This is a topic that has been going on and off, but here it goes again: Facebook is said to be hiring smartphone hardware and software engineers in order to build its own smartphone. That’s what Nick Bilton from the NYTimes has just published, and looking at my own circles here in Silicon Valley, the hiring seems definitely real. Facebook has been hiring a number of engineers who have nothing to do with social networks, web development or network infrastructure, and it has done so for some time now. The question is: what is their mission?
It’s good to be a big player in the smartphone space
Obviously, both Google and Apple have demonstrated that having a smartphone operating system and/or hardware can be extremely beneficial in terms of user-experience, integration, and… revenues. Google has said that it makes more than a Billion a year with Android, and the iPhone is about half of Apple’s revenues. This is no pocket change. Yet, entering that (very crowded) market is extremely difficult.
What’s in it for Facebook?
Clearly, if Facebook was able to pull this one off, there are tons of opportunities ranging from solidifying Facebook’s position (which is not so bad) in the mobile space – this is often seen as Facebook’s Achilles heel. Such a position could be leveraged to increase revenues through advertising, payments processing, and even Identity services.
However we look at it, having one’s own smartphone ecosystem opens doors to territories that were previously out of reach. Heck, Facebook could even block competitors from its platform like Apple does if it feels that the app “replicates an iOS functionality”.
Not without danger, and more than just a smartphone
Of course, building a smartphone is easier said than done, and for all the genuine talent that there is in Facebook, the odds aren’t so great on paper. The incumbent wireless players have had a very hard time adapting to the smartphone world, and Apple is the only company that is clearly successful at both making the software and the OS in-house.
Android is incredibly successful not only because the software is good, but also because non-Apple handset makers (pretty much everybody else) has no choice but to throw everything they’ve got to support Android. It is unclear if they would be willing to join a Facebook mobile eco-system, and frankly, the last thing that developers want is yet another OS to support.
In addition to this, Facebook surely aims for more than just selling hardware like HTC or Motorola do. Facebook will probably have to create a successful eco-system if it wants to truly benefit from building a smartphone.
What is the scope of Facebook’s smartphone project?
While this is the most important aspect of the story, this is also the most secretive and nobody seems to have a firm grasp on this. Facebook can build the whole eco-system, just a smartphone, only the OS, just a skin on top of Android — or any combination in between. It’s hard to tell.
Because the company has been hiring hardware engineers who typically work on the chips, electronics and drivers for such devices, this would suggest that Facebook wants to design a device from the ground up (hum… why?).
If true, this would be a pretty scary thought for investors, because entering the smartphone market from that angle isn’t the most cautious move, but again, Facebook now has $16B that it can wield to make this happen. It may be so, but money is clearly not the only factor for success — or JP Morgan Chase would have its own smartphone by now. Does Facebook have the “DNA” to build this? We’ll know soon enough.
What’s the added-value for users?
Another legitimate question about the Facebook smartphone project is: what’s in it for the users? Apple brought a good user interface and a crafty design. Android brought a more open eco-system, lower prices, and customizations that both carriers hand handset makers craved.
What would a Facebook smartphone bring to the table – hopefully more than a physical “Like” button. At this point, it is not clear to us, and we understand that Facebook would be very eager to keep this a secret.
Low cost phones?
Some are talking about low-cost Facebook phones that would allow the social network to quickly (and hold) grab a sizeable market share of “new” mobile users. On paper it sounds great, but in practice, the Facebook mobile user experience is already laggy on a high-end smartphone (the FB Camera app was a good move btw), so jumping on low-cost hardware may not be so hot. On the other end, if Facebook is patient, today’s high-end phone will be a free phone in a couple of years…
At best, it’s not an obvious shot, and we have to wonder if Facebook is not better off trying to make a great app experience, rather than trying to somehow part of the smartphone market. Yet, in the grand scheme of things, taking a stab at solving this will not financially kill Facebook (far from it), and the reward is potentially huge, so why not try? For all the mockery that Facebook may endure, it may just work.
The worst thing that Facebook can do is buying a company like RIM and try to make it fly in another direction. Now *that* would be a costly mistake.