Rumors abound about the so-called "Facebook phone," which the social network appears likely to unveil later this week, apparently as a fork of Android that will favor Facebook heavily in the overall user interface and experience.
The idea of a Facebook phone has long struck many people, myself included, as, well, idiotic. But there's at least one way this device could be a success — assuming Facebook can get people to buy in to the whole notion of a Facebook-centric device.
And that's a big problem.
Who's The Customer?
Let's start with a basic question: Who in the world is going to buy this thing?
Business people? Hardly. As a business-to-business platform, Facebook is a non-starter, and its use as a business-to-customer tool is very one-to-many aligned. Companies that do use Facebook to communicate one on one with customers won't be doing it from a phone. Since Facebook is often seen as a time-waster in the business world for anyone but marketing, it would probably be easier to get a businessperson to buy a Hello Kitty! phone than one of these.
Young, hip teenagers? That's a stretch, too, because there's a lot of anecdotal evidence that younger kids are shifting away from Facebook either because they're bored with it or because all their parents and older relatives are there, and that's kind of lame. Plus, this demographic is not exactly a prime target for advertising dollars, especially if we're talking middle school and high school kids who don't even have jobs yet.
Older demographics are a better fit, and I suspect those are the users Facebook is going after.
(See also: Zuckerberg: "We're Not Going To Build A Phone")
So let's say Facebook does find a solid user base that really wants these phones. The question then becomes, how does Facebook make money at this?
Please Like This Revenue Stream
Right now, Facebook pulls in around 85% of its revenue from advertising and the rest from in-app payments, like its cut when someone buys something in a game. The problem for Facebook is that it has only just recently figured out how to get ads on mobile platforms to actually pull in revenue. In fact, it was such a huge problem that when it revealed that it wasn't making any significant revenue on mobile advertisements, it seriously hurt the company's initial public offering last year.
Now, though, Facebook has a plan, and it's working. In the last quarter of 2012, Facebook raked in $305 million in mobile ad dollars — not bad, when you consider that figure stood at near zero in May 2011.
Advertising will no doubt be Facebook's primary revenue source from these Facebook phones. If you can bring $305 million to the table by way of an app on someone else'e OS, imagine what you could do if you had the whole operating system to configure.
Of course, that's assuming Facebook users don't grow weary of an ad-supported platform that does little more than insert ads in news feeds every few updates or so.
But here, I think, Facebook's going to get itself a little extra insurance.
Apps Step Up
After all, if you have the operating system, then you can manage the revenue from the apps. So why not set up a new source of revenue from sales of applications, on top of the in-app payments you get now?
This is why I believe that Facebook will be shifting ever-so-slightly from the content-is-all-with-apps-on-the-side model they're using now and putting a little bit more emphasis on the apps. They almost have to — according to the recent IDC study my colleague Brian Hall highlighted, only 16% of mobile Facebook users interact with apps now. If Facebook wants to up the revenue from that side of the house, then it's going to have to make apps more prominent for users.
An Android-based app interface, which is a far different presentation than Facebook uses for its in-network apps, might be just the thing.
But, ultimately, will those apps be the right fit for users? Users want apps for news, weather or sports, not just game apps to play Farmville. Facebook can probably rule out productivity apps, but users won't want to live on junk food alone.
Google gets benefit from Android because it plugs users into into its services. Amazon gets benefit from its Android fork for Kindle Fire because it plugs users into its shopping network.
A Facebook iteration of Android will have to do the same thing: plug users into something users want and that will make money for Facebook. Advertising alone won't be enough.