Summary: What’s next for Facebook? – Investors better hope it is not an entry into the smartphone market.
In our first post regarding the Facebook IPO, we posed a series of questions regarding the path of the company. In this post we dissect the question:
What is next for Facebook?
The main item that Facebook needs to be focused on right now is driving revenue per user up by at least 10X. This goes together with driving down the true cost of advertising / utilizing the Facebook channel to brand owners. To achieve these goals the company will need to actively acquire companies that make tools for the Facebook advertising environment.
Yet, rumors are beginning to swirl that Facebook is focused on becoming a smartphone provider. This is apparently due to concerns reported by the NY Times “Mark is worried that if he doesn’t create a mobile phone in the near future that Facebook will simply become an app on other mobile platforms,” a Facebook employee said.”
This is a terrible idea. I repeat… This is a terrible idea.
The smartphone market is already in a major shakeout. RIM and Nokia are in the toilet. Motorola, which had the highest selling (near smartphone for its time – the RAZR) was sold to Google. Microsoft’s operating system is insignificant (Smartphone Market Share by Nielsen).
The turmoil in this rapidly growing marketplace may appear to be an opportunity to a company like Facebook that has been successful by owning the channel to the customers. This pathway also doesn’t fully solve Facebook’s challenges with earning more revenues from mobile platforms. Facebook will still have to monetize users on other platforms to achieve the revenue growth per user.
The more salient point as to why this is a bad idea is that It is really difficult to launch a successful consumer electronic device. Facebook will have to manage suppliers (design, engineering, manufacturing), assess / build new software capabilities, and become educated on new hardware technologies (chips, touch screens, etc.). Moreover, Facebook will need to develop retail sales channels, and engage / negotiate with the telecoms.
Facebook has lost nearly 25% in value since the IPO. This is mostly due to short selling based on the over valuation. Investors will begin to become nervous as these distractions materialize and multiply.