For the past year, I’ve been increasingly playing with the idea of Facebook building their own phone. The reason is that it has become pretty apparent that Apple is becoming a significant threat to the social networking behemoth. Then this afternoon I saw two posts suggesting that Facebook needs a mobile operating system and one suggesting Facebook could buy Palm. So could an acquisition of Palm by Facebook at this critical juncture take place?
Palm is hemorrhaging cash. Burning through over $1 billion in the past year, issuing more shares just to stay afloat. According to the company’s public financial statements, general administrative expenses have been responsible for the loss. In essence the company is not operating at an optimal level and while there’s a potential to turn it around, the current executive team hasn’t been doing so.
That may be exactly the reason that Jon Rubenstein, the company’s CEO, may be forced out. Whoever ends up acquiring Palm, there’s no doubt that many employees will be shown the door within the coming months. They need to cut down on costs quickly and the best way to do that is to fire people. There is a beacon of hope for the company though: they have a positive gross margin, the only question is whether or not it’s possible to operate with the available cash flow. My guess is that Palm will be forced to get much smaller before it gets bigger.
It’s also important to note that one of Palm’s largest investors is also a relatively large investor in Facebook, although it’s nowhere near a controlling stake. There’s no doubt that Facebook could scrap together just enough to purchase Palm but it would most likely require a large amount (if not all) of Facebook’s existing cash.
The Right Strategic Decision?
I’ve been discussing with numerous developers the possibility of a Facebook phone for years now. If you’ve been building on the Facebook Platform, it’s in your best interest that Facebook continues to succeed. Many developers, and myself included, see Apple as a major threat. The company has managed to build a platform of more than 80 million users, all running the Apple mobile operating system.
Facebook Represents Our Web Identity But Phones Will Be Our Wallets
Right now Facebook is collecting information about the majority of web users and “locking in” the internet under it’s control. Whether or not you agree with the strategy, it’s an ambitious vision, and the company appears to be poised to succeed. While acquiring a failing mobile company could prove to be a major detractor, mobile is how most users will access the internet in the future.
More than 100 million users access Facebook via their mobile devices right now, but on many of those mobile devices, the phones are the platforms. While some have suggested that Facebook could make their own micro-mobile platform on the most successful devices (Apple, Android, etc), they are still under the control over the mobile manufacturers.
That’s why we’ve already seen an immense amount of tension between Facebook and Apple as Joe Hewitt has become one of the most vocal developers against Apple. He’s so angry about Apple’s policies that he stopped building the Facebook iPhone application all together.
Mark Zuckerberg Appears Focused On The Web
Right now it appears as though Mark Zuckerberg is a strong believer in the web as the platform, essentially dismissing or at least avoiding any questions about Facebook creating a more significant mobile presence or opening some of their mobile apps. Yes, the company has 100 million mobile users, but it’s also in the process of building the semantic web and that will take some time.
In addition to having large ambitions on the web, mobile is not a core competency of Facebook. While the company builds applications for mobile devices, the company is a web company by its very nature. That’s not to suggest the company’s existing talent couldn’t manage a mobile phone company but it would require significant executive resources, something that Palm appears to currently have problems with.
Facebook’s executives are extremely busy with their existing projects so managing the development and promotion of a phone could result in resources being stretched thin.
Palm Wants To Be Saved By Social Networking
If you visit Palm’s website, it’s pretty clear that the company is marketing their latest devices as “social networking tools”. While I doubt it was intended to be used as a tool for attracting Facebook into the picture, it could have been a subconscious message by someone at the company. Unfortunately Palm’s brand isn’t great but they do have a lot of distribution deals that would prove to be valuable for any company looking to enter the mobile market.
Mark Zuckerberg Knows How To Delegate
The one thing that Mark Zuckerberg has become better at over time is delegating. That’s why he brought in Sheryl Sandberg as COO as well as a number of other leading industry executives. While he still like to oversee the product development, some reports have suggested that he has begun thinking about much broader ambitions. While the Open Graph is a concept that turns the internet into the Great Wall of Facebook, the company has proven to execute on ambitious concepts in a short amount of time.
Since the company has almost executed on its vision of developing a “unique, Web-wide online profile”, why not take things a step further and purchase a mobile phone company? Do you think Facebook would benefit from purchasing Palm?