Is Google a Threat?

by Neale Martin published April 24, 2006 in Telephony Telephony

In this continuing series on competitive challenges from non-traditional competitors, I'm taking the unusual perspective of evaluating threats based on habits. The idea is that winners in the communications arena will be the ones that become the habitual choice of their customers.

With a market cap above $120 billion and roughly $7 billion in cash on hand, Google could pose a threat to virtually any market it chooses to enter. But while the media relentlessly hawks stories about Google threatening eBay, Microsoft and recently the online travel industry, could the search firm take on established wired and wireless carriers? Though the company has already rolled out a beta version of an IM/voice-over-IP service called Google Talk, this seems more a threat to Skype than AT&T or Verizon.

But it is important to recognize that Google's economics are starkly different from carriers, both in terms of costs and revenues. The company can offer voice, e-mail and IM services without owning a wired network or wireless spectrum. Google can afford to give away for free what others must charge for because its revenues come primarily from advertisers and paid Internet searches. The company is the market-share leader in online advertising and online search — extending that domination into the world of communications could be highly disruptive to incumbents. Imagine how much more companies would be willing to pay for a search query result that could be purchased based on a customer's geographical location.

Although one might be hard pressed to take seriously the threat posed by people donning a headset and using a computer to make phone calls, the very nature of IP-based voice recommends a different look. For example, Netgear is releasing a Skype phone that works with any Wi-Fi network without requiring a PC, and EQO has software that enables the Treo 650 as well as Microsoft-based smartphones to become Skype appliances. How difficult would it be to do the same for Google Talk?

The Google threat is qualitatively different than Skype, Vonage and EarthLink because Google's vast customer base has habituated on the search company and uses it daily. As a culture, we turn to Google automatically when we seek information, including when using our mobile devices. If Google creates an intuitive interface and integrates Gmail and Google Talk into existing mobile devices, millions of existing customers would be willing to try the service. Conversely, Skype may become the TiVo of VoIP, pioneering the service but incapable of owning the space, while Vonage and EarthLink slog it out with expensive ad campaigns to sign up customers one at a time for residential voice service.

Google's recent successful bid with EarthLink to launch and operate a citywide Wi-Fi network for San Francisco is an indicator that Google views the potential revenue from mobile customers to warrant a significant investment, even if it is only a test bed. Of course, the power of a wireless VoIP play is the service provider would not have to own or operate the network.

Ultimately, Google could disrupt incumbent communications carriers as part of its mission to make all information easily and readily available for free. Adding real-time communications to its offering seems inherently logical with mobility a requirement. The disruption of this model to incumbents is pernicious. Google could take a large share of voice minutes, while simultaneously changing people's perception about paying for voice at all.

Everyone wonders if Google is a potential threat, but it might be time to ask a more pertinent question: If given a second to decide between Google and my service, which would my customer choose?