One of the questions that seems to get asked annually is “When Google is going to build its own network?” After all, Google has deployed fiber in some areas, and from time to time it’s said it was going to bid on mobile spectrum. Is it just a matter of time for Google to take over the network as well as the Internet? Not if you believe in financial reality.
We should be suspicious about a Google-eats-the-world vision based on financials alone. Google is currently priced at about 6.4 times sales, where telcos are priced about 1.7 time sales. The Price/Earnings ratio for Google is double that of telcos, and so is its return on assets. So let’s see, I’m going to make my stock price go up and reward my investors (and myself) by getting into a business where opportunities are lower? Why not just call Carl Icahn and invite him to tea and takeover?
Then there’s the fact that while Google has threatened to buy spectrum and has dabbled in fiber, it’s not really acquired licenses and it’s cherry-picking fiber cities. All the indications are, and have always been, that Google is trying to force network operators to sustain broadband improvement cycles in the face of their declining profit per bit. The media takes this seriously, but I doubt that the telcos worry that Google is trying to get into their business. They’re more worried about how to get into Google’s. We hear a lot about network operators trying to learn the “OTT mindset” but not much is written about how OTTs are trying to learn to be like telcos.
But if I intended to blog about how Google wasn’t going to become a telco, I’d be done already. The strongest indicator of Google’s plans is its Project Fi initiative, and that initiative also shows just where telco vulnerability lies and how vendors will have to think about their customers’ “transformations” in the future.
Project Fi is a lot of things. At its most fundamental level, it’s a “network anonymizer”. Google combines WiFi access and selective 4G and future 5G partnerships to create its own virtual network that the customer sees as being their broadband service. The website is evocative; it shows a smartphone (Android, of course) with the network identifier as “Fi Network”.
Fi also makes Google a Mobile Virtual Network Operator (MVNO) in its relationship with cellular wireless providers. MVNOs piggyback their service on a “real” mobile broadband network rather than deploy their own. Apple has long been rumored to covet an MVNO role, but Tim Cook seems to have ruled that course out earlier this year. If that’s true and not just classic misdirection, then we’d have to address why Google would be seeing opportunity there when Apple isn’t.
Apple wants to sell iPhones and other “iStuff”. The mobile operators who supply the phones to customers are Apple’s most valuable conduit, and if Apple decided to be an MVNO they’d make perhaps one operator in a given market happy (the partner in their underlay mobile network) and alienate all the others. Google may be a competitor to Apple with Android, but Android isn’t a phone it’s a phone OS and the Android phone market is already fragmented. If Google wanted to compete with the iPhone directly, why not just build phones and not license them to third parties?
What Google wants is, I think, clear. Right now they’re an Internet OTT giant. It’s hard to visualize what’s above “the top” in both a semantic sense and a realistic sense. They don’t want to be on the bottom, where all the current bottom-feeders look covetously upward at Google. What they want is to be “just-under-the-top”. Project Fi is about JUTT.
A JUTT approach is consistent with Google’s Android approach. I don’t want to own the dirt, Google says, I just want to make sure the dirt doesn’t own me. Apple can sell phones as long as they don’t threaten the OTT space. Operators can sell broadband if they stay in their profit cesspool and play nice. Android was designed to poison Apple initiatives, and so is Fi designed to poison operator aspirations in Google’s top layer.
But JUTT is also an offensive play. A simple MVNO approach exploits a brand. The notion is that you have a good brand, good enough to be an automatic win in a certain number of mobile deals, so your marketing costs are minimal. Being an MVNO gives you a nice little chunk of the mobile bill for doing not much (as long as it doesn’t turn your operator partners against you). But what I think Google wants with Fi is to establish itself as a mobile brand. Android is a brand unto itself, Samsung is an Android brand. Fi is a Google brand. Every time a Fi user looks at that smartphone, they’ll see the brand reinforced.
And they’ll see it exploited. Apple has proved (with things like FaceTime) that you can make a phone into a community. Fi could let you make broadband service into a community. Social networks and video chat are already creating what’s essentially a mobile-service-free vision of communication. Users always see their service as what they directly use, and smart devices with OTT services cover up the broadband underneath. But if the broadband JUTT has the services within itself, then those services could pull through JUTT just like wanting to call grandma pulled through POTS voice.
Which brings up the final point; your “service provider” perception is set by your service. If Google can use Fi to establish a Google-slanted vision of social-collaborative services, of “real” IoT, then they can make that vision the default standard for the new area. That could make Google a leader in even the evolved form of “communications services”, the things the operators believe has to be tied specifically to the network.
This isn’t going to be an easy road, though. Google has not been very successful in direct marketing; their DNA is in ad-sponsored services and they’re not going to make Fi work without charging for the network services consumed—because Google will have to pay to expand them and keep them strong. I think Project Fi is just that right now, a “project” and not a product. Google will have to work out the promotion and make a go of this, or it will fall by the wayside as so many other good Google concepts have. Remember Google Wave? That could be Fi’s future too.