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Fiber Is a Strategic Weapon and Google Inc (GOOG) Knows It

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Advertising is complex and companies are constantly warring for power and control of the market. Google Fiber is criticized for being too expensive and the competition adamantly believes that people don’t want fiber. With custom made hardware, Google’s Fiber is most likely cheaper to implement than the competition’s. Google Fiber’s benefit is that it allows Google Inc (NASDAQ:GOOG) to become a vertically integrated company. It will be able to control everything from the internet connection in your home, to the search engine you use, to the ads you see on a daily basis.

What is Google Thinking?

Google IncGoogle Inc (NASDAQ:GOOG) is in the ad business and a significant portion of global ad spend is used for branding purposes; not the direct response ads that work well on google.com. Google wants a bigger piece of the branding pie and this is one of the major reasons it bought YouTube.

What Google would really love to do is gain a piece of the TV market, but the big TV players are fighting tooth and nail to keep their power. Google Fiber gives Google Inc (NASDAQ:GOOG) the power to completely cut out middleman like Comcast Corporation (NASDAQ:CMCSA).

Comcast is a powerful, vertically integrated company that owns everything from NBC to the utility lines that bring this content to homes. It is well-situated to soak up brand advertising dollars and has achieved a strong five year EPS growth of 21.3% and a five year revenue growth rate of 15.5%. If consumers were to switch to watching video online, then Comcast’s revenue and EBIT margin of 22.6% would be threatened.

Comcast Corporation (NASDAQ:CMCSA) is warring against internet video and the Justice Department has already started anantitrust investigation involving Comcast’s practices. The company’s future is rather fuzzy. It has terrible customer service and is fighting against upstarts like Netflix, Inc. (NASDAQ:NFLX) that are moving into the content creation business. The threat of Google Inc (NASDAQ:GOOG) entering fully into the internet service provider (ISP) market will further limit Comcast’s ability to discriminate against online content. Comcast Corporation (NASDAQ:CMCSA) is quite profitable for the time being, but it faces threats on many fronts and appears to be on the wrong side of progress.

GOOG Total Return Price data by YCharts

What about the online competition?

Google Inc (NASDAQ:GOOG) realizes that it is in a war with publishers. In a troubling trend for ad networks like Google, parts of the mobile ad spend is moving toward publishers and away from the networks. This benefits Facebook Inc (NASDAQ:FB) as will allow the company to continue developing its ad products and better meet marketers’ needs.

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