Summary: As Facebook users switch from the desktop to mobile platforms, the company is struggling to sustain ad revenue.
Facebook continues to be interested in developing a custom handset, and is working in collaboration with handset maker HTC to bring a smartphone to market specifically designed with the social network in mind.
According to Bloomberg sources, the handset had initially been planned for release towards the end of this year, but the timetable was revised to mid-2013 to allow HTC to work on other projects.
The sources go on to claim that Facebook is working on a custom operating system -- presumably based around Google's Android platform -- and has also assembled a team of former Apple engineers in order to improve the company's iPhone app.
The problem facing Facebook is that while its users are moving to mobile platforms such as iOS and Android, the company's ad income is reliant on people using the site on desktop browsers. Its own app hasn't helped redress the balance, so now in order to satisfy shareholders, the social network giant now hopes that a smartphone of its own -- along with a revamped platform -- might.
The issue here isn't whether Facebook could develop a smartphone -- it could, especially if it has help from the likes of HTC -- but whether it can successfully market such a handset. Introducing to market a new Android handset with a few Facebook-specific tweaks is unlikely to work because people can already access what they need from Facebook from existing mobile hardware.
The idea that Facebook is going to be able to convince people to buy a Facebook phone just to see ads is ludicrous. But there are a couple of alternative avenues open that Facebook could explore.
The first is taking Amazon's approach with the Kindle tablet and offering a dumbed-down Android experience that's focused on what users want to do rather than on what the Android platform can do. This would cause further fragmentation of the Android ecosystem, which could overall be harmful to the platform, but as the Kindle has shown, the mass market seems to prefer the Android platform when it takes more of a back seat on devices.
Another approach that could be open to Facebook is to develop a smartphone that's heavily ad subsidized, again along the lines to what Amazon does with the ad-supported Kindle. The problem with this is that Facebook is going to have to spend money -- that is to subsidize the handset -- before it can hope to claw back ad revenue. It's a risky gamble.
It's not like there aren't a lot of cheap handsets out there already.
While Facebook may want a smartphone in order to protect ad revenues in the face of users making the switch to mobile devices, the company will have a hard time convincing consumers that they need to upgrade their handsets in order to access an 'ad-enhanced' Facebook. It might be easier for Facebook and HTC to target new markets: either a mass market that may benefit from a dumbed-down Android experience, or to those who want a painfully cheap, heavily subsidized handset.
Unless Facebook can inject significant secret sauce into whatever handset it comes out with, I can't see there being a big market for the handset either way. After all, every smartphone out there can access Facebook; what advantage would a branded Facebook handset have over all the others? Or a well-designed app for that matter?
Microsoft blundered to market with its Kin social network centric handsets, failed spectacularly, and in the process burned through some billion dollars before admitting defeat.
I hope the folks at Facebook remember this.