Facebook's Next Challenge: Getting Mobilized
Halina is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook Inc. (NASDAQ: FB) made a concerning revelation in its May 2012 S-1 securities amendment filing: The company does not "generate any meaningful revenue from the use of Facebook mobile products, and [its] ability to do so successfully is unproven." This has become a big issue since, in just one year's time (March 2011 to March 2012), mobile monthly average users (MAUs) increased from 288 to 488 million, or 69%. Likewise, the mobile MAU number is only expected to rise when Apple (NASDAQ: AAPL) rolls outs its new mobile operating system iOS 6, which will enable iPhone 5 users to post to Facebook, "Like" apps, check out what apps are being "liked" by their Facebook friends, and be notified of upcoming events such as birthdays through the device calendar. The new iOS release is slotted for the fall of this year.
Facebook also attempted to clarify its first quarter advertising revenue gap by attributing some of that dip to the rapid increase in mobile MAUs, an increase that far exceeded the "immaterial number of sponsored stories in News Feed," a mobile advertising platform recently released by the company that creates an advertisement centered around a Facebook friend's personal experience with a product or service. Initially, the company had attributed its decreased advertising revenue to seasonal fluctuations in the business. Given that Facebook's News Feed platform was also recently sued for improperly posting user product/service recommendations, it is doubtful that much revenue will be reported from sponsored stories for the second quarter. Indeed, most FB stockholders are bracing for another lower than expected revenue report from Facebook on July 26.
What Facebook is Doing to Become Mobile
Facebook isn't just sitting back and twiddling its mobile thumbs, however. It's definitely mobilizing.
Instagram purchase. The company recently spent $1 billion to acquire Instagram, a photo-sharing site that was becoming a formidable competitor with Facebook's own mobile photo-sharing apps. In fact, some pundits state that Instagram commanded a very high price because it succeeded precisely where Facebook had failed -- viral photo-sharing via mobile devices.
Hyper-local ad targeting. The company might also be looking into potential mobile advertising venues such as hyper-local ad targeting, which would show ads to users who are in close proximity to a given bricks-and-mortar business. For example, a user who stood within 100 feet of a Best Buy store would see ads featuring Best Buy computers. While not officially confirmed, it does appear that Facebook is exploring local ad targeting based on a mobile device user's geographic coordinates. Furthermore, Facebook acquired Rel8tion back in early 2011, a company whose specialty is hyper-local mobile advertising. The question now remains as to whether Facebook can rely on Rel8tion to monetize ads for mobile users that access Facebook through various apps, operating systems and devices.
Targeted mobile ads. What Facebook is launching is a mobile advertising platform that customizes ads shown to mobile device users based on what apps they have downloaded and used. These ads are displayed on Facebook's News Feed, a kind of home page that displays activity updates from Facebook friends. The downloaded apps will be tracked through Facebook Connect, a feature that allows users to open sites such as Yelp and LinkedIn. Apple also targets ads based on what its users download from the company's app store or iTunes. Having app-tracking capability would give Facebook the more lucrative option of charging advertisers per every app download rather than just per thousand ad views.
A Facebook smartphone. Facebook's biggest move of late is to make its own smartphone. To this end, Facebook has teamed up with Taiwan's HTC Corporation to create the smartphone hardware while its software will be the responsibility of the social media giant. The project, which has been codenamed Buffy (as in the vampire slayer) is expected to run on a version of Android and thus put a stake in Google's (NASDAQ: GOOG) profits. This move could not come soon enough as Google will be acquiring Motorola Mobility on August 15, putting it in a prime spot for making handsets. Facebook hopes to release its own smartphone sometime next year.
An app store, browser, etc. Besides having a "Buffy" smartphone, the company wants to create its own app store, where downloadable mobile versions of social sites and apps like Pinterest, Camera and Spotify will be linked to Facebook. The company is also looking to partner with Opera Software, a Norwegian company that builds web browsers for mobile devices. Obviously, having a dedicated Internet browser would allow Facebook to better market user data, thus gaining bigger and higher-paying retailers.
Facebook is acknowledging and facing up to its deficiencies in the mobile marketplace, which is always a good thing. The company is also making strides to address its weaknesses. Taking better advantage of mobile advertising would certainly catapult Facebook's sinking revenue and prop up its stock price. Having a smartphone in place would lessen Facebook's reliance on Apple and Google and give the company far more control over lucrative user data.
halina23 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Facebook, and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.