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This Is Not Your Daddy’s Google

Dana Blankenhorn|Contributor
Wednesday, 1 Aug 2012 | 11:18 AM ET
A sign is displayed outside of the Google headquarters in Mountain View, California.
Getty Images
A sign is displayed outside of the Google headquarters in Mountain View, California.

Way back in the 20th century (we’re one-eighth of the way through the 21st) Google was a pretty simple company.

It was about search. The company’s mission was to do search better, and to do search cheaper, than anyone else. To focus on search.

In focusing on search, Google made a lot of investments. It bought dark fiber. It learned how to combine commodity servers into one big computer organism called “the cloud.” It created innovative energy solutions. It put Google into a box for phone company offices and big customers. It became the cheapest way to do Internet stuff by a wide margin — the cheapest way to move data, to perform calculations, to store files.

It was in an effort to use this abundance that Google went into mobile. It bought a small company called Android, and used Microsoft’s strategy from the previous decade to surround Apple with similar, but cheaper, phones and tablets.

But the business model remained the same. Google was, in financial terms, an advertising play, like a TV network or a newspaper chain. It created places for people to sell things, and sold those places.

Today, Google’s path of search has reached a natural limit. Like Standard Oil in the 19th century, it needs competitors to give the impression of an active market, which it dominates. So it’s changing, and those changes are going to impact a lot more than Yahoo.

With the acquisition of Motorola Mobility, Google becomes a products company as well as a search company. Its Chromebooks and phones are both drags on its margins, but it must keep investing in them to keep OEMs like Samsungand Amazon.com, in some sort of order.

With the launch of Google Cloud a few months ago, it’s also a cloud company, competing directly with Amazon. It has brought in partners to compete more directly with the Amazon store, creating Google Shopping. With Google Play, it’s now selling digital goods in direct competition with Amazon and Apple.

But the most fascinating transformation has just begun.

Google has “lit” its fiber in Kansas City, Kan., offering consumers Internet services at up to 1 GB/second for just $70 per month, according to its Google Fiber website. (There’s also a $50 a month plan on top of that, delivering what amounts to cable television.) This is 1,000 times faster than your 4G phone, and 10 times faster than the fastest WiFi. Whole films download instantly.

There are a few ISPs around the country offering these speeds, but they charge several hundred dollars for it. In New York City, you might pay $1,000 a month, if you can get such a line at all, writes Business Insider.

Google has been actively acquiring patents in the area of fiber networking, writes SEObytheSea.com, and its job listings include searches for top networking people, including a WiFi Manager.

What does that mean? Maybe nothing. Google insists the Kansas City effort is an experiment. Business Insider thinks it would cost $400 billion to duplicate the effort nationwide.

But maybe it doesn’t have to. A few years ago, many U.S. cities were talking about the idea of citywide WiFi, and Mashable reports London actually built such a network before these Olympics.

Most U.S. deals collapsed on the issue of backhaul, the cost of running data on the larger Internet. Since AT&T and Verizon Communications, the major incumbent wireless carriers, are also the largest companies in the Internet core, you can see how hard it would have been to get decent pricing. Google Fiber can solve that problem.

Why would Google want to do this? Create a host of WiFi networks through affiliation agreements, launch connections to its fiber throughout major cities, and you have a Google wireless network that can compete head-to-head with licensed carriers in many markets. That could provide cash flow that would enable a wider roll-out of fiber connections — first to businesses, then to high-density residential, then cherry-picking other residential areas.

Google has the chance to transform itself, and the limits of search growth give it an obligation to do so. Apple is squarely in its sights with tablets and phones. Amazon is clearly in its sights with Google Play and its other e-commerce initiatives.

And now, so are AT&T, Verizon, and Comcast. (Comcast is the majority owner of NBC Universal, the parent company of CNBC and CNBC.com.) The Internet service space may be about to get very interesting.

—By TheStreet.com Contributor Dana Blankenhorn

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Disclosures:

TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks. At the time of publication, Dana Blankenhorn was long GOOG, AAPL and MSFT.

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