Why Facebook Wants You To Buy Their Phone. A-hum!
Can a software or cloud computing company become successful building and selling its own smartphone? Of course it can -- but analysts believe Facebook will need more than a $1 billion investment in Instagram or a wish upon a starry-eyed dream. Does it all come down to data generated by searches, member profiles, and clicks on ads?
Facebook will need an "asymmetric pricing model" that encompasses ad-supported features, and paid or free software and/or hardware, according to Trip Chowdhry, managing director of Global Equities Research. "Mark Zuckerberg needs to step down as CEO and become VP of software development," he said. "Developing a phone would be the stupidest thing the company could do because the model is capital intensive in a crowded space. You don't do what everyone else does."
One service could become cloud storage to support the slew of mobile data generated from apps. IDC estimates that 2011 revenue for worldwide storage services from the mounds of data collected will reach $3.3 billion by 2016 worldwide -- up from $804.5 million in 2011.
But Chowdhry believes Facebook lacks vision for inventing new products and services similar to Apple and Google. Lack of vision creates a cold stock. The lack of a solid mobile advertising or services strategy to support growth will also weigh down the company.
"In the world where HTML5 will dominate, Facebook needs to invent an application publishing platform that sits in-between the developer and the browser," writes Chowdhry in a research note. He tells us this platform should allow a developer to create an application in any of their favorite tools -- which could be from Microsoft, Google, Mozilla, Adobe or any other open-source tool -- and then transparently publish it to any application Web store, could be Google's Chrome Store, Apple App Store, or Microsoft App Store.
Any rumor related to Facebook buying the mobile browser Opera is just an attempt to hype the stock, Chowdhry told MediaPost.
As a public company, Facebook needs to focus on margins and profit. The stock continues to slide, down 7.71% as of 12:20 Eastern Time from the $31.46 opening on Tuesday. Software and cloud services can generate in general about 30% profit margins versus 5% to 7% percent from hardware, according to Ray Wang, principal analyst and CEO at Constellation Research.
Although The New York Times reports that "employees of Facebook and several engineers who have been sought out by recruiters there, as well as people briefed on Facebook's plans, say the company hopes to release its own smartphone by next year," Chowdhry believes Facebook doesn't have the internal technical skills or talent to develop or pull it off. Asking if I would drop my iPhone for a Facebook phone, he said the company should concentrate on innovation, services and hardware that no one else offers.
Would Opera complete Facebook's strategy to introduce a smartphone into the market? And would you give up your Google Android operating device or Apple iPhone? Last year All Things Digital reported that Facebook was in partnership with HTC to develop a phone. If Facebook develops a mobile phone, the biggest consideration becomes contracting out to a manufacturer in China or Vietnam to build the device, or buying a manufacturing arm to do it for them. Microsoft and Amazon are two successful companies that began in software and moved to hardware, but the model doesn't always work.