Facebook Inc. is just beginning its journey as a public company, but it is already facing a great deal of scrutiny of its current business model and its capacity for future growth. If Facebook is going to stay competitive in the market, it will have to address its biggest problem: mobile strategy.
1. Facebook is not built for mobile, but mobile usage is booming.
There is no question that mobile is here to stay. A Cisco report predicted that by the end of 2012, the number of mobile-connected devices will exceed the number of people on the planet. More than 50 percent of Facebook’s 900 million users are already accessing the site through smartphones and tablets, yet Facebook’s mobile app is often criticized for being limited, as well as difficult to use and navigate.
Facebook’s weak mobile strategy, according to a source quoted in a recent Wall Street Journal article, is due to executives’ decision not to create a sophisticated mobile app for the site:
This person said the reason for that thinking was twofold: Facebook didn’t want to be beholden to other platforms like Apple’s iOS or Google’s Android. The company also wanted to create one version of the site for all mobile technologies, rather than different versions for Apple iPhones or Android devices. The problem is that the technology called HTML5 that would support sophisticated games and apps won’t be ready for another two or three years.
Facebook’s mobile problems have led to some app developers to stop creating products for the platform. For example, in 2010, the company CrowdStar was a popular developer of social games on Facebook, with more than 50 million daily active users. A few months ago, however, CrowdStar stopped making new games for Facebook, deciding to focus on creating games for the iPhone and Android-based phones instead.
“We don’t see Facebook…as attractive a platform as we see the mobile platform, so we believe all our efforts in the future will be focused on the growth available in mobile,” CrowdStar Chief Executive Peter Relan told the Wall Street Journal.
Facebook itself has admitted its mobile strategy weaknesses; its amended S-1 securities filing last month stated:
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.
2. Facebook mobile isn’t making money.
Facebook’s users will increasingly access the site through mobile devices, but the company has not yet found a successful way to monetize its mobile offerings. Facebook’s revised S-1 noted that it started to include advertisements in users’ mobile news feeds in March but that this has not yet yielded significant revenue and the growth of daily active users has outpaced the number of ads. A part of the problem is that Facebook’s regular web platform differs immensely from its mobile platform.
From Facebook’s revised S-1:
[T]his trend is driven in part by increased usage of Facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in part due to certain pages having fewer ads per page as a result of product decisions.
Facebook has begun addressing its mobile problems and strengthening its presence by acquiring mobile startups that provide a targeted, specific functionality. In addition to Instagram, Facebook has acquired Karma (an app for giving gifts), TagTile (a mobile loyalty program), Lightbox (an Android photo app) and Glancee (a social discovery app). Facebook has also released stand-alone mobile apps for chat and photos.
This move toward compartmentalizing functionality and offering users a simple and focused experience in each app is smart and could help Facebook get its mobile strategy back on track.
Applico CEO Alex Moazed offered this advice to Facebook in a recent FOX Business interview:
If you look at what a lot of our clients need to do on mobile, you simplify your idea. So if you look at what you’re doing on your website, there are a lot of different things that you do. When you go to mobile, you really need to simplify that down to the core value of whatever it is your company provides. Facebook has been having a hard time doing that on mobile…
Even on the web, they still need to find that magic project that monetizes all of this traffic that they get. They’re doing advertising, but it’s still not giving them breakaway numbers in terms of the types of revenue that they’re driving. They’re making some money from the transactions that their developers in their platform are driving for them, but they haven’t really harnessed a great deal of that either. So they’re still searching.
Watch the rest of Alex’s FOX Business interview.
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