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Flushed with oodles of money from its outrageous stock price, Google decided to sink some of its cash into wireless services, a move that seems at best curious and at worst idiotic.
Flushed with oodles of money from its outrageous stock price, Google decided to sink some of its cash into wireless services, a move that seems at best curious and at worst idiotic.At the end of November, the company announced that it would bid on the 700Mhtz band wireless spectrum, slated to be handed out at the end of January 24 via an auction by the Federal Communications Commission. Wireless services have been expanding, and as a result, carriers are searching for additional bandwidth to deliver new services. In addition to providing more bandwidth, the 700MHz spectrum passes through buildings and around objects more easily than other wireless networks, so it is more resilient than other wireless services.
So why would Google want to get into the competitive, ever changing, low margin wireless services market? The company has complained about the difficulty of working with mobile service providers and found it difficult to develop products for a very wide array of different phone software platforms. Operating its own network allows Google to set application development parameters rather than conform to them. If the company has determined that the current mobile application development methods would hinder its long term desire to make its software ubiquitous, then the move has some validity.
However, the more significant questions center on how the Goliath plans to build a business case and recoup its substantial investment in the new spectrum. How much the bandwidth will cost is an open question. The FCCï¿¼s PCS (Personal Communications Services) auction in 1996 raised $16.8 billion, with the federal agency granting 422 licenses in 195 markets. Given the growing importance of wireless communications, analysts predict that the 700MHtz bidding could raise $25 billion to $50 billion.
If the company wins an auction, it then has to learn how to operate a wireless network, a complex area where it has no track record. Other established companies, such as Disney, thought cellular would be a good way to further leverage their brands and started offering services under the MVNO (Mobile Virtual Network Operator) model where an experienced cellular supplier handles the heavy lifting. Even with that help, Disney quickly recognized the level of sophistication required to run such an enterprise as well as the difficulty in making money off of such a venture and exited the market.
Profitability may become more of an issue because wireless services may be reaching their peak. While they have been growing steadily, how much higher can they go? Wireless phones now outnumber wired phone in the US, and companies, such as AT&T and Verizon, have more than 60 million customers each. The skyrocketing numbers would seem to be ready to level off or even take a dip.
What does entering the wireless market do for Google core business? Nothing much. Many large companies are outsourcing everything that is not part of their core technology to focus on what the company does best. Google seems quite willing to buck that trend. Chances are the new venture will at least distract the company from its core business and could even prove to be disastrous. Just because Google has a lot of extra money, that does not mean that the company is spending it wisely.
Why do you think Google is getting into the wireless market? How much interest would you have in its services? Do you think the venture will be successful or unsuccessful?
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