Facebook's plan to eat another $350 billion IT market

Facebook CEO Mark Zuckerberg

On an ordinary work day in mid-2016, a handful of Facebook engineers were sitting on the couches in a corner of the company's Menlo Park, California, headquarters when one of them tossed out a wacky idea.

He suggested doing something that had never been done before and could potentially upend the $350 billion telecom market.

"It can't be so difficult to build our own system," the engineer said, referring to the telecom equipment that sends data across cables and wireless networks, and which the engineer suspected could be made to operate faster and cheaper than the pricey equipment sold by big vendors like Nortel, Huawei, Ericsson, Cisco or Juniper Networks.

The engineer was suggesting building the telecom industry's first "white box" transponder, made with off-the-shelf parts such as chips from Broadcom and Acacia Communications, optical equipment from Lumentum, and software from one of the many new networking startups cropping up these days.

Facebook's director of engineering Hans-Juergen Schmidtke, who was among those on the couch that day, was at first a naysayer.

"I was a little bit skeptical about it at the time," he recounted to Business Insider. As a former engineer at Juniper Networks, Schmidtke knew from experience that building telecom equipment systems was an expensive undertaking that involved hiring teams of specially trained engineers and sizeable R&D budgets. 

"Building a system ten years ago was like building a new company," Schmidtke said. 

Still, Schmidtke agreed to help this tiny group hack together a white box system at one of Facebook's famous hackathons. Three months later they had a working prototype. Six months later, on November 1, they announced it to the world as a real product called Voyager. 

The product’s unveiling sent shockwaves through the telecom industry, putting gear makers on notice that the lucrative market they controlled for decades was about to get turned upside down — and not necessarily to their advantage.

While the effort is essentially a side-project for Facebook, a social networking company whose bread-and-butter business is online advertising, the stakes could not be higher for the telecom equipment companies which risk seeing their specialized products reduced to interchangeable commodities and their influence diminished. 

For the industry’s established companies, there’s unease about Facebook’s growing clout and its ultimate intentions. But in a sign of how serious Facebook’s foray is being taken, there’s already a recognition by some that the repercussions could be even more painful it they don’t adapt.

Voyager has already been tested by Facebook and European telecom company Telia over Telia’s thousand-kilometer-telecom network. Plus, German telecom equipment maker ADVA Optical Networking is manufacturing the device and, as of a few weeks ago had nine customers trying itout for their telecom needs, a mix of big telecom companies and enterprises, it said. And Paris based telecom provider, Orange is also testing the device, working with Equinix and African telecom company MTN.

"We pulled it off essentially showing that when a few engineers can build a system within six months, the world has changed," Schmidtke said.

One person told us that Schmidtke, who is insanely proud of Voyager, has become a star in his own corner of the tech world. When he and his team "go to conferences, they treat him like a tech celebrity, like a rock band," that person said.

From one cult to another

Voyager was the first product, and a major proving point, for Facebook's young Telecom Infrastructure Project (TIP), a consortium led by Facebook and launched at the industry's worldwide gathering, Mobile World Congress, on February 21, 2016.

TIP is a spin-off from a similar organization Facebook launched a few years ago called the Open Compute Project (OCP).

Facebook launched OCP and TIP because it had to take control over the technology it uses to support over 1.8 billion people uploading billions of photos, videos and updates every day.

It has been designing its own IT equipment for years, things like computer servers, hard drives/storage systems and data center networks. Its versions were cheaper to build and easier to maintain than standard gear made by companies like Dell, HP, EMC and Cisco, it says. 

Lots of big internet companies build their own tech, including Amazon and Google. But Facebook is unusual in that it openly shares all the designs, literally gives them all away for free, inviting anyone at any other company to come work on them, with contract manufacturers standing by to sell it all. It's a concept called open source hardware.

In this way, Facebook gets lots of help in maintaining and advancing its infrastructure. And the rest of the world gets access to tech designed to work in the most demanding circumstances, like at a huge internet company.

OCP has radically changed the data center tech industry and those involved say it has created a cult-like following. For instance, when secretive Apple refused to join OCP to let its IT engineers collaborate with others, it's crew of network engineers quit their jobs. They turned around and launched a startup called SnapRoute and built network software for the OCP community, the story goes. Apple later joined OCP. SnapRoute wound up being the software chosen for Voyager.

OCP created so much competition for hardware vendors like Hewlett Packard and Dell that they opted to join the organization and embrace the white box concept. The alternative was to be squeezed out of selling their products to companies with the biggest and fastest-growing data centers in the world, not just Facebook, but Microsoft, Goldman Sachs and dozens of others.

There was just one major area that had been somewhat left out of OCP's free and open source hardware revolution, the telecommunications part. That's the equipment that connects homes, businesses and data centers together across long distances, via undersea cables, wireless networks, and so on.

And the big telecom companies, those that spend millions of dollars a year on this gear, wanted in. They needed an OCP of their own, Facebook discovered when it launched its Internet.org, CEO Mark Zuckerberg's project to bring internet to underdeveloped countries.

"As we were thinking about Internet.org and helping get more people connected, the idea was, we're doing this thing called OCP to help the data center community to build infrastructure that's more efficient, more cost effective, that's greener and more sustainable, more flexible. And we said, can we do that for the telco industry?" said Facebook's VP of engineering Jay Parikh.

"Facebook, having learned from OCP, comes in and says, we can play maybe a catalyzing function," Parikh said, describing early meetings he and his crew had at Mobile World Congress. "We're investing our people and our dollars into technology that is going to solve these problems and we're going to contribute that technology, that IP [intellectual property] into the ecosystem so that you all can benefit from this."

Voyager is one big example. "That's something we developed and it's like, wow, we actually solved a problem that a bunch of operators seem to be struggling with," he said.