Tuesday, May 6, 2014

Google Fiber is Destroying its Competitors

Google Fiber has captured 75 percent share of high speed access homes it passes in certain medium-to-high income Kansas City neighborhoods, according to Bernstein Research. But even in the lower-income neighborhood surveyed, adoption of Google Fiber’s paid service seems to have reached 27 percent.

Should results such as those persist, Bernstein Research predicts that Google Fiber could attain and hold market share of perhaps 50 percent for its paid service, and about 10 percent penetration of its free service, within three to four years.

That would prove a difficult challenge for cable and telco Internet access and video service providers competing with Google Fiber, as it would imply that cable and telco ISPs collectively would have less than 50 percent share of high speed access market share.

In many markets, cable providers have 58 percent share, while telcos have 42 percent share. The Bernstein research also suggests Google Fiber quickly has grabbed seven percent to 15 percent video entertainment market share as well.

That implies cable could dip as low as 29 percent high speed access share in Google Fiber markets, while telcos could drop to 21 percent share. In addition, it is conceivable that cable TV and telco providers also could face a loss of perhaps 20 percent video entertainment market share as well.

In Wornall Homestead, the highest household median income neighborhood ($116,000 average household income) 83 percent of respondents were buying Google Fiber service.

Of those customers, 15 percent of homes were buying the $120 a month high speed access plus video subscription package.

About 53 percent opted for the $70 a month gigabit access service.

Also, some 15 percent had chosen to use the free 5 Mbps Internet access service.

In Community College, the neighborhood with the lowest household median income neighborhood ($24,000), 27 percent of homes were buying Google Fiber service.

About seven percent were buying the video-plus-Internet access package.

Some 19 percent have bought the 1 Gbps access service. Also, about seven percent of homes opted for the free access service.

In other potentially bad news for cable and telco competitors, all of the Google Fiber users indicated they would not buy a rival gigabit access service, presumably even when the rival service was offered at the same price as Google Fiber.

For some years, suppliers of high speed access service at 50 Mbps or 100 Mbps have encountered some resistance to such offers.

Google Fiber shows that the issue is the perception of value, compared to price. Google Fiber has not had similar resistance to a 1-Gbps service offered at $70 a month, less than most other ISPs had charged for the 50-Mbps services.

Should Google Fiber or other fixed network suppliers decide to build in a wider range of U.S. markets, both telcos and cable TV companies would face new pressures, including higher capital expense to match Google Fiber speeds, plus a new pricing umbrella that could drive prices of all slower speed offers downward.

That would create new pressures to reduce operating costs, as the option of raising prices to recover the bandwidth upgrades would be limited to impossible.

Observers will simply note that Google’s overall strategy has been to drive both device and Internet access prices lower, ensuring that virtually everybody uses Internet access, all the time, as that drives Google’s ad-supported application revenue model.

And Google Fiber is expanding its footprint.

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