Google Fiber is pulling its 5 Mbps data plan off the market in Kansas City. It’s often mischaracterised as free, but it wasn’t quite that. The deal was that people living in a soon-to-be blessed fiberhood could pay a $300 installation fee and get 5 Mbps service for seven years. Speculation is that Google Fiber is trying to pump up revenue by steering low end subs to a $50 a month, 100 Mbps plan with free installation.
That might be true enough, but I think there are a couple more important factors at play. First, indications are that the $300 deal wasn’t very popular. A survey done by Bernstein Research in 2013 estimated that the 5 Mbps tier was accounting for maybe 10% to 15% of Google’s subscriber base. That makes sense: people who are happy with 5 Mbps are not prime candidates for fiber to the home service. Some people will find the deal attractive, but it won’t be a big draw.
The second factor is multiple dwelling units – MDUs. Google has been battling it out with landlords, trying to get them to pay the $300 installation fee for each apartment in a building, on an all or nothing basis. Landlords would write a big, upfront check, residents would get the slow free tier, and if they upgraded to gigabit service, Google would rebate the installation fee a little bit at a time over the course of a year. I never understood Google’s thinking on that. Building owners would be likelier to want Google to pay a big upfront fee, and then share revenue forever. It’s how they think.
If Google provisions the 100 Mbps tier the same way it does for gigabit service, it’s a screaming good deal for the price sensitive side of the market. The selling proposition matches cable speed promises and then actually delivers, all at a DSL price.