Facebook wants to be the drug running the networks

David Kirkpatrick: Clearly there is a topic which we’ll have to start with, it’s been on everybody’s lips for the last week or so, you bought WhatsApp for 19 billion dollars. Some of us feel that we understand this but please tell us here at the Mobile World Congress which is really the world’s major gathering of mobile communications, why did you do it and what is it means?
{citat:dreapta:”WhatsApp is on a path to connect more than a billion people”}

Mark Zuckerberg: WhatsApp is a great company and it’s a great fit for us. Already half a billion people are using WhatsApp for messaging and it’s the most engaging app that we ever seen exist on mobile by far. About 70% of the people using WhatsApp use it every day. Kind of blows away everything else that’s out there. What we see is that WhatsApp is on a path to connect more than a billion people and there are very few services in the world that can reach that level and there are all incredibly valuable. When he had the opportunity to be a part of this journey, I was very happy to help him realize his dream of connecting more people. In terms of fit for Facebook, when Jan Koum and I first met and started talking about this, we started to talk about how it would be to connect everyone in the world and it wasn’t until we aligned on that vision we started to talk about numbers and decided to make a deal. It’s that vision that makes the company such a great fit and it’s the common goal of connecting everyone in the world.

Today what I really want to focus on is Internet.org and how we can build this model for this industry that can deliver to, ultimately, connecting everyone in the world and in doing so, building a more profitable model for carriers and getting everybody on the internet in a shorter period of time and hopefully we will do better than in the video you just showed that said about 1 billion people by 2020. I think we can do better than that.
 

 

David Kirkpatrick: I know that you were planning to come here long before you were planning to buy WhatsApp but what you’re saying is that the thing that towed you away from the geeks you most love to hang out with in Silicon Valley was this Internet.org vision. So tell us why is Internet.org so important to Facebook and what does it mean to the audience of Mobile World Congress? What led you to do it and why are you here to talk about it?

Mark Zuckerberg: One thing I think it’s easy to take for granted is that most of the people in the world don’t have access to the internet at all. It’s only about a third of people have any access to the internet at all. It’s only about 2,7 billion people today and it’s actually growing away slower than you would imagine. People often talk about how there are 5 billion phones in the world and that’s pretty quickly transitioning, you know, in 5 or 10 years most of us will be upgraded to smartphones and that kind of carries the assumption that when that happens, people are going to have access to the internet.
{citat:dreapta:”The most expansive part about owning a smartphone and being connected to the internet isn’t the smartphone, it’s the data connection.”}
But that’s actually just not true. The most expansive part about owning a smartphone and being connected to the internet isn’t the smartphone, it’s the data connection. Owning an iPhone for 2 years costs about 2000$ in the US and about 500$ is the phone and 1500$ is the data plan. So we’re really not on a path to connect everyone unless something pretty dramatic changes and that’s something, you know, after Facebook reached its milestone of connecting 1 billion people we took a step back to think what problem in the world we could solve next and we realized that we didn’t come here to connect 1 seventh of the world, we want to connect everyone and in order to do that we need to form this partnership because no one company can change the way that the internet works by itself. So it’s really an important problem. I mean, the reason I care about it’ not connectivity by itself, is the things connectivity brings. When you have access to the internet you have basic financial services, you can get a credit to start a business or get a home or access to basic health information so that they can understand conditions that their family might have, access to basic education. That is that Deloitte study that just came out today or yesterday that showed if you increase the number of people in the emerging markets that have access to internet you can easily create more than 100 million jobs and bring that many people out of poverty, you can decrease the child mortality rate by up to 7% by giving people access to that information. We think it’s a really important problem to work on.
 

 

David Kirkpatrick: So talk about what exactly is Internet.org?

Mark Zuckerberg: So it’s a partnership, an industry coalition that’s working together to build, to make delivering the internet, all of its different parts, more efficient and to make it so that everyone in the world can have access to some basic services on the internet for either an affordable price or free is the real goal. For basic services. And we think we can make this in a way that gets people access to some basic services while increasing the overall number of subscribers and profits for the overall industry. So people can invest more and building up this infrastructure even more. The thing I think lots of people miss is…more than 80% of people in the world already live in an area where there is 2G or 3G access. Sometime people talk about stuff like satellites or balloons for this piece of technology be able to connect everyone. It’s true that this is going to be necessary for the last few percent of people that live in really rural remote areas but for the rest of people…If you don’t have internet for the next billion people, there are only a couple of reasons why. One it’s affordability which isn’t necessarily the main reason because next billion people actually have the few dollars they can spend. The much bigger question is why would they spend their 1 or 2 or 3 dollars to take basic data access on this. If you didn’t grow up with access to the internet then you may not know the answer to the question why would you want a data plan? You are in this situation in if you wanted you could buy an internet connection data plan but you don’t know what will you get with that. So a lot of the goal with Internet.org is to create sort of an on ramp for the internet.
{citat:dreapta:”We want to create a 911 dial tone for the internet.”}
And one of the models that we have is…you know, with a fixed land line you can pick up the phone and dial 911 to have access to some free basic services. If there’s a health emergency or a fire you can get help. We want to create a similar dial tone for the internet. The idea is there is a set of basic services that we think should exist…messaging or being able to know what the weather will be like, or food prices, or things like Wikipedia or basic search or social networking. This are basic services we think everyone should be able to access. There are some things in common that each of this services have. There are all text based in the most part. So low on bandwidth thus cheap to serve, therefor is a reasonable business proposition. The second is that lots of them, especially things like messaging and social networking and search are portals to more content. So you never going to have things like hi-res videos or streaming media be basic services in a model like this but a lot of other people would do through services like Facebook is discover things like news they would want to read or video they would want to watch, apps that they would want to download. Reasons to consume more media that otherwise people wouldn’t know. If you have access to these basic services than this kinda answers to one of this 2 questions and makes it clear to folks “here’s why it’s completely reasonable and why I should spend my dollar or two on getting the data plan and kinda fuel more investment into the whole industry to build more infrastructure so that more folks can get online. This isn’t entirely theoretical. We’ve actually been working with a bunch of partners in Internet.org for the last year, building out a lot of infrastructure and we already have some really promising results in this. In the Philippines for example we’ve been working with Globe and what we’ve seen there is that the number of people who are using internet and data has doubled. And Globe subscribers have grown 25%. So it’s a homerun. It’s working really well.

{citat:stanga:80% of people live in a 2G or 3G covered area}

David Kirkpatrick: What did you do to achieve that?

Mark Zuckerberg: We delivered this product basically in partnership with them, some free basic services with upsell…We started of with Facebook and Messenger, the next version we’re going to do we’ll have more services on top of that. Because Facebook it’s so much of what people are using and so much of the data they…the time they spend, once that we make a profitable model that works for folks like Globe and others who are working with then we think is going to be a pretty easy problem to solve, to add more services like food prices or Wikipedia or things like that but also don’t consume a lot of data into the model and deliver this whole package. We just wanted to start with Facebook because we control it and we can work on it better. Globe isn’t the only company that we’re working with. In Paraguay we’ve been working with Tigo and they also seen the number of people that are using data and internet grew by 50% over the course of the partnership and the number of people that are using data on a daily basis has been growing even more. I think hat we have measured it’s more than 70%. So it’s really early, we don’t have all the answers but the first results are extremely promising. And that’s why I’m excited to be here and talk about this. We’re in the point where I think we have proved to ourselves that the model can work and we don’t have a lot of capacity to work with a lot of new companies but what we want is to find maybe 3 to 5 more partners who we can work for the next year on to deliver this package of services for free. Hopefully, if we can do that we will be here on the year after and on the year after that with a program that can work for everyone.

 

David Kirkpatrick: Ok, so the way it works is you give customers who otherwise might not afford it free access to Facebook and other services like Wikipedia and basic search. So how do they make money from that? Sounds like a great thing for people but what’s the long term promise for operators? Why would they want to partner with you?

Mark Zuckerberg: It goes back to this question of why do the next 2 or 3 billion people who are going to be on the internet in the future, why they are not on the internet today? It’s not because carriers aren’t in their zones, 80% or more of people live in areas where there is 2G or 3G coverage. The reason they are not on is because even if many of them have the money to afford it, they don’t know why would they want access. But people know about some services. They know Facebook, they know WhatsApp so if you ask someone, hey, do you want a data plan they might say I don’t know why I would want a data plan but if you said “do you want Facebook?” then they will say “yeah, I want Facebook”. So once people have those things for free or cheap, then through those services they come to all these other things they want to consume like news, apps, different media.

 
 

David Kirkpatrick: So kind of a gateway drug?

Mark Zuckerberg: We think of it like an on-ramp. It shows people why it’s rationale and good for them to spend the limited money they have on the internet. Which I really believe it’s the rationale thing for them to do. All the data and studies shows that this will not only increase their opportunities to find jobs and health and education and all this things that makes the economy better. And if we do this as an industry, we’ll increase the profits for all the different companies involved and allow us to invest more in the infrastructure that we are building and deliver even better internet to people a lot sooner than we are on track without such a program.

{citat:stanga:$19 billion, price paid for WhatsApp}

David Kirkpatrick: So did you work with Globe really resulted they make more money with this thing?

Mark Zuckerberg: We’re only making this for a few months so that makes it the more impressive that the number of people using data and the internet in the Philippines is doubled on their network in just the 3 or 4 months that we have. We’re new break even and still have a bit of work to do but we are very early on tuning this so this is what this partnerships are. We want to work with folks and it’s early on and it’s not tuned and you’re going to spend more than you are making upfront but what we’ve seen in the rate of improvement, we’re highly confident that we’re going to get this to a point where it’s very profitable.

 

David Kirkpatrick: Be more specific on what do you want from carriers because there’s nothing but carriers at Mobile World Congress. So, you got the right audience but what would you like them to do if it where to work with you? What can you do for them specifically?
{citat:dreapta:” I cannot construct any model that’s going to add up in the near term.”}

Mark Zuckerberg: We don’t have the capacity to work with a lot of carriers right know but we want to work with some more. So maybe 3 or 5 partners. If the first step was to test just a couple of basic services, what we want to trail over the next few years is the full kind of vision. All of the different kind of services that we’ve talked about with all of the different upsells and things that we think we have the ability to do if we would work deeply with a carrier and plug into their systems deeply to make all this flows really efficient and use all of the knowledge that we have about customers that both we and the carrier have. We basically allow the arrangements that we had with folks and we test something out for a couple of months at a time. We were lucky with some of the partnerships that we had, I mentioned Globe and Tigo but there were a handfull of others. Longterm partnerships give us the ability to test things and even if the things don’t work in the first months, we push to make it work over a couple of months more period. What we want to do for the next partnerships is to have a year long period where we really diving in together with a couple of folks to see exactly how much we can push this to make this modell work and my goal would be to show that the model works over the next year and then to be back here next year with a systematic program that everyone wants to work with us at that point. But for the next year we’re looking to work only with 2 or 3 or 5 companies who are really serious about trying to connect everyone in their country using free basic services.

{citat:dreapta:” I think in the next ten years we can really make progress on connecting most of the rest of the world.”}

David Kirkpatrick: If they are giving free access to Facebook, that’s good for you, sounds like you could make some good money out of it.

Mark Zuckerberg: You’d be surprised.

David Kirkpatrick: But is this a way for Facebook to make more money then? What is the reason Facebook is doing this?

Mark Zuckerberg: On the long term I hope but one of the unfair economic reality is that the people of the vast majority of the wealth in the world are the billion people who are already on Facebook, right? So when I’m talking about this with my board of directors and I put in front of them a budget to spend some billions of dollars, I’m trying to get this vision and Internet.org to work over the next few years. They ask me how is this going to be profitable in the near term and I cannot construct any model that’s going to add up in the near term. Because the ad markets in this countries don’t really exist in a huge way yet but this os going to make us be brake-even on any period of time that we typically make investments. But I believe in this because, first of all, this is why I started Facebook. I built a product originally because I wanted in at Harvard but the vision was that someday someone should try to connect everyone in the world and reaching a billion people ourselves was really a moment for us when we took a step back as a company and asked, ok, what are we here really to do? If we can help connect a billion people, are we going to spend the next period of time getting to 1.1 and 1.2 and 1.3 billion? Yeah, we’ll do that because we will do that on the way to something else but there’s got to be something bigger and for us is really this vision of connecting the world. And when I’m thinking about the vision for Internet.org, I think we’re going to lose money on this for quite a while, all the different things that we are doing. The reason why I’m optimistic is, just like social networking early on, the reason why we did it, even thou all this bloggers and folks were saying “oh, this is just a fad” or “some people are going to use this but it’s never going to make money”, I never cared about. I believed just that this is an important thing and even if I couldn’t connect all the dots, I didn’t know nothing about all the business to do so but I just felt this is an important thing. And if we do something that’s good for the world, then eventually we’ll find a way to benefit from it. And I can feel like that around Internet.org as well. There’s no clear plan that I can say today is going to be good for Facebook but I think it’s clearly good for the world and on every metric, good for the economy and global health and people in this countries and everything, I think you can see that.
 

David Kirkpatrick: Is your board cool with that?

Mark Zuckerberg: Yeah, because they are on out board because they believe in our mission.
 

David Kirkpatrick: You are kind of an unusual company because of the scope of your presence globally, I mean it’s an unusual position to be in where if internet access increases, you benefit just because such a huge percentage of the users of the internet use your service. What kind of trajectory do you see beyond? I mean how long it will be before everyone will have basic services? Not streaming Netflix but Wikipedia and weather information?

Mark Zuckerberg: Well, what I hope is we can prove that the model works and then get to a place where we can work with a larger number of partner carriers within the next 2 or 3 years. And then after that that’s when I think a lot of the actual hard work will actually begin by rolling it out and working with the carriers to do that which is really when I start to see many more folks get on the internet. So this is a long term thing for us. I think if we can do this well as an industry, I think that within 5 years I certainly hope the number of people that we’re connecting will be a lot more than the billion that someone put in the video that played early on. I think in the next ten years we can really make progress on connecting most of the rest of the world. Whether that’s 2.5 or 3 billion people.
 

David Kirkpatrick: Ok, let’s get back a little on the subject we started with, WhatsApp. You paid 19 billion dollars on it. I try to put myself into the mind of your board here. They probably do agree with you that long term, making the world a more connected place is a great thing but then there are a number of people, a lot of them and…you know, that’s a huuuge investment you’ve just made and it sounds that the return is very long term. Is this the correct way of looking at WhatsApp?

Mark Zuckerberg: There are two things here. The first is the company by itself and how much is going to worth and then there is the strategic value of what we can do together. And I think this worths more than 19 billion dollars. There is a chance I could be wrong, I mean there is some chance that this will be the one service that gets to a billion people and ends up not being so valuable. But I don’t think so. You can look at other messaging apps out there, whether it’s Kakao or WeChat that already are monetising at a level of 2 to 3 dollars per person with pretty early efforts and I think that shows that if we can do a pretty good job at helping WhatsApp to grow, this is going to be a huge business. So, even just independently, I think it’s quite a big bet. Then there is the question of why we are excited to do this together? I was excited and Jan was because of that Internet.org vision in helping to connect everyone in the world which I think clearly we can do, we have a lot of leverage from working together on that. The other piece is that by being a part of Facebook, it makes that they can focus for the next 5 years or so purely on connecting more people. They did this as an independent company, they were going to have to focus more at some point on building out their business model. They already have seeds of that with their subscription model. It’s just very promising. But Jan is more excited about and frankly, where I think there’s a bigger opportunity is rather than focusing on that, for going out and connect 1,2,3 billion more people on that in however long is going to take. And if we can do that I think we will be well on our way both in realizing this vision of trying to connect everyone and on our way to helping to achieve that Internet.org vision. That’s what we want to focus on.
 

David Kirkpatrick: You also think of messaging as part of the basic services that are going to be available to everybody long before they can download video?

Mark Zuckerberg: Well, yeah, to be clear, when we envisioned for carriers is that is basically a model that can help them get more subscribers and connect more people. It’s up to them to choose which services they want to put in their basic services for free. I mean, I think there are some things that people really want and they will want to include in there but…our model and what we are trying to build is just a proof that building an on-ramp is better for the internet and for our partners. Over time, if people will want to include in that WhatsApp, or Facebook Messenger or whatever the pieces are I think it’s something we can work out.
 

David Kirkpatrick: It remembers me about your Open Compute project which is a way of taking software that you developed in your own datacenter, which is among the largest in the world and making that freely available to the internet industry which is bringing efficiencies to others so talk about speciffically how you’re going to build efficiencies that are going to allow them to make money even though they’re giving the service for free?

Mark Zuckerberg: There are 3 pillars that we are focused on in terms of efficiency. The first is just kind of decreasing the overall cost of all of the infrastructure that goes into delivering the internet. The second is decreasing the amount of data used. You’re not using most of that infrastructure for this basic services. And then third there is the increasing the efficiency of all the upsells and all the things we can do to increase revenue for folks. And I think there is a 10x improvement in each of those and if you pound all this together then this adds thousands x improvements in the affordability of some of this services which I think if we can deliver that, we’ll be well on our way of making this model profitable for folks and something that I think folks will want to use. I can go through each of them.
 

David Kirkpatrick: You did some amazing improvements with your android app, delivering same service with less data transfer.

Mark Zuckerberg: Yeah, let me go through through all the pillars. So the first one, decreasing the cost of your raw internet. You get things like Open Compute in there, the servers and the switches and things that people need and are infrastructure are just cheaper to use by making things open-source. You get policy work so that you can reuse some parts of the spectrum. You get licensing fees that carriers have to pay. That’s work to do to make the smartphone cheaper because that’s a big part of the consumer end cost.

 

David Kirkpatrick: Mozilla just announced the 25 dollars smartphone.

Mark Zuckerberg: It’s awesome. This is a lot of whom we’re working with, you know, folks like Ericsson and Qualcomm and Samsung and Mediatek who were Internet.org founding partners. So that’s about delivering internet more affordably.

The second pillar is using data more efficiently and this where I thing we get all the way there, the 10x improvement that I was talking about. A year ago, the basic Facebook app, the average person used 14MB of data and after we worked on displaying photos more efficiently and different other things we reduced it to 2MB and we plan to get further to 1MB. We bought this company, Onavo, which does client compression that allows a person to route all the internet traffic through them and make it so that they can save, in some cases, 50% of the cost of the data bill. It doesn’t apply just to Facebook but to all of the mobile traffic. And there are things like the Snaptu platform that we have for building really efficient low end smartphone and feature phone as well apps that we can use as a platform for others to build other apps as well. That’s going to be a big thing.

And the third pillar is that we can increase the amount of upsells to subscriptions when people are using this basic services. And that’s a lot of the work with carrier partners we have. We saw more than a 10x piece on this already.
 

David Kirkpatrick: Talk more about these upsells, I don’t know exactly what it means.

Mark Zuckerberg: Just to have an example, you’re using your Facebook feed that is included in your Facebook package and you click on it and there is a pop-up that shows up right there that just says, ok, if you want to consume this then you should buy this data plan. You make it one-tap because it’s tight directly into the carriers systems.
 

David Kirkpatrick: Talk about this Ericsson lab that you just announced today, you’ll going to have a lab on the campus of Facebook in Menlo Park to help others do apps, right?

Mark Zuckerberg: Yeah, one of the things that we want other developers to do is to feel empathy for the high data consumption experiences that they are creating. We did this hackaton recently, Ericsson hosted it, and a bunch of other great companies were there. I think Spotify and eBay and Twitter and a hand-full of other companies. What Ericsson did is they build this infrastructure to make it that developers can simulate running their apps on all kind of things in all that different conditions. And when you feel that, you really get this feel of, ok, I really need to take out a lot of the data consumption because my app is not usable on all this places. Once these people who were running these companies had this first hand experiences, of experiencing his app in these conditions which those guys from Silicon Valley never did, never travelled around to test the app in this environments, you really come with empathy for the people you were supposed to be serving. To what bad experience they have. This really incentivize you to make it more efficient and drop more data that you are using. Which, of course, saves money all around for consumers and carriers.
 

David Kirkpatrick: I heard that some of you people were in Africa and bought some SIMs and put them in their phone and tried to use Facebook and found to their shock that it was a much more difficult experience than they expected.

Mark Zuckerberg: Yeah, we have this rotational product manager program, a lot of them are coming from the college and we don’t assign them to a team, they rotate around a company to just get exposure on different things and I think we send all of the rotational PMs to an emerging market, to feel how Facebook is feel like there. They come back with really interesting stories, things we are absolutely messing up and we need to get a better job in order to deliver well.
 

David Kirkpatrick: In a way, the role you’re beginning to play is that of a system integrator for the internet, the way you’re describing it, I mean, you kind of gluing together all these communities, I know you just announced something today in Rwanda, even the government of Rwanda is involved, Nokia is going to sell specially cheap phones to students so that they could sell access. Is this a world in which Facebook will play more and more like a system integrator?

Mark Zuckerberg: I don’t think Facebook should get so much credit for that and actually one of the things I want to be really clear about, I said this before but I don’t think I can make this point strongly enough is Internet.org is this big coalition across the industry and we’re playing one role in it. I think Facebook has a unique perspective by building the most used app in the world and this give us a position to really understand what we need to do to deliver this thing more efficiently but no one company can do this by itself. That’s why it’s a partnership between folks building infrastructure and the carriers and other developers and governments and public sector in order to deliver this. So it’s going to be all these folks to come together to make this possible.

 

David Kirkpatrick: I have to ask you because there was a lot of talks about the consequences of Snowden’s revelations on American internet companies. So you’re one of the premiere American internet companies talking about even more global penetration where in many countries it is this concern that the US government has this weird relationship. Could this potentially be a problem for the success of Facebook overseas?
{citat:dreapta:”The government kind of a blew it on this. – Mark Zuckerberg}

Mark Zuckerberg: The NSA issues I think are real issues for internet American companies. Trust is such an important thing when it comes to using any service where you share important and personal information. We continue to work to just be able to share everything that the government is asking and recently we got the permission to share much more of the content on what this people from NSA are asking which I think it’s helpful because it shows that the request number is in the thousands not in the millions like I think some people might fear. For Internet.org I don’t think it would have a big impact. If anything, my guess is that the issue with the NSA actually got the industry working better together than ever before. We’ve had issues historically working with some of our competitors on policy issues. In the past I think we had issues just because we’ve been competitors aligning on policy issues that helped the whole industry around pushing the internet forward. But now I think it’s important just because how extreme were some of the NSA revelations were and now I feel a lot of the industry is much more aligned. And then, being able to work together on things like Internet.org actually becomes easier.
 

David Kirkpatrick: Giving the vision you said today that you have, by connecting the planet, it must make you pretty angry because certainly the government behavior has underlined trust in this American services.

Mark Zuckerberg: Yeah, I mean it’s not awesome. I’ve talked a lot publicly about this, I don’t have much more new to say. What I’ve said is that the government kind of a blew it on this. The governments have a responsibility to protect folks and be transparent about it and I think they totally got over the line about not being transparent about what they were doing but now I think that they’re getting there because of the pressure but they’re only now starting to work in the way they’ve should have been and I really think that all this would have been avoidable. It would have been a lot better for the internet.