Click “Like” for Facebook Phone

As reported on various tech websites, Facebook is rumoured to be developing its own phone. Euromonitor International takes a look at the challenges that a Facebook phone will meet if the company embarks on the project.

The mobile world

Facebook Inc endured a horrendous week after being listed on the NASDAQ Stock Exchange on 18 May, seeing its share price drop to US$31.91 after just a week of trading, marking a sharp 16% decline from its IPO price. A key concern for Facebook is its struggle to exploit revenues from mobile devices like smartphones and tablets as consumers switch from computers.

According to Euromonitor International’s consumer electronics research, sales of tablets in 2014 are set to reach close to 149 million units, overtaking laptops as the most popular portable computer.  Critically, sales of smartphones are projected to breach the one billion unit mark in 2014, a clear indication of the shift from portable computers to smartphones.

“Like” emerging markets

Selling mobile phones is not always a profitable business, with HTC, LG and Motorola continuing to struggle to generate profits despite strong sales. The only opportunity for a Facebook phone to enjoy any traction would be to work with mobile network operators (telcos), particularly in emerging markets. Telco’s’ have been trying to encourage consumers on pre-paid plans to upgrade to low-cost smartphones with a bundled data plan so as to achieve higher returns

Emerging markets like India, Russia, Indonesia and Brazil are among the top 10 countries with the highest number of mobile phone subscribers in 2012, with a corresponding lower Facebook user base compared to developed markets like the US or Germany. Even in the US, consumers who have purchased mobile phones as part of a pre-paid plan account for 17% of the market and thus represent a sizeable and attractive consumer group to which to market a Facebook phone.

Table 1: Top 10 Markets by Mobile Subscribers, 2012

4

Source: Euromonitor International, Socialbakers

Note: Facebook users as of 25 May

Facebook, on the other hand, will not be relegated to just another mobile app on a user’s smartphone. Critically, the company can generate additional revenue from content and services generated via the Facebook phone. The business model would be similar to that of Amazon for its Kindle range of tablets and E-readers.

“Unlike” Facebook phone

This would not be the first attempt to market a Facebook-centric phone. HTC unsuccessfully attempted a smartphone with a dedicated Facebook key in the form of the HTC ChaCha. The challenge now is to offer more than a direct access key and rework the complete user interface so as to be Facebook-centric. Choosing the OS to power the Facebook phone is probably an easier option, with Android’s new interface layer being the only choice as the OS is part of the larger open source community.

The problem for Facebook is that smartphone manufacturers like HTC and OS providers like iOS and Android have already integrated Facebook options into their software. Facebook has to look at the various implementations available and ask the crucial question: “What else can be further improved or differentiated?”

For example, users of the Facebook phone can post an incoming SMS message on their own or another person’s Facebook wall. This tight integration has to work seamlessly without being overly intrusive.

The top three use cases of smartphones are browsing the internet, running apps (not only Facebook) and taking photos. Facebook was probably acutely aware of these use cases when it paid US$1 billion for Instagram Inc (the company that developed the popular photo sharing app Instagram). The latest rumour doing the rounds is that Facebook is looking to buy the company behind the Opera browser. Buying companies is the easy part; the challenge is to integrate the strengths of these companies so as to be able to offer something compelling and unique.

The writing on the wall

Facebook cannot afford to sit idly by while the momentum shifts towards mobile devices. Google Inc is benefiting financially from search revenues and app sales from its Android OS, while Apple Inc commands a fiercely loyal following willing to pay a premium for its iPhones and iPads.

Facebook will have to work with telcos to offer a low-cost Facebook phone which will benefit both parties. Telcos will benefit from higher average revenue per user (ARPU) when their pre-paid users shift from voice to data usage. Facebook, meanwhile, would maintain its relevance; ensuring users spend more time on their mobile devices and gaining more revenue from apps and services.