At the height of its dominance of the Web, Facebook accounted for one in every seven minutes spent on line. It accounted for three out of every four minutes spent on a social network. And then came mobile.
When the Menlo Park social media giant floated in May 2012 its stock price dropped like a stone. From a launch price of $38, it tanked to $27.10. Analysts slammed the company for its lack of a convincing mobile strategy.
What a difference a year makes. CEO Mark Zuckerberg, a scheduled keynote speaker at this year’s Mobile World Congress, announced in the Q4 earnings call last month that “last quarter was our first quarter where more than 50% of our ad revenue came from mobile.” Facebook enjoyed its first billion-dollar quarter for mobile ad revenue, which makes up 53% of its overall revenue. It made almost as much from mobile alone as it made from mobile and desktop combined in the same quarter one year ago. That is quite an achievement considering Facebook didn’t start selling mobile ads until 2012. Its shares are currently trading in the mid-$60 range.
While Facebook has overcome its mobile weaknesses, the company has yet to define a mobile strategy, says Tim Shepherd, a senior analyst on mobility at research firm Canalys. “The company has certainly matured in terms of how they look at mobile, but it is still a bit ‘engage-and-see,'” he says. “I don’t think they have one, unified strategy.”
End the “one app to rule them all” approach
One strategy appears to be to end the “one app to rule them all” approach and launch a series of smaller, more focused apps. Facebook previously launched a messenger-only service, and last month launched Paper, an app combining a user’s news feed with curated news in a much more engaging interface than its current offering. So far there are no ads. Users cannot create Facebook events on Paper.
Having more than one Facebook app also makes sense from a “real estate” viewpoint. In an app-driven world, every app competes against every other one for a user’s attention. “There needs to be three or four Facebook apps on a user’s screen,” says Shephard. “It increases the likelihood that users are going to interact with the content you are pushing.”
Last year, the company introduced Home for Android, which added a new layer on top of Google’s mobile OS. It wasn’t a hit. “It was testing the boundaries of what people would accept. If it could control the entire user experience on a device, the opportunity to sell ads would be huge.”
If grabbing a user’s home screen isn’t how Facebook is going to continue to fuel its growth, how will it? By extending its reach and becoming a communications company, not just a social network, says John Strand, CEO of the Copenhagen-based Strand Consulting.
Strand: Facebook could become an MVNO
“Facebook is the place where people connect with friends and family, send messages and post pictures and videos,” says Strand. “Should Facebook monetize these activities, it would be bigger and richer than any telecommunications operator.”
He suggests Facebook could become an MVNO — a Mobile Virtual Network Operator (i.e., not one that owns its own network, but leases space on an existing network, such as Free in France).
“Facebook is a recognized brand, and on top of that, it’s a one-size-fits-all brand. Its platform appeals to everyone, unlike most niche mobile brands which are marketed for certain demographic segments. Without a doubt, Facebook has the world’s largest distribution platform and potential customer base to market its MVNO offering,” says Strand.
“Mark Zuckerberg talks about product development and monetization going hand in hand at Facebook, and the mission of the company is to help the world connect,” he says. There is no better union of these two goals than to monetize the actual communication between users through voice and data plans. By launching an MVNO, Facebook could become the world’s largest mobile operator, allowing its users to connect via voice, and make the money its investors demand.”
Facebook has already cut deeply into operator revenues
Canalys’s Shepherd says it might fly. “The MVNO strategy might make some sense. If you look at how closely [Facebook] has worked with operators in developing markets you could imagine it might have a Facebook-tailored tariff. You could see them having low-cost Android devices perhaps with Home pre-installed.”
Facebook has already cut deeply into operator revenues from services like SMS and MMS because users prefer to exchange messages and photos via Facebook for free. Now it could start putting a serious crimp in voice traffic. “Its potential impact on the global telecom industry is massive,” Emeka Obiodu, a principal analyst at researcher Ovum said in a 2013 research note. “A Facebook voice service has the potential to be the most disruptive communications solution in the smartphone era.”
But even without such adventurous schemes there is still plenty of room for growth in Facebook’s core ad market. For all the talk of Facebook eating into Google’s dominance, according to a January eMarketer report, mobile now accounts for more than 22% of all U.S. digital ad spending, compared with less than 3% in 2010. But Google remains the undisputed daddy, predicted to take 42.3% of the entire mobile pot in 2014, leaving Facebook to scoop up just 13.7%. Expect to see ads on Paper any day now.