SpaceX builds rocketships. And soon, satellites, too? Photo source: SpaceX.
Continue Reading Below
I want to throw a few numbers at you today: five, 10, 15, 20, and 4,000.
What do these numbers mean? Let's start small, with five. That's how many years SpaceX founder Elon Musk believes it will take to build and launch a small constellation of Earth-orbiting satellites. Satellites that will blanket the globe with fast, cheap, reliable Internet access for everyone -- no cable connection required.
Ten is the number of billions of dollars Musk says it will cost to bring his plan to fruition.
Fifteen is the years from now when Musk expects to have his entire constellation up and running.
Twenty is the number of years people have been talking about what Musk says he will do.
Continue Reading Below
And 4,000 is how many satellites Musk says he will need to carry out this project -- with a little help.
An even bigger number
Coincidentally, Musk's partner in this madcap plan for global satellite encirclement is itself a number -- sort of: Google . If you look back to the company's founding, it was named after the biggest number its founders could think of at the moment -- one googol, or 1 10100.
Last month, Musk revealed that Google is partnering with Fidelity to invest $1 billion in SpaceX, at least some of which will be used for the satellite Internet plan. Reportedly, Google will receive a roughly 7.5% interest in SpaceX in exchange for its investment, and Fidelity will take 2.5%. Incidentally, the $1 billion-for-10% pins a $10 billion value on SpaceX as a whole.
What it means for Google
Why is Google investing $1 billion in SpaceX? There are at least two reasons. Don Harrison, Google vice president for corporate development, saidthe search giant wants to "help people more easily access important information" through use of SpaceX's "new launch technologies" -- which makes sense.
Google depends on advertising to generate 89% of its $66 billion in annual revenue.Any technology -- be it cable, satellite, or wireless -- that gets more people online and clicking ads is good for Google's business. In this regard, Google is a natural ally to SpaceX.
Of course, Google probably wouldn't mind if satellite Internet also gets more people online faster and cheaper. According to a recent Goldman Sachs report, it will cost Google $10 billion and take nine years to lay lines to deliver one-gigabit-per-second Google Fiber to 7.5 million American homes. But SpaceX is offering Google the chance to share the cost of a $10 billion project, cover the entire world with satellite Internet coverage, and get all this done in only 15 years.
That sounds like a winning proposition for Google.
What it means for SpaceX
At $1 billion, the size of Google's investment in SpaceX alone would be big news. For the record, the $10 billion valuation it suggests for SpaceX stock is about three times our most optimistic assessment of what that stock was worth just five months ago. Even if nothing else comes of this plan, the fact that SpaceX's putative valuation just tripled should be worth a few headlines.
But there is still the question of where SpaceX intends to get the remaining $9 billion needed to build its satellites. Funding the project out of SpaceX's profits would be one option. But the privately held company doesn't release details on its own profitability, so it's hard to say how realistic self-funding might be.
Another way to raise money quickly would be to release a large chunk of SpaceX stock to the public. But last we heard, Musk had no plans to IPO in the "near term."
Finally, website The Verge noted that "other investors" might be putting money into SpaceX alongside Google -- but probably no one as big as Google. And if even Google, with a roughly $360 billion market cap at last count, can pony up no more than $1 billion for this project, it will take a whole lot of other, smaller investors to raise Musk's entire $10 billion budget.
Sir Richard Branson could eventually become one such non-Google investor. Commenting on Musk's announcement last month, Branson notedthat he's working on a similar satellite Internet scheme himself -- and that in time, "the chances of us working together rather than separately would be much higher." The more so given that Branson's group of satellite Internet builders is already licensed by the International Telecommunications Unionto operate a satellite communications network -- a factor that satellite industry consulting firm NSR called "a significant advantage."
Along with his own resources, and those of his Virgin Group of companies, Branson might bring his co-investor Qualcommalong to bolster Musk's effort.
What it means for investors
All of this makes for fascinating reading. But what does it mean to investors? Both of the apparently key players in this putative satellite Internet project are privately held companies, after all: SpaceX and Branson's Virgin Group. Neither appears interested in going public anytime soon.
Given the immense amount of investment that will be required to make satellite Internet a reality, though, and the drag it would be on corporate profits as it gets built out, maybe that's a good thing. Maybe we should be happy that private companies are willing to eat the short-term losses... privately.
The prospects for Google, on the other hand, are more intriguing. According to website Internet Live Stats, there are just over 3 billion people online worldwide, out of a global population of 7.3 billion. If satellites truly have the potential to extend Internet coverage to the whole world's population, then Google's single $1 billion investment in SpaceX holds the possibility of more than doubling the pool of potential Google customers over the next 15 years.
Even if you already have Internet access, that's something worth getting excited about.
The article SpaceX + Google = Satellite Internet originally appeared on Fool.com.
Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 302 out of more than 75,000 rated members.The Motley Fool recommends Google (A and C shares). The Motley Fool owns shares of Google (A and C shares), and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.