Jeff Kagan: Will You Use Google Wireless?

Jeff Kagan |

Google_Lego.jpg

Like a particularly aggressive octopus, Google, Inc. (GOOG) reaches their tentacles into many different industries. For their next trick, Google says they will become a wireless provider. So are you interested in buying a smartphone and monthly service from Google? Here is what you need to know...

Why I Don’t see Google Wireless as a Threat to Today’s Wireless World 

Google Wireless is no threat to the wireless status quo. Not yet, anyway. Below, I'll explain why I don't see it impacting AT&T Mobility (T) and Verizon Wireless (VZ) , and how I see the biggest potential winners here being Sprint (S) and T-Mobile (TMUS) .

What do you think of when you think Google? The first thing that many think of is "search engine." After all, that's what originally made Google a global behemoth over the last decade or so. However, over time Google has been stretching their corporate reach into many other businesses as well.

Google has been successful at some of their ventures, and a failure at others...but they keep reaching. Now they want to expand their wireless reach. They not only want to offer Android to other smartphone makers, as well as their own Nexus smartphone, but they want to offer network services as well. They want to become an MVNO like TracFone, competing with AT&T, Verizon, Sprint and T-Mobile. 

Google is not new to wireless. They started on the wireless path in two different ways. Roughly seven years ago, with their Android operating system, and their first Nexus smatphone. At that time, Android was a success, but Nexus was a flop. So Google pulled Nexus and continued to grow Android. It worked. Today, Google Android is everywhere.

Since that time, they have tried to make their own Nexus handset work on different occasions, but they simply can’t figure out how to start the smartphone growth engines on the device side of the business. Trying to make Nexus work, Google is going to continue throwing ideas against the wall and see what sticks. Then they will start to build on whatever sticks. Their end goal seems to be to take complete leadership over the entire wireless industry.

That means Google wants to continue to be both partners and competitors to the same companies. They want to be a network, an Android OS maker and with Nexus, a smartphone maker.

Has Google Gone Goofy?

To me, this sounds nuts. However, this is the path that Google is taking. Don’t all Android competitors realize that they are at risk if Google Nexus becomes successful? If so, why do they continue to partner with Google? Making your competitor stronger seems very nuts...or is bad business, at least.

So one of this industry's unique questions is simple: Is Google a partner and supplier, or are they a competitor? Today, the answer seems to be...both.

It’s like the funny old Saturday Night Live sketch where Chevy Chase, in a pretend Shimmer Floor Wax television commercial asks, "Is it a floor wax or desert topping? Surprise, it’s both!" Huh?

 

In Google lingo, wireless sounds like a big threat, and of course every company in their sites should keep on high alert. However, at this stage, I think this story is more talk than "oomph." After all, what is Google really doing here? Nothing Earth shaking. They are already in the wireless business. They already have Android in handsets from many manufacturers, worldwide. They already have this Nexus device in the marketplace, (and earning a so-so response).

What’s new is that Google will be an MVNO. They will compete with neworks. But will that really matter? They won’t own their own network, so they don’t make up the rules. Perhaps some day they will acquire a network of their own. Perhaps someday they will become a threat...but not today.

Back to the Google Labs?

Remember, Google tries many things, but they are not successful at them all. In fact, Google is only really successful at just a few (like search and Android). Most of the other ideas are innovative and exciting, but don’t generally amount to much (*cough*, Google Glass, *cough cough*).

At this initial stage, Google will be doing business with Sprint and T-Mobile as an MVNO. That means whatever business Sprint and T-Mobile lose to Google on the retail side, they can make up on the wholesale side from Google.

So this is not really a risk. In fact, if Google is successful, it may become a real opportunity for both Sprint and T-Mobile.

The next question is, how much business can Google, as a wireless network competitor, actually win from AT&T, Verizon, Sprint and T-Mobile? To answer that question, all we have to do is consider what they will be selling. They won’t be selling Apple, Inc. (AAPL) iPhone. They won’t even be selling Samsung Galaxy with Google Android. No, they will be limited to selling their own, current lackluster Google Nexus device. The same device that has not been able to sell well since it was launched roughly seven years ago.

In other words, Google wants into the wireless business with both their Android operating system and their own Nexus device, but I really don’t see anything new or different other than becoming an MVNO. And since they will start by only selling their low selling Nexus device, the chances of Google creating waves are really no more of a threat than ripples in a pond.

Who knows what the future will bring. In the wireless world, things can change quickly. Remember, both Apple iPhone and Google Android did revolutionize the space seven years ago, when BlackBerry Ltd. (BBRY) and Nokia (NOK) led.

Because of that, today’s leaders must keep all threats in mind, not just Google.

However, if you blow all the foam off the head of this new Google drink today, all you are left with is a small amount of actual cappuccino called Google Wireless. Sure, it will win some business, but will it really threaten wireless? I don’t think so. Not yet, at least. Not by a long shot.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AAPL Apple Inc. 109.90 0.41 0.37 26,527,997
S Sprint Corporation 7.98 0.04 0.50 8,775,180
TMUS T-Mobile US Inc. 54.44 0.18 0.33 3,087,884
VZ Verizon Communications Inc. 49.81 -0.06 -0.12 10,650,716
NOK Nokia Corporation Sponsored American Depositary Sh 4.23 -0.02 -0.47 6,893,718
GOOG Alphabet Inc. 750.50 2.58 0.34 1,452,484
T AT&T Inc. 38.61 -0.27 -0.69 16,102,161
BBRY BlackBerry Limited 7.59 0.07 0.93 4,588,578

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