For those unfamiliar, Loon was one of X’s “moonshot bets” that solar-powered, balloon-borne LTE base-stations flying 75k feet above the Earth’s surface could provide internet access to all of the world’s handheld phones. Unfortunately, a couple weeks ago, Loon announced that it’s shutting down. From the X blog post:
When we unveiled Loon in June 2013, we meant everything in its name. It was a way-out-there and risky venture. Not just fragile-balloons-on-the-edge-of-space risky, but risky at the core of the question it was asking. Could this be the radical idea that might finally bring abundant, affordable Internet access, not just to the next billion, but to the last billion? To the last unconnected communities and those least able to pay?
Sadly, despite the team’s groundbreaking technical achievements over the last 9 years — doing many things previously thought impossible, like precisely navigating balloons in the stratosphere, creating a mesh network in the sky, or developing balloons that can withstand the harsh conditions of the stratosphere for more than a year — the road to commercial viability has proven much longer and riskier than hoped. So we’ve made the difficult decision to close down Loon. In the coming months, we’ll begin winding down operations and it will no longer be an Other Bet within Alphabet.
Since the announcement, a lot of people have been lobbing critiques at X, saying that Loon was doomed to fail for two reasons: (1) X, because it is under the Google/Alphabet umbrella, is structurally incapable of executing on moonshot ideas; (2) Loon is a bad product idea. Let’s break both down.
[Note: I sometimes use Alphabet and Google synonymously in my analysis below. That’s obviously not quite accurate—Alphabet is the umbrella organization whose stock is confusingly traded on the Nasdaq under the ticker $GOOG (lol), and Google is technically a subsidiary of Alphabet.]
“Google should stick to ads and search. It sucks at everything else.”
Here’s a Clay Christensen disruption-like argument: “The Google behemoth is built on its wildly successful search and advertising businesses, but Google is blind to other opportunities that don’t advance those core businesses. It inherently can’t execute on those opportunities, so why even try? Indeed, at this point, the killedbygoogle.com graveyard is a meme for all the things Google has tried and ultimately failed at. Better for Google to focus on what it’s good at, milk its existing businesses, and return more value to shareholders. Then, rather than Google unilaterally and opaquely deploying capital to foster its own (or perhaps Sergey Brin’s) moonshots, let shareholders deploy capital into new, non-Google businesses that will have a better shot at executing on moonshots.”
I’m kinda’ sympathetic to this argument, but it’s not like everything Alphabet starts is unequivocally doomed if it isn’t ads-related. Here’s Clay Christensen’s own advice for how companies can avoid disruption: Spin off small divisions to test the market and pursue disruptive opportunities. Ensure that these divisions can iterate 100% independently of the larger company and that they won’t be pressured by the company’s existing way of viewing the world. X, however, doesn’t exactly heed Christensen’s advice. X still is under the Alphabet umbrella, and Alphabet, in quarterly earnings, reports X’s revenues and losses under a section called “Other Bets.” Over the past six years alone, Alphabet has lost a dizzying $20 billion on Other Bets, causing investors to grumble. X is essentially guzzling gallons upon gallons of capital from Alphabet’s bursting teat in a sort of parasitic relationship. Hardly independent at all!
That said, I’m not quite willing to join the naysayers in saying that Loon was automatically screwed from the start or that X shouldn’t have tried in the first place. In fact, I actually applaud X for have the creativity and ambition to come up with these crazy ideas. My biggest wish, however, is that Alphabet truly spin X projects out. Let these projects attract outside venture capital on their own merits (as Waymo recently did). Rather than insulating these projects with Alphabet’s largesse (or Sergey’s good-will), light a fire under their butts. Subject them to market pressure and competition. Have them iterate and actually build sustainable businesses, or die.
X ran Loon for nine years. My counter-factual question would be: Had X adopted the preceding recommendations, would Loon have been a stronger independent business, and would it still be alive today? Or, if Loon were a losing proposition no matter what, would it have been efficiently killed off far sooner?
“Loon is a bad product idea. It would’ve been squashed by competitors anyways.”
[Disclaimer: It goes without saying that I’m not a telecommunications specialist, merely an interested technology generalist, so take what I say with a grain of salt. It’s also just hard to speculate about product rationales ex post, without additional information from X. All they’ve told us is that “the road to commercial viability has proven much longer and riskier than hoped.”]
Loon is just one of a handful of businesses looking to connect the world to the Internet. The question is what Loon provides that other companies can’t.
One of Loon’s competitors is SpaceX’s Starlink. Here’s how Starlink works: SpaceX launches tens of thousands of solar-powered satellites into low Earth orbit to form what’s called a mesh relay network. Each satellite is equipped with antennas that are capable of enormous amount of radio wave throughput. Internet signal can be communicated up to a satellite and propagated out through the network before being fired back down again to any location on Earth with an appropriate receiver antenna. Here are some of Starlink’s competitive advantages:
Starlink offers extremely low latency from point to point, anywhere on the globe. Imagine having no lag while playing an online video game from California, with the video game’s servers located in Sweden. Loon, meanwhile, is made only for last-mile connectivity in remote areas.
Satellite launch is an up-front fixed cost that SpaceX has operationalized and can do more cheaply than anyone else. In Loon’s case, however, balloon launch, tracking, and recovery are recurring costs. Even if Starlink’s up-front cost of launch is higher, it can more easily amortize those costs across the global market, thanks to its global coverage.
The satellites themselves stay up for years. On the other hand, Loon balloons are vulnerable to unpredictable weather conditions and need to be re-serviced more often.
Another of Loon’s competitors is terrestrial optic fiber, which has increasingly been laid down across the world. For instance, in India, Reliance Jio’s telecommunications network has recently brought hundreds of millions of people online for the first time. With the increasing the coverage and quality of terrestrial networks, does Loon still address a market need? If we are quickly getting to universal Internet coverage with more physical infrastructure on the ground, we may not need Loon’s LTE balloons. According to Benedict Evans, 5 billion of the 5.5 billion adults on earth have a mobile phone, and close to 95% of the earth's population already has 3G/4G coverage. Again, is Loon really addressing a market need here? [Note that Starlink could still serve a need here, even if Loon doesn’t, because the speed of light is ~50% faster through the vacuum of space than along a fiber optic cable (glass), so Starlink would have way better latency.]
The main advantage I see of Loon is that balloons can be load-balanced and concentrated in areas where they are needed the most. So, for a particularly congested event where Internet speeds begin to turtle, Loon can re-direct more of its balloons to that event to lighten the load. But how often will this happen? Will it happen enough to justify Loon’s costs? Also, can’t Starlink also solve this problem, too, by simply putting a couple more antennas on the ground?
Anyways, it should be comforting to Alphabet that it has a 10% stake in Starlink and a 7.7% stake in Reliance Jio, so it’ll still benefit directly from global Internet connectivity, and not to mention indirectly from more Internet users generating ad revenue. Loon just wasn’t the right vehicle for global Internet connectivity, but as I wrote in the previous section, that’s completely okay. I at least admire X for trying.
📚 What I’m reading
How nothingness became everything we wanted. (New York Times)
“The Big Shift.” Internal Facebook memo tells employees to do better on privacy. (Big Technology)
Make government cool again. (Katherine Boyle)
China’s consumers are turning against the homegrown Big Tech giants they once revered. (Fortune)
Social justice, austerity, and the humanities death spiral. (Chronicle)
Welcome, Facebook and Twitter. Seriously. (Substack)
Big ideas 2021. (ARK Invest)
Inside Silicon Valley’s dangerous game of occasionally not eating. I… honestly kinda’ want to go on a fast after reading this. (Sasha Chapin in Pirate Wires)
Why India should buy Bitcoin. (Balaji Srinivasan)
“This is for you, Dad”: Interview with an Anonymous GameStop Investor. (Matt Taibbi)