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On the Internet, Size Matters March 4, 2010

Posted by Peter Varhol in Strategy.

Yes, I know it’s a hackneyed line, but as I read about digital connection speeds, reports talk about the “size of the pipe.”  Of course, it’s not at all physical size, but rather bandwidth – how many bytes you can send through the connection (wired or wireless) per unit of time (usually per second).

In a nutshell, that’s why there’s a lot of interest in Google’s proposal to bring a very high-speed Internet connection (1 gigabit per second) to a sample of communities around the country.  The company plans to offer a competitively-priced plan for somewhere between 50,000 and half a million people in the US.

This is serious business, for a number of reasons.  Currently, there are two primary ways of getting content into a private home – the telephone line and cable TV.  Both of these are battling it out for primacy.  It’s unlikely that both will be a primary conduit in the long term, and it’s the telephone line that is most at risk.  Vonage and other VoIP solutions notwithstanding, an increasing number of people are dropping their landlines altogether in favor of cell service (more likely) or cable phones (which are also VoIP).

What’s at stake is a more or less exclusive access to the home, with content, advertising, communications, and just about everything else.  That’s the business Google needs in order to grow its own.  Google makes its money off of ads, and the more content found by searching, the more ads it has the opportunity to place.

To be clear, Google is not getting into the business of moving bytes from one location to another.  The costs of pulling fiber optic cables, either above or below ground, is enormous, which is why there are so few companies that have the resources to do it.  And that’s at least one reason why local telephone companies (think Baby Bells) and cable companies have exclusive franchise agreements within geographical areas.

And that’s the primary reason we’re not in a race to send more speed into the home.  Another reason is that both the phone and cable companies have a great deal invested in voice and TV.  But it’s video that needs this kind of bandwidth, and especially the cable companies already do video, on broadcast terms, not on Internet terms.  They likely feel no compelling need to challenge their own business model (though they should).

Google is taking applications from municipalities to be a part of this program.  At least one response has been a hilarious gimmick – Topeka, Kansas, has renamed itself Google for the next 30 days.  This is from a mayor who doesn’t understand or use the Internet, but thinks it’s important that the city’s citizens do.  I guess he doesn’t think it’s important enough to have the city pay for, however.



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