What’s with the tech industry’s mobile phone fascination? What drives a company to venture out of its area of expertise to release a smartphone? And why is Facebook (NASDAQ:FB) — a social media company — going down that same path?
It all comes down to one big statistic: By 2014, mobile users will surpass desktop users when it comes to Internet access.
Apple (NASDAQ:AAPL) made the jump with its iPhone in 2007 because it saw the trend developing and didn’t want to fade away as PC sales inevitably declined.
Google (NASDAQ:GOOG) released its own HTC-manufactured Nexus smartphone in 2010 to boost the visibility of its Android mobile operating system, offering users the ultimate in Android-optimized hardware. Doing so was intended to boost Android adoption preserve its all-important ad revenue as users turned from the desktop to mobile. That strategy has worked, with Google’s mobile ad revenue up while Android’s share of world smartphone sales as a platform rose from 22.7% in 2010 to 68.4% in 2012.
Facebook must cope with the same challenge as users increasingly go mobile.
If it wasn’t already obvious, Facebook got the message when mobile Facebook visitors officially surpassed desktop visitors earlier this year. Facebook needs a solid mobile advertising platform to be successful. It also faces slowing subscriber numbers and the issue of younger users ditching the platform for competing social media services like Twitter and Tumblr.
Like Google, Facebook decided to go on the offensive. At an April 4 event at company headquarters, CEO Mark Zuckerberg unveiled his company’s two-pronged attack on mobile.
First is Facebook Home, a collection of apps that can be installed on Android smartphones, transforming them into Facebook-centric devices. Unlike Amazon’s (NASDAQ:AMZN) Kindle tablets, this isn’t a customized version of Android — it’s installed right over top of a standard Android OS.
The entire display is taken over in a feature called Cover Feed. Friends’ profile pictures pop up as “Chathead” bubbles that can be positioned over top of other running apps, so users are never out of the loop, even when watching a movie or playing a game. There’s also a Facebook app launcher, allowing social media apps to be accessed from one convenient location.
Second is the HTC First, a mid-level Android smartphone that will be available as an AT&T (NYSE:T) exclusive on April 12 for $99 (with a 2-year contract). While not branded as a Facebook phone, it might as well be — the device is optimized for Facebook and comes with Facebook Home installed, so the only thing users have to do when they unbox the device is sign into their Facebook account.
The two-pronged approach is similar to Google’s. The HTC First is meant to provide a showcase experience that leads other smartphone makers to offer Facebook-focused phones. Meanwhile, the free Facebook Home app for Android gets Facebook in mobile users’ faces.
And, as noted in TechCrunch’s live blog of the Facebook event, when questioned about whether Cover Feed might eventually be pushing advertising to FaceBook Home phones, the company responded: “Yep!” So it’s built to offer a more aggressive attack on mobile ad revenue, too.
If Facebook can pull off anywhere near the same success that Google did, it’s in good shape. This move could help retain existing users by keeping them more engaged and appealing to their increasingly mobile access habits, providing a new and expanding method for delivering paid advertising. Plus, functions like “Chatheads” could help attract a younger demographic.
However, another social media giant tried this approach back in 2006, with poor results.
News Corp’s (NASDAQ:NWSA) MySpace was in a similar position: It was the dominant social media platform, its users were increasingly going mobile and its overall subscriber growth was slowing. But most alarmingly, young users were jumping ship for the latest and greatest new sites — like Facebook.
MySpace fought back with a MySpace-optimized cell phone, offered through Helio in a $440 million venture called MySpace Mobile. In a piece covering the launch of MySpace Mobile, CNN said the strategy “could turn into another lucrative advertising venue for News Corp.”
But the MySpace phone was a flop. Teens weren’t interested in MySpace hooks all over their phone, and older users shrugged. MySpace collapsed under the onslaught of Facebook, and ad revenue dried up as users abandoned ship. The company that was once valued at $12 billion, last traded hands for $35 million.
So don’t count out the possibility that Facebook Home and Facebook-optimized smartphones like the HTC First could be as ineffective as the MySpace phone was.
Facebook must convince users to buy a new smartphone (tough to do against premium models in a saturated market), or to download and install Facebook Home. And while ads in Cover Feed could prove lucrative, Facebook needs to be wary of aggravating users with advertising. Otherwise, they risk user defection.
I suspect Facebook Home won’t do much to stanch the defection of those younger users. It’s interesting enough, but probably lacks sufficient “cool” factor to impress that crowd. Besides, most of them are abandoning Facebook to get away from their parents. A mobile experience that makes it even easier for the mature crowd to be all over Facebook (“Buy the HTC First and you don’t even have to install anything!”) isn’t going to help that situation.
Will Facebook Home and Facebook phones ultimately be a Google-phone-like home run? Or will this turn into a MySpace phone and end up in the toilet? We’ll have to wait to find out.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.