Will Facebook Become an ISP?

September 15, 2014
By: Gary Kim

Will Facebook (News - Alert) become an ISP? The question is no longer odd, after Google Fiber.

While not confirming that Facebook had any interest in becoming an Internet service provider, Facebook CEO Mark Zuckerberg (News - Alert) has in the past noted that barriers to connectivity are an obstacle to Facebook’s growth.

The reason is that both Google and Facebook have business models that scale directly with use of the Internet in general—and of course their own applications in particular.

“To connect everyone in the world, we also need to invent new technologies that can solve some of the physical barriers to connectivity,” Mark Zuckerberg, Facebook CEO, has said.

In the past, the question of whether Google (News - Alert), Facebook, Amazon or others might likewise become device suppliers also has been answered. Google’s Nexus and Amazon’s Kindle and Fire phone provide part of the answer to that question.

Some think Facebook has decided it has to become an ISP in some developing countries. Among those who believe Facebook will do so is analyst Jeffrey Himelson

Among the moves that suggest this is coming is the string of acquisitions Facebook has made recently.

Pryte, now owned by Facebook, has developed software that makes it easier for consumers without mobile data plans to buy short term or temporary access. That is one way of boosting access to WhatsApp or Facebook, since users would not have to buy mobile data plans.

Facebook also owns Ascenta, a satellite drone company and Facebook's Internet.org initiative provides another clue.

Already, Internet.org has created an app allowing access to a bundle of applications without charge, and without the need to buy mobile Internet access.

Most might agree Facebook’s upside is greatest in developing regions without substantial Internet access at the moment. That might explain Facebook’s interest in drones and satellites.

Advertising now accounts for 90 percent of Facebook's revenue, but a significant portion of that advertising revenue comes from U.S. and Canada users, representing average revenue per user of about $5.16.

In the rest of the world ARPU is $0.68. Facebook might have concluded that, as does Google, connecting everybody to the Internet is fundamental for future revenue growth.

And that just might mean it is in Facebook’s interest to become an ISP. Perhaps, the bigger questions revolve around "how," "where" and "when" Facebook will do so.




Edited by Maurice Nagle