From Shefaly Yogendra

by Shefaly on September 9, 2008

Or, the Other 3 Billion. This is the name of the project that aims to bring web access to 3 billion people in Africa and other emerging markets in Asia, Latin America and Middle East. The enablers are HSBC Private Equity, John Malone of Liberty Media and Google, who have put in $ 20M each with a minority participation from boutique investment bank, Allen & Co. The partners may inject more funding themselves or bring in more partners later. Wholesale access will be sold to ISPs in the target markets and the access will be enabled by satellites, procured from Thales Alenia Space. The satellites are expected to be operational by end-2010 and the wireless spectrum required for the service had been secured through the International Telecommunication Union.

For HSBC, this is a telecoms investment. It serves two purposes: an expectation of return, notwithstanding their admission that they may raise money through debt for further capital injections into this project, and strengthening of their brand as ‘the world’s local bank’ especially in the higher-growth delivering emerging markets. For Malone and his companies, this is an investment into a related diversification. Allen&Co is a secretive outfit but such investments are also par for the course for them.

Which leaves Google and their motivation for participating in this project.

Google is a vocal champion of net neutrality although not all necessarily believe that all of Google’s intentions are clear in this context. The O3b project will allow Google to bypass the need for even a debate on net neutrality, especially in markets where regulation is yet evolving. The project strengthens Google’s position on net neutrality.

Google also enables free wi-fi web access, committed until 2010, in its ‘hometown’ of Mountain View in California. You can log on, using your Gmail account, and use free web access. It is not difficult to see why, once again, not all trust Google’s intentions or commitment to privacy. Reducing the costs of web access by 95% for the unconnected masses is the closest Google may get to providing ‘free’ web access in developing markets.

The investment in O3b is a shrewd strategic move by Google which serves several other aims too.

In developed markets, Google’s ‘Do No Evil’ policy is not accepted on face value any more. In other markets, the opportunities to pre-empt negative sentiment still remain.

In the partnership, as it stands now, Google is in a unique position to enjoy a potential monopoly in providing advertising services to ISPs who will buy the access wholesale. Once again, Google has a first mover advantage in these markets.

And stretching the argument a bit, it is entirely possible to imagine how the satellite infrastructure could segue into and enrich Google Earth and Google Street View! These services are not offered yet in the developing markets where any improvement will be seen as a welcome one, while Google can diversify its interests globally.

Financial returns will, of course, depend upon several local factors including how speedily ISPs can be set up and serviced in these emerging markets. But as far as strategic returns go, Google has bowled a Googly that can only strengthen its side in many ways.

Other readings:

Om Malik on O3b

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