The facts, such as they appear to be in evidence, seem to be that Google is worried that evolving trends toward more web-oriented information searches by devices like the iPhone will leave it with a declining share of advertising revenues, and loss of control over free access to its wares by users.
As such, Google is experimenting with a wireless network on its own corporate campus, acquiring various pieces of a putative wireless network, and considering a bid on frequencies over which to run its own new wireless network.
By adding some piece of cellular revenues to its income stream, and potentially using cellular advertising revenues to subsidize its telephone operations, Google is thought to be the only player in a position to turn this industry on its ear and disrupt the current status quo among ATT/Cingular, Verizon, et. al.
Holman Jenkins' piece marks him as sceptical of the whole notion. He is of the opinion that Google is biting off much, much more than it can chew in going after the old Bell conglomerate, in its current two remaining pieces. Specifically, Jenkins believes that the phone companies' historic expertise with billing is an advantage, as is their use of technology which distributes precise content to each user, thus allowing the two phone companies to amass user information at a very detailed level.
Let me state that I don't own Google in my equity portfolio, and never have. It's too recently public for me to have sufficient information on it for investment purposes.However, it has obviously been a rocket in performance terms, as the nearby Yahoo-sourced chart confirms.
The question, regarding Google's foray into telephony, is whether it will be the fabulous second- or third-act in Google's march across the information services battlefield, or its Waterloo.
I don't have a crystal ball, so I don't know the answer. For what it's worth, I think Jenkins has it partially right, but for the wrong reasons.
I don't agree that Verizon's or ATT's billing systems constitute an 'advantage.' Truth to tell, telcom billing systems have been the butt of many a joke for decades, and, literally, a revenue stream for dozens of consultants who used to make their living off the billing mistakes they would discover for their clients.
But what the two telcos do possess is unparalleled experience building and running far-reaching communications networks with unheard-of uptime performances. It's probably tempting for Google to somehow think that the web makes everybody ultimately rely on a common backbone for transmission, but that's not the case here. Further, designing and operating phone networks to be always available is no mean feat. And the Verizon and ATT folks, whatever their current moniker, have been doing it for a century or so.
That said, there's quite a bit to be said for Google's ability to come in from a different arena and wreck the current telco revenue model.
My old boss, Gerry Weiss, SVP of Chase Manhattan Bank for several decades, acquainted me with work that he and his then-colleagues at GE developed back in the late 1960s. It was called 'arena analysis,' and I was bequeathed the only known physical copy of the GE entertainment arena model by one of Gerry's lieutenants, Donald Heany. Don wrote the famous PIMS articles which appeared in the Harvard Business Review in the mid-1970s, and mentored me in the years before his death.
What Gerry, Don and their colleagues realized, and began to model, was the effects an interloper to an industry sector can have on the fortunes of existing product/service providers who rely on business models built upon different assumptions and technologies. The phenomenon was sufficiently different than in-sector competition to cause them to coin a new term- arenas.
In arena competition, one new competitor enters a sector with a tertiary use of its main technology, distribution system, etc., which happens to be so foreign and competitively-advantaged to the existing business methods, that it simply rips the value right out of the business models of existing competitors in the sector.
TI did this, in a small way, with its early digital watches. Entertainment distribution is a similar example.
Jenkins suspects Google is about to do this. Google's use of advertising to potentially damage the telco business model could be very effective, damaging everyone in the sector, and lowering effective wireless prices to all end users. Permanently.
On one hand, Google may go the way of Microsoft, only much, much more quickly. Rising faster, but plateauing more quickly, as well. Either from a loss of control of the cellular market, or winning control at too high a price, sustaining damage from competition with the telcos.
Or, it may, indeed, march triumphantly over the telcos, seizing the wireless business for use as an add-on to its advertising model.
Given the complexities of wireless network operation, and constantly evolving technologies, and the tendency for Schumpeterian dynamics to work everywhere, I am sceptical that Google will succeed financially, even if it does make substantial inroads into the cellular businesses of Verizon and ATT.
I have tremendous respect for Google's Eric Schmidt. However, wireless communications, integrated media distribution and storage are both complex and evolving. Google's strengths have historically been in software algorithms and the leveraging of those into advertising presence. I'm unsure that these will be extendable, profitably, into cellular.
It's a good rule of thumb that if all you bring to a business is money, you'll probably find those lower barriers allow others to surprise you, as well.
I wrote a post some time ago opining that Google moves so quickly into new areas because they realize, somewhere deep in their corporate consciousness, that a few other garage inventors will inevitably develop a superior search engine.
What happens if Google spends most of its resources and focus on wireless, only to have its core search business become vulnerable to a totally new technology?
Sort of like....Microsoft?
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