A Facebook phone is doomed, doomed, doomed

Binjaitech--COMMENTARY The latest phone rumor craze? The Facebook phone, thank you very much. Chatter about a Facebook branded phone that heavily integrates the company's services into a handset has been around since at least 2009. But the most recent round of rumors has HTC as the manufacturing partner.

It doesn't really matter, though. This is a sign of Facebook's desperation over its business model as an IPO keeps drawing nearer. The company may not have the fiscal performance to justify the incredibly high valuations it has received. So it's time to grasp at straws. Unfortunately for management, branding phones is one strategy that has proven time and time again to be robustly unsuccessful.

Just when you thought you were safe

The new Facebook phone reportedly has a codename already: Buffy. But the title shows that this is anything but a brand new idea. Buffy stands for the show Buffy the Vampire Slayer. Slayer is a condensed version of a previous project name: the "social layer." (CBS MoneyWatch has a request in with Facebook for a statement. If and when one comes, the story will get an update.)

Originally, Facebook wanted to create a real phone of its own, including industrial design and carrier subsidies. That's some ambition, especially when you consider it took Apple, which already mastered many parts of the consumer electronics business, years to come out with the iPhone.

Today's version of the Facebook phone (or the rumor, anyway) is more like Slayer Lite. The company has scaled back, deciding on an Android-based phone with a heavy dose of HTML5 browser and application love. The idea would be to have social networking services (from Facebook, dare we guess?) integrated into the operations of the phone, rather than just tacked on.

Gotta make money somehow

Why would Facebook bother? Even though a lot of its customers use the social network from smartphones, that's not the reason. Indications are that Facebook isn't the unbridled success story it portrays itself to be, even if it actually does have 800 million users (and that's taking the company's word). Even Facebook's $1.6 billion in revenue booked during the first half of the year actually missed the company's own internal projections by 25 percent.

Facebook needs income. Badly. If it doesn't pull in ever bigger numbers, the market valuation could fall, just as it did with Groupon (GRPN) in its own IPO. (And Groupon has already seen its stock price drop below the IPO pricing.)

What happens in such cases is that big investors push and executives get nervous and consider additional lines of business. Maybe it was the way smartphone users gobbled up Facebook's mobile app that got the company thinking. But those thoughts have strayed in the wrong direction.

Some might argue that CEO Mark Zuckerberg wants to emulate Amazon's (AMZN) strategy, owning a device that ties the user completely into Facebook. It's an interesting thought with a critical flaw. Amazon's strategy works because it has built a walled garden, much like Apple (AAPL), that ties the availability of third party music, books, videos, and the like into its own hardware and software delivery systems.

Facebook, on the other hand, has data that customers have loaded into its systems, which means that the social network does not have a lock on consumers for that material. Its own Open Graph strategy moves someone counter to the walled garden, so there is little leverage Facebook could use to move users into its own devices. (And given the noted privacy issues the company has had, how many consumers would be comfortable handing over even more personal data?)

Unfortunate predecessors

As James Kendrick on our sister site ZDNet noted, this isn't a first test of a Facebook phone concept. The HTC Status had an actual Facebook button on the front. Big deal, no one cared. And it's not as though HTC is a small manufacturer that can't push product.

Microsoft (MSFT) made big noise around the Kin, another phone that tried to focus on social networking. That business disaster had sales numbers so low a grade school student could have kept track of them with paper and pencil. And Kin boasted Facebook and Twitter integration. Once again...everyone, now: no one cared.

Why should they? You can get apps for Facebook that run on virtually any phone you can find. Is Facebook, a social networking company, suddenly going to create a handset/software design so compelling that it will push everyone else out of the way? Seems hard to believe. Especially when the device isn't supposed to be out for another 12 to 18 months.

No, management will have to go back and find other ways of making money, like advertising that works for marketers or services that are so good, people might be willing to pay for them. But selling phones? Sorry, wrong number. cbsnews

5 Reasons Why Facebook's Phone Will Fail

Facebook’s supposedly forthcoming smartphone, reported by AllThingsD, paints the picture of a company that either thinks it can do no wrong, is feeling incredibly squeezed by Appleand Google or is willing to lose big money just because it can afford to.

The impression created is that Facebook is weaker and has more problems than most people imagine. Not good with an IPO supposedly around the corner.

According to AllThingsD:

“After years of considering how to best get into the phone business, Facebook has tapped Taiwanese cellphone makerHTC to build a smartphone that has the social network integrated at the core of its being.

“Code-named “Buffy,” after the television vampire slayer, the phone is planned to run on a modified version of Android that Facebook has tweaked heavily to deeply integrate its services, as well as to support HTML5 as a platform for applications, according to sources familiar with the project.”

Since Walt Mossberg’s site gets all the best leaks, I am betting the report is as true a story as Facebook is willing to tell 12-18 months pre-launch. But if their story is a tad off, the alternate reality is more interesting and might be more successful.

I’ll outline that “B” version after first offering my five reasons while a Facebook phone is a pretty dumb idea.

Here goes:

1. People hate Facebook — While Facebook can claim 800 million members, it is hard to say the company is even remotely well-liked by 799 million of them. Thinking people look at Facebook, even more than Google, as a company intent on stealing all the details of their lives in order to sell things. I’ve yet to see Facebook do anything to dispel this notion and the 12-18 month gestation of the BuffyPhone is plenty of time for the legal tables to turn on Zuckerberg & Co.

The same sort of hubris that makes Facebook believe the world is clamoring for it to be in the smartphone business will eventually be its downfall. Facebook has more corporate ego than Microsoft could ever imagine and it will come back to haunt the company in the form of big legal challenges.

If consumers — or regulators — should come to a decision that privacy matters, Facebook will be in deep trouble. The BuffyPhone may become the prime example of what privacy tradeoffs Facebook thinks its customers are willing to accept, especially it comes with larger subsidies than most smartphones in order to keep the price low. How will Facebook make the money back?

2. Nobody wants a Facebook phone — There have already been Facebook phones, at least phones with special Facebook features. One is the HTC Status, which AT&T has recently started giving away. Others, including Inq Mobile, Orange and Motorola have touted special Facebook functionality. So far, the world hasn’t been buying.

Facebook will probably say its new HTC handset will do things the Status could not, but how much can that possibly be?

3. Small market – Even if successful, the market will be small. Facebook really has no choice but to put its best foot forward on all platforms. Will Facebook disadvantage iPhone and iPad users to sell its new BuffyPhone? Hard to imagine. Will it not build clients for other Android phones after the BuffyPhone appears? Nope.

So what can the BuffyPhone do that is important enough that people would buy one, but unimportant enough that users of other platforms won’t miss it?

The best chance for selling Buffies will be to go really deep in specific niche features that a certain subset of heavy Facebook users will love. My guess it that won’t be those of us who manage multiple Facebook pages, but people who use Facebook constantly but not deeply and aren’t big tablet or PC users of the service.

4. Android troubles — As developer of Android and with its pending purchase of Motorola’s handset business, Google is in an excellent position to limit the BuffyPhone’s technological future by limiting the non-Facebook features available to it. I am not saying this will happen, but I expect the Android platform will fragment as Google takes over Motorola and other manufacturers are forced to react. Suppose you can get Facebook but none of the Google apps on your BuffyPhone? Suppose other Android apps aren’t widely available, either?

Maybe there won’t be so much hardball, but with Google, Facebook, Apple, Motorola, and RIM all struggling to define smartphones, the battles could become ugly. And Google and Apple control the dominant platforms — which Facebook will still need. Perhaps more than Apple and Google need Facebook.

5. There’s not enough there — To be successful with out Apple and Google, Facebook will need to be much more than merely a social media service.

It’s best hope for this is strengthening its relationship with Microsoft. Redmond has all the things Facebook lacks in battling Google and Apple and is already a Facebook investor. However, Redmond has repeatedly stumped its toes in it online businesses and its Windows phones are well behind the curve. I can’t imagine Steve Ballmer is too thrilled that Facebook is going Android. Even if Microsoft wanted to really help Facebook, there seems little it can do.

Now, as promised, the counter argument, based on the notion that theAllThingsD report is only mostly correct:

Smart VC Roger McNamee, quoted by Dan Lyons, says Facebook really isn’t intending to build its own phone, just provide software that allows phone manufacturers to add deep Facebook integration into their own products. According to Lyons:

“Despite the breathless reports Tuesday about the Buffy, there are some in the tech world who think the Facebook phone rumors are, well, just rumors. ‘My guess is that the rumors are wrong,’ says Roger McNamee, head of Elevation Partners, a Silicon Valley investment firm.

McNamee says it’s more likely that Facebook is creating a software toolkit that phone makers like HTC can use to create phones that have tight integration with Facebook. ‘It’s just a branding thing. In theory it’s a way for a phone maker to gain a competitive advantage.’”

If true — and maybe enough negative reaction can make it so — the McNamee version of the story has the best chance for success, though Facebook would probably be better off defending its niche and cuddling up to Apple, Microsoft and Google than to do battle with them and pretty much the rest of the world just to have its name on a phone.

What do you think? Leave comments and tell me how you see this playing out.

forbes