I’ve blogged a few times recently on Facebook’s lack of a mobile strategy (see here and here) and last week the social networking giant spelt out the problem in black and white in its pre-IPO filing:

“We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetisation strategies for our mobile users, our revenue and financial results may be negatively affected.”

It doesn’t get clearer than that. Facebook may have doubled revenues to US$3.7 billion last year (according to the filing) but it made precisely zero money from mobile. It could be argued that this shouldn’t matter much for a start-up with nearly a 50 percent operating profit margin and looking at an IPO that could see it valued at a cool US$100 billion.

But no matter how powerful Facebook is (or becomes), it won’t curb the growth of the mobile Internet at the expense of the desktop – nor does it appear to want to do so. The firm noted last week that there were more than 425 million MAUs [monthly average users] accessing its mobile products in December, representing about half of its 845 million total user base. Moreover, it admitted that “the rate of growth in mobile users will continue to exceed the growth rate of our overall MAUs for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook.”

So what’s going on? Why is Facebook trying to migrate users to a platform where it doesn’t make a single dollar?

About 80 percent of Facebook’s revenue comes from desktop advertising (the remainder from its emerging payments business), but it currently does not support ads on its mobile apps. The impending IPO will see the firm come under pressure to tap into this revenue stream, and latest reports suggest that mobile ads could be rolled-out before the listing even happens – Facebook’s COO (and ex-Googler) Sheryl Sandberg is thought to be masterminding the strategy. The company highlighted the potential of the mobile advertising market in its filing, quoting an “industry source” which forecasts a 64 percent compound annual growth rate to US$17.6 billion in 2015. While it did not detail its plans, it said that “we may have potential future monetisation opportunities such as the inclusion of sponsored stories in users’ mobile News Feeds.”

Unlike rival Google, which has been able to make a relatively seamless transition from desktop to mobile (helped in part by owning its own smartphone OS), Facebook is arriving late to the game. And with almost a billion users, any tweak to the business model risks a sizable backlash from consumers if it is not handled sensibly.

Facebook’s mobile strategy is also hamstrung by its reliance on the phone platform on which its apps sit, another risk to its business identified in its IPO document:

“There is no guarantee that popular mobile devices will continue to feature Facebook, or that mobile device users will continue to use Facebook rather than competing products. 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.”

It’s this type of talk that continues to fuel speculation about the prospect of the firm building its own ‘Facebook Phone’ – the latest wheeze being that it could partner with an Android vendor looking to differentiate itself from the pack.

A more sober (and likely) prospect is Facebook finally making its long-anticipated move to an HTML5 apps platform. Using this browser-based approach, Facebook would be free to develop and monetise its own range of apps without being tied to the T&C’s and revenue share demands currently required to run on iOS or Android. And it wouldn’t need its own hardware to make this happen: it just needs a phone with a HTML5-enabled web browser – of which 1 billion are forecast to be shipped in 2013. And yet, while Facebook is reportedly said to have had a team working on this for over a year, no details have seen the light of day to date.

So it remains to be seen exactly how Facebook will plug its mobile problem. But with an IPO looming, the switch set to be flicked on a radical site overhaul (the ‘Timeline’ user profile), and a mobile user base that is growing by the day, it will need to show its hand soon.

Matt Ablott

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