Google (s goog) knows how to make a splash in new markets. Like Search, Gmail, Maps and other innovative products from the company, Google Fiber is shaping up to be a market disruptor. This time, Google’s sights are set on the TV and Internet services industry.
One gigabit Internet connectivity, the Nexus 7 tablet as a remote, a two-terabyte storage box, a build-out strategy based on “fiberhoods,” options to pay only a connection charge to get free Internet connectivity: yes, these are all indeed innovative developments. And Google has stated that it intends for the service to turn a profit.
Google Fiber includes so many breakthrough elements that it will serve as a learning lab not just for Google, but for its competitors in the cable industry as well. But what exactly are those competitors hoping to learn? This is what the cable industry will be watching most closely as Google Fiber rolls out to consumers.
1. Business models that allow Google to increase the revenue pie
Google won’t face cable’s bandwidth challenges; therefore it can take an “anything is possible” approach to developing revenue-generating services. Think of Google+ Hangouts in HD quality on your living room TV, fast upload of user-generated video content or even the new 4K video format (4 X 1080p).
Because Google Fiber TV’s streams are likely unicast, it stops looking like broadcast and more like the web with clicks and views. This form of advertising fits right into Google’s sweet spot, so you can bet they’re working on breakthrough TV ad models.
From the start Google Fiber will be able to deliver targeted advertising. And for the first time, Google will have accounts with physical addresses tied to them. Imagine being able to offer ads targeted to a specific street and customer interest and to overlay info/reviews from Google Maps or run a TV-based Google Offers. Perhaps small business owners upload their own video ads to YouTube and set parameters on who they want to see it and when. These are just a few of the new business models that Google could explore. Cable will be watching to see which ones work.
2. The business case for “fiberhoods”
Google is taking an unorthodox approach to building out fiber. It’s targeting communities that organize themselves to demand service instead of anticipating demand. Typically, new service entrants can expect to gain around 15 percent market share but with Google’s self-selecting approach, it can do better and potentially undercut traditional fiber deployment costs. Google further increases deployment density and paves the way for future upgrades by offering a free 5 Mbps down and 1 Mbps up service free to customers that pay a $300 connection charge.
While this approach could face regulatory scrutiny beyond Kansas City, cable operators can learn whether similar approaches could help with their own infrastructure upgrade deployments.
3. Can Google keep payments simple?
Cable operators have been collecting payments from a diverse subscriber base for a long time. This has required upkeep of billing systems, payment centers and the processing of every type of payment imaginable. While it varies by region, as many as 10 percent of cable subscribers choose to make payments at retail locations and 15-25 percent pay by cash.
Google will start by only accepting credit cards. Granted, it is dealing with a much smaller (and self-selected) subscriber base. But cable should be interested in the penetration Google gets with limited payment options.
4. Will the Nexus 7 tablet more deeply engage subscribers?
Google Fiber TV subscribers will use the well-reviewed Nexus 7 tablet to control the service. Theoretically a “second screen” interface will provide a more immersive and interactive TV experience, leading to a more engaged customer. Cable will want to see if giving away a $200 device delivers ROI in this regard.
5. Where will Google take programming?
Google Fiber is keeping things simple with one TV tier. While it is missing some popular channels (e.g. ESPN, Comedy Central, Disney) this could make things interesting. Will Google ink deals with ESPN et al and raise the price of its $50 TV package or can it offer those networks a la carte? If this happens, would consumers see enough value in these networks to pay for them out of pocket?
Remember too that YouTube Channels and TV will also be offered and will finally get their primetime TV screen debut. Google has pumped up YouTube with high-quality, original content and can now test its market viability against traditional cable fare.
6. What kind of support will Google need to provide?
Support can account for up to 25 percent of an operator’s costs. Google is in a much different position. It has a brand new, fiber-based network that is inherently less susceptible to the connectivity issues in the “last mile” that can account for 70 percent to 80 percent of service calls. This is a good thing because Google isn’t necessarily known for support, but has said that it will offer a call center. Getting the home install right the first time will be important for Google as new service install problems typically account for significant calls and truck rolls in the first month. Cable will be watching to see what appetite subscribers have for new or different support models Google may unveil.
The road ahead
Part of Google’s goal here is to encourage competitors to increase bandwidth in order to create a more robust market for services. Cable should benefit as not all of Google’s planned services are unique and many are already on cable roadmaps.
Regardless of what happens in Kansas City, Google and its competitors will learn a lot about TV and Internet services. Don’t be surprised if that manifests itself in new products that Google will someday shop to the cable operators. In the meantime, know that cable will be watching this experiment very closely and perhaps updating their product roadmaps based on what they learn.
Afzaal Akhtar is senior partner with IBB Consulting, helping service providers deploy IP video and converged network operations. Contact him at [email protected] or learn more at www.ibbconsulting.com.