Google, Apple and the Facebook Phone

Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Facebook (NASDAQ: FB) CEO Mark Zuckerberg announced last week that the social media giant is committing to the development of an HTC-built phone that will use the Android operating system to provide a fully integrated Facebook mobile device. It's the latest step in Facebook's ongoing efforts to replace the World Wide Web.

All Your Posts Belong to Mark

The service would be very happy if no one ever accessed any online content except through Facebook. That would allow the company to corner the market on the ads its users see, and perhaps start making some real money off those customers.

That's not a bad plan, but it's founded on the belief that 1) Advertisers consider Facebook ads effective and 2) users aren't fickle, and won't stray from Facebook's confines.

I doubt Facebook has an answer for those two serious questions. Yes, the Android community is large and prone to loving ways to do things on their own. That's good for Facebook. However, it's just one step in a huge chain of mobile users.

To maximize user attention and advertising impressions, the Facebook-integrated phone needs to seize a dominant share of the market. I just don't see that happening. There are too many other ways for people to see the online world, and too many competitors with market caps justified by performance, not hype.

Facebook's Major Mobile Enemies

Apple (NASDAQ: AAPL
)
Facebook already has a platform on Apple's iPhone. No one can say that it hasn't gotten significant penetration there. But Zuckerberg made it clear that Facebook still wants a more controlled mobile experience. Apple doesn't allow other developers to control the iPhone experience as much as Facebook will with the new HTC handset. That creates friction, even if the two firms don't compete for advertising dollars.

I still find Apple's stock a strong buy. I blame its drop over the last several months more on media hype than performance. I believe that a firm with a strong history of profitability and earnings per share of $44.10 can't stay at a P/E of 10 forever. The time to buy Apple is now, before it gets back to $500 or $600 per share.

Google (NASDAQ: GOOG
)
Facebook is partnering with a phone maker that uses Google's open-source Android operating system. More Android installs certainly helps Google and its Droid store. However, the new phone will allow Facebook to serve ads on the phone as much as technologically possible. That's bad for Google, since the company makes money on its own quick and easy ads.

Still, I doubt Google worries too much about a single Facebook phone. The company has a history of not getting worked up about things and playing its own hand as it likes. Its stock story justifies that; Google has grown more than $200 per share since last June, yet maintained an EPS at a still-reasonable $24.46. Google is a solid buy that might only be a little bit overvalued if an investor thinks its growth won't continue.

Microsoft (NASDAQ: MSFT) and BlackBerry (NASDAQ: BBRY
)
Notice which companies have been missing from the coverage surrounding Facebook's announcement? That's right -- the two firms that have both announced plans to be the world's third-most-popular smartphone maker. When it comes to smartphones, both Microsoft and BlackBerry want more respect.

Microsoft is an enormous company with history of wanting to break into hardware markets, but it has trouble being taken seriously. BlackBerry is the fallen top dog that hopes to regain its once-mighty market share. Facebook is available for both Windows Phone and the new BlackBerry, but no one seems to be paying much attention to those versions. Simply put, until these players gain more market share, there's no need to develop apps and strategies directly for them. That might change should either one take off, but it's not there yet.

One Last Status Update

I think Facebook's mobile initiatives might help justify its sky-high valuation -- if they succeed. But I have doubts that it's built up a sufficently big and loyal community to make that happen. Without a core of faithful followers, Facebook can get more intrusive with the ads to drum up revenue. But that might drive users off to other social media services, with potentially dire consequences for the company. Sometime in the next few years, something's got to give.

Follow Nate on Twitter: @natewooley

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Nate Wooley has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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