Episode 11 - Google’s New Gambit – A Better Internet or Same As It Ever Was?

In the fall of 2008 Google took an important step toward its future by bundling “Android”, the company’s open source mobile operating system, in a new smartphone offered by T-Mobile. The German telecom company was an early member of the partnership Google created in 2007 to develop a competitor to Apple’s IPhone. The sensation of Android’s introduction was not lost on Google’s other rivals. Soon Dell, Samsung, LG, HTC, Kyocera, Sony Ericsson, Verizon, and even AT&T signed on to use Android in its devices. As other events unfolded, Google's actions revealed a strategy that could in many ways reshape the search engine and advertising company.

By September 2009 Google offered Android free of charge to all major smartphone manufacturers, a substantial savings over operating systems sold by Microsoft and Apple. Google next unveiled “Nexus One”, its own handset against Apple’s IPhone and RIM’s Blackberry, but sold it “unlocked” to consumers for use on any wireless network. The company then began offering free and inexpensive software applications, and distributed Android code to developers to encourage more app creation.

Google pushed the envelope once more in December 2009 by announcing that it would build its own high speed broadband network, and use it as a test bed to create faster wireless networks in several cities across the country. This move could put Google in competition with the companies that currently control the internet’s largest networks. Here's the official announcement on YouTube.



What does this all mean? Are we simply observing Google’s latest competitive moves, or is there something more important happening? Some have argued that the events following Android’s roll out may be designed to push Google’s competitors, including current internet gatekeepers, and the FCC, to remove the creative and structural hurdles that have held the company and the internet economy back: the sluggish process to bring software to market, and the “closed” or “walled garden” networks controlled by the largest telecom, mobile providers, and application developers.

I would suggest a different aim. Android is in fact the opening gambit of Google’s larger mission to become a vertically integrated media company, not unlike RCA in the 20’s and NBC in the 30’s. In this case, Google not only continues to consolidate its position in “content”, but also is moving to control the distribution of its products and services over the internet, which currently rests in the hands of some of its most hostile competitors, telecommunication and wireless providers.

Google’s Ultimate Strategy

As a mobile browser, Android is an important piece of Google’s plan, one that has been maturing since 2003. Since then Google has acquired many small start-ups and developed several popular services, offering most free of charge. These services now drive hundreds of millions of users to Google’s search engine, and eventually to the advertising links that appear in the right column. It is the realization that Google must move beyond search and advertising, however, that provides the key to Google’s future.

Despite the aura of Google’s success, it still produces “content”, including video on YouTube, in addition to a search engine, blogs, games, documents, applications, e-mail services, web sites and social media. These services generate traffic from users, who click the ads, which justify the fees that Google charges to advertising agencies. To close the deal, however, Google still needs to deliver those services consistently and unrestricted to its audiences. In other words, Google remains dependent on telecommunications giants, like AT&T, Verizon, Time Warner, Comcast, and Cox, which own the world’s largest digital networks, transmissions lines, cell sites and microwave towers, to reach the internet.

That dependence is the principal reason Google is now building its own infrastucture, potentially several high speed broadband networks - to bypass the gatekeepers’ proprietary systems. Google networks will be “open source” to all devices and applications, rather than “closed” to everything but equipment and apps sanctioned by the gatekeepers. This openness will allow Google to reach the maximum number of users for the products and services it offers, and perhaps force its competitors to lower the walls of their own networks in order to follow suit and save market share. There are already signs that this is occurring.

If this thesis holds true, Android’s introduction may prove to be a significant shift in the growth of the internet, perhaps as important as RCA’s capture of wireless technology in 1919 and NBC’s control of radio in the 30’s and television through the 70’s.

As industry observers point out, Google’s vision presumes America’s economic future will require ubiquitous mobile and wireless access to the web. By offering an advanced broadband infrastructure without network restrictions currently imposed by AT&T, Verizon, Time Warner, and Comcast, Google is setting standards that could force all providers to match or exceed its network’s openness, capacity, and speed. A faster, always available, internet would also greatly expand the use of several popular platforms, especially smartphones, laptops, net books, and IPads, platforms on which Google hopes to capture new customers.

By giving away Android and encouraging more app development, Google is also creating incentives to push its competitors to offer more frequent upgrades in software and handset hardware. Each component would insure the regular appearance of content by encouraging software developers and hardware engineers to be more creative, and greatly expand the ways users can create content. By building or acquiring its own networks, Google could also push other companies to increase the current bandwidth limits that will be necessary for mass internet distribution.

The next logical steps would be more content and freer distribution, which would work in tandem to stimulate development in any country where businesses offer web based products and services. This would ultimately propel Google and other companies that follow its lead to commanding positions in the global economy.

Open Questions

As appealing as Google’s business strategy is in theory, many questions remain open. First, how will users be affected? Will we see improvements in speed, capacity, and most important, access for more people without regard to geographic or economic limitations? What about the larger question: If Google is successful, how will the changes affect the social and commercial future of the global network? In other words, will Google’s efforts make any difference in how consumers are able to use the internet or how the internet is integrated into everyday life? These are all questions that will be the subjects of Part II.

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Notes (numbers in the text will follow shortly)

1. Business Week, Tech and You, “Google Android Now a Contender”, July 22, 2009, http://www.businessweek.com/magazine/content/09_31/b4141065675311.htm?chan=magazine+channel_business+views.

2. Similar adoptions of Android by Dell in 2009 and AT&T in 2010 confirmed Google’s strategy. see The National Business Review, “Huge Win for Google: Dell Confirms Android Phone”, Oct. 9, 2009, http://www.nbr.co.nz/article/huge-win-google-dell-confirms-android-phone-112809,
 and Reuters US, “UPDATE 1-AT&T to sell Motorola Backflip Android phone”, Feb. 18, 2010, http://www.reuters.com/article/idUSN1818178220100218?type=marketsNews

3. Microsoft and Apple are charging manufacturers between $15 and $25 a phone. New York Times, Technology, “Big Cellphone Makers Shifting to Android System”, Oct. 25, 2009, http://www.nytimes.com/2009/10/26/technology/26android.html?_r=2

4. Social Media SEO, “3 Reasons Why The Nexus One Phone Will Thrive”, http://socialmediaseo.net/2010/03/27/google-nexus-one-phone

5. As of March 2009, Android has more than 20,000 apps. available the Google Store. By way of comparison, Apple, with a three year head start, sells over 100,000 applications from the Apple Itunes store.Google used a combination of acquisitions and refinements to define how we have used the internet.

Google has an impressive record of acquisitions. For example, in 2003 Google purchased Pyra Labs, a company that evolved into the company’s Blogger site, a major contributor to amateur content development. In 2005 the company purchased Keyhole, Inc., which had designed 3-D mapping software, then renamed it Google Earth, an essential tool for everyone from the military to freeway commuters.
In 2006 Google bought a small company called Writely, then offered word processing and spreadsheets free from its servers, the first application of “cloud computing”. In 2007 Google bought YouTube as an investment in streaming video, and is now a competitive rival to broadcast television and film. That same year Google bought Double Click for $3.1 billion to expand its lead on-line advertising.

In 2008 the company introduced Chrome, its first web browser, and in 2009 rolled out Android, a browser for mobile devices, then developed Nexus, its own smartphone. Finally, in early 2010 Google entered the social media realm by buying Aardvark for $50 million.

There were also early signs of Google's broadband moves, as indicated from this article from CNet News in January 2005: http://news.cnet.com/Google-wants-dark-fiber/2100-1034_3-5537392.html

6. The Christian Science Monitor, “Why Everyone Wants Google’s High Speed Internet Access”, http://www.csmonitor.com/Money/2010/0405/Why-everyone-wants-Google-s-high-speed-Internet-access

7. Los Angeles Times, Editorial, “Google’s Broadband Venture”, Feb. 15, 2010, http://articles.latimes.com/2010/feb/15/opinion/la-ed-google15-2010feb15
, and Channel Web, “5 Reasons Why Android is Changing the Smartphone Game”, June 23, 2009, http://www.crn.com/mobile/218100828;jsessionid=E1UFAGOP1M3JLQE1GHRSKH4ATMY32JVN

Apple may also be contributing to internet’sinternet’s limits by imposing restrictions on developers who work on apps for the IPhone, IPad, and IPod devices. See the article by the Electronic Frontier Foundation, http://www.eff.org/deeplinks/2010/03/iphone-developer-program-license-agreement-all.

EFF is also heavily involved in the U.S. Patent Office case attempting to free the IPhone, IPod, IPodTouch, and the future IPad from Apples’s closed operating system. (see http://www.eff.org/cases/2009-dmca-rulemaking/)

8. Google is being joined by Cisco in developing the next generation of broadband networks. See the Deal Magazine, “Freeing Up the Broadband Highway”, http://www.thedeal.com/newsweekly/insights/freeing-up-the-broadband-highway.php

"Vertical Integration" is defined here as: Absorption into a single firm of several firms involved in all aspects of a product's manufacture from raw materials to distribution. http://www.thefreedictionary.com/vertical+integration
Based on WordNet 3.0, Farlex clipart collection. © 2003-2008 Princeton University, Farlex Inc.

9. Google executive Andy Rubin, the innovator behind Android, echoed these sentiments in an interview by suggesting that Google would like Android and its other software to be so pervasive that “…other phone makers and wireless companies feel pressure to come up with innovations – and to keep their devices open so users can access services like Google’s search.” Business Week, “Google’s Great Android Invasion”, Nov. 17, 2009, http://economictimes.indiatimes.com/features/Googles-great-android-invasion/articleshow/5235703.cms

10. Let us hope this finally pushes media away from the old “spectrum scarcity” argument that was used to justify the limits on the number of television stations in the 50’s, and in 2009 as the basis for the higher fees that AT& T and Comcast are proposing for large bandwidth users.