Depending on whom you ask,Google 's (
) new hyperfast Internet infrastructure project, Google Fiber,
which it brought online this month in a single U.S. city, is one
of two things.
To some, Google Fiber is a hobby project to push other network
providers to build ultraquick Internet connections, too. To
others, it's the start of a new line of business for the Internet
But while Google's intentions might be unclear, it is clear
that Google is going to benefit from the network. Observers put
it like this: Google's revenue comes from advertising, so
speeding up the Internet should boost ad impressions and increase
revenue for the search giant.
"Everything Google does is about driving you to more usage,
driving you to more ads," said Colin Gillis, an analyst with BGC
Google is busy launching Google Fiber, its
, in Kansas City, Mo., this month. It's the first project of its
kind for Google.
Google built the infrastructure and
is charging customers $300
to connect their houses to the network for free Internet. (That
fee is waived with a monthly subscription.) Google notes that the
network, which uses fiber-optic cables instead of digital
telephone cables, has Internet speeds about 100 times greater
than some rival networks.
The project by some estimates cost Google "hundreds of
millions" since its inception in 2010, says Gillis. The company
hasn't said how much it has spent and declined to comment on
whether it will break even after month-to-month payers start
But the hefty price tag will be worth it, says Sameet Sinha,
analyst with B. Riley & Co.
"The way to think about this project is that it's setting the
benchmark for the next generation of Internet connectivity,"
Sinha said this week. "Now, the competition has two alternatives,
either be better than what's in Kansas City or fade away."
Surely, other network providers will be building fiber-based
networks they hope will rival Google's. But those competing
providers, includingVerizon Communications (
) andComcast (
), likely will not be able to maximize the benefit to their top
line quite as easily as Google will be able to, says Gillis.
"Google can give away a service at break-even, or even at a
loss or just a small profit, because they know the total value of
it will be greater over time," said Gillis.
That "total value" for Google will include more traffic for
its services like Search and Gmail, observers say.
If the Internet is as fast as Google says it will be, then
more people will be logging on more often, says Gillis.
And if more people are logging on to check their email or
search the Web, Google's ad revenue surely will grow, too.
Even without hyperfast Internet, Google's year-over-year sales
growth already has been accelerating this year.
Sales grew 24% in the first quarter, followed by a 35% jump in
the second quarter. And in the current quarter, analysts polled
by Thomson Reuters see a 58% jump to $11.9 billion from $7.5
billion, excluding what Google pays other sites to carry its
Other Google watchers on Wall Street say they're not sure
Google's building a super-fast network just to accelerate
competition. It might be the start of a new line of business for
Think Equity analyst Ronald Josey says it is likely that if
Google's experiment in Kansas City succeeds, the company will
expand the network to other test cities around the world. For now
it's in the "experimental phase," he says, "but if this works and
they can actually get scale and build it out, maybe it's more
Another benefit for Google is that the company's bundling TV
service in with the Internet service it's offering, which will
lead to a "convergence" of devices for consumers, says Josey.
Google will be able to better see how users in Kansas City
switch between TVs, PCs, tablets and smartphones, which could
lead to a better understanding of how to design future products,
"If they can figure out better products and how to present
them to consumers, that could go a long way," Josey said. "And
Google could potentially do that without having to roll out fiber
Google and other tech companies have been working to recreate
the traditional TV experience with new devices and new streaming
video channels. And those products could benefit from consumers
switching to a fiber network. Having faster Internet might mean
more viewers for streaming Web video companies likeNetflix (
) and Google's YouTube, say analysts.
YouTube, for example, is building out its stable of
proprietary programing, which is "poised to replace traditional
cable television," says Gillis.
"Advertising is growing in two key areas -- Internet
advertising is growing and so is television," he said. "So that's
a massive pool of ad dollars that Google hasn't got its hands on.
But it could."