When Facebook Inc (NASDAQ:FB) made its initial public offering nearly a year ago, many doubted its ability to monetize its growing mobile user base. When the company released its fourth quarter results in January, CEO Mark Zuckerberg said, “I want to dispel this myth that Facebook Inc (NASDAQ:FB) can’t make money on mobile. It may have seemed like that a year ago, because we weren’t really trying yet.”
Parse
Last week, Facebook Inc (NASDAQ:FB) acquired Parse, a company that provides back-end tools for app developers. This is the company’s next foray into business-to-business services – an attempt to capitalize on the growing demand for app-development services.
Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT) offer their own software development kits – SDKs – and a platform to sell their apps. Amazon.com, Inc. (NASDAQ:AMZN), too, has a small presence in the mobile market with its Kindle Fire line, more curated Android store, and cloud computing services that many developers use. Facebook Inc (NASDAQ:FB) is late to the game.
Facebook can’t do what Apple Inc. (NASDAQ:AAPL) or Google Inc (NASDAQ:GOOG) does – make an OS and app store – because its business relies on reaching everyone. A platform that reaches a few million isn’t going to affect a business with over 1 billion users. It goes against Facebook’s goal of being everywhere all the time.
The potential for Facebook to do just that improves with the Parse acquisition. On top of Parse’s suite of tools, Facebook can use the platform to influence developers’ decisions to use Facebook’s other services: Facebook Login to reduce friction, share hooks to add content to News Feed, app install ads to promote new unknown apps, in-app ads from Facebook Exchange for monetization, the list goes on.
With 60,000 developers already on board two years after its launch and Facebook’s expertise in increasing scale, Parse has plenty of growth potential. As a revenue stream, Parse’s back-end support business is rather insignificant to Facebook’s $5 billion in revenue during 2012. Nonetheless, it’s another way of generating the benefits of having an OS – such as upselling services like Google – without having to make an OS.
Atlas
Facebook’s acquisition of Atlas from Microsoft Corporation (NASDAQ:MSFT) earlier this year went largely unnoticed. However, Facebook plans to use Atlas to provide a better means of tracking the efficacy of mobile ads. Atlas provides the tools that allow advertisers to track campaigns across desktop, mobile, and between Facebook and other websites.
Atlas Product Director of Ads Gokul Rajaram pointed out after the purchase, “One of the big things we hear from marketers and agencies is that the current ad serving systems do not support mobile.” Consequently, prices for mobile ads are about half that of their desktop counterparts. Once Facebook can show advertisers significant data to improve campaigns and demonstrate their effectiveness, advertisers will have a better understanding of how much mobile ads are worth.
Google has taken steps since Facebook acquired Atlas to improve its mobile ad rates. It launched The Full Value of Mobile calculator and Enhanced Campaigns in March. While neither is quite robust, analysts expect the new tools from Google to close the gap between desktop and mobile ad rates.
Google is well ahead of Facebook in its mobile ad tools, but there’s plenty of room for improvement. Facebook has potential to turn Atlas into the go-to mobile ad suite, which could mean real competition for Google as advertisers choose Facebook Exchange over Google’s ad exchange.
Home
Home, the app-launcher/home-screen-replacement/social-messenger-not-an-OS, launched last month in the U.S. with a small portfolio of supporting phones. The early reviews were bad, with half of the 500,000 downloaders giving the app a 1-star review (the minimum).
But Home isn’t really meant for the United States. Facebook may have already hit peak penetration in the States, but it still has room to grow in countries like India where it’s used by just 10% of the population.
Developing nations are the perfect playing ground for Home – a quickly growing smartphone user base, traditional computer access is sparse, and carriers can get away with highway robbery with the fees they charge for data and SMS. Facebook Home provides free messaging and, eventually, free voice calling. By providing these free services in an elegant package, Facebook ought to increase its market share abroad.
Its real competition comes from the small social messaging apps like WhatsApp, Line, and KakaoTalk. WhatsApp, in particular, has partnered with several carriers to get its app pre-installed on their phones. As a result, WhatsApp can claim its network is bigger than Twitter’s.
Facebook will need to make similar agreements with carriers internationally, as it’s done with AT&T Inc. (NYSE:T) in the United States. Perhaps, once the company monetizes Home, it will be able to subsidize pre-installed phones or provide some monetary incentive to carriers.
Growing mobile revenue
Last year, Facebook grew mobile revenue from 0% of its total sales to 14% to 23%. With the added investment in mobile during the first half of 2013, look for that number to continue climbing.
As always, I’m sure mobile will be a big focus on the company’s upcoming earnings report (I’m writing this beforehand). Some mobile issues that investors ought to examine from the earnings report include mobile ad rates, app-install ad adoption rates, Home downloads and phone sales, and any progress in developing an Atlas suite for mobile.
The article This is What It Looks Like When Facebook Tries originally appeared on Fool.com and is written by Adam Levy.
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