Google and the Threat of It Becoming Your Competitor

In the middle of last year, Google launched Google Fiber in Kansas City, offering a comprehensive and compelling high speed Internet and TV offering.  Let’s just say for the first time ever I thought “maybe it would be good to be living in Kansas City.”  OK, I got over that quickly.  I had largely forgotten about Google Fiber but recently, in a group of which I’m a member, someone asked “is Google serious about getting into this business?”  Short answer: no.  But Google’s initiative here is instructive as part of its larger strategy.

You may remember that back in 2008, Google bid on spectrum.  Google didn’t actually want to own the spectrum but wanted to force the price over a threshold which guaranteed openness.  Bidding $4.6 billion (yes, billion with a “b”) or more sent a message to the carriers about Google’s willingness and ability to invest to get what it wanted.  Verizon ultimately topped Google’s bid, to Google’s relief, but a message was sent.

Google pursues this same approach with its Nexus line of products. Their idea here isn’t so much to compete with its partners, though there’s certainly an element of that, but to set an example of what can (and should) be done.  Google can use the threat of direct competition to get device manufacturers (and carriers) to support features Google feels important to be supported (e.g., NFC and payments).  You could view Google’s purchase of Motorola as its expression of dissatisfaction with other handset manufacturers and the carriers, wanting more direct control of handset production.  Certainly the Motorola purchase was also motivated by Motorola’s patent portfolio but the handset club was no doubt an attraction.  Google walks a thin line here.  Samsung’s recent embrace of Intel’s mobile platform and operating system is certainly a response to the Motorola threat.  This isn’t necessarily the biggest threat in the world but Samsung is taking a page from Google’s own playbook.  These megaproviders have sufficient assets to engage in high-stakes games of chicken.

So, back to Google Fiber. We in the US are far from state of the art in our wired (or even wireless) infrastructure. In fact, we’re about 16th.  My first cable modem deployment was around 1997.  At that time, Cablevision delivered 10 Mbps to my home.  Here we are, 15 years later, and Cablevision’s base service to my home promises only 10 Mbps.  Still.  (They’re actually delivering closer to 16 on a regular basis, but we’re hardly talking about Moore’s Law kinds of evolutionary speeds.) Why do we lag so badly behind Western Europe?  One major study concluded that it’s competition that accounts for the difference. Google’s current and future business prospects are inextricably intertwined with better and faster broadband access, wired and wireless.  So, if it’s competition that will lead to improvements and if competitors are loathe to push each other — that requires massive capital investment — then Google has to provide that competition.   There was a day when you might have thought Verizon’s FiOS was going to be the great challenge to the cable companies.  Verizon has killed that hope. So into this breach steps Google Fiber. Who here wouldn’t want that service? The message is “look what can be done”..And c’mon Time Warner, Comcast, Cablevision et al. Get with it or maybe we’ll do it in your neighborhood. And customers, demand more. It must piss Google to no end that it’s entirely reliant on two of the most backwards-thinking oligopolies in the world, cable and wireless, which exert considerable influence over Google’s future monetization opportunities (e.g., payments).

So, does Google want to own spectrum? Manufacture devices? Deploy cable systems?  No it doesn’t.  But if it doesn’t get other parties to do things they way it wants them done, Google will absolutely do the things it needs, not just the ones it likes.  Google surely has the resources.  It’s sitting on nearly $45 billion in cash.  That’s quite a war chest.

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