Analysts do what analysts do, they analyse and project but mostly speculate, and before you point out that that’s obvious, let me highlight all the rumours and half-baked stories about the recent employment of former iPhone hardware and software engineers by Facebook.
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The buzz and speculation amongst the analyst community is that finally, as Facebook is now public and needs to bolster its revenue making operations, it will have to come out with a Facebook phone. Tons of clever reasoning and lots of convoluted dot-connecting has ensued.
I must disagree, and there are three great reasons why Facebook will not bring out a Facebook Phone. These reasons are Google, Apple, and Microsoft, who are also shareholders of Facebook (lest you forget). As a big a deal as Facebook may be, now being a multi-billion US Dollar listed company on Nasdaq, it still has a long way to go before its revenue models and business processes are even vaguely ready to take on the big boys in the mobile hardware and services industry.
Apart from the clear reasons above, there are also three really compelling business reasons why hardware will remain a rumour at best for Facebook.
1. Monetisation
The first and main reason is that Facebook is a virtual network. All Facebook users and friends exist virtually on the platform, and can hopefully be fully monetised in this way. The exact nature and form of this monetisation is currently in flux, with gaming and advertising bringing in the lions share for now.
The introduction of a hardware platform will do little to increase the depth or intensity of the engagement that users of Facebook currently enjoy, and will also do little to add value to the gaming and advertising revenue. Facebook developed applications that are needed to run a phone are completely commoditised. There is little or no benefit for Facebook to develop its own and even if it does, these functions offer little or no differentiation. Users will also not accept advertising in invasive places such as the phone dialler.
2. Resources
The second reason why a Facebook phone is highly unlikely is simply the resources needed, as well as the sheer scale of distribution to actually physically get the phones into the hands of Facebook fans globally. Nokia and RIM, the makers of BlackBerry, have arguably the best and longest standing relationships with mobile operators across the globe, as well as highly efficient supply chain manufacturing as well as global distribution systems.
These powerful benefits have made very little difference to these companies, other than to slow down the precipitous decline in their fortunes in recent times. Facebook could never match this level of resources without spending inordinate sums of its recently acquired IPO money — and even that may not be enough to get then anywhere near enough market share to make them significant in the market.
A Facebook operating system will also need to leverage all the other social apps that users insist on using. There is also no guarantee that all the other social platforms will make their systems available on a proprietary Facebook platform.
3. Apps, not smartphone
The third and final reason why employing a few key staff members who have iPhone experience makes lots of sense, but does not spell a hardware strategy, is another trend that is gathering strength amongst the main global smartphone platforms. This trend is integration of key apps deep into the operating systems themselves.
Twitter integration in iOS and Windows Phone, as well as with BBM in BlackBerry, is a perfect example of this. Facebook as a platform and application is ten times more complex with far greater functionality than Twitter. Facebook will need deep skills on the software and hardware front in order to continue to embed, and in fact enhance, the operation of the Facebook platform on the various operating systems.
The reason that Facebook has hired these engineers, and may in fact hire more, is to ensure that it is able at all times to stay ahead of the OS and application integration curve on the platforms it critically relies on.
The mobile environment will continue to get more and more competitive as the main platforms fight it out to grab a share of the market. Android, iOS , Windows Phone, and to a lesser extent BlackBerry, will all be trying to find ways to make their users’ lives easier and to differentiate their device experience by utilising greater and greater integration of key functions directly into the base operating system.
A telling indicator is that we are all spending significantly greater amounts of time on our smart devices engaging with social media, sharing, tweeting, taking pictures, and generally engaging in socially-based behaviour. Making phone calls is becoming almost incidental.
The key usage of the device, which research is showing is becoming increasingly social, will dictate the form and function of the next generation of devices to a greater and greater extent. Facebook, with its insanely high level of penetration with the connected universe, will be a key factor in the evolution of the hardware and software on the next phone you and I will utilise. Facebook will as a consequence need to skill up, in order to help direct this evolution.
Facebook will also need these skills in order to keep on coming up with ways to delight and engage its increasingly mobile user base, and in no small part, to find ways to monetise this mobile relationship to the benefit of Facebook.
The impact this will have, not only on Facebook, but also on the entire ecosystem of device manufacturers, the various operators and others that exist in the chain between the user and Facebook will be enormous and is vital to the future profitability and continued growth of Facebook.
