The number of internet users keeps growing at a fast pace, but recently the growth has been slumping. The decrease in growth comes primarily from the technical and economic barrier of having the affordable infrastructure in remote locations where current solutions to provide internet are expensive and ineffective.  

Only half of the world population has access to the internet, and most of them live with less than $2.5 a day. I believe there will be a leap forward in the number of users soon. This growth will change the dynamics of the industry.

Increasing the affordability of internet will increase number of users, which is good news for companies that rely on online advertising, like Google, Facebook, Twitter, Snapchat or Tinder. It will also have drastic changes for the market, as the new users have very different needs than the current average users. This change will be mainly seen in the smartphone business, as the new internet users will connect solely via smartphones. This change will be fantastic for Google and might be terrible news for Apple (AAPL).

How will technology change?

Many companies are actively trying to increase the affordability of providing internet access to remote locations. Doing so is not only socially responsible, but it could also be very profitable. In my opinion, the leading contenders are Airbus, Facebook, and Google

Google has project LOON, Airbus has project Zephyr, and Facebook has Aquila. Airbus and Facebook have drone type solutions, while Google has a balloon type solution.

Airbus Zephyr

Airbus has been cooking Zephyr for a while, and its capabilities extend further than internet coverage and are undoubtedly impressive. It has two models: Zephyr Z and Zephyr T, the latter is larger and comes with radar, ESM/ELINT and NIIRS 6 imagery which is quite good (NIIRS scale is from 0-9). On 2016 it sold the third unit to the UK ministry of defense, for 4.3 Million pounds. It is a hefty sum, but it is a very fancy toy for the military. It has broken a few records on flight time and endurance, and Airbus was undoubtedly first starting the race.

Facebook Aquila

A little bit late in the game, Aquila is a huge V-shaped drone of 42 meters wide and apparently it will fly at similar altitudes than Zephyr. It has the ambitious goal of covering zones of 40-80 squared Kilometers with the internet. It had a rocky start last year on its first test; the drone experienced a structural failure before landing, which caused serious damage to it. It seems to have done much better in its second trial in May of last year.

Google Loon

Loon provides internet by creating a network of balloons that eventually reach a land connection. The balloons are filled with helium and carry solar cells and Li-ion Batteries to supply the balloon with energy. The balloons travel by changing altitude, taking advantage of the direction of the air currents in the stratosphere. Because of this, it has more difficulty maintaining position over one location than drones; it is also less durable. In exchange, it is much cheaper, and a full solution can be easily scaled by controlling the number of balloons.

The project was created in 2011 by Google X, and since then has done several successful trials. The most prominent tests have been in Peru and Puerto Rico, where it provided internet coverage as part of disaster relief.

The three technologies have clear strengths and weaknesses, Aquila has ambitious goals, Zephyr has many additional capabilities and is ahead of the game in many respects, but Google's Loon has the best advantages of all: it is cheap and is easy to scale down.

These solutions target remote areas or small populations where traditional solutions are too expensive. The smaller the scale at which a solution can be implemented, the more regions it will be able to provide internet. Drones could be more reliable or offer faster internet but the minimum capital investment of a drone solution is much higher than the one of a balloon network, and the reality is that refugee camps in Africa won’t pay a higher price for faster internet, but they would benefit from having internet access of any speed. If a solution is implemented, it will be the least costly one.

Who will foot the bill?

There are many NGOs, governments and international organizations committed to achieving the UN development goals. Although the UN provides a small amount of funding, the real leverage is international pressure. This means governments of developing countries will be encouraged to help companies reach profitability by increasing subsidies or reducing regulations.

“Goal 9- Industry Innovation and Infrastructure: Significantly increase access to information and communications technology and strive to provide universal and affordable access to the Internet in the least developed countries by 2020) and also provide the service during emergencies.”

-United Nations: Goals for Sustainable Development

Not all the people without internet access live in remote areas, some people live in areas where there is internet coverage, but just can’t afford it. For all those cases, these technologies will not make a difference, and instead subsidies for traditional solutions, like cell towers and fiber optics, will be more financially attractive, and eventually reduce the cost of the service.

Android VS Apple

The App Store and the play store are in a tight race. In 2016 the play store received 75 billion downloads, while in the same period the App Store received only 25 billion downloads. On revenue, the App Store registered revenues of 5.4 Billion vs. 3.3 Billions of the Play store in the last Quarter of 2016.

The App Store has a smaller audience than the Play store, but the average iPhone user spends more on apps than the average Android user. For developers, this means that while their app might reach a smaller audience in the App Store, it can be priced higher, and it has better chances of having in-app purchases. On the Play Store, the app will reach a wider audience, but the price of the app has to be lower or even free and rely heavily on advertising within the app.

As the barrier to be able to connect to the internet is economical, the new users will connect to the internet with the cheapest hardware, and that means Android smartphones. Apple is not planning on attacking that market, so developing apps for the Play store will become more and more profitable for developers, which will increase Google's revenue. Apple might have to decrease its profit margin to incentivize developers while Google will have an increase of developers and could arguably increase its profit margin.

In Summary

It would be unfair to assume the current market size for telecom will double by adding twice the amount of people. Different economics scales and margins will reduce the overall opportunity and reaching profitability will be impossible in many areas of the world, even with these technologies. 

However, these technologies would not only enable new internet users but could increase the overall internet usage as coverage in remote locations (like national parks) could be increased. The implementation of these solutions will have to be made in partnership with Telecommunication partners. Like AT&T (T) (which partnered with Loon to provide the service in Puerto Rico) Verizon (VZ), Sprint (S), and Telefonica (which partnered with Loon to provide the service in Peru).

When considering the solutions, it is clear that Airbus has a great product, but its aim is more specialized. It has a niche market, and its product performs admirably, it will be challenging to grab that crown away from Airbus on this turf.

Aquila is probably late in the game, and while it might be physically comparable to Zephyr, the reality is that its real competitor is Loon, which is ahead in the game. On the Bright side, Facebook might not win the best solution but, if Loon is successful, Facebook will surely increase its number of users and advertising revenue. 

In 2014 Google acquired Titan Aerospace, which made the Solara 60 drone. The Solara 60 is similar to Aquila and is far ahead in the product development phases. Last year, Google announced it dropped the Titan Solara 60 endeavor, and it is now focusing on Loon. Google has both: A drone and, a balloon solution, and it has chosen the balloon as a better option. This is perhaps the best argument to conclude that Balloons will beat drones, Loon will beat Aquila, and furthermore, Loon will win this developing market.

While the iPhone has grabbed a profitable and loyal market, and some might argue it will keep its users forever, the growth of Apple is limited. Google has an interesting hardware venture with the pixel 2, is winning the race to provide internet to remote locations and will leverage this to grow the Android domain.