Photo: BI Intelligence
As has been rumoured for the last two-plus years, Facebook is building a mobile phone platform.As SAI’s Jay Yarow points out, Facebook has already put a lot of the pieces in place for a Facebook mobile platform, including a camera app, messaging app, app store, payments system (Credits), expertise related to location-based check-ins (Gowalla, acquired earlier this year) and mobile gifting (Karma, acquired earlier this month). It’s reportedly considering buying a mobile browser maker (Opera) as well.
Now, Facebook is reportedly hiring engineers from Apple to design hardware.
Facebook is probably not going to get into the hardware business directly, for the reasons that Henry Blodget lays out: it’s a brutally low-margin business that requires massive scale, it’s got lots of entrenched incumbents, and it’s way outside Facebook’s areas of expertise.
Instead, Facebook will probably mimic Google’s approach with its Android Nexus phones, where it builds the platform and cooperates with one handset maker on an “ideal” phone design for each new release, or Microsoft’s approach with Windows Phone, where it defines minimum hardware specs as part of its licence agreements.
So where will Facebook play in the mobile landscape?
- Location-based advertising. Facebook’s mobile advertising opportunity is limited by the fact that users need to have the Facebook app installed, and need to be logged in, before Facebook can serve them targeted ads. With its own mobile platform, Facebook can set its defaults so that users are automatically logged in whenever they turn on the phone. (With privacy safeguards as necessary to meet legal obligations and minimize user objections.) Doing this will help Facebook collect more information about users’ locations and activities for more accurate targeting, and will help Facebook deliver targeted ads to mobile users even when they’re not actively engaged with Facebook.
- A new distribution channel for app developers. Payments is Facebook’s hidden opportunity: less than 2% of current Facebook users buy anything with its Credits program. That’s mainly because there’s not much to buy — only in-app purchases within Facebook apps. Having a full-fledged mobile platform with built-in app store will change that, and give developers a new distribution channel for their apps.
- Mobile commerce. Last week, Facebook quietly bought Karma, a mobile gift-giving application that figures out the tastes of your friends and suggests gifts for them. Having its own mobile platform would let Facebook broker these transactions and take a cut of each. It’s easy to imagine Facebook brokering other kinds of “impulse” social commerce transactions, such as making restaurant reservations or buying event tickets with multiple parties.
Is there room for another smartphone platform?
Yes. Right now, the platform market is characterised by two fast-growing platforms, iOS and Android, and a bunch of rapidly shrinking (BlackBerry, Symbian) or marginal platforms (Windows Phone so far).But as we’ve noted before, about half of mobile phones in the U.S. are still dumb feature-phones (see chart) and the percentage is higher overseas. So there’s room for Facebook or other newcomers like Amazon to make a dent.
The biggest quandary will be keeping peace with Apple, the main distributor of the mobile Facebook app.
When Facebook first extended its Credits system to mobile, Facebook carved out a special exception for iOS, so that Apple would still broker all in-app purchases on all iOS devices — even in-app purchases on Facebook apps running in a Web browser. The unspoken quid pro quo: Apple allowed Facebook to keep distributing its app through Apple’s App Store.
If Facebook builds its own mobile platform that competes against iOS, Apple may not be so kind the next time.
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