The Internet is huge but it's a hodgepodge of hundreds of thousands of smaller, private networks, connected through thousands of Internet Service Providers (ISPs) and dozens of backbones operated by the large Telcos and service providers.
Moving data from one end of the Internet to the other can mean traveling across many different computers and different networks. Some of these computers and networks are old and inefficient while some are modern and very efficient.
They are all tied together into what we call the Internet, through a collection of standards. These standards determine how a packet of data can reach its destination, complete and undamaged.
Many large Internet companies own large chunks of the Internet through building their own data centers, networks, backbones, etc. This helps to keep their costs down.
Google is big...
Google is one of those companies that owns a large chunk of the Internet. It has more than 50 data centers around the world; it builds its own servers; it operates its own backbones that shuttle huge amounts of data across the world; it develops its own software for managing all of its data; it keeps banks of servers in the data centers of ISPs so that it can cache data closer to delivery; and more, much more.
How big is Google? asks Arbor Networks. It's a rhetorical question because Arbor knows, it sells network control and monitoring hardware used by the largest ISPs and corporations.
Arbor says that Google is very big:
I mean really big. If Google were an ISP, it would be the fastest growing and third largest global carrier. Only two other providers (both of whom carry significant volumes of Google transit) contribute more inter-domain traffic. But unlike most global carriers (i.e. the “tier1s”), Google’s backbone does not deliver traffic on behalf of millions of subscribers nor thousands of regional networks and large enterprises. Google’s infrastructure supports, well, only Google.
Based on data from 110 ISPs collected in the summer of 2009, Google was responsible for as much as 10% of all Internet traffic.
If a company wants to compete with Google on a large scale, the costs of shuttling data packets around, whether they be Twitter packets or video packets, starts becoming very important at these large scales.
The competition between Google, Microsoft, Yahoo and other large content players has long since moved beyond just who has the better videos or search. The competition for Internet dominance is now as much about infrastructure — raw data center computing power and about how efficiently (i.e. quickly and cheaply) you can deliver content to the consumer.
And that's why Google has focused on building the most efficient, lowest cost to operate, private Internet. This infrastructure is key to Google, and it's key to understanding Google.
The cost of aluminum...
Google will locate its massive data centers where electricity costs are low, such as where there is hydro-electric power. There's a shortcut to finding these locations, look for places where there are aluminum smelters -- these use huge amounts of electricity.
Google was one of the first companies to realize that electric power costs would be important in determining the cost of data centers. Today, it is high on the list of priorities for all data centers. That's also why it has been investing in power generating technologies, such as wind, sun, and geothermal.
It has a key goal of generating electric power from renewable energy sources at a cost less than coal-generated electric power. That would be an incredible achievement.
Always lower costs...
Google always focuses on finding the lowest costs even though it can easily afford to pay more. Google builds its own servers, made from off-the-shelf low cost components, with cheap hard drives. It has developed its own software that deals with component failure and moves work loads across huge numbers of servers. Managing failure is built into Google's data center operating systems.
It has bought up lots of "dark fiber," at a very low cost. This is optical fiber that hasn't yet been 'lit' but it is in the ground, in place, ready to be hooked up.
Because Google has so much fiber, it operates one of the largest backbones in the world. It also means that it can trade bandwidth with others.
Large Telcos and ISPs have peering arrangements with each other. This means that if they have the capacity, they will carry extra traffic for each other. These peering arrangements mean that Google's bandwidth bill for all that YouTube video is zero.
It's difficult to believe, but your bandwidth bill to watch a YouTube video is more than Google's. Because of bartering through peering agreements, its only cost is in maintaining its own networks and backbones.
Skipping the last mile...
Google still needs ISPs and Telcos for the last mile, to deliver its various services and products, to the end user/consumer. But it has been experimenting with going direct.
It has experimented with free municipal Wi-Fi, and more recently, it is setting up high speed bandwidth to communities with 500,000 people or less.
This doesn't necessarily mean that Google wants to become an ISP or a Telco. It is not a service organization and it doesn't want that headache, but it does want to spur ISPs and Telcos to develop high-speed data connections, so that it can deliver future products and services that require high speed data.
The Internet is becoming ever more Google's...
Googles growth means that it is building a much faster, and much more power efficient, and much greener Internet. And through peering agreements, it is carrying much more than just Google traffic, it is quickly, and quietly becoming an important carrier for all Internet traffic.
There are huge indirect benefits from Google's work that make the Internet a better service for every Internet user.
What will this lead to? It's going to lead to regulatory scrutiny because Google will be increasingly seen as an 'essential facility' vital for the economies of regions, nations, and entire trading blocs.
Increased scrutiny by governments, and regulatory bodies, will make it more difficult for Google to execute on its business strategies. Combined with the increased scrutiny of Google's acquisitions by the Federal Trade Commission, Google's future ambitions will become ever more restricted.
Google sees the writing on the wall. It has boosted how much it spends on lobbying in Washington. [Antitrust Heat -- Google Spends Millions To Influence Washington - SVW]
A layer cake business...
Google might decide that its value lies in its incredibly efficient infrastructure, which is far more efficient and lower cost than the Internet as a whole.
Once you have the lowest cost infrastructure, you can layer and scale other business services on top. Such as payment systems, basic voice and data services, security systems, and commerce platforms (advertising).
Google might decide it doesn't need to own a Facebook, Twitter a Yahoo, or an Amazon -- when it can host all the data packets. It can carry and trace a data packet from source to destination and back again -- it can mine all that transactional data. That's extremely valuable.
It's a little known fact that Google keeps all of its data, all transactional data. It erases part of the identifiable meta data, but that can be reconstructed. [Google Keeps Your Data Forever - Unlocking The Future Transparency Of Your Past - SVW]
That transactional data is incredibly valuable, and even though we can't unlock it to its fullest value today, Google is working on it.
By being able to build the most efficient, private Internet, Google makes it extremely difficult for any competitor to challenge it. There is no 'price umbrella' that competitors can use.
For example, there used to be lots of mainframe computer companies because IBM, the largest mainframe computer maker, used to charge very high prices. There was a substantial price umbrella set by IBM that sheltered competitors, and allowed them to sell IBM compatible mainframes and still make a good living.
You can see similar price umbrellas in other business sectors.
Google has made sure that by building the most efficient, lowest cost infrastructure, there is no price umbrella that could be exploited by competitors. It's more like a manhole cover, try to get under it, and you fall into a hole...
This strategy means that Google leaves money on the table, it could make more money over the short-term by creating a price umbrella. Instead, it has chosen a long term business strategy which doesn't give competitors any toehold, let alone an umbrella.
Its stock ownership is set up so that founder's stock has ten times the voting rights of public shares, this allows it to avoid shareholder pressure to pursue short-term business goals.
This all adds up to make Google into a truly formidable force, and one that continually amasses greater powers and influence. 'Do no evil' is the very least it can do.