Facebook And Mobile – What The IPO Filing Revealed

For the last couple of years, I’ve been writing about the huge challenge Facebook faces when it comes to asserting its social networking dominance as consumers move from the desktop to mobile devices. The numbers within the Facebook filing for its IPO were certainly impressive. Nothing really unexpected within the tech community, but the traditional media will of course lap it up with stories of billionaires and world domination.

I want to stay focused on Facebook’s mobile strategy with the company themselves admitting in their filing that it was the area with the biggest potential, but also a huge threat to their business going forward.More and more people (450 million) are using Facebook on their mobiles but with no revenue streams and with Facebook unable to own the biggest platforms (they belong to Andoid and iOS) the future is slightly uncertain. As they say themselves:

“We do not currently directly generate any meaningful revenue from the use of Facebook mobile products. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers…our revenue and financial results may be negatively affected”.

In truth, Facebook have been in this tight corner for the last couple of years and they have been making some great strides (including their own rumored phone and mobile operating system), but as the story of the IPO shows there are still a lot of unanswered questions that investors will need to know about the future…

Facebook Only Owns The Desktop

Since it started, Facebook has been a huge success first and foremost on desktops. They have over 400 million mobile users and that side of the business has been booming for the last twelve months. But in terms of revenue, nearly 100% comes from people clicking on ads or playing games while using the platform on desktops.

Consumer browsing habits are fast moving from desktops to mobiles though and Facebook finds itself in the tricky position of trying to navigate this change and find a solution that works across all the mobile platforms. They are clearly in the phase of acquiring as many mobile users as possible and are doing this with as much success as they did the desktop. However, making money from those users is going to be tricky because location based services, targeted mobile advertising and other mobile revenue streams have just not really taken off.

Facebook Eating Its Own Revenues

While it might seem like a great thing that Facebook users are moving in increasingly large numbers from the desktop to mobile devices (including tablets), that will start hurting their own revenue as time goes on. To put it simply, there are ads on the desktop that a lot of people click on while no such ads exist yet on mobiles.

There is no doubt that Facebook will start to monetize mobile later this year and open up new revenue streams, but for now Facebook is actually cannibalizing their own revenues by improving their mobile offerings. It will be interesting to see if and when Facebook turn on their mobile ad platforms and what they look like.

Facebook Deal with Apple Is Inevitable

The IPO filing mentions the biggest threat as being the fact that Facebook is reliant on two of the biggest platforms in iOS and Android. As they say themselves:

“We are dependent on the interoperability of Facebook with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade our products’ functionality or give preferential treatment to competitive products could adversely affect Facebook usage on mobile devices.”

As there is very little chance of Google and Facebook ever working together in a meaningful way then the only option is really Apple. They are, of course, already in bed with Twitter baked in to their iOS5 operating system, but there is no reason why Facebook shouldn’t be more deeply integrated into iOS.

It would make both Apple and Facebook more powerful and they have been very close to a deal of this nature in the past only for it to break down at the last minute. It won’t be easy for either side but the companies will eventually strike a deal and declare Android as the common enemy.

The Five Year Plan

Despite all the problems and perceived threats, Facebook have been making great strides in the last year in terms of getting their mobile strategy together. Their apps have improved drastically, they have beautiful tablet versions of their sites and they have accumulated a huge amount of mobile users.

The desktop is still kind, but Facebook will need a strong five year plan that sees at least 30 or 40% of their revenues coming from mobile. It’s a very serious challenge and if I was investing, it would be my biggest fear but based on Facebook’s track record and their huge new pot of money, it is a challenge that I’m pretty sure they can pass with flying colors.