Facebook's Potential Soulmate
Moustafa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Reports have recently surfaced of Facebook (NASDAQ: FB) potentially looking to get into the smart phone business. The reports oscillate between Facebook looking to purchase a struggling handset maker or develop a smartphone internally.
These reports probably stem from the panic caused by Facebook’s initial dip as it entered the market and panicked analysts demanding that Facebook must make some changes to right their ship. The latter idea (Facebook developing a phone internally) is not only idiotic, but would be disastrous. I can only imagine the billions of dollars that Facebook could flush down the toilet attempting to create something that would surely fall short of expectations.
The other idea, that of purchasing a handset maker, one that could be presently struggling, is not as bad as it may sound on the surface. Critics may counter that Facebook has no experience in the competitive handset market, that it’s a low margin business that is already dominated by the iPhone and the Android based smartphones. One could also argue that Mark Zuckerberg has no previous experience managing a handset maker and his management team would be ill equipped to properly integrate the company into Facebook. It could also be said that it would be a feeble attempt to compete with Google and their purchase of Motorola.
I beg to differ and I see a potential purchase of the right handset maker could be a very good move for Facebook. The growing mobile market has potential revenue streams that can’t be ignored by Facebook. Purchasing a handset maker can allow them to vertically integrate their users' experience.
Looking at the handset market, it’s dominated by Apple and Google’s Android-based smartphones, which are led by manufacturers like Samsung, LG and HTC. Once dominate Nokia (NYSE: NOK) has fallen hard from grace and has seen its market share dwindle and its most recent product releases fail miserably. Its most recent Lumia phone was not well received and has been put on sale by most carriers.
They have a partnership with Microsoft to utilize the windows OS for their line of phones but have not been able to make any headway in the smartphone market and with very little on the horizon it seems that they will continue to fade into obscurity unless they hit a grand slam with a product release.
A partnership with Nokia wouldn’t provide Facebook with much in the way of a popular ecosystem. Though Google purchased struggling Motorola, Facebook doesn’t have the same development capabilities or a workable OS. Nokia’s partnership with Microsoft could offer a potential beneficial cross partnership, but overall Nokia doesn’t provide enough in immediate potential revenues to make a purchase worthwhile for Facebook. With a market cap of approximately $10 billion, it would be a big investment for a low potential return in the short term. They need a handset with an established presence in the smart phone market, and a company with an already popular ecosystem. This would help them connect their users with the Facebook platform through the handset and potentially offer the ability to improve their mobile revenues moving forward.
Who already has an established user base worldwide? Who has fallen on hard times and been generally shunned by the overall market? Who has a proprietary OS and a new line of handsets about to be released? RIM (NASDAQ: BBRY) is the answer to all of these questions.
It may seem like a stretch but these two companies could actually be perfect partners. On the surface it may seem strange to blend a company that is known and still respected for the privacy of their networks and a company whose stated goal is to connect users worldwide and has come under fire for their privacy policies.
RIM has a valuable enterprise client base that wouldn’t be very beneficial for Facebook, obviously, but as Facebook would be purchasing the entire company this division could either be spun off or kept separate from the Facebook brand.
Outside of this area the union seems almost made in heaven. RIM’s BBM service connects users worldwide and allows them to chat quickly and cheaply -- combining this with the Facebook chat is just one example of how the services could be integrated. The idea of the “Facephone” I don’t see as a good option, but handsets designed to best utilize Facebook’s mobile app is a good idea. The ability to integrate the platforms with one another using RIM’s network’s ability to compress data could allow access to Facebook’s platform to users who would normally not be able to afford a data plan. It could also allow Facebook to control the access to their platform structuring their app to best accommodate the handset. The ability to fully integrate a portal to access Facebook into the phone, almost like the Explorer browser in Windows, could not only stimulate user growth and increase user time spent on the site, but also boost mobile revenue.
The list of ideas can continue but this is just to give you the idea that the purchase would be very beneficial for both parties. This is especially true with RIM’s valuable patent portfolio and Facebook’s need to capitalize on mobile revenue. RIM has been struggling and have hired JPMorgan to investigate options. Even if it wasn’t a straight purchase by Facebook a partnership could not only infuse RIM with cash but a needed boost in brand value in the minds of customers worldwide. RIM has been changing their executive team so if a purchase was made the new blood would be more open to a change in scenery and not as entrenched in the old ways as most of the previous RIM executives were. Overall this could benefit both companies in the long term and help Facebook achieve what it set out to do when it went public.
mooseelz owns shares of RIM. The Motley Fool owns shares of Facebook. Motley Fool newsletter services recommend Nokia. 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.