By the end of the fourth quarter of 2011, Facebook's monthly active users had reached 845 million.
Introduction: The February 6th print edition of The New York Times published an article stating that although more than half of its users access Facebook via mobile devices, the company's development in the mobile sector has been relatively slow. However, industry insiders believe this may be intentional on Facebook's part to ensure the desktop market is not threatened. Eventually, however, it will inevitably become part of the mobile computing development trend.
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Mobile Dilemma
Many people love their phones, but Facebook doesn't seem too enthusiastic about them right now.
In the highly anticipated prospectus released by the company, financial performance was disclosed, revealing a fact worth noting: despite over half of Facebook's 845 million users accessing the service via mobile devices, it has yet to find a way to monetize this usage.
"We currently do not generate meaningful revenue from our Facebook mobile products, and our ability to successfully achieve this goal has not been proven," Facebook stated in the risk factors section of the prospectus.
In a world where mobile computing is rapidly developing, this undoubtedly presents a dilemma for the brightest star in Silicon Valley - especially considering that Facebook's growth in countries like Chile, Turkey, Venezuela, and Brazil is mainly achieved through mobile internet.
Facebook is not the only company struggling to transfer its success in the desktop market to mobile devices; the latter offers more precious screen space, and users have little patience for cluttered web pages and slow loading speeds. News agencies and Pandora streaming radio services face the same problem, and this impact could continue to expand - according to the latest report from market research company Canalys, global smartphone shipments exceeded those of PCs in 2011.
However, the problems faced by Facebook appear particularly pressing, as it is extremely popular among users and is seen as a company representing future trends - integrating social hubs with information channels, platforms with publishers. In other words, if even Facebook can't find a direction, who can?
Major Weakness
"This is their major weakness," said Susan Etlinger of the technology consulting firm Altimeter Group, "The trend of using mobile devices for social media is very clear, but Facebook does not have a clear revenue strategy. They haven't found a solution yet."
Facebook declined to comment before the IPO but did express concerns in the prospectus, stating that mobile users are expected to "exceed the growth rate of our overall monthly active users in the foreseeable future." The prospectus also indicated that if executives fail to find ways to profit from the mobile platform, the company's "revenue and financial performance may be negatively affected."
Experts believe that a significant portion of Facebook's advertising revenue is at risk. Most of Facebook's income comes from selling ad space on its website to advertisers. According to estimates by market research company eMarketer, total mobile ad spending in the U.S. is expected to reach $2.6 billion this year, an 80% increase from $1.45 billion in 2011. However, compared to the $39.5 billion online advertising market, it still pales in comparison.
According to eMarketer data, Google, as Facebook's competitor in the desktop market, became the leader in the mobile advertising market last year with approximately $750 million in revenue, followed by Apple with over $90 million.
"Compared to online, print, and television advertising, the mobile advertising market is still immature," said eMarketer analyst Noah Elkin, "Although revenue lags far behind other forms of advertising, its growth rate is rapid."
Revenue Potential
A major issue with mobile ads is that when users are focused on posting status updates or looking for addresses, they have a low tolerance for intrusive ads. Elkin revealed that PC users click on online ads eight times more frequently than mobile users.
"We've been advertising on desktops for 15 years, so we're used to it," he said, "But on smartphones with smaller screens, it can be distracting. Even though there are usually fewer ads, they attract more attention from users."
Of course, we are still in the early stages of mobile marketing evolution, and Facebook may very well be intentionally slowing its development pace. Analysts say the company might initially focus on driving traffic to its mobile site and app - similar to its approach in the early days of the desktop market, avoiding alienating new users with an ad-free site.
However, experts believe Facebook still has untapped advertising revenue potential. Once the company starts placing ads or coupons where users frequently visit, it could significantly profit from mobile ads.
Facebook has already begun to enter the territory of Places, a service that allows users to "check-in" and share their whereabouts with friends. Similar to other location-based services, this service will eventually attract local small advertisers.
"Even compared to other services, Facebook's browser ads are already very precise, but mobile ads will further enhance this advantage because they can introduce location elements," said Jan Dawson, chief telecommunications analyst at market research firm Ovum.
Revenue Sharing
Besides advertising, Facebook's second-largest source of revenue comes from the split paid by partners such as Zynga. These partners' games and apps rely on Facebook's platform to run. When these app developers sell virtual goods through Facebook's payment system, Facebook takes a cut - Zynga's split accounts for about 12% of Facebook's total revenue last year. However, on iPhones and iPads, Facebook is constrained by Apple, which directly charges app developers a cut.
For example, if Facebook introduces Zynga games to iPhones and iPads, it must share revenue with Apple, which requires app developers to pay 30% of their income.
Google has not imposed similar restrictions on Android devices, but given the hostile relationship between Facebook and Google in the social networking field, Facebook cannot fully control its fate on this platform either.
"The question is who will be the dominant player," said Sandeep Dahiya, finance associate professor at Georgetown University who specializes in corporate financing and IPO activities, "Can Facebook use apps and games to generate profits on Apple and Google platforms?"
Intentional Slowing
Although mobile business plays an important role in Facebook's future development, the company only released an iPad app in October last year, surprising many industry insiders. Some criticized Facebook's iPhone app for being sluggish and riddled with bugs.
This led some industry insiders to suspect whether Facebook is deliberately slowing down the development of mobile apps to serve a broader strategy. If users access Facebook through a mobile browser rather than an app, the company can avoid being constrained by Apple.
"This is the art of competition," said Shervin Pishevar, Silicon Valley entrepreneur and partner at Menlo Partners, "If the app frustrates users, they will directly access the site through the browser. This is a big win for Facebook because it helps them combat Apple."
Joe Hewitt, who developed Facebook's first iPhone app and left last year, said there is another benefit to directing users to web pages designed specifically for mobile devices: it allows Facebook to avoid developing apps for every phone.
"Facebook has always been good at using the web as an operating system, and they will leverage this advantage," he said, "You can develop products on the web and reuse code as much as possible."
Facebook stated in the prospectus that it indeed plans to expand and try mobile ads, including inserting so-called "soft articles" into users' news feeds. These messages often involve users' friends, and advertisers can highlight these messages, such as "Bob Smith likes Gatorade."
Facebook will also hold an event for advertisers later this month for the first time. Executives such as COO Sheryl Sandberg will give speeches then.
Hewitt believes that Facebook will ultimately have to post ads in mobile apps. "They just need to find a way to prevent user churn," he said. (Shuyu)
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