If Facebook Really Goes Into The Mobile Hardware Business

If Facebook Really Goes Into The Mobile Hardware Business, Investors Should Run Away Screaming

Facebook is poaching ex-Apple engineers to build a smartphone, Nick Bilton of the New York Times reports.

This is the third iteration of Facebook's smartphone plans--from hardware to software and back to hardware again.

If Facebook is serious about jumping into making smartphones with both feet this time, Facebook investors should be very afraid.

Why?

Several reasons:

The move would clearly be defensive, not offensive. According to a Facebook employee quoted by Bilton, "Mark [Zuckerberg] is worried that if he doesn’t create a mobile phone in the near future that Facebook will simply become an app on other mobile platforms." Translation: Facebook is doing this because it thinks it has to, not because it wants to.

Hardware is an extraordinarily difficult, low-margin, commodity business.  The only two companies that are doing well right now in hardware are Apple and Samsung. Both have been making and selling hardware for decades. Lots of other companies that have been making and selling hardware for decades are cratering, such as Research In Motion and Nokia. Palm already cratered.

The smartphone "platform" business is already dominated by Apple and Google (Android), and there are already a whole lot of also-rans. Amazon has entered the platform game. Samsung may "fork" Android and enter the platform game. Microsoft is desperate to make its new Windows mobile product matter. RIM still has a piece. And so on. If Facebook really wants to build a brand new mobile platform, it will be starting from miles behind the leaders.

Hardware distribution is critically important, and Facebook also faces vast, entrenched competition there. How is Facebook going to get shelf space at the carriers? By offering super-cheap phones? That won't do wonders for its margins. Is Facebook going to build a network of stores? Is it going to try to circumvent carriers? Google already tried that. Didn't work.

Although Facebook might want to be a mobile platform, there's no obvious need for a Facebook phone. There are already a gazillion phones and Facebook is available on all of them as an app or via a browser. Why would anyone want a dedicated Facebook phone, especially if it didn't run all the apps that run on Apple and Android phones?

A full-fledged hardware business would likely radically reduce Facebook's profit margins. One of the advantages of Facebook's current business is that it is extraordinarily profitable. The hardware business would likely make it a lot less profitable (per dollar of revenue).

Facebook knows absolutely nothing about making, selling, or supporting hardware. Really--nothing. Yes, Facebook could use its billions to buy RIM or Nokia, and then it would know something about hardware. But RIM and Nokia are deeply troubled companies that are already cratering. Can you imagine how difficult it would be to buy, integrate, and FIX RIM or Nokia? (Google's about to give us a case study in how difficult it is with Motorola).

That's just a start !!!

Perhaps Facebook doesn't really have any intention of building a full-fledged phone--perhaps it just wants to partner with someone like HTC or Samsung. But even then, all the same challenges apply.

Facebook already has an "operating system" for mobile--it's called the social graph.

So instead of building a phone, which seems like a desperate move, Facebook should partner with every operating system and carrier and hardware maker it can to try to embed this social platform within every mobile platform. And it should build great apps to float on top of these systems. (And if Apple keeps giving it the brush-off, it should probably start by cozying up to Samsung, which is the only company giving Apple a run for its money).

Yes, everyone wants to be Apple.

But there's only one Apple right now.

And Facebook's chance of becoming the next Apple seems even smaller than Apple's chance to become Apple was.

The fact that Facebook is even thinking of going into the hardware business is a bad sign. If Facebook actually does go into the hardware business, it will be a really bad sign.

Read more: http://www.businessinsider.com/facebook-phone-is-a-bad-idea-2012-5#ixzz1wAPbytxy
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