Googles Gigabit Gambit Isn't Going Away
Cable executives told me back in 2010 that Google GOOG -0.04% would flop as a telecommunications provider, because it’s a very different business than the search advertising business that vaulted the company into a major global brand. It requires truck fleets and technicians and service operators dealing with frustrated customers.
When the company actually began laying fiber-optic cable in Kansas City two years later, Time Magazine suggested Google Fiber was less a business venture than a publicity stunt aimed at shaming the “legacy giants” of the national cable and telecom industry into improving U.S. Internet service.
All this had a ring of truth, but here we are in 2014 and Google Fiber’s gigabit service appears to be gaining momentum. The company said last month it has “invited” 34 cities across nine major metropolitan areas to explore ways to bring the service to their citizens, signaling it’s ready to make a substantial investment in the venture.
To be sure, it’s still a long way from mounting a real competitive threat to industry giants like Comcast CMCSA -0.58% and Verizon VZ -0.28% , and the company won’t tell us how many customers it has in its initial markets, but the anecdotal evidence is impressive. Customers quoted in media reports in Kansas City are overwhelmingly positive, and Google doesn’t seem to be embarrassing itself at all.
Meanwhile, analysts have crunched numbers suggesting Google Fiber should be taken seriously. Evercore Partners, an independent investment banking firm in San Francisco, has predicted that Google could sign up 3 million customers in the next seven to nine years, which would rank it among the nation’s top-10 providers.
That’s really a reflection of how few providers there are and why consumers are starved for new options. Who could blame them? Cable companies are perennially rated among the least-liked companies on the planet from a customer-service standpoint, and numerous reports document that the U.S. lags far behind other developed economies in terms of Internet service quality — an embarrassing fact for the country that invented the Internet that doesn’t bode well for its future.
Are Internet service alternatives to cable and telecom giants the answer to this problem? The New York Times recently ran an interesting story about “The Gig,” a taxpayer-owned, fiber-optic network in Chattanooga, Tenn. that offers consumers an ultrahigh-speed fiber-optic connection transferring data at one gigabit per second for less than $70 a month. The cable industry, which fought the project in court, makes it sound like a communist plot, but what’s happening in Chattanooga sounds a lot like capitalism to me.
“Since the fiber-optic network switched on four years ago, the signs of growth in Chattanooga are unmistakable,” reported The Times. “Former factory buildings on Main Street and Warehouse Row on Market Street have been converted to loft apartments, open-space offices, restaurants and shops. The city has welcomed a new population of computer programmers, entrepreneurs and investors.”
This trend can’t be tied directly with “The Gig,” and Chattanooga still has its share of economic woes, but the influx of hipsters and tech-oriented commerce seems like a timely coincidence with the project and a godsend to the city.
Google’s service, which includes a video service option, offers much faster Internet speeds than cable’s broadband, and it’s cheap. One tier of service offers subscribers free, high-quality Internet service after a $300 installation fee. Yes, free — that is not a typo.
The public’s love of the Internet and its thirst for service alternatives is palpable. Efforts to attract Google Fiber have included the mayor of Duluth, Minn., jumping into Lake Superior and the mayor of Sarasota, Fla., swimming with sharks. Baton Rouge supporters remade the song “Give a Little Bit” into “Give a Gigabit,” a plane hauling a banner reading “Will Google Play in Peoria, IL?” flew over the company’s Mountain View, Calif., campus, and Topeka, Kan., temporarily re-named itself “Google.”
The media and telecom industry may have reason for concern. Google has played a leading role in undermining its traditional advertising industry with its search business and its online video site, YouTube. With Google Fiber, it’s now taking a swipe at the media’s most treasured honey pot — the monthly bills paid to cable and telecom companies in return for Internet and pay-TV service. And the prospect of “cord-cutting” — dropping traditional pay-TV service and supplanting it with online alternatives, like Netflix NFLX -0.56% — will only become more attractive if cheaper, higher-quality Internet service proliferates.
Comcast’s proposed $45 billion purchase of Time Warner Cable TWC -0.27% reflects attempts by the industry’s largest player to tighten its grip on a business model that it needs to preserve amid a myriad of technological challenges. But it also shows how valuable a broadband service provider is. Liberty Media Chairman John Malone, a cable industry pioneer, has said that he views broadband networks as increasingly valuable assets, and he tried to buy Time Warner Cable before Comcast did.
It’s still very possible that Google Fiber won’t live up to its hype, but if it continues to gain traction, it could also make Google shareholders very happy. Like any successful tech company, Google innovated with its search business, creating a monopoly that became an empire. Now, the company faces the question of whether it’s a one-trick pony, or if can it build another success with the many business ventures it’s experimenting with.
Maybe Google Fiber could make the company a two-trick pony