Facebook focuses on the pipes to boost its growth
Facebook is looking to grow its 1.6 billion monthly active user base by focusing on the infrastructure that carries the Internet.
The social networking giant is looking for growth in developing countries such as those on the African continent, but it has been hampered by networks that can be slow and expensive.
Politics, regulation and inferior infrastructure all play a role, said Mark Mahaney, an analyst with RBC Capital Markets.
“Anything they can do to remove friction between consumers around the world and the Internet benefits them,” Mahaney said.
The company has identified infrastructure technology, the very hardware and software used to transmit the Internet and maintain networks, as one point of friction.
Using its industry heft and potential to disrupt telecom, Facebook has been pushing for more open-sourced technologies and innovations. It spearheaded the Telecom Infra Project, or TIP, joining up with companies such as Intel and Nokia to come up with new network technologies.
“Scaling traditional telecom infrastructure to meet this global data challenge is not moving as fast as people need it to,” Facebook said in a press release announcing the TIP project. “This will result in significant gains in cost and operational efficiency for both rural and urban deployments.”
Mahaney said Facebook was making clear its intention to disrupt the industry to drive change. “This is like a demonstration project. Anything they can do to motivate or incentivize,” Mahaney said, will make it easier for Facebook to grow.
Evidence of that growth will be on investors’ and analysts’ minds when the company releases first quarter earnings Wednesday after the close of markets.
“Facebook is using a kind of scattershot approach, where they’re looking at every cost element with an eye towards seeing whether they can use their scale, they can use their size to push the margins down. So, they’ve identified telecommunications costs and telecommunications equipment as one more target area,” said Rob Frieden, a telecommunications and law professor at Penn State.
But Frieden said improving infrastructure won’t fix the speed and cost issue alone. There are also improvements needed in regulations and tariffs, “which can take a very efficient technology, which would result in significant savings, and sort of offset that with very high charges like we see with roaming and termination charges for cellphone service in Europe.”
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