Monetizing Mobile With a Facebook Phone?
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After dropping twenty plus percent from its IPO high, facing a lawsuit over information dissemination as well as potential regulatory action the latest rumor is that Facebook (NASDAQ: FB) is launching its own branded smartphone. The current rumor comes from the New York Times and claims that Facebook will launch its own phone by next year, potentially teaming up with HTC as the manufacturer. Facebook has made a half dozen hires from Apple (NASDAQ: AAPL) beefing up their mobile hardware and software engineering chops with employees who worked on the iPod and iPhone. The New York Times reported that Facebook king Mark Zuckerberg is worried that Facebook "will simply become an app on other mobile platforms."
There are several potential reasons that Facebook would want to at least look into building their own smartphone, the first is that they could acquire a vast amount of data easier if the entire smartphone was integrated with Facebook instead of just being one of many apps, and secondly Facebook is not currently monetizing substantially from mobile which could be a huge money maker for the company if they pull it off right. Facebook recently reported that a majority of their sites usage is now on mobile platforms.
One of the main things that Facebook has to consider is whether they have the ecosystem in place to launch a phone that could compete against Apple’s iPhone and Google (NASDAQ: GOOG) Android. Facebook has the social credentials, they could integrate Facebook messages and the Facebook email service into their Facebook phone as Apple does with imessage for texting and Google does with Gmail for email on Android. Facebook just launched Facebook camera an iOS app for taking pictures and uploading them to Facebook, just like you can when taking a picture on Android and uploading it to Google Plus, or on iOS and uploading the picture to iCloud. Facebook is in the process of purchasing Instagram for one billion dollars this would get them an established mobile social platform, centered on taking pictures that could help them build the mobile platform they will need to compete with Google and Apple. Their location based offerings could show users where their friends are in real time compared to where they are as well as pictures and posts made close by or reviews of local businesses all integrated into the phones interface. Some of this location based social interaction is also being pursued by Google through Latitude and Google Plus, though they have yet to catch on.
Facebook has launched its own app store in the past few months which would be present on their potential smartphone and transactions could be based on Facebook Credits, the Facebook currency, and could offer a monetization opportunity for Facebook. There are also rumors that Facebook is looking into buying the browser Opera, which has an established mobile offering on multiple mobile operating systems and would be necessary if they plan on competing with the Android Browser and mobile safari.
It is clear that Facebook is putting together all of the pieces that could go into their own mobile platform to compete against Google and Apple, but what exactly would this platform be? One route Facebook could go down is to use a custom forked version of Android, like Amazon does on their Kindle Fire. The upside to an Android based phone would be that Android is already very well established and very popular. The downside is that Google’s Android already has lots of competition between hardware manufacturers and Facebook’s claim that their phone offers a better Facebook experience than you can normally get though the standard Facebook Android app might not be enough of a hook.
The other path Facebook could take would be that of using Windows Phone for their phone, Microsoft (NASDAQ: MSFT) already owns a chunk of Facebook, Bing and Facebook and integrated in numerous ways and Skype, which is owned by Microsoft, is the video service of choice on Facebook. Using Windows Phone could allow Facebook to leverage Microsofts Nokia hardware partnership as well as inking a potential deal for Microsoft to help with promotion and distribution of the new phone.
However there is already huge competition in the smartphone arena and Facebook already has a good application on iOS, Android and Windows Phone so the appeal of a Facebook phone would be all Facebook all the time, which some users might shy away from because they feel that Facebook already has too much of their personal information. Additionally hardware margins tend to be slim and initially at least Facebook would have to undercut the competition on price to get initial sales. Facebook has also not sold anything physical before and even with a hardware partner and potentially a second partner, say Microsoft if they went with Windows 8 there is still a whole set of operating costs that would demolish their margins for years to come. Lastly even though you can see the why Facebook might think they have the software and services assets for a phone, minus the OS, there is no real need for a Facebook phone in the market.
Going forward as a public company the monetization of mobile will be a large issue for Facebook that they will need to tackle. A long term mobile strategy that involves deeper Facebook integration on smartphones is a good thing. Maybe all HTC Android Phones ship with Facebook pre-integrated into them and HTC and carriers use that feature as a point of differentiation. Alternatively because Microsofts search engine Bing already has plans to integrate Facebook into search results and Microsoft owns 1.6% of Facebook deeper Facebook integration on Windows Phone smartphones could be a major selling point of Windows Phone as Microsoft takes on Apple and Google in the smartphone world.
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