The Facebook Phone: Why Facebook Has to Try, and Why It Will Probably Fail

Facebook views itself as more than a social network. It aspires to be an operating system for the Web, or a platform in the mold of those built by Apple, Google, Amazon and Microsoft. So as the computing world shifts toward mobile, Facebook would be foolish not to claim as big a stake as possible. That means more than just apps: It means a Facebook phone.

Why Facebook Must Make a Phone

The main argument for a Facebook phone is this: With a bunch of mobile apps and half a billion mobile users, Facebook is already one of the biggest mobile services. But to become a mobile platform - exponentially more valuable than a service - it needs more. Thus, the recent reports that Facebook is trying to figure out a phone.

Facebook's PC-based platform has helped drive huge increases in its membership, value and revenue on the plain old stationary Web. It has given Facebook the power to force big developers like Zynga to exclusively use Facebook's payments service for in-game transactions. And it has enticed thousands of media and technology companies to build their own membership bases on the back of Facebook's login system.

In the mobile environment, though, Facebook is only part-way there. Some aspects of its platform work fine on mobile devices. Some, in theory, work great, like quickly shooting and uploading photos without a computer (thus, Facebook's new photo app and pending Instagram acquisition). But developers aren't building huge games on Facebook's mobile base. They're using Apple's iOS, Google's Android, Microsoft's Windows Phone, Amazon's Android-based app platform and their respective payment tools.

To become one of the top mobile platforms, Facebook then needs to compete with Apple, Google and Microsoft for the attention of phone buyers, carriers and developers. It needs to build a phone platform that's significantly better than its competitors. And it needs to do this despite having little experience with operating systems and mobile platforms.

It's a big problem, but pretending Facebook isn't ambitious enough to tackle it would be selling Mark Zuckerberg short. If Zuck is today's Bill Gates, why wouldn't Facebook build the next Windows?

The reward, by the way, could be huge. The smartphone market is still less than one billion units per year and set to grow dramatically over the next decade. It's unrealistic to assume that Facebook's phone business could be nearly as profitable as Apple's, but if it were to generate even $100 in profit per device, a tiny percentage of the mobile market could amount to billions per year. And if Facebook hits the jackpot and creates the next big thing in mobile, device sales could easily outpace Facebook's advertising business.

The odds of this happening are low. But given Facebook's size and ambition, why not try?

How Facebook Could Make a Great Mobile Device

Cloning the iPhone with Facebook blue everywhere is probably a bad idea. But I'd like to believe that someone at Facebook, or someone Facebook hired, could come up with a novel and useful idea for a mobile device that people would pay for and use.

One idea I like is the notion of a connected, social camera, floated by Dave Winer. Why a camera? Winer writes, "Because that's really what it's about, photos and videos. And that's a much more wide-open, and still largely untapped[,] market... I don't doubt that the guys at Facebook see this too. And if they see it, how could they not be making it."

Amazon's Kindle is a huge hit and has sold millions of units because it does one thing - delivering e-books - better than anything else. If, somehow, Facebook could build a social, connected camera that's so good it's worth owning in addition to a phone, that could be a hit. This isn't obvious, but it's not impossible, either.

Think of other things people buy and own that aren't phones and could be more connected and social. Watches? "Quantified self" exercise wristbands? What could Facebook do here?

Or, taking a different tack, how could Facebook be disruptive on the service side of the mobile equation? Could it offer cheaper smartphone service than Apple or Google phones have access to? Free texting to your Facebook friends? Free access to all Facebook services? The carriers wouldn't let Facebook get away with anything too crazy, but perhaps there's room for something interesting enough to justify buying a Facebook phone for your kids.

Why Facebook Will Probably Fail

I am optimistic enough to think it's worth it for Facebook to try, and keep trying, to do something in the mobile platform industry. Facebook is big enough that it can experiment in important new areas. Especially in a market that's as big and lucrative as mobile. As long as Facebook isn't reckless with its spending, it should try.

But what you always hear about hardware, that it's such a tough business, is true. It's one thing to develop a nice, functional mobile product. It's another to build a great business on it. Ask the folks at Palm, whose Pre was arguably the second nicest phone after the iPhone and nonetheless forced Palm to sell sooner and for less money than it would have liked. (Also: Imagine if Palm were for sale today. Wouldn't that make a great little acquisition for Facebook?)

Apple is so successful in mobile because it is the best in the world at software, hardware, apps, media, marketing, retail and the supply chain. Facebook lacks expertise in all of these areas. A few of them alone won't generate the right balance. It takes all of them to thrive.

Another challenge: Facebook is accustomed to making many small, incremental changes over time. It is constantly redesigning its products, rolling out updates here and there to batches of users. In hardware, it doesn't work that way. You need to build something that is rock-solid, ready to ship and will last a long time, and then update it infrequently.

Perhaps this is why Apple has been less successful than Facebook with Web- and social-based products: It's not constantly tinkering with them. But it's also why Facebook could have a tough time designing a mobile platform.

The One to Watch

Mobile will be a particularly interesting and meaningful challenge for Facebook. The company is already discovering that mobile advertising is very different than Web advertising. It could be a much bigger opportunity for Facebook than the PC, or it could be much smaller. If Facebook can crack the mobile hardware or platform world, it could really pay off.

Mobile has the potential to make Facebook far more relevant than it is today, or it could be Facebook's great equalizer. The next few years will tell the tale.

Also: Why Facebook Terrifies Google

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