Facebook Needs to Hang Up this Idea
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
To say that Facebook's (NASDAQ: FB) IPO was a disaster so far is to put it mildly. With the stock still down 17% from its offering price, most investors are still seeing red. However, there is nothing worse than compounding one error with another. While the Facebook IPO might have been priced too high, a terrible idea isn't going to change that. This terrible idea is the Facebook phone. In a recent Motley Fool article, Tim Beyers gave, “6 Things the Facebook Phone Must Do Well”. Let me save everyone some time and tell you the one thing it must do -- never see the light of day.
While some of Tim's ideas are spot on, the bottom line premise is just bad. Apparently Mark Zuckerberg, CEO of Facebook, believes that in order to compete effectively, the company must produce its own handset. Tim even went as far as to say that not creating a handset would relegate Facebook to becoming the next MySpace. Let's just nip that in the bud real quick.
I used to use MySpace as did millions of others. The reason MySpace failed compared to Facebook is the design of each page wasn't unified enough. You couldn't find friends unless they told you they had a page. To be blunt, some individuals pages were so full of stuff that you couldn't tell what you were looking at. Facebook is about finding and interacting with people. In addition, one thing that Facebook has consistently done well is updated everyone's pages to the same theme. Sure individuals can change their profile picture and cover picture, but everyone has these two main pictures. Every Facebook individual page uses timeline, whether you like it or not, it looks the same and you know where to look for certain information. The newsfeed page is unified and whether I log in at home, on my iPad, or another person's computer it looks the same. This allows novice users to pick up the flow of the site without a steep learning curve. Finding people and interacting with people is the Facebook experience. The experience on a mobile device is drastically different.
On smartphones screen real estate is very restrictive. This changes Facebook's operating model when it comes to advertising. You can't have splash advertising on a phone without taking up the full screen. If you do, it's relegated to a very small horizontal bar with very little information. Facebook has been using inline advertising by incorporating advertisements into the newsfeed, but again this takes up a lot of space on a handset. That is the biggest challenge Facebook faces. In one of the six things a Facebook phone must do well, Tim says that Facebook needs to offer subsidies to seed the market with their handset. He references another Motley Fool article, where Evan Niu makes the argument that the company is, “already missing out on billions in sales” by being largely absent from the race for mobile advertising revenue. I agree with this in principle, but having your own handset doesn't address mobile advertising unless the phone is going to be an advertising supported device that no one would want.
If producing a handset isn't the way to go, what should Facebook do to ensure their piece of the mobile advertising pie? First, make your experience better with the tools already in place. To get an idea of how bad the current Facebook app was on the iTunes store, just look at what Facebook fixed in release 4.1.1. The company mentions things like: “the right profile picture appears for everyone, your list of friends always includes all of your friends, in sets of photos you name is displayed correctly.” When I read those items, I think you've got to be kidding me right? We are dealing with a company with over 900 million registered users, and if you use their iOS app you might see the wrong profile picture before this?
With Apple (NASDAQ: AAPL) selling over 35 million iPhones last quarter and over 37 million the quarter before that, this means millions of iPhone users probably downloaded the Facebook app at some point. I know I've personally used it in the past, and my wife has it on her iPhone. The app is so bad at certain points, that she will just avoid using the app until she can use her iPad and have the regular browser experience. We are unfortunately not the only ones having these issues. The current version gets a rating of 2 out of 5 stars on iTunes from over 39,000 users. There is a reason that the Facebook app is only the 45th most popular free app for the iPhone as of today. Even Twitter ranks higher than this and Twitter has many less users. The bottom line, Facebook needs to do a lot of work with its existing tools instead of trying to reinvent the wheel.
Let's face it, if Facebook does decide to market its own handset, the company is getting into a business that it has no experience in whatsoever. It's not about whether the company has 900 million users. The handset business is about one thing: a great inter-connected experience. Apple is the model of how to make this happen. The company builds the hardware, the software, and the store to inter-connect it all. Google (NASDAQ: GOOG) is just behind Apple with their acquisition of Motorola Mobility. The company makes the hardware (through Motorola), the software, and has combined multiple stores into the unified Google Play. Even Microsoft (NASDAQ: MSFT) is getting closer to this idea. Microsoft's Surface tablet has hardware and software by Microsoft; the only thing that Mr. Softy is lacking is the centralized store for apps, music, etc. To build a phone, find suppliers, create a mobile OS (not iOS or Android), and offer subsidies to get the handset adopted sounds like a sure path to huge losses.
In his article, Tim Beyers said, “even if I have doubts about the need for a social phone, I don't doubt Zuck's ability to convince me otherwise.” I disagree. Zuck, if you know anything about your business, don't do this. Spend all of the time and money you would on a new handset by improving your users' experience where they get it now. Your users are on Facebook for the experience and they seek it out. Users don't really care what device they are using once they are on Facebook if the experience is good. Stick to what you know, put the phone down and back away.
MHenage owns shares of Apple. The Motley Fool owns shares of Apple, Facebook, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. 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.
