. They claim credit for every transaction conducted on their websites. Such credit attribution policies confuse correlation with causation. It produces a perverse incentive: the easiest way to make a buck is to redirect traffic from the manufacturers to themselves.
Of course, some of the transactions would not have happened without Grubhub but what proportion?
The Ryanair affair has shown that the influence of such intermediaries is much weaker than claimed. After Ryanair listings disappeared from those travel websites, Ryanair's bookings only dropped by 1 or 2 percent. In other words, almost all of their customers found their way to Ryanair's website and made their purchases there.
Since those diners searched specifically for their favorite restaurants on Google, most of them would have ordered directly had they not been diverted to Grubhub.
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The other two complaints are salvoes in an ongoing information warfare. I previously wrote about the web scraping business here.
Flightbox is a company that scrapes data on behalf of its clients, such as Booking.com. Since web scraping is in a legal gray zone, large or public companies may attempt to shirk legal liability by outsourcing such work to third parties.
An Achilles heel of any online business is that they expose their pricing data to the entire world. Previously, one has to be physically present in a store with pen and paper or mobile devices to collect pricing data – it was very expensive, even impractical, to get complete data on all stores and all products. That all changed.
Any economist can tell you information has value: in any negotiation, or trade, or power play, the side with the better information has better odds of winning. Businesses know this well, which is why they suck up any bit of information they can find. Imagine the advantages Target can gain against Walmart if Target knows Walmart's pricing on everything.
Almost all online retailers pronounce that scraping data from their websites is against the rules. You can typically find such provisions in the terms and conditions which they know only a select few read. Flightbox and other web scrapers consciously ignore such provisions. Thus, Ryanair went to the court to obtain an injunction. Not surprising because the online travel websites are using the scraped data to compete with Ryanair's direct sales efforts.
I won't take sides in this dispute as I'd be shocked if Ryanair's data scientists aren't scraping data "illegally" as well. As you may have heard, ChatGPT is being sued also for "illegally" obtaining data to train their large language models. Further, unless the courts severely penalize web scraping, the online travel sites will simply hire something else to continue scraping.
The tussle over email addresses is also part of this information warfare. I'll address it in a future post.
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