Why Would Google Make glasses and Sell Fiber-Optic Internet in Kansas?

After a prolonged absence from my blog resulting from extensive travel (both work and pleasure), I’ve come back with two blog posts on the subject of my former employer, Google. The questions I want to set out to address in this post is why would Google want to make and sell glasses and why would a software behemoth want get into the business of laying fiber-optic cables in Kansas City, MO? We might also consider other questions such as, are these two projects related? Given that glasses and fiber are so seemingly far from Google’s core business of  search, do they not represent a major distraction for the search giant? Has Larry Page simply run wild now that he’s the CEO of a company so powerful it has its own church?

To answer the last question first, no Larry Page hasn’t run wild: in fact, he doesn’t run anywhere. He usually bikes most places, and when he does walk he carries the scowl of a man who is so preoccupied with the burden of power he doesn’t even notice the slides,bouncey-castles and frozen yogurt stands that decorate the topography enabled by his over-achieving college-era math equation.

To be serious though, it helps to address these questions by first pointing out two virtuous circles that fuel Google’s growth and hence explain its behaviour:

The first virtuous circle is that Google’s main revenue source, its advertisers, are budget un-constrained. That’s right: the people who ultimately keep the lights on at the Googleplex have no limits to how much money they can spend.

O.k: I exaggerate: they do have some limits: To put in another way, Google’s advertisers are limited only by Google’s ability to drive traffic to their sites through their advertising programs and help then sell goods and services to users. The more advertisers sell through Google the more they are willing to spend on Google. The company, therefore, is constrained by the percentage of users that will click on its ads (teams of engineers, statisticians and even neuroscientists work on improving the yield from clicks without sacrificing the distinguishable features that separate paid ads from organic search ads), as well as the volume of visitors searching for information on Google’s varied services.

Herein we find the second virtuous circle: Google’s growth as a company is entirely correlated to the growth of the internet: the more people are using the internet and searching for information, the more potential clients for advertisers and hence the more revenue for the company. Furthermore, unlike Facebook, which depends on users staying on the site for their advertising program to work, Google makes money by getting people off their site as fast as possible, which, as you can imagine, is a much better problem to have than Facebook’s current woes.

So what do either of these two facts about Google’s business model have to do with glasses and fiber? When you look at these two products from Google’s perspective you’ll see that both are meant to increase demand for information and hence Google’s growth. Allow me to explain through an example:

Glasses

I recently went sailing through Croatia with a group of friends\. Because we didn’t have a coffee maker on board our first activity whenever we docked at any port was to search for expresso. Imagine how my economic impact on the island is distributed: I get off a boat. I have sea legs. It’s early in the morning. Already seduced by the silent gaze of stars over the adriatic I may have celebrated the occasion with a glass of Croatia’s best red. I’ve never been here before. The first place I see sells coffee.

Blamo! I take a seat at the first place that doesn’t have an entire lamb on a skewer in front.

In a world where access to information is limited, therefore, the shop keeper closest to the island’s entry point has the advantage over his neighbours regardless of the quality of his product or service. He likely pays a premium for the real-estate, but given that impatience and impulse are great drivers of purchasing decisions we can imagine that his costs are likely more than covered by the volume of clients he receives.

Now imagine the same situation but this time when I arrive I’m wearing my Google Glasses (Note I am already married therefore the major deterrent of wearing Google Glasses, i.e. the desire to talk to and meet women, is of no consequence to me). Instead of stopping at the first place I see, I instead search Google to find out where on the island I can get the best cup of java. As it happens a place making high-quality filter coffee (my favourite) has a small shop just three short blocks away. His reviews are great and his service is meant to be excellent: contrast that with the reviews of the first coffee which is known to have sub-par coffee and poor service.

Though this same information is available to me if I have an iphone, Android device, or even, heaven forbid, a blackberry, the cost of taking out of my phone and typing something is a major deterrent to my actually looking for the information. If, however, I have the information constantly in front of me then there’s no cost for me searching for that information. In the same way that users of Android and Chrome search Google far more than users not on those platforms (I’m missing the reference but common sense tells you it’s true), so too would users of glasses use more of Google’s services. By reducing the amount of effort required to access the internet, demand for information goes way up. Furthermore, coffee shops on small Croatian islands now compete on a far more level playing field whereby the advantage of real-estate no longer plays as detrimental a factor.

Fiber

Providing access to high-speed internet is another example of Google attempting to increase the demand for information. Despite hosting the world’s foremost hotbed of internet entrepreneurship in the form of Silicon Valley, The United States ranks 12th in terms of global average internet speed. The easiest conclusion to jump to then is that if users have faster internet they will search more: even if the total amount of time users spend on the internet stays the same, their ability to access information faster will increase their overall number of activities, including search.

Furthermore, Google’s interest in this project is not merely to disrupt the internet service providers (ISPs) but also the cable companies (though in many places ISPs are Cable Companies and vice-versa). Because Google owns the world’s largest online video library in YouTube the company has a vested interest in seeing the difference between watching T.V. on cable and watching T.V. on the internet disappear. If you can access YouTube from your CableBox and access Cable from your internet then Google essentially gives itself a massive opportunity to compete for your attention.

In obtaining more of your attention Google can attract more advertisers, specifically large brand advertisers that have yet to transition their offline advertising budgets into online dollars. Without wanting to go too deeply into the nuances of  how online advertising works (I did that here if you’re interested), Google wants to attract not only the advertisers who want you to purchase something from them right away (i.e. the type that advertise on search), it also wants to attract those who wish to influence your purchasing behaviour (i.e. brands). (Interestingly, if there is a case for regulators to look closely at Google it is found not in search but in ads where the company controls 44% of all online advertising spend. More on that in my next post).

Finally, the faster your internet is the more you can do with it. Though Silicon Valley is one of the U.S.’s few success stories over the past few years companies like Google are highly aware that it cannot take the U.S.’s privileged position in spurring internet innovation for granted. All across the world governments, entrepreneurs and financiers are setting up incubators and hosting hack-a-thons from Santiago de Chile to Amsterdam to Hydrabad hoping to spot the next game changing idea. If those countries have faster internet access their entrepreneurs will have an advantage in discovering what additional things can be done with the extra bandwidth.

Seen through this lens one might interpret Google’s dance into the ISP space as a move meant to send a wake-up-call to all U.S. based ISPs to quit cutting corners to save money and instead deliver the high speeds the country requires to stay competitive. Only time will tell if this is indeed Google’s objective or if it plans to expand its offering to cities around the country and potentially beyond.

Conclusion

What I hoped to have demonstrated then is that Google’s future depends entirely on the growth of the ubiquity of the internet and the increased demand for information. Glasses and fiber therefore are not merely attempts to distinguish itself but also of spurring the demand it requires to survive. Though some may see the examples provided and the premise that mere seconds, consumed either waiting to take your phone out of your pocket or waiting for a page to load, can make a difference in the aggregate amount of information consumed by users, you can imagine that Google wouldn’t launch them if it handn’t done the math to determine the return-on-investment. Lastly, Google’s business model is not only dependent  on the growth of the internet but also its ability to maintain a direct relationship with the users whose curiosity and willingness to explore is what underlies the aforementioned opportunity (Think of the threat Siri poses to search, for example). By being at the forefront of how users access to information Google can better protect its place in a market place where relevance is literally as fleeting as our attention span.

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About Matthew Carpenter-Arevalo

A former Google and Twitter manager, Matthew Carpenter-Arévalo is the founder and CEO of Céntrico Digital, Ecuador´s foremost boutique digital marketing agency.

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