During Google’s first quarter earnings call for 2013, Patrick Pichette – Google’s Senior VP and Chief Financial Officer – seemed to reveal the real reason behind Google Fiber, Google’s attempt to provide connection speeds “100 times faster than today’s broadband.”
Google Fiber, currently active in Kansas City and coming soon to Provo, Utah, and Austin, Texas, is a newer venture outside of Google’s core product stack, and the kind of “speculative product” that Larry Page said is vital to growing and surviving as a technology company. “Companies tend to get comfortable doing what they’ve always done,” Page said on the call, but “incremental improvements are guaranteed to be obsolete over time, especially in technology.” This is why they’ve taken leaps into new areas like email (Gmail), mobile platforms and devices (Android), and even self-driving cars.
So is Google Fiber just another big leap into a brand-new area? How does it fit into their product stack?
Google Fiber Will Reduce Google’s Dependence on Internet Service Providers
During the Q&A session, a caller asked:
“Setting aside the user experience for those who get it, how do you expect Fiber to have major impact, given that it could take many billions and several years to pass something like 20 million US homes, and after all of that time and money you would be at best a midsize provider?”
“On fiber, I think it’s really simple. It’s very early days. We’re totally excited about delivering a great user experience with faster Internet speed. And think of it as Larry said with Sergey’s quest a few years ago – if you can get speed over 100 times faster than the average American, I mean, that is a great user experience, and it’s really about pushing for speed, and writing the new chapter, the next chapter of the Internet. So for us, I think we really are excited about this, and that’s really what we’re focused on.”
At this point Larry Page interjected:
“We look for places where we can provide products that make a really big difference in people’s lives, and we can make a lot of money.”
LOL – he started off so inspirational. He went on to say:
“The reason we’ve been so successful at advertising is we view that as another source of information. The better job we can do at providing you information, the better we can provide commercial information to you.”
A little later on the call, there was a followup question on Google Fiber: “On fiber, I had a follow-up, if maybe you could go beyond the obvious … if you could maybe help us think about the types of services or offerings that you guys see as being possible as this becomes more broadly deployed?”
Pichette responded (and this is the big reveal):
“I think that the thesis is not only about the future but it’s really a lot about today. Speed matters today. When you wait for 3 seconds to get your YouTube video today with your current provider, that is a terrible answer. And we think that fiber, and the services we offer in Kansas City today actually goes a long way to solving a lot of today’s frustrations, independent of tomorrow’s. In addition to that, our Kansas City offering that we have is already a quite differentiated offering … it’s just laying the path for what should be the next change of the Internet.”
Pichette here mainly focuses on the value to the user, in terms of speed and storage, but he also reveals that Google sees the typical Internet service provider, providing only average Internet speeds, as a hindrance to its success. Currently, Google is dependent on other Internet providers delivering its products, including advertisements, to users, and if they fail to deliver those products fast enough, Google loses revenue. (Notice how Pichette uses the Google rhetoric of information as "answer" – advertising is information, ads are just answers.)
So essentially, with Google Fiber, Google is cutting out the middle man of the third-party Internet provider, stepping in to ensure that users receive its products and advertisements at maximum speed. After all, if YouTube videos load faster, more users flock to the site, viewing more ads, and making YouTube that much more valuable as an asset to advertise against.
Google’s Q1 Earnings Summary
To briefly summarize the earnings report, Google reported consolidated revenues of $13.97 billion for the first quarter of 2013, representing an increase of 31% compared to the first quarter of 2012.
Average cost per click (CPC) decreased by approximately 4% quarter over quarter and 4% year over year. However, total paid clicks increased by approximately 20% over the first quarter of 2012.
The below chart illustrates consolidated revenues by source:
Read more in the official Google press release.