A Facebook Phone? You're Kidding, Right?

May 31, 2012

No matter what Facebook might do strategically from this point forward, the concept of a "company" phone is worth discussing. And, just so you know, I think it's nuts.

I normally don't comment on rumors, and I have no direct knowledge of any initiatives related to the topic at hand today, so let's put this one in the realm of hypothetical strategy. We do a lot of strategy work here at Farpoint Group; I think the setting of grand objectives and the derivation of the plans, techniques, procedures, resoruces, tools, and risk/reward analysis to achieve those objectives is a lot of fun and really at the essence of making any business work. And I think in the early days of setting a new direction with respect to all of this, which can be a long, involved process even at smaller firms, all options should be on the table. That's why I often like to start these projects with brainstorming sessions, where no idea is too crazy for consideration. At one firm I was involved with we did this annually, and called it "Entrepreneur Day" Tons of new, novel, and even patentable ideas came up. It was often hard to decide which represented the optimal path to growth, profitability, image, or whatever we were optimizing for at the time. And even ideas that were initially crazy evolved, on occasion, into something practical.

So, let's do a little strategic analysis here around the concept of Facebook selling a branded handset, which sure sounds crazy to me. First question: why get into the handset business in the first place? Well, I'm sure HTC, Samsung, LG and, oh yes, Apple, asked themselves exactly that before jumping in and becoming today's leaders, displacing Palm, RIM, Motorola, and many others. Sometimes one can win by taking advantage of new innovations (Android, apps, etc.) and sometimes it's a matter of simple "line extension" -- the iPhone began life as an iPod Touch with a cell phone built in. The iPad was a big iPod Touch. With marketing, manufacturing, and distribution in place, along with access to content, it's easy to see how Apple was successful here.

Applying this analysis to Facebook, however, one is left with more than one nagging question. Facebook is in the business of providing a social network at no charge to anyone anywhere, with advertising paying the bills. Now, I don't like the advertising model very much, so, if I were on the management team there, I'd be looking for other sources of revenue. But a handset? What does Facebook know about the market for cell phones? Well, there are reports they hired some engineers from Apple, but that would just help them build one, not sell one.

And, given the platform nature of current smartphones, with the requirement to support a lot of applications in order to maximize the utility of the device, it really wouldn't make sense to sell a phone that just "runs Facebook," whatever that might mean. And would Facebook add features to their own handset that would be unavailable in other implementations, just to sell phones? I suspect that wouldn't work well due to brand or OS loyalty on the part of their user base. Losing flexibility to gain a new feature or two doesn't have much appeal. And it would piss a lot of people off regardless, something that any business must avoid.

OK -- if you buy my reasoning so far, we have a concept that would be expensive to execute and would likely result in a product (as conceived above, anyway) that wouldn't sell very well -- the opportunity cost is extremely high. While I believe that Facebook, now a public company and therefore at its heart a money manager for which an "open and connected" world is now a vehicle or secondary goal at best, must broaden its offering, a handset or, really, hardware of any form, doesn't seem the obvious choice, especially, again, on a risk-adjusted basis. One criticism/concern from the financial community is that Facebook needs a stronger presence in mobile as mobile devices become a given user's primary -- or only -- means of access. But I think the reference here is to the provisioning of advertising, and Facebook users appear to be even less fond of advertising than the rest of us. So, a handset that optimizes for ads? Um, no, sorry, I can't imagine that such would be the best use of all those new billions.

Keep in mind that Goggle failed in selling its own Android handset. What they will do with Motorola is anyone's guess, but I suspect the brand will be sold off and Goggle will not once again manufacture phones. In the end, someone must, of course; someone must also be the big dumb pipe. But from the user's perspective it really is all about the apps, and the data, today. Facebook has a shot at success in that end of the world, so line extension in that domain would likely result in a better outcome for the shareholders. Just my $.02.

Really -- I've got two phones for you, an iPhone and a Facebook phone. Which are you going to choose? Case closed.

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