Monday, August 15, 2016, 11:58 AM ET|Posted by Will Richmond
This morning’s WSJ article, “Google’s High-Speed Web Plans Hit Snags” chronicles how Google Fiber has fallen way short of expectations and has experienced ongoing technology/deployment issues since its initial rollout 4 years ago. None of this surprises me and loyal VideoNuze readers will recall I was deeply skeptical from day 1, when I wrote, back in July, 2012, “Google Fiber is Out of Synch With Realities of Typical Consumer Technology Adoption.”
Google Fiber’s main value proposition and differentiator have always been 1 gigabit per second broadband service. But the problem is that very, very few people wake up in the morning wishing they had 1 gigabit so that, for example, they could stream 4K videos on 10+ devices at the same time, which is one of the key benefits Google Fiber promotes. Even as streaming video usage in the home has soared over the past 4 years, with the proliferation of high-quality video services and connected TV devices, most users have been satisfied with the quality of their broadband connection.
That’s because average broadband speeds actually tripled from 2011 to 2014. According to the latest data from the FCC, download speeds across surveyed broadband ISPs rose from 10 megabits per second in 2011 to almost 31 megabits per second in 2014. That’s not to say every single American is satisfied with their broadband ISP or their streaming video experience. But those with real issues are now relatively rare. Thus, market leader Netflix has had the delivery foundation to grow to over 47 million domestic subscribers. Now some might say Google Fiber has spurred existing ISPs to increase their speeds and in some instances that's likely true. But more broadly, speeds have improved because ISPs believe they're great investments to serve video-hungry subscribers.
With broadband speeds increasing to support video streaming demands, which are the most data-intensive, mainstream users have had little need to pay attention to Google Fiber’s 1 gigabit promotions. This has reinforced Google Fiber’s Achilles heel - that in reality there are very few residential users that can understand why they need 1 gigabit service.
Four years in, Google Fiber has failed to “cross the chasm” to mainstream adoption, using Geoffrey Moore’s framework to describe how technology products move beyond their early adopter roots. This was the core idea of my post from 2012 - that mainstream users who are looking for proven, evolutionary solutions that address practical needs - wouldn’t be drawn to Google Fiber’s 1 gigabit promotions. They would neither understand the value proposition nor how it addressed their day-to-day lives.
On top of all this, Google Fiber’s $130 per month price (which didn’t include phone services, but now does for another $10 per month) offered no cost savings advantage vs. traditional providers. That took the primary reason why people switch video providers off the table.
The fact that Google Fiber had only around 53K video subscribers in total, across its 6 deployed cities, at the end of 2015, testifies to its early adopter only, niche appeal. Far worse for Google though, is that Google Fiber, like all physical network businesses, has high fixed costs. Google Fiber must build out a “fiberhood” network just to reach the handful of homes that are interested in subscribing.
That has translated into high ongoing capex, with most of Alphabet’s $280 million of Q2 “Other Bets” spending going for Google Fiber. As the WSJ notes, with high-capex and minimal subscribers, Google Fiber has rung up huge losses and has now changed course, trying to use recently-acquired wireless technology from Webpass to avoid the expensive and time-consuming process of digging up streets to lay fiber. But all of this is unproven at this point, so Google Fiber will experience long delays in deploying in announced markets.
Somewhere way down the road, when everyone is extensively using 4K, 360 video and VR (and whatever comes next), there may be a mainstream need for 1 gigabit per second broadband service. But by then current broadband ISPs will have been steadily improving their services to meet the demand. That makes me a continued skeptic about the long-term value and mainstream appeal of Google Fiber. As I said 4 years ago, Google Fiber is going to fall well short of its objectives.
Categories: Broadband ISPs
Topics: Google Fiber