Proton Advisors

Recently I have been focusing heavily on trading and market microstructure, but my other hat is in the internet/telecommunications world, and yesterday’s announcement by Google piqued my interest.

Why would Google announce that it is getting into the broadband business (see http://www.google.com/appserve/fiberrfi/public/overview)?

To understand that, you need to understand what is strategic to Google (for background, Chris Dixon sets the table very nicely at http://cdixon.org/2009/12/30/whats-strategic-for-google/)

Microsoft wants you to live in Windows and Office, hence anything that makes those less relevant that (see e.g. Netscape) is a threat.

Apple wants you to live in MacOS and iPhoneOS, buy your media through iTunes, etc…  (Apple is really a lot like Microsoft in that way, they just execute a lot better… and a lot of that has to do with the fact that they never thought of themselves as just a software company like Microsoft, they think of themselves as a total integrated experience company.)  Anything that disrupts or taks you away from that total integrated experience (as insanely greatly designed by Apple) is a threat (see e.g. flash).  This is why Apple bought Quattro Wireless (a mobile ad company):  so you can consume ads within apps on your iPhone/iPad instead of on the web… or more to the point, so that iPhone/iPad app developers have a way to monetize their apps and thus an incentive to develop for iPhone/iPad instead of for the web.

So what does Google want?  Google wants you to live on the web (unlike Apple or Microsoft which really want the web to be secondary to their platform) where they can deliver targeted search-based ads.  Let’s consider some strategic moves by Google:

• Google and Apple are inherently at odds with each other, since the more time you spend in (for example) iPhone OS and iPhone apps, the less time you spend in the browser (looking at Google delivered ads.)  Which is why Google is promoting Android, a web-centric phone OS.  When you use an iPhone app, you aren’t on the web consuming Google ads (the internet is there in most apps, it is just buried as a communications layer that you don’t see.)
• Google wants fast, ubiquitous, cheap, and open internet connectivity, which facilitates you spending time in web-centric applications (like Google search, Docs, Google mail, Google Apps…) and viewing ads delivered by Google.  This is why Google pushes net neutrality… That commoditizes internet  access and prevents ISPs from disintermediating Google.  That is also why Google bid for wireless spectrum… to push the market to provide open access over wireless.
• With Google voice, the web is the platform… Since I started using Google voice, I find myself spending much more time in Google contacts, placing calls via the web, etc…  Google voice has shifted my phone experience to the web.  Where it sells ads…

So why is Google “planning to build, and test ultra-high speed broadband networks” (which, by the way, will also be “open, non-discriminatory, and transparent”, i.e. an embodiment of net neutrality.)

Not because Google wants to be a telco.

Partly because Google wants to create some competition to the incumbent cable companies and telecom companies.  But Google can’t create a material level of competition.

What Google can do is to create pressure, through the media and through regulators, on the cable companies and telecom companies.  That pushes those companies to provide high-speed, open broadband networks (which, not coincidentally, make it much easier to live on the web, happily using Gmail, Google Apps, and consuming Google ads.)  Imagine your congressman or city councilwoman asking the local cable company when they come up to renew their license “Why can Google offer an open internet service with 1 gigabit fiber-to-the-home connections when you only offer a crummy slow 5 megabit connection as part of a bundle with 6 movie channels????”  Watch the cableco executives squirm as they try to explain that one.

So does Google want to be a telecom company?  No, they want to offer proof points and create pressure for faster and more open internet connections, so you can live on the web and consume ads delivered by Google.

Not that there is anything wrong with that.

Brennan

This entry was posted on Thursday, February 11th, 2010 at 11:36 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.