Saturday, January 20, 2007

Cringely: Google rising, sky falling

Robert Cringely contradicts himself today by saying Google is going to save the Internet. Of course, two weeks ago he said the Internet would crash due to the mainstreaming of video downloading. Yet here he is today, attributing that same phenomenon to Google aiming to become "the proxy server of the Internet". So which is it, Bob? Will the Internet crash or will Google ride in on its primary-coloured horse to rescue us?

In amongst Cringely's typical PNOOMA methodology, his main argument seems to be that Google's ever-increasing data centre assets will lead to its takeover of the ISP industry. This is wrong. Those data centres are not eating anyone's lunch, they're actually supporting an industry: the carrier-neutral data centres, the peering exchanges. I know a bit about this because I worked for a peering organisation called AusBONE during the first boom. I kept a close eye on companies like Equinix and Savvis at the time, particularly Equinix because I thought it had the best business model. Equinix is still going, despite going through some very tough times post-first-bust while trying to fund expansion, and after flirting with disaster at below US$3 per share in 2003 it has exploded to US$83 per share today.

I wouldn't be surprised to hear about Google either buying Equinix or more aggressively partnering with it. I like Equinix's tagline of "The Home Of The Internet", and it certainly converges with Google's goals. Google first entered Equinix's data centres in 2001, and it's still there making new peering arrangements with ISPs. All that super secret Google fibre that Cringely references is merely to (a) connect Google's distributed data centres with one another, and (b) connect those data centres to peering points - like those of Equinix - to pump data through to ISPs.

Where Cringley gets it most wrong is in thinking that Google is interested in killing the ISP business. That does not advance Google's goal of organising the world's information. However, Google is interested in gaining a powerful market position so that it can dictate the terms of engagement for the market - and it's not afraid to forego large sums of money to do so. In the case of the music industry, that meant negotiating huge cash settlements with copyright holders so that YouTube could eat the media giants' lunches. In the case of the ISP industry, that will mean that Google will provide ISPs with free or near-free data at peering points... as long as they embrace Net neutrality. If they cause trouble, like Ed Whitacre of AT&T, they can expect to sit across the table and have a peering contract containing a lot of zeroes shoved under their noses. Google doesn't want to have to charge those huge numbers to carriers because its users would suffer, it's merely a bargaining tactic to get what it really wants.

Call me an optimist, but I don't think Google is the business of destroying industries just because it can. Let's face it, they could pretty much enter any industry and gut it at the moment with the backing of the revenue from their search business, but they're smarter than that. A decimation of ISPs' profit margins would actually hurt Google, because it would leave itself open to antitrust investigations. Cringely is getting ever less relevant, and he's backing the wrong horse here.

UPDATE: Mathew Ingram agrees with me.

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