Mohamed is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Did Apple’s (NASDAQ: AAPL) stunning iPhone sales and profits raise an eyebrow and made someone in Menlo Park say why can’t we do that ourselves?
There has been a lot of speculation going around regarding Facebook's (NASDAQ: FB) project Buffy claimed to be for developing a Facebook smartphone. So far there is nothing certain about how this will look, but alot of predictions have been made from Facebook buying terminal Blackberry maker Research in Motion to Facebook producing its own mobile operating system such as Google's (NASDAQ: GOOG) Andriod, to Facebook making a phone in partnership with HTC. Now why would Faceboook deviate from its core business in social networking which it's currently dominating and enter into an entirely new industry with entirely different players that are well established.
Facebook is obviously having trouble monetizing mobile. Facebook gets most of its revenues through advertising and so far no ads on mobile screens means no money from mobile. This would have been fine a few years ago, but now with more people spending time on their smart phones and tablets this has become a serious issue. Facebook now reports that 425 million users access its site on mobile each month. Mark Zuckerberg has recently stated that he doesn’t want Facebook to be another app on a mobile store. So I'm guessing he's thinking the best way for Facebook to monetize and secure its place on mobile would be through producing its own smart phone.
Well it’s not going to be that simple. Facebook has no experience what so ever in making devices. To enter the smart phone market Facebook will have to get a lot of things right including product design, sourcing, supply chain management, manufacturing, distribution, segmentation, pricing, and positioning. These are all things in which Facebook lacks experience.
This is not as simple as it looks. One would expect that when an established Internet Company such as Google partners with an established electronics company such as Samsung to combine the TV and the Internet it will be a great success, but that's not what happened. Microsoft (NASDAQ: MSFT) also thought that it could simply copy Apple's iPod with the Zune and achieve the same success.
If Facebook develops its own smartphone it will enter a market dominated by a few key players and one in which one company takes most of the revenues and profits.
Barron's, charts courtesy UBS
One for All and All for One
Concerning Mark's fears about Facebook turning into another app on a mobile store, a Facebook phone may not be the best answer. I don't expect that 900 million people all of a sudden are going to drop their phones and go buy a Facebook Smartphone. There is very little chance that Facebook is going to dominate the smartphone industry the way it dominated social media.
Facebook, as a networking platform that is used by hundreds of millions of people all over the world, has to work equally well no matter what device it's running on. That means Facebook has to work equally well on an iPhone, a Galaxy, a Nexus, or a Facebook smartphone. Facebook cannot turn into a closed environment on Mobile just like BBM or an Apple App store. If it does then it will have lost its edge and it won’t meet its mission of connecting the world.
The majority of people are unlikely to change their phones just for Facebook. They would probably just drop Facebook and use other ways to connect such as Twitter, WhatsApp, Skype, and Face time to keep connected if Facebook does not remain universal.
A Smart Acquisition
Facebook doesn't necessarily need a phone to start monetizing mobile better. Norwegian web developer Opera (OTC: OPESY) claims to offer a very strong mobile advertising platform. Mobile advertising revenue growth is up 303% when compared with the same period last year, according to Opera's first quarter results. It serves the entire mobile value chain. It works with Google to monetize search and it is one of the only third party Advertisers to be allowed access to the iAd Platform after publishers put their foot down and insisted on AdMarvel being integrated with iAds
Opera's browser technology will also benefit Facebook in several ways such as offering Facebook more penetration to emerging markets such as Brazil and India that Facebook is having trouble with and by making it easier to deliver Facebook's rich and interactive features by utilizing opera's compression technology that is able to shrink the size of a web page by 90% which reduces data transmission costs which also causes it to be more popular in emerging countries. I believe that acquiring Opera would be a smart move for Facebook even if it is for a Billion Dollars. It makes more sense to me than Instagram.
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