What is Mark Zuckerberg thinking? Seriously. After he bought out 13 employee-having, no revenue-generating Instagram, comes news that Facebook might be looking to enter the smartphone space. Really? Considering the heavy weights that are already kicking butt and taking names in that seriously competitive space, can Facebook have a realistic shot?
Before you roll your eyes and contemplate Facebook’s stock stabbing downwards once again, take a deep breath and center your thoughts on three keywords: mobile advertising strategy. That’s right. The Achilles heel of Facebook’s business model. While 50 percent of its users access the service through a mobile phone, the company doesn’t show ads on its mobile presence. Talk about a massive revenue hole. It looks like this rumored foray (repeat, it’s a rumor) into smartphones might be Facebook’s attempt to milk ad revenue from its mobile presence. It is already generating hefty ad revenues from its web version so it is looking to plug its revenue hole in mobile. Sinking stock price or not, should Facebook pull off a fix for its mobile revenue shortfall, all bets are off on this company’s future stock performance. It would have achieved a feat even massive rival Google can’t fix with its Android OS.
No wonder Facebook is working on its rumored phone project with a sense of urgency. Less than a week after its underwhelming IPO, the New York Times reports that the company is beefing up its engineering corps in order to take on the smartphone space. The rumors date as early as 2010 when reports surfaced that two FB higher ups were given the task of secretly developing a Facebook smartphone. The rumor then resurfaced the following year when the supposed code name of the project, “Buffy,” was released by All Things D. In addition, the blog reported that the social networking platform was working with Taiwanese smartphone maker HTC. When asked about the rumored project, Facebook only said that they are working with all
technology players to deliver powerful social networking experiences to people the world over.
Now, the New York Times reports that Facebook has brought on board several former Apple engineers and is actively headhunting more. One engineer anonymously said that no less than Zuckerberg was asking him about the inside workings of mobile phones-down to the chips they need to operate. The New York Times says that the company hopes to launch its phone next year.
As can be expected, the tech blogosphere has been less than enthusiastic about this rumored venture. Why? For one thing, Facebook has very little experience in designing and building hardware. Be that as it may, the company is against a wall it needs to take this gamble if it were to plug the huge mobile revenue hole it is suffering from. Moreover, its ad revenues will only erode as more and more users use mobile devices to access Facebook.
The question that remains is whether the phone will be an actual Facebook phone or an HTC FB-enhanced phone. The latter might offer more promise from a flexibility perspective because it sets Facebook as a standards setter instead of a manufacturer. Regardless, given the stakes involved, it’s a good thing that Zuckerberg and company are being proactive. If there is one thing certain in the tech industry it is this-if you are not moving forward, you are dying.