If you saw the 2010 film The Social Network, you understand a little about how the company that put the “F” in the “FANGs” stocks started out.
Mark Zuckerberg has come a long way from opening a social media platform for his buddies at Harvard in 2004. Since then, Facebook has grown to 1.59 billion monthly users worldwide.
If that sounds like a lot, it’s because that’s 22% of all the people on earth! But it sounds like Facebook is just getting started.
If you’ve listened to Harry, the meteoric rise of Facebook has grown hand-in-hand with the debt bubble. Only today would you see a company become so successful not by increasing productivity or efficiency, but through mindless entertainment. We all live in a bubble, and Facebook proves it.
But now the company, along with other tech juggernauts in the Valley, are taking the next steps to sink their hooks even deeper into our lives.
These companies all realize that as their current business models meet their growth caps, they have to expand into new areas. Clearly, Facebook as a product can’t get much bigger. They’ve already totally saturated the marketplace.
So what does any innovative American company do when they’re backed into a corner? Complete vertical integration!
Amazon is already dominating the retail industry and causing consolidation in that space. It’s even making plans to launch its own delivery service to cut out the middleman!
And the company formerly known as “Google” has already gone through a massive overhaul to drive its growth through the 21st century.
Just like the tycoons of the last industrial revolution, these titans of industry are snatching up smaller companies to not only improve their primary products, but to control the delivery of them.
Think of Facebook in terms of the modern railroad. Right now it transports tons of user content over their back-end infrastructure, but they don’t own the tracks it rides on to get to you.
Currently most Facebook and Alphabet users get their content over their wireless mobile device carriers, such as Verizon or T-Mobile. If you use your home computer (because no one is on Facebook at work, right?), the content is probably riding over infrastructure provided by Comcast, Cox or AT&T.
But Facebook and Alphabet want to change that model. Right now, in select cities across the U.S., they’re funding massive fiber infrastructure projects that’ll make today’s download speeds look pitiful by comparison.
As you can imagine, they’re getting a lot of pushback from cable companies. In fact, right now Google Fiber is fighting Comcast for utility pole access in Silicon Valley – its home turf of all places!
These cable companies currently have a monopoly on infrastructure, and are even starting to charge a premium for heavy data users to limit your bandwidth.
If you have anyone in your house who like to binge watch Netflix, you probably know this limit all too well! One hour of high-definition streaming takes roughly three gigabytes of data. That can add up quickly!
So, as companies like Alphabet get into the infrastructure space – as they’re already starting to – those limits could quickly become yesterday’s problems.
Google Fiber currently provides download speeds of one gigabyte per second. Long-term, they want to turn that into a terabyte, or 1,000 gigabytes.
As for Facebook, their next big vertical integration involves getting into the virtual reality space, otherwise known in the industry as “VR.” In 2014, they purchased a startup virtual reality company called Oculus for a cool $2 billion.
With virtual reality, the possibilities are endless. Want a realistic tour of the Eifel Tower from your living room at a fraction of the cost? Done. How about learning how to fix a car engine without getting greasy? Done.
Or maybe you just want to experience being in the same room as your loved ones when you’re away on business, or re-live an awesome family vacation. All of that will become possible with virtual reality.
This is where we get back to bandwidth, and why it’s so important for companies like Facebook and Alphabet to have their own infrastructure.
For virtual reality to be, well, realistic, it has to be shot and displayed in high definition. Naturally, Facebook doesn’t want to have to rely on other businesses’ infrastructure. They want to be able to control their own destiny.
And they’re all about keeping costs down. Facebook has teamed up with Samsung to produce lightweight headgear to enjoy the virtual reality experience. Imagine a high-end mobile phone with a 360-degree camera attached to the front of a ski mask! The cost to you? $400.
Sign me up!
It may be too early to start calling Facebook, Alphabet and Amazon the Rockefeller, Carnegie and JP Morgan of the modern day. But it looks like they’re on a vertical integration path that appears very similar for their industries. And that consolidation will only amp up if the economy crashes.
Editor, Biotech Intel Trader