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Google gets the message

Tue, 08/23/2005 - 8:00pm

Copyright 2005 TheStreet.com, Inc.

August 24, 2005 Wednesday 7:04 AM Eastern Time

By Scott Moritz, Senior Writer

From Lexis Nexis

As Yahoo! (YHOO:Nasdaq) strengthens its ties with old-line telcos, Google (GOOG:Nasdaq) is exploring other routes into the communications future.

The Mountain View, Calif., Internet-search giant's plan to raise $4 billion through a stock offering has helped feed speculation over where the industry leader will next try its deft hand.

Where some industry observers like Business2.0's Om Malik predict Google will build a nationwide Wi-Fi network, others expect Google to beef up its video-player service to deliver streaming clips and video blogs.

The most recent rumor is that Google will announce as early as Wednesday a voice-enabled instant messenger service called Google Talk. That chatter comes in a report Tuesday by the Los Angeles Times.

If true, the talking IM service presumably would compete with voice-over-Internet protocol, or VoIP, services like Skype. And if popular, Google Talk eventually could threaten the multibillion-dollar calling businesses of cable and phone companies.

Taking the IM path builds on Google's recent foray into email called Gmail, which has challenged established players like Microsoft (MSFT:Nasdaq), AOL and Yahoo.

"The next step is the messenger market," says ABI research analyst Vamsi Sistla. "Online messaging services will play a quintessential role in communications and media. It makes sense for them to launch the service. I think it will pave the way for a lot of other opportunities."

Meanwhile, copying an existing SBC (SBC:NYSE) promotion, rival telco giant Verizon teamed with Yahoo! Tuesday to offer a slower version of its digital subscriber line, or DSL, fast Internet service for $15 a month.

The move was seen as a way for the New York phone giant to win customers away from rival dial-up services like Earthlink (ELNK:Nasdaq) and increase its share of the broadband market, which is still dominated by cable companies led by Comcast (CMCSA:Nasdaq) and Time Warner (TWX:NYSE).

Analysts say the broadband access providers like the telcos and the cable operators realize that they need to offer more than just the high-speed connections.

"For Verizon it has to be more than creating customized home pages. Getting broadband isn't enough anymore," says Sistla, referring to features like photo-sharing and streaming video. "You have to layer in services on top of it."

And forging agreements with telcos gives outfits like Yahoo! something they don't have. "Yahoo! needs to build relationships with service providers who are not immediately competing for the same advertising dollars," says Sistla.

Internet giants like AOL and Microsoft already understand how to play the feature game and are working to get a foot into the calling market.

In April, AOL unveiled $30 monthly phone service for broadband customers, revamping its previous VoIP platform. Not to be outdone, Microsoft's MSN unit introduced a multimedia instant messaging service with free Internet calling.

"Google isn't going to sit quietly," says Sistla. Given the reports about Google's acquisition of network capacity and video ambitions, Sistla says he wouldn't be surprised if "suddenly they could become the big player in video streaming."

"Google is different from Yahoo!, which competes in an established market. Google is trying to build a new business, based on a new culture," says Sistla. "But each will have their own challenges."

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