While Alphabet (GOOG, GOOGL) has certainly impressed consumers with its technical prowess of late as it ventures into territory outside of search engines and ad sales, one would be hard-pressed to say the company has been a game-changer on any other front … even with the advent of its Google Fiber Internet service.
As MoffettNathanson analyst Craig Moffett assessed it, “Google Fiber is a bit like Ebola: very scary and something to be taken seriously … but the numbers are very small, it gets more press attention than it deserves, and it ultimately doesn’t pose much of a risk (here in the U.S. at least).”
And to be fair, he’s not entirely wrong. Google Fiber, now part of the “Access” division, is only available in three cities at this time, and only six more locales are potential candidates for Alphabet’s next expansion wave of ultra-high-speed Internet access.
On the other hand, Moffett’s analogy may be more fitting than he intended. While Google Fiber may be quite limited, if it’s not contained quickly and effectively by its competition, it too could quickly spread.
In other words, yes, other ISP outfits like Time Warner Cable (TWC) and Comcast Corporation (CMCSA) may want to look behind them to see just how big of a threat Google Fiber is actually becoming.
Don’t Hold Your Breath, But Google Fiber IS Coming
Calling a spade a spade, it’s going to be years before Google Fiber could be considered widely available.
The flipside to that coin is, if the likes of Comcast and Time Warner are actually planning on an effort to fend off Alphabet, that effort could also take years to put in place.
Problem: Alphabet is a cash cow that can make money other ways, while most cable/Internet providers are lower-margin companies without access to tons of cash to mount a defense.
What the industry is up against is nothing to dismiss either, no matter how limited the Google Fiber presence is at this time. Through its fiber-optic connections, Google can deliver speeds of up to 1000 Mbps (megabits per second) for a mere $70 per month. For $60 per month, subscribers can add a nice HD television package. Most traditional Internet service providers are doing well to deliver connection speeds a tenth (or less) as fast, and where greater speeds are available, Time Warner Cable customers are still paying for less.
Alphabet has another strategic advantage stemming from its cash-flush situation and position as a newcomer — it doesn’t have to be in a hurry to build its new networks.
Alphabet has said all along its goal with the introduction was to put pressure on entrenched cable providers to improve their own offerings. It’s working too, playing right into Alphabet’s ingenious, bigger-picture hands with the mere threat that Google Fiber is likely to enter a particular market.
Perhaps the most daunting of headaches Alphabet could serve up to other Internet providers — and the most compelling reason a consumer would want to become a subscriber — is Alphabet isn’t viewing its high-speed Internet service as a business model by itself. It’s only a means to one end.
In a very Google-esque way, Alphabet sees this connectivity as a way to further integrate itself and its services into consumers’ everyday lives without competing companies like Microsoft (MSFT) (which sells computers and makes the Internet browser and also sells Internet advertising) getting in the way. Chromebooks and the Chrome browser are Alphabet’s answer to Microsoft’s role in the matter, while Google Fiber is increasingly taking companies like Time Warner Cable and Comcast out of the equation. Cell phone service providers may be next.
Never Say Never
Back in 1999, when the Internet was still relatively and broadband connections weren’t yet the norm (remember dial-up?), a company called Inktomi was powering the searches done by bigger names like Yahoo! (YHOO) and MSN. All told, Inktomi was the middleman for nearly 43% of the web’s searches. A little startup called Google facilitated less than 8% of the world wide web’s traffic back then, and few thought that funny-named outfit would ever amount to much.
Talk about being wrong.
That’s not to say Google Fiber will become the market leader just as quickly as Google rose to prominence in the search engine arena. It’s a capital-intensive plan, and Alphabet doesn’t have to be in a hurry.
It’s coming though, and the bigger it gets, the better it gets.
Cable companies and ISPs, as well as long-term investors, should be taking note even if the project is not going to be completed in just a matter of a few weeks.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
