Most of the opinion about Google Fiber is that “it failed.” Some of us are not sure about that. Much hinges on what one expected. If the objective was to spur existing ISPs to upgrade faster, Google Fiber succeeded. If the objective was to create a big new revenue-driving service, Google Fiber has not yet achieved that goal. Also, much hinges on whether this is a case of “iterate, iterate, iterate.”
The first iteration has failed to dislodge enough consumers and win Google Fiber enough market share to sustain itself in current form, that is certain. But unless Google Fiber assets are sold, or the whole business simply is shuttered, another effort likely will be made.
So far, it is fair to note that Google Fiber does not seem to have taken significant share away from the existing leading ISPs in the target markets.
“Why” Google Fiber has not been able to take share is the question, and “answers” have ranged from permitting issues to competitor lawsuits; lack of marketing to higher-than-anticipated costs or harder-than-expected construction. All of that seems plausible.
In addition, there are other reasons. In the competitive access services business, attacker actions always are countered with incumbent counterattacks. That is why there is no “sustainable advantage” in the access business, just relatively-temporary advantage that competitors eventually erase with rival offers.
Acknowledging that all the aforementioned issues might also have contributed to a slower-than-expected rollout, the cable operator and telco response might also have blunted the Google Fiber value proposition. The “symmetrical gigabit for $70 a month” offer was disruptive, to be sure. On a megabit-per-cents basis, it completely reset the value proposition, in downstream and upstream performance terms.
But that is where the competitor dynamics--and consumer demand--come in. One might argue that the competitor response was “good enough” to blunt Google Fiber’s appeal. It is no accident that Comcast announced its nationwide--to every home--gigabit upgrade after Google Fiber was launched. As skeptical as Comcast and others might have been about demand, once they determined there was a conceivable challenge to their “leadership,” upgrade programs were announced.
At the same time, even in advance of the gigabit upgrades, existing tiers of service were bumped to higher speeds as well, for the same price. In Charlotte, N.C., Time Warner Cable upgraded service substantially, for no additional cost. Customers who had TWC's standard 15 Mbps or 30 Mbps were upgraded to 200 Mbps. Customers on the 50 Mbps tier were upgraded to 300 Mbps, without charge.
Comcast made similar upgrade moves in Provo, Utah, where Google Fiber also was building. AT&T did so in Austin, Texas, offering to match the gigabit offers made by Google Fiber.
The point is that competitors responded by changing their own offers by boosting value. The changes did not match the Google Fiber offer, but apparently represented enough incremental value to convince consumers to stay with their current providers, even if Google Fiber represented an offer with “significantly-more” value.
That happens frequently in all parts of the access business. “Good enough” value propositions often beat “the best” value propositions, since absolute cost matters to most consumers. In this case, it appears that most consumers remain satisfied with hundreds of megabits for less money, rather than buying gigabit service for a bit more money.
Perhaps that is a prime example of price anchoring, where consumers evaluate all offers from a reference point. A 50-inch TV might be priced at $1,000, where smaller models in the 24-inch to 36-inch range might cost only hundreds of dollars. Then a model with a 48-inch screen is priced at perhaps $600. That is a “gold-silver-bronze” pricing strategy that creates perceptions of value for the 48-inch model.
The other angle is that consumers might be rational in another sense. The primary value of any higher-speed internet access connection is typically that it tends to ensure reasonable speeds for multiple users at a location. How much “speed” any single user requires depends on the applications to be supported, but for most users an actual speed of 20 Mbps or so is likely enough to support all applications any consumer presently requires. Even assuming a requirement for occasional speeds of 40 Mbps per user, that still means a “hundreds of megabits per second” connection is all a single account might require.
Likewise, symmetrical gigabit as a headline speed is eye-catching, but far more than a typical multi-user household requires.
It is not yet completely clear that Google Fiber has “failed.” Access speeds are dramatically higher, and continuing to climb at significant rates. In that sense, Google Fiber already has succeeded. Whether Google Fiber will also prove to be a sustainable business remains to be seen.
What does seem clear is that most consumers have chosen to buy “good enough” offers, not the “best possible” offer. What cable companies have done is counterattack by creating a “better” offer that is “good enough” to satisfy consumers.
More than anything else, that might be what has limited Google Fiber success.
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