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Google is feeling the heat over its unwillingness to discount travel advertisers’ unpaid advertising bills that grew out of the Covid-19-induced economic collapse, and its payment-collection practices, which include barring new advertising for nonpayment.
Google believes that German and French companies that publicly called on Google in recent months to give them relief from their first quarter bills, when their advertising spending turned into a mountain of cancelled bookings, are looking for special treatment and one-off deals.
Google issued a new statement about its billing practices Wednesday.
“We fully recognize the enormous challenges facing the travel industry, and we’ve been working in close collaboration with travel advertisers to help them protect their businesses and look toward recovery,” Google stated. “The issue of payments’ collection applies to only a very small number of travel companies, and virtually all of our partners in the industry do not have overdue bills with us.”
Unlike companies such as InterContinental Hotels Group, Facebook, and Amazon, which were reportedly willing to hand out discounts to partners or agree to payment plans for their overdue bills, Google has resolved to maintain a one-size-fits-all debt relief plan — virtually nothing.
“As a matter of fairness, we’re applying the same rules equally to all of our clients asking for relief, across both travel and the many other sectors that’ve been impacted by the pandemic,” Google stated.
Let’s Do the Math
When Google said “only a very small number of travel companies” have to deal with its debt-collection efforts, that may be true as a percentage of Google’s travel advertisers — but the bad debt could easily total $50 million to $100 million.
Consider that Google’s parent Alphabet disclosed in its second quarter report that its allowance for credit losses on accounts receivable stood at $788 million on June 30 — and that was an increase of $513 million during the coronavirus-influenced first six months of 2020. The comparable number on December 31 was just $275 million, and Google noted that credit trends can be volatile so these numbers are just estimates.
Skift Research estimated that in 2019 Google generated 12 percent of its $135 billion in total advertising revenue from travel. That would have amounted to some $16.2 billion in travel advertising spend on Google last year.
It would be easy to see then that at least $50 million of Google’s estimated $513 million in bad debt that came on the books in the first six months of 2020 could be tied to distressed travel advertisers.
If you take into account that travel was likely the hardest-hit — or one of the most-beaten-down — sectors among Google’s advertisers, then perhaps that $50 million level of estimated bad debt should be significantly higher by multiples.
These would be very small numbers for Google, but undoubtably would mean a lot of pain for many travel companies, with their existences in peril.
For further context, Expedia Group calculated that its uncollectible debt and estimated future losses from Covid-19-related factors rose $82 million in the first six months of 2020. [See the Accounts Receivable and Allowances section of this document.]
Impact On a Small Tour Operator
While the largest travel companies, such as Booking Holdings and Expedia Group, are likely current with their Google bills, a range of advertisers have seen their advertising cut off, and their accounts handed off to debt collectors.
We previously detailed the case of a well-known travel brand that tried to make payment arrangements for its past due bills with Google, but was rebuffed. The travel firm then saw all of its advertising turned off, despite being a Google client of many years. This hampered the travel advertiser’s recovery efforts, and ability to repay Google, and the debtor got pressure from Accenture on behalf of Google to pay the debt.
Skift was in touch this week with a small tour operator that handles a few thousand customers annually, but saw all of its bookings cancelled when coronavirus shuttered travel.
“They took the full force of Covid disruption — 100 percent cancellations and refunds,” a tour operator representative said. “They asked for some leeway with their Google bill in April, which was flat-out denied and referred to a collection agency.”
Figuring they had enough to deal with to get into recovery mode, the tour operator paid their overdue Google bill.
“The really sick twist is that when Google dropped those paltry $200 ad credits into advertisers’ accounts, it automatically reactivated their suspended ad campaigns, with no notice or warning,” the tour operator associate said. “So they burned through the credit and started racking up fresh charges before they got a bill, and realized they were being charged again.”
Google did provide small- and medium-size businesses — in every sector, not just travel — a total of $340 million in credits toward future advertising.
You can also argue that a debt is an obligation, and that Google deserves to be paid.
But like Expedia Group and Booking Holdings, a deep-pocketed Google didn’t provide any breaks to advertisers for their past due bills. Google did do other things, such as rolling out a tool for airlines on when to restart routes, introducing a commission program for hotels around the world so they could pay Google for stays rather than advertising clicks, and made numerous changes to its search products to help consumers make informed decision about travel planning in the coronavirus era.
One industry observer argued that some of the travel companies in Germany, for example, that were the most vocal about calling for Google to give them a break on past bills, are heavily venture-funded or are owned by large parent companies that are well-positioned to give them relief.
On the other hand, it is the smaller online travel agencies, metasearch firms, independent hotels, and tour operators who find themselves stuck between Google and a hard place.