by Brad Moon | August 2, 2013 3:09 pm
Besides dominating web search and transforming into a consumer electronics powerhouse, Google (GOOG) also has aspirations to become a leading Internet service provider. Google Fiber is rolling out cheap, wicked-fast gigabit home Internet connections that are 100 times speedier than broadband. Project Loon, Google’s “Internet for everyone” initiative, envisions high-altitude solar-powered balloons delivering Wi-Fi worldwide, covering rural and remote areas, filling existing coverage gaps and providing Internet access in times of disaster.
And it looks like Google’s just getting warmed up.
News recently broke of a new Google as ISP development that’s going to deliver Wi-Fi to millions of Americans: AT&T (T) has been given the boot as the Wi-Fi provider for Starbucks (SBUX). Replacing the telecommunications giant, with Wi-Fi service at 7,000 U.S. Starbucks locations — and delivering web access promised to be 10 times faster than current service — will be Google.
AT&T has been the ISP for Starbucks since 2008, when it signed a deal that turfed T-Mobile. According to CNET, those Starbucks outlets are now connected via T1 lines that provide speeds of up to 1.5 megabits per second. That speed might have been fine in the days of checking email and web browsing, but with smartphone users getting accustomed to watching streaming videos and sharing high-resolution photos with LTE wireless speeds that average in the 10-20 Mbps range, 1.5 Mbps seems woefully inadequate, even for a free service.
Google is partnering with Level 3 Communications (LVLT), the network provider whose infrastructure makes it one of the largest IP transit networks in the country and a Tier 1 Internet provider. Tier 1 ISPs are not reselling Internet access, they’re directly connect to the backbone of the Internet — in the U.S., AT&T is also classified as Tier 1, as are several other telcos including Sprint (S) and Verizon (VZ). In The Wall Street Journal, Level 3’s CEO noted that his company “will do the network stuff.” That is, Level 3’s network will be the one those Starbucks locations are connected to as the rollout begins over the next month (wrapping up in about 18 months).
CNET says AT&T also offered 10-times-faster network speeds in a proposal to Starbucks and still lost out on its bid to remain the coffee chain’s ISP. Why?
Specifics of the deal have not been released, but it’s Google’s name on the network: “Google Starbucks.” Starbucks likely valued the cachet of being attached to a premier technology company. The companies are reportedly working together on the next generation of Starbucks’ Digital Network, which could include incorporation of Google offerings like YouTube videos and Google Play access. The fact that AT&T’s matching proposal was turned down does raise the likelihood that Google is also offering Starbucks a deal it can’t refuse monetarily.
What’s in it for Google? Forbes quotes a Google representative as saying, “Google has always invested in projects that help the Internet grow stronger, including projects that make Internet access more affordable and more widely available.” That’s the marketing-speak.
Google wants the nationwide recognition as a player in the ISP game this deal would give (even if it’s effectively reselling a Tier 1 ISP’s services). It’s another element of that “Internet for everyone” strategy.
Google Fiber has garnered the company significant press, but the reality is the service is geographically limited — currently in Kansas City with Austin and Provo next on the list — and it’s going to take a lot of time and a lot of money to gain a real foothold. Project Loon? Well, that’s one of those cool concepts cooked up by Google X, the idea lab behind other projects like the self-driving car. There’s a Project Loon pilot going on in New Zealand right now, but any mass deployment of Wi-Fi balloons is far off at best and would likely take place in areas of the world that currently lack telecommunication infrastructure.
Showing up in 7,000 Starbucks locations almost overnight (18 months is pretty fast for any telecommunication national rollout) is a big win in terms of recognition as an ISP force. Logging onto Google Starbucks and discovering your connection is 10 times faster than it used to be is also likely to increase demand for Google Fiber by association. “Google equals speed” is the hoped-for reaction in customers’ minds.
The real win for Google may be that Starbuck Digital Network collaboration. Starbucks currently partners with Yahoo (YHOO) on the portal, and although it wasn’t specifically mentioned as part of the announcement, what do you suppose the odds are that Google is going to keep the status quo when that next-generation version is developed? Having millions of Starbucks customers log in to the portal and likely have in-your-face presentation of Google services like YouTube is going to help bolster Google’s mobile advertising and search business — while sticking it to competitor Yahoo.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
Source URL: http://investorplace.com/2013/08/google-starbucks-ventur-goog-sbux/
Short URL: http://invstplc.com/1fr77sE
Copyright ©2016 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.