What If Google Fiber Is More Than An Experience ($GOOG)

By: ispeculatornew
Date posted: 04.18.2013 (4:06 am) | Write a Comment  (3 Comments)

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google-fiber-austin-texas-540x361Interesting turn of events in the last few weeks.  After making a case that Google was making a big mistake in trying to go after same-day shipping and that it should focus on areas where it would have an edge (retail stores and Google Fiber),  Google announced it was moving on to Austin, Texas as its second Fiber city. Then, yesterday, Google announced it would also be offering its service in Provo, Utah. Just to recap, Google Fiber offers the following options:

-$300 installation fee only for 7 years of free 5mb internet
-$70/month for 1GB internet connection (which ranks at the very top of Netflix’ ISP rankings)
-$120/month for 1GB internet connection and HDTV cable

I don’t know about you (actually I do), but this is not even comparable to what I’m getting from my current ISP. Because of that, Google Fiber was able to secure huge market share in its first market (Kansas City) and looks likely to do the same in Austin and Provo.

Fiber Was Deemed An Experience

At first, Google Fiber was explained as a way for Google to show consumers and cable companies what was possible.  It has clearly worked, scared off cable companies but ultimately they seem to be too old and have too much infrastructure to adapt so far.

So The Experiment Expands

Google’s recent announcements send a very important signal in my opinion. It would not be moving to other markets if it could not see this as a potentially profitable business. Of course, it probably needs to enter these markets slowly and carefully because the market share is key here. But what if Google is thinking about expanding Fiber into many other cities. What would this mean to Google? And for cable companies? I’ve heard the idea that Google could/should spin off that business but I don’t agree. The synergies are too important to risk having the companies work apart.

I always talk about owning the “ecosystem” and in a way, Google Fiber is the ultimate ecosystem play

GOOG

Cable Companies Must Be Trembling

Imagine a competitor offering a service that is multiple times better than your offering at a lesser price, with a brand (Google) that is loved.  Companies like Comcast and Time Warner must be having daily meetings about trying to compete with Fiber… I’m guessing their best hope is that Google does not start speeding up its expansion. Can you imagine if Google Fiber arrived in a few bigger cities? The best part for Google of course is the fact that no one seems capable of offering something even close to Google Fiber’s offer (for many different reasons including those huge data centers, etc).

Hoping To Find Out More Today

I doubt that Larry Page will give out much about Fiber but I do hope that in tonight’s earnings call, analysts will at least ask about it, what it means, plans for the future, etc.

What are your thoughts on Google Fiber? Do you think it could end up having a significant impact on Google’s long term future?

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3 Comments

  1. Comment by The Dividend Engineer — April 18, 2013 @ 6:56 am

    Though I’m a dividend investor, I’ve been watching GOOG for some times now. That’s a pretty interesting company. The strategy of GOOG may appear to be all over the place but it reminds me of a book a read a while ago: The Strategy Paradox. In this book, the author explains that even the most carefully crafted strategy can fail if the future does not happen as predicted (or hoped for) by the strategists. So, since you cannot predict the future, you have to make some experiments in order to see what will succeed and what will fail as the future unfolds. Then you double down on what works! I think Google Fiber is such an experiment. GOOG tests ideas here and there and when it works, they push on those successful ideas.

    Ultimately, with respect to Fiber, I think that if people have access to faster Internet, they will consume more Internet content, which is, in the end, what GOOG is best suited to provide you. So, more Internet will likely equal more profit for GOOG. Too bad GOOG does not pay a dividend…

  2. Comment by David — April 18, 2013 @ 8:48 am

    I work in software and have heard about this Fiber business for a bit. The big deal about it is if Google can also start competing with Amazon in the server farming business by packaging fiber plus data storage, they can kick some competition!

  3. Comment by IS — April 18, 2013 @ 7:12 pm

    @David – No doubt, those 2 will continue to face off against each other, should be very interesting

    @The Dividend Engineer – Thanks for the feedback, I’ll have to take a look at that book:)

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