Telco Think: Nah, Google Does Not Matter
August 2, 2008
Telephony Online ran an interesting article by Alex Liu “Does Google Matter?” You can read Mr. Liu’s analysis here. The point of the article is a variant of Microsoft’s “one-trick pony” description of Google. Google sells ads. Its other initiatives have gone nowhere. Therefore, Google does not matter. The statement in Mr. Liu’s analysis that I found most interesting was:
Basically, Google has a materiality problem. Consider this: if the global advertising market is $600B, the online piece of that is $60B and the mobile portion of that is expected to be $6B (tops), that’s a lot of industry crowding out that Google has to win, even assuming differential segment growth—much less venturing into wireless communications services, another inevitable march. This journey into wireless will surely unfold, but it will take longer than most expect.
The author–a partner at prestigious A.T. Kearney and Alexander to the army in Kearney’s Communications, Media and High Technology practice in North America–has lost me. I don’t have a clue what “materiality” means. I’m not sure what “industry crowding out” means. I think I agree with the point that Google’s “journey into wireless” will take some time.
Stepping back from the glittering brilliance of this article, my view of Google and telecommunications is that it is one of five or six sectors that Google is probing. Unlike a telco, Google is not a one-trick pony when it comes to technology. Google has a business model that works just as well as Ma Bell’s coin operated telephones did for decades. I recall sitting in a meeting before the break up listening to chuckles about the shortage of rail cars in upstate New York to move nickels, dimes, and quarters to Manhattan. Google’s business model is not much more sophisticated than Ma Bell’s monopoly over pay phones. In fact, today’s telcos face a digital monopoly that shares some DNA with the old, beloved Ma Bell.
Will Google succeed in the telco sector? What about banking, back office services, entertainment, publishing, or enterprise software? Google’s “goal” of becoming a $100 billion company does not require success in its various initiatives. Google only has to make a reasonable showing in a couple of these sectors and work to keep its business model working.
My research suggests that Google could walk away from telco entirely and experience no material change in its financial performance. Telco, like Google’s financial services or publishing probes, are nothing more than applications running on Google’s infrastructure. I wish to remind Mr. Liu that Google has an infrastructure in place, working, and purpose built for massively parallel applications. Telcos don’t. Furthermore, telcos lack the vision, the money, and the time to duplicate the Google “as is” infrastructure.
Google enjoys more degrees of freedom than telcos. Google is largely unregulated. Telcos are regulated. Google is applications centric. Telcos are earnings centric. Google is experiencing a nice lift across its operations. Telcos are struggling to keep the blimps airborne. Google has nothing to lose probing telco land. Telcos have a great deal to lose whether the companies ignore Google or challenge Google. Google is a master of what I call Goo-jitsu; that is, minimum effort and cost yields maximum reaction and cost for its opponents.
I am delighted that I am no longer in the consulting game. My blood pressure is rising just thinking about the argument Mr. Liu has advanced. I think its lacks “materiality”, but that’s just an addled goose’s opinion.
Stephen Arnold, August 2, 2008
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