On Thursday, Facebook held a marketing event highlighting the launch of an Android application called Facebook Home. (Android is a mobile operating system supported by Google GOOG .) We find Facebook Home intriguing, yet the benefits to Facebook are more obvious than the benefits to users. In fact, we doubt that most consumers will choose to add Facebook as a gatekeeper to their mobile Web experience, although dedicated Facebook users will be more likely to find value. Despite our skepticism, we believe the product launch is a positive signal for the company. Our fair value estimate and economic moat rating are unchanged.
Facebook Home is not a phone, but an application that can be downloaded to several Android devices beginning April 12 from Google Play, Google’s Android application store. The application serves as a home screen or “on-ramp” application that shows users information related to their Facebook network first. For avid Facebook users, having the newsfeed and messaging notifications always there may be a welcome benefit. For others, however, most applications are now an extra click away.
The benefits to Facebook are obvious. Promoted newsfeed items that show up in Facebook Home could eventually represent premium advertising inventory. Furthermore, users of Facebook Home would probably see a greater number of ads, driving incremental revenue for the company. Lastly, Facebook has a greater ability to follow users around their mobile Web and application experience, further enriching the company’s data set for to better target advertising.
The benefits to users are less apparent. We are skeptical that Facebook Home will be adopted by a large percentage of the company’s 600 million monthly mobile users. People who don’t use Facebook on a daily basis are likely to find the application distracting and cumbersome. Additionally, users who don’t trust Facebook’s motives are less likely to want the company persistently connected to their mobile devices. These individuals may consider the ability to sign out of Facebook a feature they can no longer use.
Overall, we are neutral to positive about Facebook Home. In our view, Facebook will continue launching applications (user focused, advertiser focused, and developer-focused), and the likelihood of one killer app is slim. Supporting this theme, we view this product as iterative rather than transformative. We are encouraged that the company did not take a more capital-intensive approach by building phones and managing inventory and distribution risk. Investors should be encouraged by this thoughtful and measured approach to innovation.
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