What leverage, exactly?

A real estate deal…

111 8th Ave. - Google's Latest Real Estate Buy

Late yesterday news came of Google buying the building in which they house their New York offices. The property is located at 111 8th street on the border of Chelsea and the Meat Packing district and has over 2.9 million sq. ft. of space. Reported figures state that Google already has 500,000 sq. ft. of the space in the building already leased, so with the deep pockets Google has, they should consider owning the property if it’s a financial fit for the company. But 111 8th is not just an office building in a cool location. The property has unique value to the company purchasing the building because of the assets the building possesses (besides is value as real estate or office space).

A strategic investment…

You see, what is significant about 111 8th Avenue is that it is a carrier hotel for every network provider on the east coast. For those not familiar with carrier hotels, these are huge “meet me” spaces where internet carriers peer (connect) with each other in order to make the internet work. There are a small number of these on the east and west coasts as well as in the central US that are the connection points for the entire internet.

I looked at the news coverage of the purchase. Every major outlet described it as a real estate deal.  BloombergForbesNPR (at least NPR mentioned the telecom companies in an aside) all seemed to see only the real estate side of the transaction.

Using your powers for good, Google?

All networks lead to 111 8th Ave

So what’s got me curious about this situation? Potentially, there really isn’t any problem here. Google will own a building (albeit at a bit of a price premium for the location) and they can profit from it in a few years if they decide to convert that asset back into cash.

But now that Google owns one of a few buildings on the east coast where every network carrier comes in to peer with everyone else, isn’t there the slightest chance that Google plans to use that leverage in some way?

Google has directed significant effort into establishing open networks, buying their own dark fiber, planning to wire an entire city, engaging Verizon in talks on net neutrality (deferring my opinions on that for this post) and committing billions in the auctions for wireless spectrum. Make no mistake, Google has got to be looking for ways to hedge it’s bets to insure that users of Google services do not get put behind the traffic for an ISPs own services. If Google cedes the user experience to the unpredictability of the internet providers, they will lose customers when these providers prioritize traffic or force companies like Google or Netflix to pay for the privilege of staying on equal footing with the rest of the traffic to the user’s home.

So what if all the options they’re pursuing now fall through? What if the carriers and ISPs get the upper hand and want to start charging Google for the privilege of sending high bandwidth traffic to Google customers on the ISP’s networks? Wouldn’t it give the carriers pause once they realize that Google has the ability to make their space in one of the premier carrier hotels much more expensive? Perhaps even expensive enough to offset Google’s costs? What if the ISPs that are cooperative are rewarded with financial incentives and rights-of-first-refusal on valuable space for the carriers that aren’t playing nice with Google?

While I don’t suspect Google of planning to be a bad actor here, I do not believe that the only reason that Google would buy this building is to provide more office and break rooms for NYC Googlers. The telecommunications asset is too significant to Google to have been a nice bonus in the deal. That part of 111 8th will play in Google’s future strategy for ensuring equal access from ISPs to Google’s products.


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