Facebook – Internet.cash.

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Connecting the next 4bn is about making money. 

• Facebook has entered the next stage of its strategy to connect the next 4bn with the launch of OpenCellular, a base-station product that it aims to give away to anyone who wants it.
• OpenCellular is a shoebox sized device that enables cellular connectivity from 2G to LTE with a maximum cell radius of 10km and a maximum of 1,500 devices supported at any one time.
• With that specification it is clear that this device is aimed at rural areas which makes complete sense as this is where the majority of the 4bn unconnected people live.
• However, what is unclear at this time is how the device will be powered and what will serve as backhaul as rural areas are typically devoid of this type of infrastructure.
• RFM research indicates that OpenCellular is just the beginning and that there are a series of network infrastructure products being developed all of which are aimed at reducing the cost of internet access to mobile devices.
• The main way that Facebook aims to reduce the cost of access is by making both the designs and the software fully available in open source for anyone that wants them.
• I see this as a declaration of war on the hardware industry which makes its margins by keeping the designs and software that make its products superior proprietary.
• To put it mildly, this is bad news for Ericsson, Huawei, Cisco, Nokia and so on.
• If Facebook’s products prove to be just as good, then the industry has a huge problem as their customers will be able to take the designs and have them manufactured by any company in Asia.
• This will put huge pressure on their margins but it will reduce the cost of network roll-out meaningfully thereby achieving Facebook’s aim.
• This is all being done under the banner of connecting the unconnected but just like Google, Facebook is not a charity.
• I suspect that any traffic that is generated by these products will flow through Facebook’s servers at some point giving Facebook a means to monetise the extra traffic generated.
• This is how I think it will aim to earn a return on the money that it is investing in creating these designs, but they will be a long time coming.
• Facebook is firmly upon a path to become the largest ecosystem of them all but it does have a lot of work to do before it will get there.
• It currently dominates two very important segments of the Digital Life pie but this is a far cry from an all-encompassing ecosystem.
• If it can execute on this strategy then I can see a very clear path to Facebook reaching over $40bn in revenues over the next 5-10 years.
• Unfortunately, I think that the market is already giving the shares credit for this strategy before the revenues are likely to emerge.
• This is why I continue to believe that it could miss estimates in Q3 16 or Q4 16 this year which would most likely result in a big correction.
• It is at that point that I would look to pick the shares up for the long-term.