Facebook’s Mobile Dilemma
Since the whole world is currently obsessed by the impending Facebook IPO it would be churlish of me not to join in, especially since it looks like the IPO will leave Facebook valued at over $100 billion. The excitement around this IPO has been so intense that California even has a line in its budget to account for the amount of tax that will be generated. However, all is not rosy in the Facebook garden; it has to amend its S-1 filing to reflect that the shift to mobile may harm its business model. After all, Facebook’s main revenue stream is advertising and users are only shown via the user’s newsfeed. This is a problem since around half of Facebook’s users regularly access their newsfeed’s on their mobile devices. Part of this problem is caused by the nature of the mobile phone. While it is always on and always with the user, the screen size does not allow for ads in the same way as the screen on a PC or laptop. Facebook are right to be wary of adding space for ad units that users will find intrusive to their browsing experience. After all, if the users aren’t engaging with the platform, they will find another social network that offers the experience they are looking for and they will take their friends and family with them. Facebook’s insistence that users are engaged in the platform, even at the expense of slow revenue growth (as outlined in their IPO roadshow video) may end up frustrating investors and advertisers alike as investors (fairly reasonably) want to see a return on their investment and advertisers want to tap into the 900 million strong Facebook audience. This audience is set to grow on mobile; what better way to chronicle what you did and who you did it with than on your mobile phone which is with you at all times and carries all the equipment necessary to document your life. After all, which self-respecting smartphone can’t take pictures, record video or detect location? I would argue that Facebook needs to prioritise its mobile strategy; the company was slow off the mark in launching an iPad app, particularly so given its stated intention to improve the user experience and which, in order to continue to grow, must monetise its audience. This is not to say that the steps they are taking aren’t promising; the new Facebook App Center looks like it could provide both high levels of consumer engagement and a new revenues stream. Even if they are not selling the apps themselves (apps which need to installed on the phone must be installed through Apple’s App Store or Google Play), there is still a large potential to generate revenue through app discovery. Insisting that apps listed in the App Center use Facebook’s login also give it the opportunity to take a bite out of the in-app purchase pie, something that Juniper estimates will be worth $4.6 billion by 2016. Will Facebook manage to harness their mobile audience before investors lose patience? Only time will tell. Please note that the ideas and conclusions within this blog are the author’s own and does not necessarily reflect the views of Juniper Research. Juniper Research analysts do not provide investment advice and this blog should not be taken as such.