Google Fiber’s gigabit gamble has implications far beyond KC

For Google Inc.’s Internet service to change the world, it must do more than just change Kansas City.

The tech behemoth’s grand gamble here — due to launch in homes near Westport and State Line roads next month — could determine whether Google or other companies bother to super-wire other cities. Any encores, tech industry analysts say, require a debut with two clear successes.

First, consumers will have to conclude that gigabit-per-second Internet speeds are a must-have utility. Second, the Google Fiber project will have to show there’s money to be made selling amped-up Internet.

“They’re trying to use this as a model, and to show that this can be done profitably,” said Michael Render, a market consultant to the Fiber to the Home Council, which advocates for greater household bandwidth.

“That,” he said, “could be hard.”

It could also take a few years to truly judge the Kansas City gambit.

Will killer applications emerge that are possible only with downloads and uploads 100 and 1,000 times faster than common today? (None has surfaced yet.) Will enough people buy the ultra-fast Internet to provide a fertile testing ground? Will Google’s Internet spawn new businesses?

If consumers start to demand the new speeds, that could coax, prod or shame the cable and telephone companies to deliver them elsewhere. If Google demonstrates it’s lucrative, the sellers of old-school Internet connections could rush to turbo-charge their service.

But if we use Google’s service as just another way to watch TV and a mildly better way to surf the Web, any rush to broader broadband could end with Kansas City.

Meantime, a company that’s made billions with search and advertising over the Internet must show that it can deliver Internet service.

Yet even a journey of a thousand tech innovations begins with a single download. Any number of factors could critically complicate the task.

Google has never tried a door-to-door service before. It’s never collected monthly payments from ordinary consumers before. (It won’t take your check or your cash.) The company has not had to tackle one neighborhood after the next, one home after another, scaling utility poles and burrowing trenches.

The complications

Still, Google insists this is no experiment.

“We plan to deliver a great product for our users from Day One,” spokeswoman Jenna Wandres said in an email.

But already the California-based company has experienced some hiccups. Next month’s installations will come nine months behind Google’s earlier promise. And the service won’t reach across much of Kansas City and Kansas City, Kan., for another year.

Google needed a last-minute push to, mostly, quell worries that its service would widen the gap between the wired and the unwired. Some poorer neighborhoods still missed out in the first round of qualification.

To tempt customers to its super-sized bandwidth, Google jumped into the TV subscription business long dominated by cable companies. It’s created technology for watching TV as nifty as anything in the industry.

But it had difficulty signing a content deal with Disney Corp. and its critical ESPN lineup. While the sports king is now in the Google Fiber TV package, Google still lacks some popular channels, including HBO, FX, AMC and the Fox News Channel. Google doesn’t have the traditional relationships with those content providers.

In fact, it’s often stood at odds with the entertainment industry. News Corp., the owner of Fox, has in the past referred to Google and other online aggregators as “parasites” for the ways they facilitate pirating of copyrighted content. They took opposite sides over federal anti-piracy legislation earlier this year.

Or consider another wrinkle. The Google Fiber business model is intent on only taking the service where great demand exists. Its late-summer rally to identify such places qualified 180 out of a possible 202 neighborhoods. But those numbers could be suspect. Community groups worked hard to get people to pre-register, even putting down the necessary $10 for some households.

People who need $10 to express an interest in service aren’t the best candidates to sign a two-year contract to pay $120 a month for TV and Internet. That could undercut Google’s plan to quickly and cheaply wire large numbers of customers.

Google’s also offering free Internet hook-ups (after a $300 installation fee) of 5 megabits per second — speeds far slower than its other plans, but typical of what most homes buy today. The hope is that those people will upgrade. Their “free” service is essentially subsidized by the high-end subscriptions.

What if customers decide the slower Internet is fast enough, particularly at a price that can’t be beat? Not only would that slaughter Google Fiber revenues, it would lower the number of people Web surfing at warp speed. That, in turn, could dash new innovations that depend on large numbers of high-end users.

“There are a lot of moving parts,” said Scott Cleland, chairman of Netcompetition.org, which represents broadband companies.

He sees no significant consumer demand for dramatically faster Internet speeds today. Five years from now, he said, the broadband landscape will look much different.

“But right now, the consumer doesn’t want (gigabit speeds) or need it,” Cleland said. “This is Google’s need.”

Google, after all, needs people to spend more time on the Internet to sell its ads and other services. The faster that Internet, whether it’s over Google Fiber or any other connection, the more things people will do virtually on turf dominated by Google.

Succeed or fail

Analysts sort out the various complications facing Google Fiber and come to differing conclusions about the likelihood of the company’s success in the Internet hook-up game.

“This is not going to be profitable for them,” said Josh Olson, a technology industry analyst for Edward Jones & Co. “They don’t have the scale. … I have a hard time with seeing how they make money with such a smaller user base.”

The problem, as he sees it, is that the big companies who deliver Internet most places won’t be tempted to rebuild or retrofit their existing networks to follow suit. Not when they can make money off their existing, slower services.

Rather, he sees Google hoping its Kansas City demonstration will create user demand for blistering-fast broadband everywhere. If game-changing uses for far faster Internet take hold here, he reckons, pressure could build for cable and telephone companies in other markets to jack up bandwidth.

And that will expand the universe — the Internet — where Google makes its billions. Olson sees Google staking out “some play in television, some role in your living room.”

Broadband analyst Dave Burstein sees the same incentive behind Google’s Kansas City project.

“Google knows that what’s good for the Internet is good for Google,” said Burstein, the chief author of DSL Prime and Fast Net News. “That’s the business reason.”

He said the costs of fattening Internet broadband are dropping quickly. He estimates just a $10 difference between providing a connection of 20 megabits per second — roughly at least double what passes for broadband in most American homes — and 50 times faster 1 gigabit connections like those Google promises.

There’s still a significant expense to the upgrade.

“The problem is it costs a lot of money to climb all those poles and dig all those trenches to make it happen,” Burstein said. “You don’t make money in three years, but you make money in 10 years.”

Google, a publicly traded company beholden to shareholders, swears it will make money on its Kansas City service. The company just doesn’t say how soon it expects to recover its investment. The company spokeswoman noted, “Google’s finances are always transparently reported each quarter.”

Yet its fledgling Kansas City operation hasn’t been significant enough in a company that pulled in $12 billion-plus in the second quarter of this year to warrant a mention. So the company’s said nothing public about the cost of Google Fiber, or its financial expectations from the venture.

That may mean we’ll have to take Google’s word on whether there’s money in peddling gigabytes.

Some analysts see a real chance for Google to make a profit while drastically changing bandwidth costs. Consider the campus of the University of Missouri-Kansas City. It rarely moves more than 500 megabits per second — half what Google is bringing to every home that buys a $70-a-month connection — to a population of file-swapping thousands.

Today such speeds are only practical for some businesses. When they can find it, they can easily pay upward of $1,000 a month for a gigabit connection.

An analysis of Google Fiber by the business technology blog GigaOm.com concluded that by using its own engineering smarts and off-the-shelf technology, the company has dramatically lowered the cost of building an Internet service network.

“Google has … has fundamentally lowered the cost of building and deploying a network,” wrote GigaOm’s Stacey Higginbotham. “It will pummel existing (Internet service providers) on price and service, have repercussions throughout the carrier equipment industry and entice a lot of end consumers to take on a more active role in marketing Google’s broadband.”

There are thousands of miles of fiber optic cable around the world that’s been readied for use but not yet lit up with data traffic. Tech journals have speculated Google’s purchase of some of that so-called “dark fiber” means it’s contemplating a national network of fiber-to-the-home service. Others see it as infrastructure to wire its massive data centers — acre-sized buildings stocked with computer servers to field Internet searches, cache Gmail accounts or the dozens of other Google virtual products.

Google, opaque at its core, is careful about expressing its ambitions.

“We’ll be looking at ways to bring Google Fiber to other communities,” Wandres said. “But, for now, we’re focused on Kansas City.”

While the tech world watches.