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Why Google Fiber Failed to Disrupt the ISPs
Where’s the fiber-optic internet we were promised?
This week brought more bad news for Google Fiber, the search giant’s troubled bid to become a powerful internet service provider. On Tuesday, Greg McCray stepped down as CEO of the company’s ISP business (now formally housed under Access, a subsidiary of Google parent company Alphabet). His departure comes just nine months after Craig Barratt left the same role. Meanwhile, the Access division has faced staffing cuts, and aggressive plans to expand to more cities are on hold indefinitely. Google Fiber began as an experiment, then briefly seemed poised to grow into a legitimate contender against the ISP incumbents. But today it serves as proof that providing high-speed wired internet is a losing proposition, even for one of the world’s wealthiest companies.
Early on, Google was careful to couch its ambitions as a provider of high-speed internet. The original February 2010 announcement of Fiber called it an “experiment.” Kansas City, Missouri, the first place to get Google Fiber in 2012, was thought of as a “test bed.” Journalists speculated that Fiber was largely a symbolic project meant to shame the biggest ISPs into offering faster internet speeds, thus creating an environment of ubiquitous lightning-quick internet that Google could service with its bread-and-butter products like Search and YouTube. Fiber has succeeded on that front. Companies like AT&T have raced to offer gigabit internet in specific markets before Google could, and this spring Verizon announced it would begin offering near-gigabit speeds to more than 8 million customers in East Coast cities.
Google clearly wanted Fiber to be more than a moonshot, though, and slowly revealed ambitions of building an ISP with national scale. In 2014 the company announced that it would explore expanding Fiber to nine new metro areas, up from three previously. The same year, Barratt was promoted to be a key lieutenant to Google CEO Larry Page, alongside big names like Sundar Pichai and Susan Wojcicki. Google steadily rolled out new Fiber cities and teased potential launches in others through 2016.
But burning money on a high-speed internet gambit made less sense after Google restructured into Alphabet and brought on CFO Ruth Porat. Both moves were meant to inject more fiscal responsibility in a company that prides itself on maintaining a culture of innovation. Digging up city streets to lay fiber-optic cable is wildly expensive. Last year Alphabet revealed that Fiber made up the majority of capital expenditures for its “Other Bets,” the catch-all categorization for its many far-flung businesses that are not tied to the core Google products. Getting permission to install a fiber network requires working with city leaders, which increases expense and slows deployment. Most worryingly, there’s scant evidence that consumers are willing to pay for gigabit internet en masse, despite its growing availability. Google aimed to get 5 million people to sign up for Fiber within five years but widely missed its target, according to The Information.
“Even Google can’t afford to just do projects and just lose a whole bunch of money,” says Dan Rayburn, principal analyst at Frost & Sullivan. “I think you’re stuck with the incumbents.”
These combined factors are probably why the bloodletting began in Google’s Access division last year. Barratt stepped down in October 2016, and in that same month, 9 percent of Access’ 1,500 employees were let go, and plans to expand to markets such as Los Angeles and Dallas were halted, according to Bloomberg. In February, when McCray was named the new CEO, hundreds more employees were reportedly moved from Access to Google. McCray’s recent ouster didn’t come with another round of downsizing (it may be tied to inappropriate office comments), but it still leaves the company rudderless for the time being.
The lesson Google is learning is one that the major ISPs already figured out: Providing traditional broadband internet isn’t a great way to make money in 2017, no matter how fast it is. Home broadband adoption has plateaued in the United States as some Americans opt to simply use their phone’s data plans to go online. That’s one reason why the major ISPs, from Comcast to AT&T to Verizon, have focused their efforts on acquiring content providers like NBCUniversal, Time Warner, and Yahoo in recent years.
Google Fiber certainly isn’t dead, despite the setbacks. The service will continue to operate in the 10 metro areas where it’s currently available. Going forward, though, Google is likely to focus on Webpass, a wireless internet provider the company acquired last year that can beam internet to apartment units using a rooftop antenna (Google is experimenting with similar technology for Fiber, which is distinct from Webpass). Wireless internet is easier to install and maintain than a fiber-optic cable system that winds into every home, so it makes sense as a pivot for the increasingly cost-conscious Google.
Fiber always had a too-good-to-be-true allure that fascinated journalists, excited local communities, and annoyed competitors (“We’ll be watching your next move from our rear view mirror,” AT&T said in a surprisingly salty blog post last summer). But the dream of 1,100 cities flourishing with high-speed fiber networks has morphed into the reality of fewer than 20 locations, which includes cities and metro areas, with less access to Google’s service. For most of us, the rise and fall of Fiber had little impact on our online lives.