In the midst of one of the most impressive periods of financial and product successes in recent memory, Facebook (NASDAQ:FB) has developed an aura of seeming invincibility -- until now, that is.
As part of its 12th birthday earlier this month, Facebook unveiled a grandiose vision for the future in which the social media giant will reach 5 billion users by 2030. However, no sooner had the firm released this heady goal than Facebook received a sharp rebuke in what's arguably its most promising potential growth market.
India turns its back on Facebook
According to a number of recent reports, Facebook's Internet.org service was shot down by India's telecommunications regulator. The government body ruled illegal plans from telecom operators or Internet firms that violate net neutrality. The move was a not-so-subtle shot across the bow of Facebook's Free Basics service.
Facebook's mobile service for emerging markets, Free Basics, provides free access to essential information services -- Facebook's own social networking site being one of them. Consumers must then pay to access the Internet and cell services beyond those provided by Facebook and its partners. It's here where things get controversial.
In one camp's view, and I'll leave it to you to guess which one's, Facebook and its telecom partners are simply asking consumers to pay for more "regular" cellular services. But the other camp argues that Facebook and its telecom partners are using their financial resources to pay for preferred access to consumers, which, in a general sense, violates the spirit of net neutrality.
Facebook's Free Basics is currently available in 38 countries throughout Africa, Latin America, and the Asia Pacific region. It's nevertheless come under sharp criticism from consumers and regulators in several countries for the social media's practice of paying to place itself and other limited services before consumers in ways that most Internet companies cannot.
A delicate balance
Controversies such as this illustrate the natural tension that exists between Internet firms and the constituents in developing countries they hope to reach.
One of the least talked about potential growth ceilings for both Facebook and Alphabet is the number of people connected to the Internet today. It might sound obvious, but both Facebook and Alphabet can only expand their user bases to the total number of people online, which, at 3.2 billion, is less than half the world's population.
Both Facebook and Alphabet have accordingly launched their own initiatives to bring more people online. Though these efforts have been branded as altruistic, and deservedly so to a certain extent, it's unlikely either company would have spent money developing new Internet delivery technologies if they didn't stand to gain something in return. It's here that net neutrality comes into play.
With respect to Facebook's problems in India, in particular, the news puts a major strain on its ambitious goals to service 5 billion users by 2030. With only 3.2 billion people online last year, Facebook needs to lean on services like Internet.org and Free Basics to reach its heady goal. With only 130 million Facebook users, 375 million people online, and an additional 900 million user without any Internet access, India represents Facebook's most meaningful growth opportunity today. (Facebook is blocked in China.) So the news, while by no means a death knell to Facebook's efforts to bring India online, certainly represents a significant speed bump.