Roughly 500 people were sitting in the conference room in Fira Gran Via in Barcelona in 2014, and everyone had their eyes on Mark Zuckerberg as the 29-year old billionaire was sharing his idea about expanding the access to the World Wide Web in Africa and parts of India.
The idea was simple: everyone on the planet should have access to free internet basics — including basic social media.
“In the future we hope to generate revenue on this, but I can’t create a model that makes financial sense short-term,” he said.
The CEOs of the tech and mobile industry gathered at the World Mobile Congress 2014 in the Catalan capital had all just witnessed the Facebook founder and CEO Zuckerberg reveal the company’s long-term growth strategy: Facebook already reaches half the world’s Internet users, so to keep adding to its user-base it has to bring more people to the Internet.
The fledgling project, named Internet.org, is now up and running in cooperation with Samsung and Qualcomm among others. As of November 2, 2016 40 million people are connected to the internet through the platform.
Facebook doesn’t detail its investments in the project, but on numerous occasions Zuckerberg has said that they total “billions of dollars.” It has not been possible to get additional details from the company.
But even if, for a company like Facebook, “billions” don’t matter in the grand scheme of things, the project has faced some setbacks this year that highlight its growing burden on the social media company.
Its Free Basics Platform, which makes basic services like news, local government information and communication available for people even in areas with slow connections, is currently banned in India after a year of intensified conflict between Indian authorities and the company. The government’s ban is based on the support of Internet neutrality in India, and Facebook faces accusations of choosing its own services over competitors when deciding which company gets access to the platform.
In addition to the setback in India, a SpaceX rocket exploded during its launch from Cape Canaveral in the beginning of September. The rocket carried a very crucial and expensive data satellite link for Internet.org; a major setback to the already costly path this project is on.
Besides this expensive expansion Facebook is working two other areas hard in its three-legged long-term growth strategy; Virtual and augmented reality (VR) and artificial intelligence (AI). These are important to keeping users engaged and extracting as much data from them as possible in order to ramp up advertising sales.
Internet.org is just about finding more of those users.
Almost 1.8 billion people are using Facebook on a monthly basis, roughly 23 percent of the world’s population. At this point it’s estimated that 3.5 billion people are online, so half of the global Internet users are on Facebook every month. In order for Facebook to grow users, connecting the next billion people seems mandatory.
But while there’s a philanthropic case to make for connecting the world’s poorest to the Internet and all of the communications tools and resources it brings, as a growth strategy tapping India and Africa will prove to be a much slower grind than the West.
In South Africa, one of the strongest economies on the continent, Facebook only saw 8 percent growth in 2015 and 7.5 percent growth in 2016. Out of a population just short of 53 million it has a user base of just 14 million monthly users.
In most of the developed economies Facebook have seen their growth rates flatten out as their monthly active users reach 50 percent of a country’s population. So this slowdown is coming way too early says Arthur Goldstuck, managing director at World Wide Worx, a South African-based tech research company.
“We are not seeing rapid growth anymore and it would be decades to reach half of the population for instance,” says Goldstuck.
Internet.org isn’t showing much faster adoption in Kenya, a mobile-native country with some of the most advanced technology on mobile payment, Free Basics have 5.7 million monthly users out of a population of 44.3 million.
“Kenya has a very vibrant entrepreneurial environment but the infrastructure is very poor. A lot of people have limited access and can’t really pay for the cost of having a mobile phone,” says Goldstuck, who won’t rule out that other countries such as Nigeria might follow the footsteps of India and ban the platform as it might violate net neutrality.
This financial backlog in these developing economies is a short-term issue. But Internet.org, which is obviously important Zuckerberg, might be a distraction from a much more evident battleground.
Right now social media is all about video. Facebook launched Facebook Live to and Zuckerberg revealed that Facebook are planning to switch from the default text-template for a status update to a video-template. All of this to be up to date on a trend that’s really been boosted by Snapchat the last few years.
With the Snap Inc. IPO coming up the competition on the current platforms is more evident at this time.
Certainly, Internet.org is still in a very early stage and nobody seems to be panicking about this. yet.
Just before Facebook’s recent earnings report, analysts were looking at short-term user growth and ad revenue on mobile. And asked about how Internet.org plays into his long-term valuation of the company, Aaron Kessler, equity analyst at Raymond James Financial, said that he doesn’t take it into account yet.
Even though he’s not alone with that assessment, a sense of risk is approaching slowly.
Otto Friedrichsen is the chief equity strategist at Formuepleje, a Danish capital wealth company with $1 billion invested in U.S. stocks, but not in Facebook. Friedrichsen says that Internet.org isn’t a main factor in his assessment of the investment case.
However Friedrichsen adds that even though “areas in Africa are way ahead of Europe if you look at things like mobile payment,” Facebook’s bet is risky.
“If Facebook can gain access to these users in a way that makes their data relevant for advertisers, it can be a huge success,” says Friedrichsen. “But tech is a sector heavy on risk and it’s important to build a moat around your revenue. Facebook is an expensive stock and we would rather see a valuation with a little wiggle room for negative surprises.”