Yesterday’s big tech story was the renewed speculation of Facebook Inc (NASDAQ:FB) releasing a smartphone. It was brought on after a New York Times article yesterday that gathered information relating to a core of smart phone talent that had been brought in to Menlo Park and has been supported by a group of rumored acquisitions at the company.
The first question is whether or not the company is actually planning to release a smartphone. We have plenty of reasons to doubt the assertion as it’s one we’ve heard many times before. The company does appear to be acquiring the necessary building blocks. Let us assume for the moment that the company is actively working on the product.
The reasons behind the decision are clear. The company wants to expand its revenue base to mobile services that would allow it to increase revenue. It would also, if the company actually plans to do the job itself, add a lucrative hardware business to the firm.
Facebook Inc (NASDAQ:FB) probably does need to diversify. The company’s stock has fallen to new lows today on fears it just won’t be able to keep up with revenue projections going forward. The news of an entirely new revenue stream coming out now may seem convenient but looking at the markets it clearly hasn’t bolstered confidence. The firm’s stock is down almost 10% todayalone.
Here’s why the markets don’t trust a Facebook phone to save the company.
A Facebook phone would find it difficult to compete. Even if the company came out with hardware and software that was competitive with Apple Inc (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) products it is an uphill struggle to make your name in a saturated market. Look at Microsoft’s Windows Mobile 7.5 on the Nokia Lumia.
That product was raved about by critics and was called a better smart phone the the iPhone 4S by many, including Siri. It hasn’t yet managed to get there in sales however. Facebook shouldn’t expect much better.
Branding would also be a problem for Facebook Inc (NASDAQ:FB). It’s own brand doesn’t currently speak toward the kind of lifestyle ideas that Apple have been so successful with. If they’re going to compete at the top that will have to change. What is Facebook’s Lifestyle Brand?
It is going to cost a lot of money to build from the ground up. Many are wondering why the firm don’t take Amazon’s strategy and custom build an Android OS with Facebook services.
Facebook’s smartphone could be the greatest ever built and it could make the company billions. That doesn’t matter. When investors are really worried about the revenue capability of your firm throwing out an expensive way to squeeze into a saturated and competitive market while offering nothing different isn’t the way to go.
This is not the way to increase revenue. Facebook’s phone is not yet a disaster. They may revolutionize the sector. However, judging by the plethora of articles written about the rumor nobody even wants the company to launch the phone.
If this is the direction Menlo Park is going take the company’s shares may take a real hit far bigger than what we’ve already seen. Facebook needs to diversify. Facebook does not need to diversify like this.
The strategy is making the social networking giant look desperate. That is not a good look on any company. It really isn’t a good look on a company that so many are looking to sell short.