Revised transcript of evidence taken before

The Select Committee on the European Union

Internal Market Sub-Committee

Inquiry on

ONLINE PLATFORMS AND THE EU DIGITAL SINGLE MARKET

Evidence Session No. 13              Heard in Public               Questions 123 - 136

WEDNESDAY 2 DECEMBER 2015

4.15 pm

Witnesses: Ms Ufi Ibrahim, Tim Godfray, Carolyn Jameson and Kostas Rossoglou

USE OF THE TRANSCRIPT

Members present

Lord Whitty (Chairman)

Lord Aberdare

Baroness Donaghy

Lord Freeman

Lord Green of Hurstpierpoint

Lord Liddle

Baroness Randerson

Lord Rees of Ludlow

Lord Wei

________________

Examination of Witnesses

Ms Ufi Ibrahim, Chief Executive, British Hospitality Association, Tim Godfray, Booksellers Association, Carolyn Jameson, Chief Legal Officer, Skyscanner, and Kostas Rossoglou, Head of EU Public Policy, Yelp

Q123   The Chairman: Welcome very much, everybody, to this witness session. You will have seen the scope of our inquiry. We have received written evidence from you and we will be drawing on that, but there is also a range of questions of which you have received notification. Members of the Committee have declared their interests on this subject and they can be found. It is a formal evidence‑taking session, which means that it will be on the public record, there will be a webcast and we will send you a transcript. If there is anything you wish to correct, please do so, preferably by return. This room is acoustically not too bad, but nevertheless could you please speak up when you are giving your evidence and answering the questions?

The session, as you know, is about online platforms. All of you have given in your written evidence some indication of the dominance of large online platforms. Some of you are in one sense online platforms as well and you have concerns about online platforms, too. It is probably best if we go straight into the questions, but if anybody is burning to say something before we start the session, please do so now. Let us go straight in.

To what extent are you, as businesses, dependent on online platforms to access your market these days?

Ms Ufi Ibrahim: Would you like me to start?

The Chairman: Yes, please.

Ms Ufi Ibrahim: I am the chief executive of the British Hospitality Association. We represent hotels, restaurants, out‑of‑home food services, events, attractions and leisure companies across the United Kingdom—40,000 businesses. In order to give you a good sense of the dependence of our members on online platforms, we did a survey among 99 of the largest hotel groups in our industry. Collectively, their turnover is about £1 billion. We found that of the 99, 96 use OTA[1]s; of those 96, about half their business comes through online travel agent platforms. Morgan Stanley did a report a couple of years ago which found that Priceline at the time owned about 40 per cent of the industry and Expedia about 21 per cent of the online community. That has changed considerably. Priceline has now acquired Booking.com and others, and represents over half the online market for our industry, and Expedia has a considerable share of the remaining half of the sector. Our dependence on the online giants is considerable, especially given the fact that they have the command to be able to buy a lot of advertising space from Google and to occupy many of the first entries several times. When consumers search, they keep getting their sites, putting the hotels at a serious disadvantage because they come much later. The dependence is that unless you do business with one of those two big global online travel agent giants you could become pretty invisible online, even with the choice of using a smaller OTA. The dominance of and the reliance on those two larger organisations is considerable because of their relationship and their power to command searches on Google.

Tim Godfray: My Lord Chairman, I am chief executive of the Booksellers Association. I run the trade organisation. I am not in fact a bookseller myself, although I used to be one many years ago. I am so pleased that you are having this inquiry, because online platforms have the potential to cause considerable business harm if there is not appropriate legislation to provide a fair trading environment. We welcome competition, but in a number of areas it has not been, in our view, fair.

To answer your question, to set the scene, in the book market Amazon are responsible for 90 per cent of all e‑book sales in the UK and an estimated 80 per cent of online physical book sales. When Amazon first started in 1995, we the Booksellers Association had 1,894 bookselling independent outlets in membership and today we have only 905. This represents for book buyers a significant reduction in choice and diversity. It means that high streets and communities no longer have booksellers who provide author events, go into schools, churches or libraries, or run book clubs and reading groups. With that background, we have to say absolutely that for most booksellers Amazon is the only player in town. There have been other platforms and some are still around—Kobo is probably the one that is used by independent booksellers after Amazon, and there is Barnes & Noble’s NOOK—but huge organisations in the UK, such as Sainsbury’s and Tesco, have tried to set up their own e‑book platform and have failed dismally. Even Apple and Google have not made a real impact.

Going on to Marketplace, which is what booksellers try to use, we have carried out extensive surveys of both booksellers and publishers which show that four out of 10 booksellers use Marketplace. Most booksellers do not like helping a competitor, but, to be candid, they have little choice. We have two big concerns about Marketplace. First, Marketplace gives Amazon data on pricing and consumer behaviour that is not available to Marketplace sellers or competitors. If you are a bookseller you would perhaps use Marketplace for titles that are not the top bestsellers, because you would have those in your shop, but immediately it looks as if those titles are taking off due to some change in the market, Amazon susses it out because it can see competitors’ data and then it gets behind the title and takes it on itself; 11.5 per cent of booksellers said that they had been prevented by Amazon from offering consumers on Marketplace a deal that was lower than theirs, and 11 per cent of booksellers said Amazon had tried to impose on them what price the bookseller should charge consumers when the book was sold on Marketplace. It is our view that there are a number of anti-competitive practices that cause great difficulties. The other area is that Amazon promotes free postage in many instances; on Marketplace, Amazon charges the bookseller. At the moment I think it is £2.80 for postage, which the bookseller cannot change. A much fairer arrangement would be for Marketplace to charge the consumer the actual postage cost.

Carolyn Jameson: Good afternoon. I am the chief legal officer for Skyscanner, which is a metasearch site that offers travel search and price comparison to consumers globally through our website and apps. My role also incorporates working on policy issues in the industry. We are certainly dependent upon Google in the same way as any other company operating on the internet is. Google is so dominant in general search now that inevitably any company operating online is dependent on visitors finding their site through Google. Google is so dominant that it is effectively the infrastructure of the market that we all operate in. In addition to Google, we are dependent on accessing travel‑related information from other companies that operate online. Some of those are other online platforms, such as online travel agents, and we are also dependent on information from airlines. We are particularly concerned that lately we have seen a number of large airlines trying to promote their own websites and restrict online platforms from receiving access to information about their flights. Then, indirectly, those online platforms are forced to pass the restrictions on to other online platforms.

Kostas Rossoglou: I am the head of EU public policy for Yelp, which is the online reviews site and platform connecting consumers with local businesses. It is about sharing the views and opinions of fellow consumers about any type of service, from a bicycle store to a hotel, a hospital or even government services. We too rely on Google because, as you can imagine, we are a specialised search engine. It is a bit different, because the way consumers get to our service is through Google, so when you are looking for a hotel or restaurant in London you type that into Google and then normally you find links that direct you to Yelp, TripAdvisor or any other competing service. Google has dominance of 90 per cent across Europe and Google is abusing its dominance in general search in order to promote its specialised search services, a competitor to Yelp.

To go back to the example of looking for a hotel in London, on the first page above the organic results you normally find a map that provides links to certain services, hotels and restaurants, which is a great tool for consumers because it gives you the answer quite quickly on the first page. The problem is that the system is fed only by the Google+ ecosystem. That means that Google provides reviews only from Google+, its own service. It does not care about providing the most relevant results for the consumer. For the same hotel, TripAdvisor might have 100 or 200 reviews and Google+ will have only two or three reviews, but only Google+ reviews will be displayed in that one box. That hinders consumers in getting access to Yelp because we are not discovered; we will not be displayed on the first page and therefore we do not exist. Thank you.

Q124   The Chairman: Thank you very much. You have all described slightly different market situations. All of them are verging towards monopoly or oligopoly in traditional terms, but you are also competitors in that market, so it is not a clearly defined market. You sell direct. You sell through Google or through Amazon, but the more traditional ways of selling are still available.

Ms Ufi Ibrahim: Perhaps I could jump in to say that for hotels specifically and for online travel agents the misuse of the dominant power of the two major online travel agents has resulted in them having restrictive clauses in their agreements with hotels, which they are pushing and pressing on hotels. As I said, because of their reliance on those giants so that they can have visibility online, many hotels—they have no choice—are held de facto to comply with those conditions. One of them, for example, is the aspect of rate parity. The rate parity clause requires you to provide the online travel agent with the best available offer for the customer. In that case you are not able, through online or offline channels, to provide the customer with a better rate as the hotelier yourself. In fact it is not only a dependence affecting the business online; those agreements or clauses—the parity clauses in the agreements—are conditioning hoteliers and preventing them being able to offer the customer a better deal offline as well.[2] That restrictive power and the misuse of a dominant position is affecting their entire business, not just their online platform business.

The Chairman: Thank you. We will come back to some of that in a moment.

Q125   Lord Freeman: You have already partly answered my question, which is to what extent and in what ways you are locked in and unable to switch to another online platform if desired. How could that be improved?

Ms Ufi Ibrahim: As I explained, there are clauses within the agreements that have a major impact on hoteliers being able to provide better deals offline, or even with other online travel agents. The dominance of those big organisations is leading to anti-competitive practice. Also, hotels are locked into these agreements de facto because of the presence of those two particularly big giants on the digital platforms, as I said earlier. The command they have to be able to acquire all the first searches on Google means that if you are not doing business with them, your online presence will be very limited. Consumers very rarely search through page after page to find the direct links to particular websites. In some cases, they are led to a website that very much looks as if it is the hotel’s website but in fact it is not the hotel’s website; it is a website that appears to be the hotel’s website but again it is one of the online travel agent’s websites. The hotels really are locked into having to work with those dominant online travel agents.

Tim Godfray: We believe that consumers should be able to read any e‑book on any device at any time and be able to obtain content for that e‑book reading device from any supplier. The situation at the moment is that booksellers are locked out and consumers are locked in because of the Amazon proprietary software. Amazon’s ecosystem is closed. It allows no free exchange of books, and Kindle users are therefore unable to switch from platform to platform. You asked what might be done to improve the situation so that you get full interoperability. My view is that Amazon should be told not only to support EPUB 3, which is the recognised standard format for e‑books throughout international publishing, but for digital rights management to be synchronised so that Kindle users can export or transfer e‑books to other ecosystems. It is a bit technical, but I tried to cover it in my written submission. A more sensible detailed report has been produced by the University of Mainz, and I would be pleased to submit it to you afterwards as evidence if you thought it would be helpful.

Carolyn Jameson: I talked about Google and the information that we get from online travel agents, which is based on information from airlines. Considering Google, we really could not just remove ourselves from Google; it is so dominant that the impact on the business of doing that would be too significant. From the instances where we have dropped in rankings for some reason, we can see that the impact on our business has been severe, even in isolated cases, so to do that overall would not be feasible. In relation to flight information, it is not really a possibility simply to go to another online platform, because the airlines are doing this by tackling all the different players in the online travel environment, whether it is the OTAs, the GDSs[3] or the metasearch sites, and they are stopping the data flowing from all those different parties. It is, therefore, not an option to go to another party to get the information.

To answer your question about what can be done to change this, it can only be changed by supporting new entrants coming into the market—finding ways to support them—encouraging innovation in the market and effectively dealing with situations where individual companies are striving to hinder innovation and new entrants in a market. Over time that would gradually introduce more competition, which might bring about change. The longer an abuse of dominance continues, the harder it becomes to change.

Lord Freeman: It is going to be very difficult to encourage new entrants, given the initial investments required and the dominance of the existing players. Would you agree?

Carolyn Jameson: Yes, I would, absolutely. It is very hard for them to compete.

Kostas Rossoglou: There are two points I would like to stress. First, I want to talk about lock‑in. It is mainly the consumer who is locked into the Google ecosystem. When I check with friends of my age who are supposed to be digital natives, they have no idea that, when they are looking for a hotel, restaurant or bar on Google, they get only Google+ results. They take it for granted that the results on the top of the page are the most relevant for them, but they are not the most relevant for them. There is no harm done if I get a bad slice of pizza because I ended up in a bad pizza place, but imagine that you are in a new city and you have a problem with your tooth; you look for a dentist on Google because you are on a business trip and do not know anyone in the city. You go on Google and you type “Dentist Manchester” and you get bad results and end up with a bad dentist, or maybe you end up with a bad doctor or cardiologist. The stakes are quite high when it comes to a local search. Consumers, in order to switch, need to be aware that they are locked into a system. Currently on Google’s platform they are not aware.

The second point is about how we deal with Google. Of course we cannot avoid Google, because of its dominance, but we try to get some more traffic directly from our own app—mobile apps, like most other platforms. The problem is that Google is aware of that and tries to restrict direct traffic to the platforms from the mobile app. A couple of months ago Google announced a new penalty against apps that use interstitials. Interstitials, as I think you are all aware, are when you are on your mobile on a webpage on your browser and you might get a pop‑up window that says “Download our application”, which is the way most apps are made known to consumers. That is the interstitial. Google says that is not user-friendly, so they are going to demote and impose a penalty against all those app developers. If you impose a penalty and demote all the app developers, the app developers do not have alternative access to the consumer. Google is trying to close all the doors and be the dominant player that everybody relies on.

Tim Godfray: My understanding is that under the Consumer Rights Directive there is a provision that providers, sellers of e‑book readers, must provide information to their customers about the interoperability of their products. I do not think that is really happening throughout the European Union, because e‑books bought via Kindle can only be bought from the Amazon store. People who have bought the Kindle have then been coming into bookshops and saying, “Can you supply me this e‑book?”, or whatever, not realising that after buying the device they are completely locked in to the Amazon ecosystem. That is why we think it is unfair that consumers suffer that reduction in choice and are not able to shop around.

The Chairman: I will come back to that in a moment. Lord Aberdare.

Q126   Lord Aberdare: The first part of my question is hardly necessary. It was about whether large online platforms abuse their dominant position. You have all answered that. The second part was: if so, how? Perhaps I should ask the supplementary, which is particularly directed at Skyscanner and Yelp, and the fact that Google abuses its dominant position in search. Can you describe in more detail the harm that has resulted from that alleged abuse and what specific remedy the Commission could introduce?

Carolyn Jameson: There have been numerous instances, to be honest, where Skyscanner has noticed a sudden decrease in the number of users reaching our site from Google’s natural search results, often due to a change in ranking and not because of anything we have done on our site. A specific example goes back to 2012, but it is useful to illustrate how long it takes to recover from these sorts of activities. In April 2012 Google launched an algorithm change and, as a result, the traffic from Google’s natural search to Skyscanner.se, the Swedish site, more than halved overnight—a 65 per cent reduction in traffic overnight. That coincided with a significant drop in rankings on their website; it did not, importantly, coincide with a change in the way their product was viewed. We managed partially to recover our rankings through a number of methods. We manually reviewed all the links that were pointing towards Skyscanner.se; we contacted each site with a link that could be detrimental to our ranking and asked for it to be removed; and we submitted a disavow list to Google for sites that would not respond to our requests. Despite all that, the rankings have still not returned to the levels they were at in 2012. We have seen the box with the Google vertical products getting larger and our vertical search product moving further down the page. Consumers do not always appreciate why those products are at the top. They do not always know to scroll down. In fact, now on some travel‑related searches, there are no non‑monetised spaces showing on desktop or mobile searches for travel. For example, if you search for London to New York flights on a mobile device you have to do four scrolls before you even get to any organic search results related to that.

Lord Aberdare: What sort of reaction do you get from Google when you raise these issues with them?

Carolyn Jameson: I would not be the one to raise them, so I do not really have experience of trying to do that, but, as I understand it, the general approach is that it is not particularly helpful. As to remedies, the Commission needs to take the approach that everybody should play by the same rules. In the case of Google specifically, it should not be able to give its own vertical search products preferential treatment and it should be subject to the same manner of displaying and ranking them as everybody else.

Kostas Rossoglou: On the issue of harm, I already referred to consumer harm because consumers do not get the most relevant results to their queries. Google is degrading the quality of search and that has an impact on consumers as well, because they do not get a good product at the end of the day. There is also the impact on innovation. Just imagine the first page on Google: we have the vertical, the local map, all the ads on the side, and the natural results—the non‑monetised ones—are pushed further and further down. That space further down is what all the rest are competing for. They are competing for two or three links on the first page because only 5 per cent of consumers will go to the second page of Google. The impact on innovation is major: what is the incentive for any start‑up to develop an alternative competitive vertical? They will have no access to the market. They will not be visible and therefore consumers will not use them. When it comes to the remedy, I fully agree that everybody has to play by the same rules. There needs to be competition on merit, and the best, most relevant service should be displayed to the consumer. In the example of a paediatrician in London, if you look on Google right now you will find seven results on the map and a total of 85 reviews. If everybody was able to compete on their merits, if all the relevant services were competing and the most relevant ones were displayed, the consumer would have access to several hundred reviews. The impact is really big. The remedy needs to be based on the non‑discrimination principle and it needs to be flexible, because it is not only the desktop but mobiles and connected devices. It should be possible to apply a remedy across different services and it should be flexible enough to make sure that it applies to all verticals.

Yelp and TripAdvisor are both complainants in the EU anti-trust case against Google. Just to show that it is possible to develop an effective and proportionate remedy that fulfils the non‑discrimination principle of competition on merit, and is forward-looking and flexible enough, we developed a very simple tool based on Google’s own algorithm. It displays the most relevant results to the consumer irrespective of the source—TripAdvisor, Yelp, ZocDoc or Google+; they are all competing for the same space—and it is based on Google’s own algorithm. It is simply an algorithm based on competition on merit. It is not a commercial promotion of its own services. We call it Focus on the User, and you can find it at focusontheuser.eu. It is a plug-in that any consumer can download once on their browser and choose what kind of results they want to see. Focus on the User means that all the services are competing and the most relevant ones are displayed or only Google+, just to show that it is possible to engineer results in a different way, because Google always says that it is not possible to do it any other way. It is possible and it took our engineers a couple of days of work to come up with a solution.

Ms Ufi Ibrahim: In the hotels and online travel agents situation, over 86 per cent of our industry are small and medium‑sized operators, so our industry is a very flat, horizontal industry. The majority of our members—80 per cent of the industry—employ fewer than five to 10 people, so it is an industry that is very rich in SMEs. The market capitalisation of Priceline is now over £59 billion, on its last market capitalisation review.

Examples of abuse of the dominance of online travel agents across the membership include the following: negotiation of contracts with the OTAs between the hotels and the OTA is extremely difficult because hotels have absolutely no bargaining power. The contract terms therefore become very restrictive, and the online travel agents, for example, demand that the hotels allow the OTAs to be able to change contracts unilaterally; they have penalties that are anti-competitive. Online travel agents insist that hotels provide them with rooms even during their busiest periods, and if they fail to do that as part of their agreement they will be penalised by being put down the listings, so that when you go online and do a search as a consumer you may not be able to see them until page 50 of the online travel agent search. Then there is refusal to supply businesses with consumer information, which affects the ability of hotels to provide customers with better service.

Next is high commission levels, which range on average between 15 per cent and 25 per cent, depending on the size and scale of your business; so the smaller the business, the more likely you are to be in the 25 per cent arena, because you do not have the ability to negotiate better rates, and OTAs now charge an additional 3 per cent for more favourable placings on their website over and above those very high commission levels. Another example of abuse of dominance is that, if you do a search as a customer on an OTA website, you may find that for a particular hotel it says, “No more rooms available at this hotel”, whereas in fact it is just that their own quota is filled; it is not that there are no more rooms available at that hotel. There is a big misleading of the customer in this respect and lack of transparency, because the customer is unlikely to know, for example, that room prices include such high commission levels. They are not aware of the fact that ratings and the way that hotels are listed on their websites have nothing to do with excellence or are even a match between the search and that hotel—to a great extent it is based on the commercial value of the relationship between the OTA and the hotel—and that a bad review cannot always be traced back to somebody who may have stayed in that hotel or dined at that restaurant. We have a current case, which you may be aware of, where we have been made aware of allegations by a major online travel agent against an online company that enables hotels to give their customers transparency for price comparison across different OTAs and their own provision of rates for a room. This particular OTA has written to hotels as well as to the online company concerned demanding that the information be removed forthwith, claiming that it is inaccurate and misleading and that they reserve all legal rights. Whatever the case may be with regard to the strength of the argument about the accuracy of information provided by this widget provider on hotel websites, the approach definitely seems to be motivated by a company with a desire to suppress competition.

The impact of these anti-competitive practices—there are many more; I cited some examples—is, as I said, particularly not in the interest of customers and consumers. We would definitely push for greater transparency and we would certainly like uncompetitive clauses such as rate parity to be banned in the United Kingdom. In fact, the German authorities have made rate parity illegal in Germany, the French authorities have banned rate parity in France and the Italian authorities are following suit, so we would be very keen on seeing regulation in the United Kingdom to ban rate parity. As I said earlier, rate parity gives online travel agents the ability to dictate rules and to fix prices, in effect, with hotels, not allowing them to offer better deals to customers either online or offline or to other smaller or alternative online travel agents.[4]

The Chairman: Do you want to add to that?

Tim Godfray: I would like to contribute if that is possible because I have not said anything yet.

The Chairman: We have moved into the territory of unfair terms and conditions, which was the form of the next question, so I do not know, Lord Green, whether you want to amplify the question at all before our colleagues reply.

Q127   Lord Green of Hurstpierpoint: I will tee up the contribution from the Booksellers Association. I was going to ask for some more specific examples about restrictive terms and conditions, and you have just provided a number of examples that go beyond the rate parity problem. Perhaps we could hear the booksellers’ perspective on restrictive terms and conditions. It is a bit different from simply prioritising different names on the Google site, of course. It is specifically about the terms and conditions imposed by a dominant player on relatively small counterparties.

Tim Godfray: My Lord Chairman, we carried out surveys not too long ago asking publishers and booksellers to give us their views and comments in confidence. Replies were given under the full cover of anonymity: 42 per cent of publishers said that in the last two years Amazon had attempted to prevent them offering a better deal to anyone other than Amazon; 39 per cent of publishers told us that Amazon had mentioned to them that, if the publisher did not have the book, Amazon wanted to use its own print‑on‑demand company to print that book, thus preventing the publisher controlling the print cost and the distribution channels; and 25 per cent of publishers said that they had been asked by Amazon to restrain discounting in other channels. We have masses of information and examples. I do not have the time, and I am sure you do not want to listen to them all now, but if the Chairman wants us to supply the information subsequently we would be very happy to do so.

The Chairman: That would be useful, yes.

Tim Godfray: Thank you. There have been public reports of disputes between Amazon and suppliers, and when negotiations have got pretty tough Amazon prevented consumers from being able to order or pre‑order the publisher’s books: 12 per cent of publishers reported delays in deliveries of back‑list titles and 9 per cent said that the web pages or the buy button had been removed completely. On the booksellers’ side, 11 per cent said they had been prevented by Amazon from offering consumers on Marketplace a deal lower than theirs. There are examples in both publishing and bookselling. The problem with those most favoured nation clauses is that they end up preventing publishers from acting freely and prevent their giving booksellers other than Amazon support. High street booksellers and campus book stores have fared very badly. I very much hope that the competition authorities outlaw most favoured nation clauses and similar clauses, which we view, and hopefully DG Competition and the CMA also regard, as anti-competitive.

Lord Green of Hurstpierpoint: Can I press you a little on two points? First, to pick up your own phraseology, you said that Amazon had attempted or sought to. Does that mean they were invoking contractual terms and conditions or that they were leaning on a supplier to co‑operate? In other words, is it a restrictive practice, or is market dominance being brought to bear? That is the first question. To back it up, you quote 11 per cent of booksellers saying something—I forget what it was—but does that mean that 89 per cent did not have the problem?

Tim Godfray: That is correct. In answer to your first question, obviously I do not know who the publishers are who gave us information via the surveys; they were too frightened—if that is the right word—to give their names because they did not want to upset their largest customer, but I think probably it is a bit of both. In some cases, it was used as a threat and a warning, and in others it was abuse of a previous contract agreement, or whatever.

Lord Green of Hurstpierpoint: What about the 11 per cent point?

The Chairman: I think Mr Godfray said that was right, that 89 per cent did not have—

Tim Godfray: I said yes. All I am saying is that 11 per cent told us that Amazon had tried to impose the price at which the book should be sold on Marketplace. The fact that you have a competitor in a position of real influence deciding what another competitor should sell the book at is not insignificant. I do not think that is on.

The Chairman: Perhaps we could have Baroness Donaghy’s question, which takes it a bit further.

Q128   Baroness Donaghy: You have already raised the issue of price parity clauses, and of course the online platforms argue that narrow clauses prevent freeriding. One of you has already said that they should be outlawed. I would appreciate the view of the other witnesses. How effective do you think the competition agencies’ interventions have been regarding online travel agents and Amazon?

Ms Ufi Ibrahim: There have been recent commitments negotiated by the two dominant online travel agents with competition agencies throughout Europe. As I said, Germany, France and now Italy are basically treating rate parity as illegal in those nations. Outside that, some others have agreed on commitments on what is called narrow rate parity. Narrow rate parity allows the hotel to offer other OTAs lower prices, but again it restricts the hotel from being able to offer customers lower prices directly themselves through their online or offline channels.[5] We do not see that as being in the consumer’s interest at all. It does not necessarily tackle the anti-competitive nature of parity clauses within the agreements, which is why for us it would be absolutely crucial for the consumer’s interest to have rate parity banned.

Showrooming and freeriding are unlikely to occur in our sector, because when customers search, on their Google searches, they inevitably come face to face with the online travel agent’s search results rather than being able to see others for pages and pages. We do not think they would be able to get the best deal on those sites. It would be highly unlikely because of the asymmetry in bargaining power and the asymmetry in online presence.

The Chairman: Baroness Randerson has a question that relates to the asymmetry of power and how different this market is from more traditional markets.

Q129   Baroness Randerson: You have all given a picture that suggests a lack of symmetry in bargaining power between the enormous businesses you are describing and the small traders who are trying to deal with them. That is not unique to your industries, is it? It is a very common factor in markets. Do you regard it, however, as particularly a problem in online platforms? Do you believe that it needs more regulation or different regulation? Is it something that regulation can help with?

Carolyn Jameson: There are definite imbalances of power in all sorts of industries, but it is particularly problematic in an online environment. The reason is that everything just moves faster. The effect of those imbalances or an abuse of the power that one party has can shape the future direction of an industry online at a much quicker pace than it could do in a traditional bricks and mortar environment. There are no geographical barriers. There is a relatively low financial investment associated with very high stakes of winning, so companies can be particularly aggressive, because where you win you really do win, but where you lose you can go out of business very quickly. Regulations could help by empowering regulators to deal with issues much more quickly than they currently do. We have found that to be a real problem; when issues arise at the moment, they are not dealt with quickly enough.

Kostas Rossoglou: I would like to add something on the asymmetry of power between platforms. I apologise for always coming back to Google, but it is a really good example that illustrates the problem with the online market. I want to highlight the issue of data, because data is a source of asymmetry, not only in the relationship between the platform and the user but between platforms. The way Google built its dominance in online search was by collecting data about users and the online behaviour of users across 70‑plus services. Google has the treasure—the data about what I am doing—so it is very difficult for any other search engine to compete with it to provide something more relevant that would allow the user to go to another search engine. Since the anti-trust investigation, something that is interesting for regulators is the interaction between two pieces of legislation—competition law and data protection legislation. As to the question of what needs to be done, I do not think we need more regulation. We have rules for competition and for data protection. Just make sure that there is a merger between the two. For example, privacy can be an aggravating factor in an anti-trust investigation because, as you know, across Europe data protection authorities are investigating Google’s privacy policy as being against EU legislation on data protection, so if Google is using an illegal behaviour to build its dominance by collecting data illegally, that needs to be taken into account. We do not need more and more regulation; enforcement of existing rules could provide an effective solution.

Ms Ufi Ibrahim: To answer the question about whether this is specific to our industry or not, or whether we perceive it to be specific to our industry or not, I would certainly say that the dominance of those two particular online travel agents in our industry is unprecedented in hospitality and tourism. The reason for that is a huge amount of merger and acquisition activity over the past few years, particularly Priceline, which, as I said, now dominate over 50 per cent of the online travel market—just one company—with Expedia, as I said, representing a very significant part of the rest. It is the speed with which these businesses have grown and the rate at which they have grown that has created this particular dominant and anti-competitive position in our industry.

Lord Aberdare: We have heard the view—I cannot remember who from—that price parity clauses could be seen as a benefit for the consumer, because they know they are getting the best price whichever route they are following, as it were. Do you see any merit in that argument?

Tim Godfray: It stifles competition. It prevents other sellers from being able to make special offers, or whatever. It is outrageous.

Carolyn Jameson: It hinders new entrants to a market, because when they have no brand how can they compete? They cannot compete on price.

Ms Ufi Ibrahim: It also forces the actual establishment—in this case the hotel itself—not to be able to offer a customer a better or special deal.

Carolyn Jameson: In fact, in the commitments that have now been accepted by some countries, they are also prevented from using metasearch sites. Metasearch sites have been deemed the same as a direct hotel website, which is frankly ridiculous; we are a totally different business. It is a new, innovative and competition‑inducing marketing tool that hotels are not able to use.

The Chairman: You have established fairly substantially that there are some serious problems. Could we perhaps focus on the remedies you would advocate? I have a question from Lord Rees and one from Lord Green on this area.

Q130   Lord Rees of Ludlow: What avenues for redress can you pursue if you enter a dispute with an online platform or if you believe them to be abusing their dominant position? Are you entirely reliant on competition law, or are there effective alternative dispute resolution mechanisms? Do you think there needs to be a regulator of some kind that can arbitrate in these disputes?

Carolyn Jameson: It is an extremely difficult position to find yourself in, particularly when you are reliant on the platform you are unhappy with. At the moment, competition law is the main avenue for redress for that. I have not seen alternative dispute mechanisms being used particularly. That may be a way forward. It would be difficult to comment without knowing what that would look like specifically, but it would still put the party suffering as a result of the abuse in a difficult position. Commercial retaliation is always a problem in any of these cases, so it would need to be supplemented by some sort of penalty when a dominant company retaliated in some way, otherwise it would risk not being used; we have touched on the fear that lots of companies have about raising these issues. I can speak about that first hand because we were involved in challenging the CMA and its acceptance of commitments, and Skyscanner very quickly found itself on the opposite side of the table against two internet giants. They are internet giants we also work with, so another complexity in the industry is that relationships are intermingled, which makes it very daunting when you need to tackle those issues.

Ms Ufi Ibrahim: I agree with Carolyn that there are two routes. One is regulatory, through the competition agencies; the other is through litigation, as was the case in Germany. We are not aware of any other channels. One could argue, “How about discussions between the online travel agent and the hotels themselves?”, but the asymmetry in the power and the dominance really speaks for itself, so that is not an option. We believe, as I have said before, that a ban on rate parity is probably the most important step to bring competition back, certainly in our market. Once rate parity has been banned, we would welcome an arbitrator or regulator with the ability to arbitrate, and to do so in a rapid and effective manner in line with a new regulatory framework based on fair practice and fair trading, which currently does not exist.

Tim Godfray: We sent a formal submission to the Competition and Markets Authority outlining our concerns. It was a substantial document of about 300 pages. We were particularly concerned about allegations received from publishers and booksellers that Amazon was seemingly engaged in predatory pricing: 93 per cent of booksellers believed that Amazon had been selling books below cost and 51 per cent of publishers thought the same. We supplied a lot of title information examples to the CMA and we hoped that the competition authority in London would investigate, but instead they ended up passing the file over to DG Competition in Brussels. We are still talking to Brussels and we do not have a quick resolution. To follow up what has been said, by the time the competition authorities decide to do something, circumstances will have changed, the world will have moved on at an even faster pace and hundreds of additional bookshops will have closed. I certainly feel that a new regulatory authority would be a step in the right direction, but in order for it to be effective it would have to have the muscle to take on very large online platforms and to possess the resources to give a fairly quick judgment. When people like us, who are extremely small, go to the competition authorities, we cannot just knock on the door and put a letter through the box; we have to get specialists to bat for us, and competition lawyers are extraordinarily expensive, so it is not easy for most people to get a quick resolution to their problems and difficulties. We very much hope that some authority, whether it is a new regulatory authority or the competition authority, can do something to look into predatory pricing, because the predatory pricing law certainly has to be tightened up. At the moment it is terribly difficult to prove in court. You have to show absolute definite intent to take out a market competitor. We also have a difficulty with transfer pricing, where global companies are able to shift sales and costs from country to country, which puts them in a very good competitive position. Some arrangement involving transparency that tackles the question of transfer pricing, and tries to ensure that predatory pricing, which is against what the law intends, actually does not occur, would be extraordinarily helpful for us.

The Chairman: Thank you. We have only about 10 minutes left. There are questions from three of my colleagues that address this area, part of which has been answered. Lord Green, do you want to ask one further question on competition agencies, Lord Liddle on the transparency side and Lord Wei about what kind of regulation we are talking about? If we could take those three questions, perhaps you could give us an overall answer.

Q131   Lord Green of Hurstpierpoint: You have made very clear your view that competition enforcement is often cumbersome, expensive and too slow. It has been suggested to us that there are ways of improving that and that, in particular, the French competition authorities have made use of interim measures, and the German competition authorities have recommended making use of them, as a way of cutting through the enormous legal complexity of a full‑blown competition case in Brussels. I assume from what you are saying that you would regard that as helpful. Are there any other aspects of competition enforcement that you think could be, in a practical way, improved from the point of view of the needs of your industries?

Carolyn Jameson: Interim measures are among the things that I consider would certainly be very welcome. For instance, in the US where consumers are impacted, the authorities have the ability to declare behaviour unfair and deceptive or an unfair method of competition. That comes in the form of a declaratory notice about the market. It does not even go into company‑specific detail, but is a general comment on the market and it puts companies on notice about how they behave, where it is in the public interest to do so. Something like that could be of benefit. Some companies have become very wise to the fact that they can use the layers of red tape to delay any decision on the case and drag their feet, and in the internet environment, where an investigation takes years, as we have touched on previously, it is too late.

Q132   Lord Liddle: What about transparency rules? What sort of transparency rules would help, and to make them work would they have to be targeted at specific platforms and at which platforms?

Kostas Rossoglou: Transparency is a major element of consumer empowerment and consumer trust in the online environment. It is very important, and legislation is already in place. The world consumer protection acquis from Brussels deals with the issue of transparency. On the issue of reviews, for example, Yelp already has to explain to the consumer when there is a business model impact on reviews, to explain to the consumer how we run reviews and provide information to the consumer. When it comes to Google, transparency will not solve the problem. If Google was simply required to say “This is a Google result”, would it change the consumer attitude? The consumer would not know where to go to find other competitors’ results; keeping in mind the map on the first page, with several results providing reviews only from Google+, it would not make a difference if Google said somewhere in small letters, “This is a Google+ result”. It will not solve the problem. It is part of the solution. Transparency deals with consumer protection issues; it is a consumer protection tool. Competition enforcement deals with abuses in the market and both are needed. They are complementary tools, but we should not really focus on transparency, because Google always say, “Okay, we can improve the display”, so they take features away—colours or shapes—and say the problem is solved. It will not solve the problem that the consumer does not get the most relevant results.

The Chairman: Oh dear, yes. Lord Wei.

Q133   Lord Wei: Is there a role for ex ante regulation, and if so what is it? DG Connect previously raised the possibility of creating a regulatory authority that would create principles‑based rules about transparency and “fair” terms and conditions that could settle disputes. Is that the kind of thing you would like to see?

Ms Ufi Ibrahim: From our perspective, after a ban on rate parity, which for us is the single most effective way of allowing competition to re‑enter our market, we would be very keen on the enforcement of parity on obligations, absolutely, and a forum in which disputes could be addressed against a backdrop of agreed fair practice. That would be very valuable for us.

Transparency is of great importance to our consumers and our customers for a number of reasons. They are not aware that the way in which hotels are listed is not based on search results in these OTAs or on the match vis‑à‑vis excellence and service quality. They use stars in some ratings, which is very misleading, so transparency on the fact that there are commercial elements to the algorithms that decide the listings of hotels would be very much in our consumers’ interests. Reviews on some sites are not necessarily all monitored properly, and transparency on that would be very important, as would transparency in allowing some businesses to respond to reviews. Some sites do not allow that; for example, on OpenTable you are not allowed to respond to a review that has been provided to your restaurant. There are many areas in our industry specifically where transparency is extremely important for the protection of our consumers.

Kostas Rossoglou: On ex ante regulation, the issues related to transparency, as I said before, are already regulated. The problem is that the legislation we currently have may not be clear because it dates from 10 years ago, so there needs to be clarification in the form of guidance about how it applies to online environments, to provide legal certainty to all the players. We first need to see what rules are already in place and look for ways properly to enforce and clarify them instead of looking for new rules, because it will take ages for new rules to be adopted, especially when it involves Brussels. In the meantime, the problem in the market persists.

On the issue of reviews, there is already legislation in place. All the problems that were just described would be addressed by existing legislation and consumer protection. Yelp will provide reviews, but we still need to provide information and to explain everything to the consumer. This is part of the unfair commercial practices directive. It is a maximum harmonisation directive that was adopted in 2007 from Brussels. It has been implemented—

The Chairman: I am sorry, which directive?

Kostas Rossoglou: It is the unfair commercial practices directive. It is a maximum harmonisation, which means that national legislation has been harmonised. The problem is that there are a lot of grey areas that should be clarified from Brussels, from the EU, and consumer protection authorities should have the tools to enforce those rules.

Q134   Lord Wei: I have a final supplementary question. A lot of this in some ways is quite hard for regulators or Government to keep up with, because digital is very fast. Why is there not some kind of digital equivalent of a consumer movement like Which? for today? Why is that absent, or why do we not hear about it? That kind of large‑scale movement, which we saw in a previous era, led to the changes that you want to see. Why is that not happening today as much as it could?

Carolyn Jameson: Part of the challenge is that we talk about online platforms but that encompasses such a wide variety of business models and ways of operating that it would be very hard for one consumer body to deal with them. That applies to the ex ante regulation point as well. In theory it could be very good, although obviously the devil is always in the detail, but it is very difficult to create something that would cater for all the different types of platforms operating online. There is obviously a risk associated with overregulation as well, because that can hinder innovation. It would have to be something that was very simple, very high level and principles-based.

Ms Ufi Ibrahim: As you said, Lord Wei, this has all happened so fast. These businesses have become dominant in the marketplace within a very short space of time and there is no transparency. The consumer is not even aware. The way the information is presented to them leads them to believe that they are getting a best price guarantee, for example, or a match with ratings based on excellence, because some OTAs refer to the hotels in their top listings as “Our favourites” and “Best hotels”. They are not aware, because there is no transparency. As we begin to address these issues more openly and talk about them, consumers, hopefully, with a push on transparency, can become informed. Then perhaps we will see consumers reacting to the fact that they are being misled and not being given full facts on what the price, for example, of a room actually represents for them online—the fact that, as I said, 25 per cent may be commission, plus 3 per cent something else—because they are clicking through this website versus that website. They are not aware of that yet.

The Chairman: Does the book trade have similar views?

Tim Godfray: I have talked about interoperability. I stress again how important it is that, when the consumer goes into a shop and buys an e‑book device, he or she is aware of any limitations as far as interoperability is concerned. On transparency, my understanding—I am not an accountant—is that DG Taxation is looking at this at the moment to try to ensure that global companies do not have an unfair competitive advantage over national businesses. I talked about predatory pricing. I do not know whether there is any way in which that area can be looked at under the cover of transparency, because it is very difficult for competitors to know whether a product, a good or service is being sold below cost price or otherwise.

The Chairman: Would all of you agree with the point that was made that basically the rules in principle exist and it is a question of applying them to the new market? That does not imply that you need a wholly new regulator, but it does mean that the rules have to be better enforced, probably by the competition authorities. It also may need an arbitrator as distinct from a regulator; Ms Ibrahim stressed that. Would that be the view of your colleagues—that the lack of an arbitrator in this field is probably institutionally the most important thing?

Carolyn Jameson: I think so. You still need something to help people get over the fear of coming forward, as I talked about previously. It would need to be supplemented with things like some form of penalty for any sort of retaliation in that environment.

Tim Godfray: It would have to be cheap and quick.

Q135   The Chairman: Cheap and quick, okay. Can I ask you a wider question? We are focusing on this area because it is part of the current Commission’s priorities on the digital single market. Could anything be done in other parts of the Commission’s approach to improving Europe’s digital capability that would bring more competitors on board, more transparency to consumers and easier remedies that you could recommend we look at, outside the area of focusing on the big online platforms? In other words, you are coming at it the other way—creating more effective competition for them.

Carolyn Jameson: One thing we need to make sure is captured in the digital single market strategy is any issues that exist around IP. I know there is something in there, but it is worth spending time focusing on that, because content on the internet is often used as a means to engage in some of the behaviour that we have seen. That is certainly a lot of what we are seeing with some of the airlines now. Much of that data is now part of the fundamental infrastructure of the internet and it would be dangerous for ongoing development if large individual companies were able to dictate the way publicly available information was accessed by consumers. Some of them try to do that even where it is not proprietary information, so that area needs considerable focus.

Q136   The Chairman: Does anybody else have any last thoughts? We have covered quite a lot of territory in a rather rapid time, but you have given us a lot of think about. Are there any final points you want to register with us?

Kostas Rossoglou: On the issue of arbitration, you may want to look at the online dispute resolution regulation; I think it was a regulation from Brussels that was adopted a couple of years ago. It deals with business-to-consumer disputes, but there is a lot of discussion about developing the infrastructure. It has to be implemented in every country, so once it is implemented, that could be an idea—just to see how it could be extended to business-to-business disputes. Another issue that would make a difference to start‑ups would be if consumer protection legislation could be harmonised across Europe, because consumer protection legislation and consumer rights are very different in every country. For a player to go global—a European start‑up from Estonia that wants to become a European major company and provide a service across Europe—consumer protection legislation is always a problem, because everybody has to deal with transparency and unfair contract terms, as we mentioned. They are part of consumer protection and they are not fully harmonised across Europe. That could really make a difference.

The Chairman: You want maximum harmonisation in consumer protection, and data protection.

Kostas Rossoglou: Data protection as well.

Carolyn Jameson: All harmonisation is good, because essentially trying to operate in Europe with different rules in different countries is very difficult as a business, and you spend your time doing that rather than expanding globally.

The Chairman: Are there any other points?

Ms Ufi Ibrahim: The EU single digital market review is going to look across the board at all industries, and I am aware that the EU is trying to prioritise within that space. My request would be to point out that, if we take Google, for example, as the biggest search engine on the web, of the five biggest customers that Google has, two of those are the two big online travel agents. I understand that the volume of transactions in hospitality, tourism and travel represents the biggest percentage of transactions online as a single area of activity, so I would reiterate the request that our case is looked at as a priority among all the other areas. I also underline data protection and data security as additional areas of concern.

The Chairman: Thank you very much. Mr Godfray, do you have any final points for us?

Tim Godfray: No, thank you.

The Chairman: Thank you very much. It has been a very interesting session for us. Thank you very much indeed for your time and efforts. If there is any further information you want to convey to us, please do so. We are still open for business in one sense, but do it pretty fast if you can. Thank you very much for your time. You are welcome to stay for the next session should you wish to, but thank you very much. You have taken us a good way down the road.