Facebook Home: So...What?


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Facebook Home represents the next step in Facebook’s mobile strategy. Cartesian considers the implications both for Facebook and the broader mobile ecosystem.

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Facebook Home: So...What?

  1. 1. www.cartesian.com Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or means (electronic, mechanical, photocopy, recording or otherwise) without the permission of The Management Network Group. Cartesian Perspectives Facebook Home: So… What? April 2013
  2. 2. 2Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. So... What? Recently, Facebook unveiled Facebook Home, its long-awaited and long-rumored “Major Mobile Announcement.” Like all things Facebook, this has made quite a splash “Facebook Home Is Brilliant” “Facebook's First Mobile Operating System” “Facebook Home Phone Pulls You Back Into Facebook” “Facebook Home, a visually arresting place where Facebook and Google split custody of your attention” “Facebook invades Android with a new lockscreen and a new chat experience” “Facebook Home Review: Slick, Fun and, for Now, Superficial” “Facebook Home: A Nice Place to Visit, but Not Quite Home” “Facebook Home: People are more Important than Apps” So… What does this mean for mobile ecosystem players more broadly? 1 2 3 4 So… What does this mean for Facebook’s strategy? So… What is the HTC First? So… What is Facebook Home?
  3. 3. 3Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. So… What is Facebook Home? Facebook Home expands the current Facebook mobile application set by essentially taking over the home screen, the app launcher, and the general UI of Android phones Facebook Home Overview Facebook Home is an incremental step in Facebook’s mobile strategy Source: Facebook, Cartesian • An integrated “family of apps” providing a home screen and lock screen on Android Devices • Displays newsfeed updates with photos from friends (Cover Feed) • Brings Facebook Messages and SMS forward with Chat Heads, accessible on top of any app • Downloadable on select Android phones, preloaded on the HTC First • Will be updated on a monthly basis via app updates What Facebook Home Is A Home Screen • Brings newsfeed content forward Messaging Application • Chat Heads now prominently displays notifications when a FB message or SMS is received • Chat window can be opened and closed on top of any app App Launcher • Accessible with a swipe in the home screen What Facebook Home Is Not Not a Phone • No hardware investment from Facebook, contribution to HTC First investment unlikely Not an OS • FB did not create a forked version of Android –Uses standard Android tools to create downloadable app and UI Not Platform-Agnostic • Android only - unlikely to be available on other OS Facebook Home Screenshots Launch on April 12, 2013 1
  4. 4. 4Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. So… What is the HTC First? To support Facebook Home’s launch, HTC and AT&T have partnered to offer a phone with Facebook Home preloaded Source: HTC, Cartesian • HTC has partnered with Facebook and AT&T to offer the first phone that has FB Home preloaded • Ability to show notifications from other phone apps (including Google Calendar, Outlook email, etc.) is the primary distinguishing feature from the downloadable Facebook Home version • $99.99 price point represents a low-end smartphone play, perhaps catering to a younger category • Users are able to disable Cover Feed • 4.3-inch screen, dial-core processor, 1GB of RAM and 5-megapixel camera HTC First $99.99 With contract While the HTC First represents an important proof of concept, the success of Facebook Home will depend primarily on the downloadable version 2
  5. 5. 5Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. Facebook Strategy So… What does Facebook Home mean for Facebook’s strategy? Facebook Home addresses several key strategic goals, the most obvious of which is increasing user time spent on mobile, which increases the number of ads seen Source: Facebook Annual Report, Cartesian Facebook Home aims to drive higher engagement and monetization on mobile devices Grow Users and Engagement Improve Ad Monetization Enhance Developer Offering • Grow underpenetrated segments and geographies • Enter new markets • Improve user experience • Improve mobile ad targeting • Develop mobile ad model • Grow advertiser base • Grow and diversify partner base • Offer new platform capabilities • Regulatory barriers • User migration to other media • Loss of user trust • Non-monetized mobile usage • Inability to balance monetization with user experience • Competitive/pricing pressure • Inability to balance user and developer needs • Key developers move to OTT Role of Facebook Home • Drives FB mobile consumption and engagement for existing users but will not necessarily lead to new FB users • Helps retain use of FB relative to other media and networks • If FB soon releases ads on the Cover Feed it will be able to monetize the increasing time spent on mobile • This will drive incremental mobile monetization Key RisksKey Goals • Limited impact on developer offering 3
  6. 6. 6Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 40% 42% 44% 47% 51% 54% 57% 60% 64% 83 102 126 157 So…What are Facebook's challenges in mobile? Facebook Home is intended to address the increasing Facebook mobile user base (64% of users today) by driving consumption and mobile monetization • Due largely to smaller mobile device form factors, mobile FB users see fewer ads than desktop users today, accounting for only 11% of total advertising revenue Source: Facebook, JP Morgan, Cartesian “…we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal computers for the foreseeable future and that the usage through personal computers may be flat or continue to decline in certain markets… in part due to our focus on developing mobile products to encourage mobile usage of Facebook.” – Facebook Annual Report 2012 FB Monthly Active Users (MAU), M 245 288 325 376 432 488 543 604 680 363 393 413 424 413 413 412 403 376 608 681 738 800 845 901 955 1007 1056 M 200M 400M 600M 800M 1000M 1200M Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mobile MAUs Non Mobile MAUs Note: Mobile MAUs includes both desktop and mobile usage, with Mobile0only MAUs representing the # of users that only access FB via mobile $3,154 $3,534 $2,841 $2,425 $275 $847 $1,153 $470 $1,873 $3,339 $3,154 $4,279 $5,562 $6,918 $M $2,000M $4,000M $6,000M $8,000M $10,000M 2011A 2012A 2013E 2014E Desktop Right Rail Revenue Desktop News Feed Revenue Mobile News Feed Revenue FB Desktop and Mobile Advertising Revenue, $M 100% 83% 51% 35% 0% 6% 15% 17% 0% 11% 34% 48% 3 Mobile MAUs as % of Total MAUs Mobile-Only MAUs Desktop News Feed Desktop Right Rail Mobile News Feed
  7. 7. 7Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. So… What has Facebook done so far to get here? Facebook has been pursuing multiple approaches to drive higher usage and engagement on mobile Key Facebook Mobile Announcements Source: Tech Crunch, GigaOM, Company press releases, Cartesian 2010 2011 2012 2013 April 2013 Facebook Home App/Homescreen • Replaces Android home screen • Chat Heads • Facebook notifications FB Mobile Ecosystem Expansion October 2011 iPad App Application • FB released its own iPad app almost two years after the iPad first launched August 2012 New iOS App Mobile UI • Rebuilt from the ground up with native iOS elements enabling better functionality FB Mobile Apps August 2012 Poke iOS App • App for self- destructing messages to rival Snapchat September 2012 iOS 6 Integration Mobile OS • New release of iOS featuring deeper FB integration w/ ability to use in iOS apps April 2013 Osmeta Acquisition • Small mobile software startup • Acqui-hire for mobile software talent October 2010 Windows Phone 7 Integration Mobile OS • Deeply integrated into WP7 via People Hub and Live Tiles Jan 2013 VoIP Calling Messenger Update • Free call button within Messenger App testing in US • Data usage fees apply February 2012 Payments Carrier Billing • Carrier billing integrated directly into FB platform for apps, other content August 2011 FB Messenger Application • FB launched a standalone messenger app • Syncs with FB June 2012 Sponsored Stories Mobile Advertising • Mobile-only sponsored stories (ads within newsfeed) available August 2012 Instagram Acquisition • Acquired for $1B • Remains standalone app, with deep FB integration 3
  8. 8. 8Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. “First impressions of Facebook Home for Android are a surprising ‘Like’” — GigaOM “I found Facebook Home to be easy to use, elegantly designed and addictive.” — Wall Street Journal “Facebook Home gets SMACKDOWN from irate users” — The Register So... What? Post release, Facebook Home has a lackluster rating on the Google Play store • However, for those that have downloaded the app, FB consumption and engagement have increased, thereby furthering a main goal of Facebook Home Initial Responses Drivers of Adoption • Heavy Facebook usage would incent a user to adopt FB Home • Preferred UI to Android home screen Barriers to Adoption • Potentially intrusive to phone experience overall • Potentially intrusive to usage or access of other apps • Detrimental impact on battery life • Usage of customized Android widgets and launchers preferred • Facebook “overload” of notifications • Privacy concerns (e.g. ability to see friends’ information in locked screen) Drivers and Barriers to Adoption Google Play Store App Reviews 3 Source: GigaOM, Google Play Store, Wall Street Journal, The Register, Cartesian
  9. 9. 9Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 1056M 680M 470M 176M 107M M 200M 400M 600M 800M 1000M 1200M Total FB MAUs Mobile FB MAUs Smartphone MAUs Android App MAUs Daily Android App MAUs So… Will this move the needle for Facebook? While Facebook Home has a small addressable market (100M users or about 10% of total FB users), this is likely significantly larger than the addressable market for a Facebook-owned phone • For reference, the top-selling Samsung Galaxy S3 sold 40M units in seven months • Mobile usage of Facebook overall is increasing • Of mobile users, smartphone users will increase as smartphone adoption increases • Android is projected to maintain its majority share of smartphone platforms • FB Home is not likely to be available on iOS, Windows Phone, or Blackberry (though Facebook is already highly integrated into iOS and Windows Phone Facebook Home Global Addressable Market, 2013 FB Home Adopters Drivers of Increased Facebook Home Addressability 100% 64% 45% 16% 10% ? ? Source: Enders Analysis, Facebook Annual Report, IDC, Cartesian Mobile MAUs (FB Annual Report) Remove feature phone and mobile web users (Enders) Limit to Android Platform (Enders) Limit to FB App daily users (IDC) Adoption drivers 3 % Total FB Users
  10. 10. 10Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. So… Is this a ROKR? Facebook Home can be best viewed as another experiment with mobile devices, similar to early activities by Apple, Google, and Amazon Source: Company press releases, GigaOM, Cartesian Platform Providers Entering the Mobile Device Ecosystem • Launch: September 2005 • ROKR was the first ever phone to have iTunes integration • Users could transfer only 100 songs to phone • Launch: June 2011 • First phone to have a dedicated Facebook button as part of a QWERTY keyboard • Facebook button takes users straight to FB App HTC Status Motorola ROKR Apple released the iPhone ~16 months later • Launch: January 2010 • Presented as Google’s first flagship smartphone with “pure” version of Android OS • Manufactured by HTC via partnership Google Nexus One Discontinued after a few months due to low demand Google continues to offer Nexus phones and tablets via OEM partnerships • Launch: September 2011 • Amazon-owned tablet running a forked version of Android OS designed to showcase Amazon ecosystem • Comes with Amazon store and media apps preloaded Amazon Kindle Fire Successful entry into tablet market • Launch: April 2013 • First phone to have FB Home preloaded on Android device • A low-risk strategy for Facebook to see if a Facebook- branded phone would sell well HTC First ? 3
  11. 11. 11Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. So… What does this mean? Facebook Home presents the greatest potential challenges to content providers and OS providers Source: Cartesian Facebook Home Implications by Player Type MNOs Device Makers Content Providers OS Providers Minimal Significant Minimal Moderate • Limited risk from home screen capture since MNOs already lack control of UI compared with OS providers and OEMs • Chat Heads is a compelling OTT messaging offer, though most MNOs have existing strategies to mitigate the threat from OTT (e.g. shared data plans) • Usage of Facebook Home may drive incremental data usage • For FB Home users, other smartphone apps could recede in importance • Content providers may attempt to create their own versions of “Homes” for example a Twitter home screen, Evernote home screen, etc. • Other content providers may integrate more deeply with Facebook to try to gain mindshare by being part of the News Feed and Cover Feed • If the HTC First gains traction it may make sense for other OEMs to also partner with with FB to offer a preloaded FB Home device • Not relevant for Apple, Microsoft, and Blackberry ecosystems (assuming these platforms do not allow a fully functioning Facebook Home app) • Will be available on tablets soon, thus impacting tablet makers as well • Facebook already has deep levels of integration within major OS platforms, especially Apple and Windows Phone • Apple probably will not allow Facebook Home on iOS given their closed ecosystem and high level of control over user experience • Android OS will be most threatened to provide a compelling home screen that can compete with the Facebook Home experience Minimal Moderate Moderate Minimal Threat OpportunityType Potential Implications if Facebook Home is Successful 4
  12. 12. 12Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. So… What will happen next? Fundamentally, Facebook Home should be viewed as another incremental step by Facebook to increase its mobile presence and engagement, as part of a “try- everything” mobile strategy Facebook Home could potentially address 10% of total Facebook users For the small subset that do adopt Facebook Home, consumption and engagement will increase The HTC First is a low-cost Android smartphone which showcases Facebook Home and if successful, may indicate Facebook’s willingness to dive deeper Partnership opportunities for MNOs exist in providing FB-home centric devices like the HTC First, though market demand has yet to be proven Facebook is still trying to figure out how best to engage and monetize mobile users, and Facebook Home is a low-risk way of testing the mobile waters
  13. 13. 13Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. Descartes House 8 Gate Street London WC2A 3HP UK Two Financial Center 60 South Street, Suite 820 Boston, MA 02111 USA 8260 Greensboro Drive Suite A-30 McLean, VA 22102 USA 7300 College Blvd Suite 302 Overland Park, KS 66210 USA 400 Atrium Drive 1st Floor Somerset, NJ 08873 USA Contact Information Sean McDevitt Vice President sean.mcdevitt@cartesian.com +1 617 999.1016 www.cartesian.com