What is Behind Google Inc's Satellite Project?

The Internet giant plans to go into space to expand web access.

Jun 6, 2014 at 9:00AM

Is this more looniness from Google (NASDAQ:GOOG) (NASDAQ:GOOGL)? There are new reports that indicate that the web search giant wants to use a network of small, low-orbit satellites to help expand Internet access across the globe.

While the developed world is mostly connected, only a third of the population of developing economies, where traditional infrastructure is lacking, goes online. If Google is to continue growing its advertising revenue derived from search, part of the strategy might involve a plan to increase the number of people who surf the web.

If the report is true, what does it mean for Google investors and those of its primary competitors in search here in the U.S., Yahoo! and Microsoft (NASDAQ:MSFT)?

It's a balloon. It's a plane. It's a satellite.
Other airborne contraptions might be needed to boost coverage worldwide before the satellite system, estimated to cost $1 billion, becomes fully operational. 

One way consists of a group of hot air balloons that beam wireless signals to users on the ground. Project Loon, as it is known within the company, is being implemented right now in New Zealand. 

Solar-powered drones would eventually replace the balloons in providing Internet service to some areas. Google recently announced that it will acquire Titan Aerospace of New Mexico, a maker of unmanned aerial vehicles.

Eventually drones and satellites would work together to comprise the complete, high-altitude Google Internet service.

Searching for growth
Today, Google dominates the world of web search with a market share of more than 68% in desktops and 91% in mobile. Google has nothing to fear from its competitors. But if it wants to grow advertising revenue, its main cash cow, it needs to get more users connected. 

Expansion of Internet coverage doesn't appear to be a big part of the strategies at either Microsoft or Yahoo!. The techies are focusing on other things. 

Microsoft, although it has performed poorly in hardware in the past, wants to sell more Windows Phones and Surface Pro tablets. It also wants to get more involved in cloud computing under new CEO Satya Nadella, an expert in the burgeoning field. In addition, the company will continually upgrade its Office suite of products, which generates a significant portion of overall revenue and profit. Microsoft just released Office for iPad to take advantage of the trend away from PCs to mobile computing.

Yahoo! plans to grow by focusing on mobile, making deals with Apple to put more content on iPhones and iPads, and through its $14 billion investment in Alibaba, the Chinese e-commerce giant. The Asian company, which is readying for its IPO, might be worth as much as $168 billion, according to one estimate. Expanding into China would probably be worthwhile for Yahoo!, which has been reporting flat revenue growth and declining profits recently. 

Foolish conclusion
While it might look a little loony on paper, Google's plan to try to increase Internet access using balloons, drones, and satellites could be important for its main business of web search down the road. The more users, the more search. The more search, the more advertising revenue, at least in theory. 

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Mark Morelli has no position in any stocks mentioned. The Motley Fool recommends Google (A shares), Google (C shares), and Yahoo. The Motley Fool owns shares of Google (A shares), Google (C shares), Microsoft, and Yahoo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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