Saturday, April 13, 2013

How Facebook Can Make Money Off Facebook Home

Zuck2013-04-05 17:07:29 UTC

Facebook took a big step on Thursday towards increasing its presence on mobile with the announcement of Facebook Home — a new home screen and app launcher for Android — and the release of the first-ever Facebook phone manufactured by HTC.

Mark Zuckerberg, the company's CEO and co-founder, spent most of his time discussing his vision for reorienting the smartphone user experience around people rather than apps, but as with most Facebook events, he stayed vague on one big point: how Facebook plans to make money off these new products.

"There are no ads in this yet," Zuckerberg said of Facebook Home during a Q&A with reporters after the launch event. "I'm sure at some point there will be."

Unlike some of the other new features that Facebook has unveiled in recent months, analysts we spoke with believe that there is no immediate plan for monetizing Facebook Home and Facebook phones in a way that would lead to a noticeable increase in revenue for the company.

Arvind Bhatia, an analyst with Sterne Agee, says that Facebook's primary goal for Facebook Home right now is to boost engagement and adoption for Facebook on mobile — and for teenagers in particular, a group that Bhatia says "was starting to lose interest." Assuming that there is strong adoption, Facebook Home could serve as a powerful and lucrative platform for serving ads to mobile users.

"This real estate is going to be very, very valuable," Bhatia tells Mashable.

"This real estate is going to be very, very valuable," Bhatia tells Mashable. Home would give Facebook a way to let marketers place ads front and center on the home screen rather than buried in an app or website. Facebook might also gain a better understanding of its users' habits across devices, which would help it improve mobile ad targeting. "I think the relevance and the targeting will get better and Facebook will be able to charge much more over time."

The new mobile products might also help Facebook increase the volume of ads it serves and increase impressions by boosting engagement with Facebook's platform, both of which would contribute to an increase in the company's advertising revenue, according to Clark Fredricksen, VP of communications for eMarketer.

As it stands now, Facebook already leads the market for mobile display ads, with eMarketer projecting that it will take in nearly one in three ad dollars in this category in 2013. eMarketer believes it's still too soon to tell whether the products launched this week will increase that share further. "It's unclear whether this will have an incremental impact or a re-distributive impact," Fredricksen says. "We just don't know yet."

Apart from mobile display ads, analysts we spoke with speculate that Home may give Facebook an opportunity to boost ad revenue from mobile app install ads and perhaps even from search ads, if Facebook plays up its Graph Search feature on mobile in the future. The bigger picture for Facebook Home, according to Fredricksen, is that Facebook is looking to be "the starting point for messaging and the starting point for search content and commerce discovery on your phone."

Beyond the potential for advertising revenue, Facebook could also push to get a cut of the revenue from sales of Facebook phones sold by its manufacturing partners like HTC. Brian Wieser, senior research analyst with Pivotal Research Group, notes that there doesn't appear to be a revenue sharing agreement with HTC or any other manufacturing partner for the Facebook phone yet, but "that doesn't mean it won't happen at some point."

All of this hinges on the assumption that smartphone users actually download Facebook Home or by the new HTC Facebook phone, which is anything but certain.

"I think we have yet to see any evidence that consumer demand for this is...," Fredricksen from eMarketer says, before starting over to put it more bluntly. "We've yet to see any consumer demand for this."

Photo via Getty Images, Justin Sullivan

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