I spent some time thinking about Google Fiber and it’s opportunity and threats to the consumer and business ecosystem. This is not supposed to be a fully thought out piece but rather some raw thinking that I’m putting out to the Interwebs for continuing a conversation that was started by many of you.
Why is Google building out a Fiber Network?
After reading many articles on Seeking Alpha and other arm-chair analyst blogs, I believe the primary motivation to their planned (and current – Kansas City) fiber rollout is to protect their business and to allow for future growth. What they are creating is stability for themselves and the pipes in which they can deliver whatever they’d like.
Lets think about this.
Google has done pretty well at maximizing paid search thru harvesting intent on the web. This is a genius business and will continue to do well, even if there is an advertising downturn (lets hope not). GOOG’s market cap of around $230 billion which is about 6x 2011 GOOG advertising revenue ($37.9b) could use some more growth prospects to satisfy investors.
Video is a big growth area for Google and YouTube will be its delivery mechanism. YouTube streams over 4 billion videos per day and is looking to increase this (and the quality of videos) thru YouTube’s original programming partnerships. The top 5 television markets are New York, Los Angeles, Chicago, Philadelphia and Dallas-Fort Worth; these account for roughly 12.5mm households and there is also some serious purchasing power in these markets.
You can bet that Google would like to put Fiber down in these markets as to gain access to distribute YouTube original programming distribution. Note, they can currently distribute any of their content in market but if the last mile players like $TWC and $VZ utilize metered pricing, then YouTube videos might face consumption challenges. If Google delivers the last mile, then viewership of YouTube content theoretically would be free as Google would be monetizing it from the other side (or at least Google would control it’s destiny).
Data is abundant and Google wants to learn from as much data exhaust as possible to make themselves better. Larry and Sergey are engineers. They are excited about technologies and want to build big systems. Google Fiber will give them access to a truly big data set that they will then be able to tap into in order to optimize their systems for better content experiences and advertising delivery. Advertising deliver is extremely important as Google derives much of its revenue from Madison Avenue. The better the dataset that Google has, the better performance its advertising should yield.
Just thinking outloud about Google Fiber. Did I miss any major points?