Mark Zuckerberg was hit by a bit of skepticism at the shareholder meeting on June 11, 2013. Mark Zuckerberg is transitioning Facebook Inc (NASDAQ:FB) into primarily being a mobile-only platform. The CEO mentioned that audience interaction metrics improved by 50% as the company continues to introduce new features to mobile handsets. The problem that Facebook faces with mobile is the sheer lack of screen space on mobile devices, which makes it difficult for display-based ads to work.
Key takeaway
The young CEO believes that the company is still on the right track for long-term growth. Analysts are probably debating that, considering the recent failure of Facebook Inc (NASDAQ:FB) Home. Not to mention, the CEO stated that he is coming up with strategies to make display-based advertising more useful for mobile devices.
The company has increased its research and development spending by 871.5% since the IPO. I am going to speculate that Facebook’s rapid increase in research and development spending is because the company is trying to develop add-on services that can be enabled for a fee on its mobile platform.
Potential product strategy
The company’s attempt at a mobile operating system was laughable based on the raving negative reviews the Facebook Inc (NASDAQ:FB) Home application got. But then again, it wasn’t easy to create a mobile operating system that was easy to use, differentiated enough to be unique, and still appeal to Facebook’s long-term business strategy.
I am willing to assume that Facebook Inc (NASDAQ:FB) is developing more advanced Instagram picture editing software that can be bought with a monthly subscription fee. That way, if users want more advanced picture editing effects, they can pay for them. This is more lucrative, as a monthly subscription on 1% of the 100 million users on Instagram would bring in more revenue than advertising a banner ad on a 4 inch screen. If Mark Zuckerberg is really serious about being a mobile-driven company, then Facebook will have to abandon the advertising business model in favor of selling add-on services that will be unique to its social network.
Some have speculated on the success of a Facebook marketplace, but I think Facebook has something better in mind, and is unwilling to reveal it. Facebook is currently searching for a silver bullet to increase the amount of revenue that it can generate from mobile services. Another idea that came to mind is a sponsored status message that will go out to every user with certain demographic data. For example, Facebook Inc (NASDAQ:FB) users may soon find status messages that come from companies that they do not follow. Companies may be forced to pay for sending out a status message to people who are not currently following them. After all, everyone checks Facebook news feed. So, this could be a potential alternative to monetizing banner ads on the side.
Other companies
Because we’re not exactly certain of Facebook Inc (NASDAQ:FB)’s growth strategy, it is smart to diversify. In fact, with technology stocks, you have to diversify.
I believe that Microsoft Corporation (NASDAQ:MSFT) is a compelling investment. The company will successfully launch the next generation console, and it is highly likely that the company will earn better gross margins than Sony. In the end, consumers will pay more for the device because a comparable gaming computer could cost substantially more, and we’re talking about a multi-year upgrade cycle, so there’s going to be plenty of pent-up demand.
Microsoft Corporation (NASDAQ:MSFT) has a compelling mobile strategy, and I believe it will work. The company’s Windows 8 operating system was designed to acquaint users with the mobile experience. According to Piper Jaffray, 5% of teenagers are planning to make their next phone purchase a Windows Phone. Microsoft Corporation (NASDAQ:MSFT)’s mobile and entertainment strategy is growing, which keeps me optimistic. Plus, the death of computers is way overblown.
