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February 03, 2015

Google's Access Moves Represent a Long-Term Strategy Reboot

By Tara Seals, TMCnet Contributor

Google (News - Alert) has put an early spotlight on access in 2015, with the possible addition of a wireless MVNO play and an announcement that its Google Fiber+TV plans will roll out in four additional metro areas: Atlanta, Charlotte, N.C., Nashville and Raleigh-Durham, N.C. Overall the moves signal that the Internet juggernaut may be looking to position for an evolution away from the per-click game, and into higher-value content-based revenue streams.

Google Fiber is live in Kansas City, Provo, Utah, and Austin with gigabit Internet for residences. It’s also powering the Kansas City Startup Village and the Provo learn-how-to-code hub DevMountain, and a range of medical, education and enterprise efforts in the regions. The next rollout will reach 18 cities across the four new Southeast U.S metros.

“[We have seen how it] can transform cities,” said Dennis Kish, vice president of Google Fiber. “It can give them new platforms for economic development and new ways of using technology to improve life for their citizens.”

Kish said that Google has been “working closely” with city leaders over the past year on a joint planning process; the next step is to work with cities to create a detailed map of where to put the fiber, using existing infrastructure such as utility poles and underground conduits. Once the network design is completed (which will take “a few months”), construction will start.

Meanwhile, Google is also exploring bringing fiber to five additional metro areas—Phoenix, Portland, Salt Lake City, San Antonio and San Jose.

The greenfield fiber builds are an interesting counterpoint to the reports that Google is in discussions with Sprint (News - Alert) and T-Mobile USA to launch an MVNO play. According to the Wall Street Journal, the wireless service would roll out initially in markets where the search giant offers Google Fiber—an extension of bandwidth and an additional conduit to deliver YouTube (News - Alert), Google TV and other services with additional advertising value.

Boosting the value of its advertising bread-and-butter revenue stream and leveraging the cash cow that is YouTube makes a lot of sense, taking a look at its financials. YouTube, which constitutes just less than a tenth of Google’s value, saw its mobile revenue increase by more than 100 percent year-on-year for the fourth quarter of 2014 (Google reported a 15 percent year-on-year growth in revenue for the fourth quarter of 2014, to $18.10 billion. Net income came in at $4.76 billion). The service now has more than 1 billion users, and watch time is up 50 percent year-on-year.

Further, Wall Street analyst firm Trefis says that revenue from the streaming video division was around $3.7 billion in 2013 — a number that should continue to grow and reach around $18 billion by the end of 2018.

The company has not confirmed the MVNO plans yet, but Trefis called YouTube “an essential driver of revenue growth” going forward—and extending the value of advertising on the program should include a mobility aspect. The MVNO will allow the company to drive higher mobile paid clicks and monetization for the content while expanding its hardware and Android (News - Alert) ecosystem.

“To ensure that YouTube's dominance continues across mobile devices, the company announced new ad formats customized for mobile screens, and expanded YouTube's TrueView ads into AdMob's network of more than 650,000 mobile apps,” noted Trefis. “Considering Google's dominance in the video ads industry, with nearly 162 million unique viewers as of November 2014, we expect it to do well in the mobile video space too.”

YouTube’s TrueView, a product where advertisers pay if someone watches the ad, continues to gain traction among the big advertisers like Wal-Mart, which saw a 300 percent increase in engagement and 28 million views on the platform over Black Friday (News - Alert) week.

The fiber, wireless and content propositions will all work together to shore up Google’s fading core revenue stream of search ads. In the fourth quarter, paid clicks grew just 14 percent year-over-year, which was a 300 basis-point deceleration from last quarter—indicating that Google needs a long-term view to a strategy pivot.

“These…projects will power many of GOOG's other pods including driverless cars, connected devices, smart homes and robotics,” said hedge fund manager WestEnd11, who said that Google would be savvy to follow the consumer shift from mobile search engines to mobile apps. “Over time this will likely commoditize many of the products/services which we previously considered to be a staple such as wireless services, internet and mobile devices.”

Overall, it’s about vertical integration, and making the most of the path to the customer. “Access means control, which is why there is such a gold rush to provide such service on a global basis,” said independent consultant Dana Blankenhorn. “By becoming a mobile virtual network operator, or MVNO, Google gains this opportunity in the U.S. as well. Google is looking for a conduit to its software and services, which in the end have a lot more value.”

Edited by Maurice Nagle
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