Pharos-Tribune

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May 31, 2012

Slate: Facebook smartphone? Dumb idea

(Continued)

It's obvious why Facebook would want its own phone. A lot of the social network's users log in to the site through their mobile devices, and Facebook hasn't found a good way to make money on small, ad-free screens. There's also the access threat — if most people come to Facebook through devices controlled by Google and Apple, Mark Zuckerberg can rightly fear that at some point, his rivals might somehow make it harder for people to get to his site. As one anonymous employee tells Bilton, "Mark 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."

But when you puzzle out the economics of Facebook's entry into this market, you inevitably come out scratching your head. How could they possibly make money from the phone business?

Let's say that Facebook tries to ape Apple's business model by building an amazing, one-of-a-kind phone that can be made at low prices, in high volumes, and will be snapped up at premium prices. OK — stop laughing. Apple's phone was the result of years of research and the sort of design, marketing and production expertise that comes from decades in the hardware business. What's more, when it launched in 2007, the iPhone was unlike anything else on the market, and it was thus something people were willing to pay a lot for. There is just no way that Facebook, a company that has never made any hardware, will come up with something like that.

Zuckerberg likely understands that, and is thus probably thinking of Facebook's mobile plan as a variant of the Android model. Facebook would create the operating system and would work with a third-party phone manufacturer to build the actual phones, which would be priced low enough to gain a large foothold in the market. The device would offer deep integration with Facebook's services, and Facebook would hope to make money through all of that increased usage — and the advertising that comes with it.

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