There have been a number of theories explaining Facebook's lacklustre IPO performance. Perhaps it's the social network's dependence on advertising or just a general sense that no company can live up to the colossal hype generated by Facebook. Personally, I see Facebook's mobile offerings as its primary weakness.
The world is going mobile and if Facebook remains something you use at your desktop, it will quickly become irrelevant. To head off this threat, it seems like Facebook is once again starting the process of building the mythical "Facebook phone" to deliver its services to the mobile masses.
This is a really bad idea.
Facebook's latest smartphone aspirations were reported by the New York Times. Evidently, the company is poaching some of Apple's hardware engineers and scaling up efforts to build a phone. Presumably, the phone would come with a big 'ol Facebook button that would instantly launch the service. Facebook would be the default messaging, imaging, sharing and perhaps even voice platform. To be sure, there is something to be said for the simplicity of a Facebook button, and yet, this strategy is doomed to fail for the following reasons:
PCMag's lead mobile analyst, Sascha Segan, is fond of telling me that building phones is hard. Although they are mobile computers at their core, phones are mobile computers that must be self-powered with internal radios operating on multiple frequencies (3G, LTE, Wi-Fi, Bluetooth) with increasingly powerful CPUs running operating systems that are constantly being updated. Plus, they have to fit in the palm of your hand. (Although the surprising popularity of the gigantic Galaxy Note certainly challenges that claim.) Regardless, I think this much is clear: phone manufacturing is not a Facebook core competency.
The margins on all hardware products are low, but on smartphones, they are almost non-existent. Apple doesn't need to make a lot of money on the hardware because it can collect a network provider subsidy and every iPhone sold is really a cash register for its iTunes store. Samsung can rely on years of manufacturing experience and global scale. Facebook doesn't have any of those things.
I'm sure there is a group of die-hard Facebook users who would jump at the chance to make their Facebook account the centre of their mobile communication experience, but I think they are a minority. Most users like the idea of paying for mobile service and then having the flexibility to use multiple apps and services on the device. Will the Facebook phone support Twitter? Can I use Hipstamatic or do I have to use Instagram? People will only carry one phone, and they will want it to be one that is social network agnostic.
The bottom line is Facebook's mobile problem isn't about hardware, it is about software. Facebook's mobile apps kind of suck. They don't surface the communication you want and, at least on Android, they crash a lot. The thing is, writing code is exactly what Facebook should be able to do well. Rally the developers, buy a couple of cases of Red Bull, pull a weekend hackathon to solve the problem three different ways, and start beta testing.
Solving the problem with hardware will take months of planning and lots of coordinating with a manufacturer, the FCC, and the carriers. Then, Facebook will have to figure out how to get the phones on store shelves. The company doesn't know how to do any of that.
Why does Facebook persist in going down this road? The Times quotes an anonymous employee saying: "Mark [Zuckerberg] 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."
To which I say, what is wrong with that? It made Instagram a $1 billion company with 13 employees. That is how you compete. Build better apps, and Facebook can continue to dominate the platform. The company just needs to focus on building killer apps for iOS, Android, and Windows Phone and concentrate on dominating the OpenGraph.
For Facebook, hardware is a distraction.