October 31, 2007
Is Google becoming the Third Pipe?
Perhaps Comcast’s Brian Roberts, AT&T’s Randall Stephenson and Verizon’s Ivan Seidenburg should spend next years Labor Day holiday at Burning Man if they really want to understand their new competition. I doubt this is where Google management got so scary smart, but they have all attended. In channeling the triumvirate of Larry Page, Sergey Brin and Eric Schmidt I am beginning to believe that Google is on the verge of becoming a worldwide third pipe to the internet with “triple play” bundled for the taking. I do not believe that Google deliberately set out to compete with the telco / cable duopoly. They are, however, undergoing an organic evolution that may very well end with a fully open Google pipe that will be very disruptive to the duopoly’s current business models.
Understanding Google’s business model is simple, but not intuitive to the average duopoly MBA. They are more like a 1960’s broadcast network than a telco, cable operator or software company. Their revenue comes from advertising and they create product and service to showcase advertising. The more new product or services they can create, the more advertising they can sell. This is where they diverge form the old broadcast model . Google is growing by creating more ad space, with more targeted audiences, not by creating scarcity and charging an ever increasing price like ABC, NBC and CBS. How does competing with the duopoly figure into this? Google has long been under assault from the duopoly for getting rich while taking a “free ride” on the duopoly infrastructure. Google has bought and lit up dark fiber and has been aggressively building data centers to insure efficient back haul delivery of their content. I believe that this began as a purely defensive measure, but the fact is that this infrastructure is now in place and it gives them an advantage. Consider a quote from a recent interview with AT&T’s chairman:Google (GOOG), Stephenson pointed out, has put its data centers close to the end customer, allowing it to offer a superior experience; AT&T’s new wholesale content division, he said, will offer the same “closeness.” Not that they are having any trouble selling. The company, he said, is experiencing strong demand for its bandwidth-related services, largely due to a boom in video-related activity. (from Gigaom)
While Google was a late entrant to the VOIP business with Google Talk, it is the most internally back haul capable of any company currently offering a free voice service, and they have added SIP support, making it an open system. When used in conjunction with gmail and the Google productivity suite, they have the most powerful single online desktop of any free service. How does this effect the duopoly? If Google integrates their newly acquired Grand Central service, they will have a connection to the PSTN. Grand Central a very rich feature product that integrates well with services outside of Google while accessing the old dial tone network giving the user a free, lifetime PSTN phone number. With the projected offering of the g-phone as an open platform available to any wireless operator, Google will have a presence in every sector of the voice market. Worth noting, voice is currently the most profitable section of the duopoly’s business.
Google has huge ad space growth in indexing and hosting video, but the quality has been poor. This is also changing rapidly. Again they are building infrastructure to deliver it efficiently. A higher quality h.264 codec is coming to the flash player that is the platform of choice for Google’s you tube. Quality will quite good in the near future. Then, Google will be bidding on 700 MHz spectrum. I believe again that this is largely a defensive act. Google needs to insure last mile connectivity to fixed devices, and access to mobile devices. Even if they are not the winner of the auction, auction rules guarantee that they will have open access. Then, if no wireless carrier has adopted the g-phone platform it will be deployed on an open 700MHz pipe. So, Google is building a “triple play” offering? Yes. Intentionally? No - rather largely by coincidence. Mostly free for the taking. You can get it if you don’t mind a few ads and you are paying for a big enough pipe to use it. If the duopoly won’t provide the pipe at a fair price, then Google will - to sell their ad space and grow profits. Maybe it’s a actually good thing that the duopoly keeps beating up on them. C’mon duopoly, wake up and compete. Google is likely to misbehave if they don’t have some good competition.
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[...] Check it out! While looking through the blogosphere we stumbled on an interesting post today.Here’s a quick excerptI doubt this is where Google management got so scary smart, but they have all attended. In channeling the triumvirate of Larry Page, Sergey Brin and Eric Schmidt I am beginning to believe that Google is on the verge of becoming a … [...]
Oh so right! Google to a certain extent does not care about the OSI layers 1-4. More than happy to leave that to the carriers. Their play is in layers not even defined by the OSI model.
But here is the threat that Google presents to the entire industry. ‘Presence’, Balmer coined it. I’ll run with that but I am going to put a twist on it — “Ubiquitous Presence”. Once Google has a foothold in the wireless space their scheme is complete.
Well what is it? Why total domination. The ability of a Google consumer to go from PC, to PDA, to cellphone and have access to the same content across all platforms within the limitations of the platform itself. Once they have achieved that capability they have won. No carrier will be able to say ‘no’ so they will pay the piper. Even Microsoft will have to bow to them. (Fact for M$ the time RIGHT NOW is similar to their blindness to the Browser 15 years ago.)
I could very easily see a scenario where Google turns to the whole telecom industry and says — “open your systems. If you don’t we will either buy one of you or displace all of you since we now own a chunk of the 700mhz spectrum. Your choice. Who would like to go first?” At that point the carriers will know they have been had.