Facebook Entering Hardware Business: Does It Need To? Can It?

If New York Times’ Nick Bilton has to be believed then, Facebook is preparing for its own mobile phone, its third attempt. While most of the tech blogs are convinced that Facebook has the right features to go ahead with this deal — Facebook message for messaging, Facebook App center for app store, Facebook Camera, and it might soon have its own browser.

Why Facebook thinks it needs to get into hardware business

In their S-1 filing before the IPO, Facebook stated that Mobile is an increasing risk factor for the company:

We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered. If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.

For Facebook majority of its revenue comes from advertising. In 2009, 2010, and 2011 and the first quarter of 2011 and 2012, advertising accounted for 98 percent, 95 percent, 85 percent, 87 percent, and 82 percent, respectively, of its revenue. It desperately needs to diversify. And mobile seems like a good option. The company company accounted for 488 million monthly average unique users of its mobile products in the month of March, however, it hasn’t figured out a way to monetize those mobile users yet. Astute readers might have noticed that Facebook’s recent acquisition has put them in a stronger position in the mobile space.

Can Facebook really get into hardware?

As much as, it seems to be the need of an hour, it should be noted that Facebook has previously tried and scrapped its hardware ambitions as it realized the difficulties. However, this time around, Facebook has the cash — $16 billion to be precise, and according to the NYT article even the team.

Yet, given their better position this time around there are few hurdles that Facebook might encounter:

  • Relationship with carriers: Google has previously experienced this and it’s quite difficult to please everyone at the same time. It doesn’t help that success of a device is solely dependent on the carrier distribution.
  • Applications: Today, when someone buys/upgrades their phone, the decision is solely dependent on whether the platform has applications from prominent developers. Facebook, has more than 900 million registered users, yet these users are not automatically going to be the hardware user. It will be difficult for Facebook to lure developers.When it comes to applications, platforms usually get stuck in a catch-22 situation. Microsoft has. Customers do not want to buy the device as it does not have apps and developers do not want to waste their time on platforms with negligible apps. If, however, Facebook tackles this situation, its platform might gain some traction.

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Apurva Chaudhary

Apurva is a tech enthusiast, works at ClassMatrix , cycles on her Firefox Cyclone, and runs a newsletter at Techknots . Follow her on Twitter