Why Facebook (Nasdaq: FB) Is Buying Drone Maker Titan Aerospace

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What is Facebook Inc. (Nasdaq: FB) up to?

The social networking leader is slated to buy long-endurance, solar-powered drone maker Titan Aerospace in a $60 million deal.

As crazy as it sounds, it's not that crazy at all.

Apparently, Facebook is interested in privately owned Titan to further its undertaking of connecting the world through global Internet access.

Why Facebook (Nasdaq: FB) Wants Titan

You see, in 2013, Facebook Chief Executive Officer Mark Zuckerberg became the leader and primary backer of the Internet.org initiative, aimed at bringing affordable Internet access to the planet's 5 billion people who live where connectivity is lacking. The Menlo Park, Calif.-based company plans to use New Mexico-based Titan's high-flying drones, called unmanned aerial vehicles (UAVs), as bouncing stations to bring Internet, Wi-Fi, and broadband access to remote worldwide areas.

Titan's UAVs are actually atmospheric satellites that can conduct most of the operations of an orbital satellite. Making them especially attractive is that they're cheaper and multipurpose and can remain airborne for five years without needing to land.

The company says its UAVs can be used for weather monitoring, maritime traffic observing, disaster recovery, anti-piracy operations, agricultural observations, Earth imaging, and communications.

Without question, it's the communication capabilities that Facebook likes.

Titan would begin its collaboration with Facebook by building 11,000 UAVs, according to TechCrunch, which broke the story early Tuesday.

Two-year-old, venture-backed Titan unveiled its Solara 50 and Solara 60 UAVs in 2013, billing them as extremely cheap alternatives to satellites.

The crafts can be launched during the day or night and are powered by an internal battery. Once airborne, they're powered by solar panels embedded into their 160-foot-long wingspan. The aircrafts operate at an altitude of 65,000 feet and have a mission range of more than 4 million kilometers (2,485,482 miles).

This positions them comfortably above commercial airlines flying around 30,000 feet, as well as above regulated U.S. air space - the Federal Aviation Administration's jurisdiction goes up to 60,000 feet.

Additionally, the sky-high altitude means they're out of reach of turbulence, resting in calm atmosphere known as the tropopause, which permits optimal operation. Moreover, these unmanned devices need little oversight.

In an interview with Fortune in August 2013, Titan CEO Dustin Sanders said launching a traditional satellite is an expensive endeavor, costing billions of dollars.

Sanders explained the beauty and benefits of Titan UAVs: "We're trying to do a single-million-dollar-per aircraft platform. And the operating cost is almost nothing - you're paying some dude to watch the payload and make sure the aircraft doesn't do anything stupid."

Drones Come Out in Droves

Drones have recently surfaced as the next "smart" technology.

FedEx Corp. (NYSE: FDX), United Parcel Service Inc. (NYSE: UPS), and Amazon.com Inc. (Nasdaq: AMZN) all hope to employ drone-like devices for delivery services.

Amazon's aim is to make same-day service possible. FedEx wants its giant FedEx planes replaced with unmanned aircraft, which would allow for more cargo space. UPS's goal is about trimming headcount. Big Brown envisions a self-driving UPS truck that rolls onto a block, cracks open, and spews out a small fleet of drones that fly about dropping off packages.

Currently, the commercial use of drones is not permitted by the Federal Aviation Administration. But amid growing interest, the federal agency is scheduled to unveil new guidelines by the end of 2015.

Meanwhile, California, Nevada, Florida, and the District of Columbia allow the testing of self-driving vehicles on private roads.

And as cutting edge as the Facebook/Titan tie-up sounds, it's not the first experiment testing floating devices for global Internet connectivity. Last year, Google Inc. (Nasdaq: GOOG) launched Project Loon. It's the Internet search giant's pilot program testing Internet access via solar-powered helium balloons.

Facebook's (Nasdaq: FB) Acquisitions Make Sense

Facebook's acquisition of Titan would nicely complement last month's purchase of messaging app WhatsApp.

Zuckerberg explained the WhatsApp deal as a means of providing Internet service to new parts of the world. Titan would further that mission.

And while a $60 million price tag would be windfall for tiny Titan, it pales in comparison to the $19 billion Zuckerberg plunked down for WhatsApp, or the $1 billion to buy Instagram in April 2012.

Hyped as the hottest stock two years ago amid a highly anticipated initial public offering, FB lost a lot of its swagger following the botched IPO.

But now, thanks to strategic acquisitions, Facebook is looking much healthier.

In late afternoon trading, shares of FB were trading up 1.3% at $68.30.
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