3 Shifts (Aug 20 2021): Big tech invests in subsea cable, Axel Springer’s acquisition strategy, Big Oil ramps up cleantech VC

(1) Facebook & other big tech firms invest in subsea cables to advance global connectivity (1:08). (2) What’s Axel Springer up to with its US media acquisitions? (8:34). (3) Big Oil is ramping up investments in cleantech startups (14:27). Read this 3 Shifts Edition: https://6pag.es/nyx8hg. Sign up to receive free summaries of our deeply researched briefs: 6Pages.com.

Chapters

• 1:08 (1) Facebook & other big tech firms invest in subsea cables to advance global connectivity
• 8:34 (2) What’s Axel Springer up to with its US media acquisitions?
• 14:27 (3) Big Oil is ramping up investments in cleantech startups (14:27)

Transcript

Hey everyone, I’m Eric Thompson and welcome to this week’s 3 Shifts Edition by 6Pages, the source for far-reaching market shifts and what they mean. As I’ve mentioned recently, we’re hitting pause on future 3 Shifts podcast episodes, for now, and this is our last episode. We’re interested in your feedback on what else you’d like to hear from us in a podcast format. Let us know by shooting us a note at hello@6pages.com or DMing us on social. We’ll use it to shape the future of the 6Pages Market Shifts podcast. And as a reminder, you can continue to read the weekly 3 shifts editions and summaries of our deeply researched briefs by signing up for free on 6pages.com.

Alright, let’s get into this week’s shifts. 

It’s 8/20/2021, and here are the 3 shifts that you need to know this week:

1. Facebook & other big tech firms invest in subsea cables to advance global connectivity
2. What’s Axel Springer up to with its US media acquisitions?
3. Big Oil is ramping up investments in cleantech startups

1. Facebook & other big tech firms invest in subsea cables to advance global connectivity

• The past week has seen a spate of announcements from Facebook, which – along with the big cloud players (Google, Amazon, Microsoft) – is investing in subsea fiber-optic cables to support connectivity of its services. Facebook’s investments are largely focused on boosting capacity and speeds for fast-digitizing and/or underserved regions in Asia, Africa, and the Middle East.
• Facebook (via its contractor Edge Cable Holdings) and Amazon are petitioning the Federal Communications Commission (FCC) for approval to jointly operate a subsea cable (CAP-1) connecting California and the Philippines. (Chinese telco China Mobile pulled out of the project, resolving government concerns about Chinese carrier involvement in US infrastructure.) The CAP-1 cable – 83% owned by Facebook/Edge Cable Holdings, 17% by Amazon, and built by NEC America – would be operational in late 2022 with a max speed of 108 terabits per second. The cable will support growth of Facebook’s services in Southeast Asia, while Amazon will interconnect its data centers and gain capacity for its cloud services.
• Two days later, Facebook announced a new collaboration with Google (and other partners) on a subsea cable system (Apricot) that will connect Japan, Taiwan, Guam, Philippines, Indonesia and Singapore. Apricot – expected to be operational in 2024 with a design capacity of 190+ terabits per second – will support the growing connectivity needs in the fast-digitizing Southeast Asia region. Apricot will be complementary to the Echo and Bifrost subsea cables announced in Mar 2021, which will connect Singapore, Indonesia, Guam and North America. (Echo is another Facebook-Google collaboration, while Bifrost is a Facebook partnership with regional players.)
• The day after the Apricot announcement, 2Africa – a $1B consortium that includes Facebook as well as global and regional telecom players (e.g. Vodafone, China Mobile, Saudi Telecom) – announced 4 new cable landings. 2Africa, which expects to go live in late 2023, will connect Africa, the Middle East, and Europe for a total of 35 landings in 26 countries. The “most comprehensive subsea cable to serve the African continent and Middle East region” will have a design capacity of up to 180 terabits per second and be built by Alcatel Submarine Networks (a division of Nokia).
• Subsea fiber-optic cables are not a new phenomenon. These cables connect 97-99% of all internet traffic, with 460+ cables currently in operation or under construction (1.3M+ kilometers of cable are in service today). A single project to lay giant spools of specially designed cable about the width of a thick garden hose on the ocean floor can cost $350M-400M (though this is declining over time) and take 2-3 years to complete. The economic lifespan of a cable is about 25 years, after which the technology typically becomes obsolete and is retired in favor of newer, higher-capacity cable.
• Traditionally subsea cables were owned by telecom carrier consortia and then later internet backbone providers. However, the bandwidth used by “content providers” like Facebook, Google, Amazon, and Microsoft – called “the Big 4” in the submarine cable industry – has risen so rapidly they decided a decade ago to invest in their own infrastructure. $8B in new cable investments are expected over the next 3 years, with the boom largely driven by the Big 4. (Echo and Bifrost alone will expand trans-Pacific capacity by 70%.) Google has been the most aggressive, participating in 18+ cable projects, 6 of which are wholly owned. Facebook is not far behind with a reported 14 projects, all collaborations.
• Big tech firms like Facebook are, in part, working under the thesis that helping fast-digitizing regions digitize faster is good for business. Indonesia, for instance, is already Facebook’s 3rd-largest market, and its fastest-growing regions are the Middle East and Africa. Given that 3.5B people globally are already using Facebook’s services every month, it’s very likely that more people online will only mean more people using Facebook, Instagram or WhatsApp. For Google, it’s also about using its privately owned cable to differentiate Google Cloud from the other players.
• Like satellite constellations and 5G/6G, subsea cables have become yet another battleground with China – and a hot-button geopolitical issue among governments concerned they can be tapped or cut. Approvals for subsea cable are required by governments on both ends. In the US, after lengthy delays in getting regulatory approvals, Google and Facebook have backed away from cable landings in China-controlled regions like Hong Kong. Among the aims of the US government-led Clean Network initiative are to keep the subsea cables connected to the US and its foreign partners “clean” of China/Huawei’s influence and intelligence-gathering. (Huawei Marine Networks is one of the 4 big oceanic cable suppliers.)
• US firms are not the only players investing in the connectivity arms race. Huawei is building the PEACE Cable (expected Q4 2021), which will connect China with Pakistan, parts of Africa, and France. According to an executive at Orange SA (which will operate the cable’s landing station in France): “This is a plan to project power beyond China toward Europe and Africa.” In India – where the government has been pushing for greater self-reliance – Reliance Jio Infocomm is now constructing a subsea cable network of its own.
• These subsea cable investments could be an inflection point in ramping up connectivity in underserved markets like Southeast Asia and Africa. Connectivity can help accelerate economies – one analysis of Google’s Asia-Pacific network infrastructure investments found they resulted in an additional $430B in GDP and 1.1M new jobs. 
• Questions remain, however, as to whether broadband satellite (such as SpaceX’s Starlink) might replace subsea cables altogether. Subsea cable can still carry far more data than satellite at lower cost, with continued technological advances in expanding fiber/cable capacity. Satellite-based internet currently tops out at about 150 Mbps, though Starlink has ambitions of reaching 1 Gbps. In contrast, the 250 Tbps design capacity of Google’s Grace Hopper cable is 250,000 times the bandwidth of a 1 Gbps connection. Zayo’s Zeus has even more potential capacity at 4,000+ Tbps. While satellite internet is showing promise in reaching rural and less accessible areas, it is unlikely to replace subsea cables as the workhorse of the internet anytime soon. As the cost of launching satellites comes down, and constellations become more reliable, we may eventually see broadband satellite nibbling away at some of the subsea cable’s use cases.

Related Content:

• Apr 23 2021 (3 Shifts): US and Japan invest $4.5B in 6G with an eye to the next battleground with China 
• Mar 9 2021 (Brief #43): The commercialization & democratization of private 5G networks

2. What’s Axel Springer up to with its US media acquisitions?

• This week it was reported that German digital publishing house Axel Springer was in talks to acquire a partial stake or do a full buyout of Washington DC political news outlet Politico. Politico, which generates $200M annually in revenue (80% in North America), is reportedly looking for up to $1B in a deal. The 5x revenue multiple is considered rich for the industry, which is typically valued in the 3-4x range. If the deal closes, it would be the latest in the ongoing parade of media mergers as publishers seek scale to position themselves in a “post-cookie world.”
• Axel Springer already has a partnership with Politico that dates back to 2014, when it launched Politico Europe as a 50/50 joint venture. Politico, launched in 2007, is best known for its coverage of politics and policy, which generated 54M unique visitors each month in 2020. Its slate of offerings supported by nearly 400 journalists (600 staff in North America) includes: Written and video reporting, analysis and editorials on policy/issues, a deep portfolio of theme-based newsletters and podcasts, and live events. (Politico also owns tech-focused publication Protocol.)
• Politico largely makes money by selling advertising and subscriptions to premium content (as well as magazine sales and live events). The Politico Pro B2B platform, its most lucrative business, offers early access to scoops, in-depth policy reporting, primary source documents and congressional transcripts, policymaker directories, exclusive events and more. Pricing for Politico Pro, which is used by “almost 30K policy professionals” across 4,500+ organizations, begins in the “high four-figure range” and ranges into the hundreds of thousands of dollars. (It has consistently reported a renewal rate of over 90% and represented over half of Politico’s revenue in 2019.)
• Given the success of Politico Pro, Politico has been working to expand its premium subscription portfolio. In Jan 2020, it announced AgencyIQ – a customized regulatory monitoring dashboard with initial FDA focus – at an average contract price “in the high five figures” ($25K-75K according to Digiday). Then, in Dec 2020, Politico acquired E&E News, a premium-priced industry publication focused on energy and environmental news, which generates $20M annually in revenue. Print ads and live events were down during the pandemic, but Politico still grew by 20%+ in 2020 powered by Politico Pro and Audience Solutions (advertising campaigns).
• While the Politico deal is not done yet, it is the latest indication of Axel Springer’s acquisitive bent. Ever since its voluntary KKR-backed $3.2B public takeover in Jul 2019 (which then took Axel Springer private in Jan 2020), it’s been on an expansion drive backed by KKR money. In Sep 2019, it acquired a minority stake in Group Nine Media (Thrillist, NowThis News, Seeker, Dodo). Then, in Oct 2020, Axel Springer subsidiary Insider Group (Business Insider) acquired a majority stake in $20M/year newsletter brand Morning Brew for $75M. (Insider Group itself was a 2015 Axel Springer acquisition at a $442M valuation – which it refers to as its “anchor investment.”) Most recently, in May 2021, Axel Springer was in talks to buy Axios (founded by ex-Politico staff) for a reported $400M – though by Jul 2021 Axios was publicly expressing reluctance for the deal.
• There’s been a wave of consolidation among media brands over the past few years – e.g. Vox-New York Media, Vice-Refinery29, Group Nine Media-PopSugar, BuzzFeed-HuffPost, BuzzFeed-Complex Networks. Going public via merger with a SPAC (special-purpose acquisition company) is increasingly becoming a more attractive option to raise capital and provide liquidity to investors. Group Nine Media launched a SPAC in Jan 2021 that is expected to consolidate the industry further, while BuzzFeed, BDG Media (Bustle), and Vice are looking to go public via SPAC. (Axel Springer has a minority stake in BDG Media.)
• Publishers are trying to increase their holdings of strong, differentiated content – both high-traffic B2C and premium B2B – under their umbrella. Margins in publishing are often slim or negative – even for well-known brands. The pathway to profitability often seems to involve a diversified combination of consumer-side scale and high-priced prosumer/enterprise subscriptions, with the two working in tandem.
• Axel Springer’s acquisition drive can also be viewed through the lens of building up its pool of scalable 1st-party data. It is repositioning itself for a world without 3rd-party cookies, in which those with 1st-party data directly collected from users – such as large publishers – are gaining leverage. As part of its effort to make 1st-party data more attractive to advertisers, it is working on ways to create “targetable segments” – including “data clean rooms” where marketers can create segments by pooling their own data with Axel Springer’s without exposing it. Axel Springer has touted its non-reliance on Google’s ad stack – one of a growing number of publishers looking to build their own in-house ad businesses with the help of 3rd-party vendors (e.g. Kevel).

Related Content:

• Jun 24 2020 (Brief #35): Publishers & retail brands adapt to the coming death of 3rd-party cookies
• Nov 9 2019 (Brief #11): Facebook News & the current wave of news aggregators

3. Big Oil is ramping up investments in cleantech startups

• Big Oil companies – feeling unprecedented pressure from both investors and regulators to reduce their carbon footprint – are ramping up their venture capital investment in cleantech startups. PitchBook data shows that non-traditional investors like BP, Shell, and TotalEnergies SE (formerly Total) are now among the most active cleantech investors. Chevron and ExxonMobil are increasing their focus on venture investments as well, though both have been reluctant to make firm commitments to emissions reduction. 
• Shell – which in May 2021 was found partially responsible for climate change by a Dutch court and ordered to reduce emissions 45% by 2030 (vs. 2019 levels) – is now doing 20-25 deals per year through Shell Ventures, more than double the number in 2017. Shell Ventures is also focusing its investments more on renewable energy, mobility solutions, and hydrogen. So far in 2021, the venture arm has invested in at least 9 startups – including battery-swapping startup Ample (follow-on round), bike taxi platform Rapido, white-label energy marketplace LO3 Energy, residential smart energy platform NET2GRID, zero-emission aircraft developer ZeroAvia, hydrogen fuel-cell startup Celadyne Technologies, and EV charging solution provider XCharge.
• BP, which plans to cut oil and gas production by 40% by 2030 while expanding its low-carbon business, says that its BP Ventures arm will spend up to $200M per year (double its investment in prior years). It expects to close 10 deals in 2022, up from 5-7 in 2021 and 3 in 2019. This year, the company has announced investments in smart EV charging firm IoTecha, geothermal energy startup Eavor Technologies (Chevron is also an investor), and autonomous vehicle software firm Oxbotica, among others.
• Total committed last year to reaching net-zero emissions by 2050 – rebranding as TotalEnergies in May 2021 to signify its commitment to diversifying towards renewables. It plans to spend 20% of its investment budget this year on renewables and electricity. In addition to an active portfolio of 42 companies, TotalEnergies Ventures is also a part of 11 funds – most focused on cleantech. So far this year, it has invested in EV subscription service Onto and smart city fund Eurazeo, among others.
• In Feb 2021, Chevron announced a $300M fund dedicated to investing in low-carbon energy startups. Chevron Technology Ventures has invested in 8+ startups this year, including geothermal players Eavor Technologies and Baseload Capital, distributed power generation startup Mainspring Energy, offshore wind turbine company Ocergy (possibly the first investment by a major US oil company in offshore wind), carbon-free ammonia player Starfire Energy, carbon capture startup Blue Planet Systems, hydropower supplier Natel Energy, and waste-to-hydrogen startup Raven SR.
• Earlier this year, ExxonMobil saw an activist investor win a challenge to install 3 directors in favor of a low-carbon direction on its board. It is now contemplating a pledge to cut net emissions to zero by 2050, in addition to investing $3B through 2025 in a Low Carbon Solutions business unit dedicated to commercializing lower-emission energy technologies. It is also reportedly open to partnering with venture funds for financing carbon capture projects.
• Cleantech venture investments are still only a fraction of oil companies’ investment budgets. While there’s been a marked step-up in commitments among the oil majors, it’s not clear to what extent these commitments are durable vs. temporary greenwashing until the pressure eases up. It’s no coincidence that the oil majors most committed to cleantech are in Europe – BP (UK), Shell (Netherlands), and TotalEnergies (France) – where social and regulatory pressure on emissions is greater and more consistent than in the US.
• For certain technologies like geothermal and carbon capture that could leverage Big Oil’s infrastructure and capabilities, oil companies might be positioned to be kingmakers. They are recognizing this and emphasizing to startups their potential value as large customers or partners (which, in some cases, is needed to overcome the startup’s reluctance to partner with Big Oil). Strategic collaborations post investment between oil major and startup are becoming relatively common. As investors and regulators increase their scrutiny on emissions – and cleantech valuations skyrocket – US oil majors may start resigning themselves to the reality of climate change and begin looking to capture their share of the pie.

Related Content:

• Feb 5 2021 (3 Shifts): ExxonMobil’s $3B investment in carbon capture
• Feb 26 2020 (Brief #24): Billions in climate funding from Bezos, Microsoft, KKR & others – Why now?

That’s it for this week’s 3 Shifts Edition. A reminder that if you’d like to read more content and you’re not already subscribed, head to 6Pages.com to sign up for free summaries of our deeply researched briefs and the 3 Shifts Edition straight to your inbox. Keep an eye out for our upcoming brief on what’s next for quantum computing. Until we meet again, I’m Eric Thompson, signing off.