Why Google Is Acquiring a Fleet of Satellites

Learn why Google is investing billions of dollars to acquire satellites and how it competes with the world's largest social network in this particular scene.

Jun 9, 2014 at 7:00PM

For years, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) has been aiming for a solution to provide Internet access in remote areas of the world. The company has engaged in a series of investments, like the acquisition of Titan Aerospace -- a company that produces solar-powered drones capable of providing an Internet connection -- and the launch of Project Loon -- development of high-altitude hot-air balloons that facilitate wireless Internet access. 

Recently, the Wall Street Journal reported that Google plans to launch a fleet of 180 low-flying satellites. With the help of O3b, a satellite communications start-up, Google plans to promote Internet access in under-served areas of the world, increase worldwide connectivity, and expand the reach of its services. If the company manages costs efficiently, the move has great long-term potential. In that case, Google poses a threat to social network giant Facebook (NASDAQ:FB), which is also looking to target people in under-developed countries.

Expanding its reach
Several other companies have tried to implement a network of satellites to expand their services, but each has failed due to unexpected regulatory problems and excessive costs. Now, Google's advantage is further supported with the help of O3b, whose mission is to provide Internet access to the "other three billion" people, as suggested by its own corporate name. This start-up will provide Google with light, solar-powered satellites, which are a cost-effective solution to the company's project. As stated by The Wall Street Journal, the costs to provide satellites are much lower than several years ago. In that sense, the $1billion-$3 billion the company plans to invest could actually lead to a successful project that provides a high-quality service.

Increasing revenue in the long term
One of the main purposes of Google's move is reaching new masses and, subsequently, increasing its top line. Also, through drones and satellites, Google can acquire access to large amounts of information from users around the world. This data can be quite valuable for a variety of entities, including advertisers.

Besides its potential demand, this information can place Google in a very powerful position in the market, providing detailed demographics that can be helpful in future business decisions. In that way, the company could increase its top line considerably in the long term, as it might need some years to properly install its fleet of satellites.

A concern in emerging markets
Still, a key concern is whether the company will truly benefit financially from providing Internet to people in remote areas. Many remote areas lack Internet due to poverty, especially in developing or under-developed countries where a stunning amount of people struggle for basic needs due to macroeconomic inequality. Moreover, these issues are quite common in emerging markets like Latin American or Asian countries.

Also, since emerging markets have large numbers of people earning minimum wage or less, there are concerns about whether these markets truly have potential new clients for advertisers. Google's satellites project has an appealing, socially responsible, philanthropic aspect capable of improving quality of life and amplifying globalization. Yet, it is still important to know Google's approach to emerging markets to have a clearer idea of the potential benefits and profitability behind its move.

Competing with the world's largest social network
Facebook is also aiming to provide Internet access to remote areas of the world. A few months ago, the social network acquired Ascenta, a company that produces solar-powered drones. Like Google, it seems that Facebook also recently determined that there is great long-term potential in providing communication services to the rest of the world.

Also, both companies generate a substantial part of their revenue from ad services. In many instances, Facebook's ad services can substitute Google's as well, depending on the advertiser's priorities. As it competes directly with Facebook, Google must take into consideration how powerful the social network could be if drones and other possible future communication services gather large amounts of data about users.

Final foolish takeaway
Although there have been many failed projects to provide Internet connectivity to under-developed countries, it appears as if Google has a better opportunity to succeed. Today, the costs of maintaining a fleet of satellites might be much lower. Also, the investment has potential to generate substantial revenue in the future, as the company will reach far more people and gather valuable user data from several countries. Still, the remaining question is how Google will deal with the issue of poverty and inequality in developing countries. The company must also be aware that Facebook has a similar goal involving drones, and could become a dangerous competitor.

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Alvaro Campos has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), and Google (C shares). 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.

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