Millions of Facebook (NASDAQ: FB) users in Africa likely don't know that the app is connected to the Internet, according to a recent survey by Geopoll. In Nigeria, 9% of Facebook users claimed that they did not use the Internet, while 65% agreed with the statement that "Facebook is the Internet."
Those figures explain why Facebook is expanding into the African market. Let's take a look at Facebook's three key things investors should know about that push.
1. Africa's Internet usage, by the numbers
Facebook hit 100 million monthly active users (MAUs) in Africa last September, with 80% logging in from mobile devices. That total is just a fraction of Facebook's 1.39 billion MAUs at the end of 2014, but it represents nearly half of all African Internet users.
Africa only had an average Internet penetration rate of 26.5% last year, according to Internet World Stats. The U.N. Broadband Commission recently found that eight of the ten countries with the lowest levels of Internet availability in the world (less than 2%) are in sub-Saharan Africa.
However, the U.N. report also estimates that 50% of Internet users in Africa will be online by 2017. By comparison, 87.7% of people in North America, 70.5% of people in Europe, and 34.7% of people in Asia were connected to the Internet last year.
2. Subsidizing the African Internet
To tap into that growth, Facebook launched Internet.org, an alliance which helps users in developing countries access basic web apps for free. Samsung, Ericsson, MediaTek, Microsoft, Opera Software, Reliance, and Qualcomm are all part of that alliance.
In Zambia, which only has an Internet penetration rate of 15%, Facebook launched Internet.org for Airtel subscribers last August. The app offers free connectivity to apps like Facebook, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Search, AccuWeather, and Wikipedia.
Many African mobile users access Facebook from feature phones tethered to wireless plans with restrictive data caps. Facebook's strategy is simple: to subsidize those data plans before the majority of the population connects to the Internet. As a result, users across Africa "grow up" on Facebook and recognize it as the top social network. Moreover, subsidies can be partially offset by sales of Facebook ads across Africa.
However, Internet.org has been harshly criticized by proponents of net neutrality, who claim that the alliance gives partner apps an unfair advantage over non-participating developers. CEO Mark Zuckerberg rebutted those claims by stating that the alliance was "not stopping anyone from joining."
3. Rethinking online ads
To advertise in Africa, Facebook is changing its mobile ad strategy on feature phones.
An innovative solution, which Facebook initially tested in India, allows ad campaigns to be run like missed calls. Marketers send a "missed call" signal to users, which displays an advertising message instead of a phone number. Those signals can be sent back and forth without consuming data.
When users click on those ads, they send another missed call signal to the advertisers, who subsequently call back with information or product offers. According to Facebook, this low-data usage approach has proven successful in India, and is now being expanded to Africa. Facebook also allows advertisers to customize certain ads for various connection speeds.
Facebook's not the only one
Facebook isn't the only company which has noticed the potential of subsidizing data plans in developing markets. Google has been trying to deliver Internet access to developing nations with weather balloons and satellites since 2013.
The goal is the same -- to instill dependence on Google's ecosystem among developing nation users early on. In response to Google's balloons and satellites, Facebook unveiled grand plans to test 747-sized Internet drones later this year.
For now, Facebook and Google's efforts to expand the Internet to Africa and other developing markets won't generate much revenue. But in a decade, these early initiatives could seem brilliant as the two companies respectively become synonymous with social networking and Internet search in these growing markets.