Facebook isn’t allowing a pesky little drop in its IPO price distract it from doing a little shopping. The company has announced it is buying social gifting service Karma, founded by former Tapjoy co-founders Lee Linden and Ben Lewis. Does this latest purchase signal that the social media leader has finally figured out exactly what it plans to do to make money with mobile?
Facebook’s Need to Take Revenue Generation Mobile
Facebook’s IPO was one of the biggest in history. However, all of the hype wasn’t nearly enough to keep the company’s stock price afloat. Shares have fallen 11 percent below the initial IPO price because most serious investors view Facebook’s lack of a true mobile business strategy as an enormous problem. Over half of the sites nearly 900 million users access its content from a mobile device, but many of the site’s features and advertising, the primary revenue source, do not appear on mobile clients. All apps, including games, are also notably absent; a gap that eliminates the 30 percent revenue cut that Facebook could make from in game purchases by mobile users.
Although the company hasn’t publically articulated (or leaked) anything even remotely resembling a mobile strategy, they have been purchasing mobile-focused companies like I purchase shoes at a Nordstrom’s sale. In the last couple of months, Facebook has snapped up Lightbox, Glancee, TagTile and of course Instagram in addition to Karma. A big company acquiring smaller companies isn’t unusual, but Facebook isn’t known for having a purchasing habit, well, that’s until now.
Predicting the Future
It’s clear that Facebook made a very bad decision to not to create a more sophisticated mobile platform. The company even mentioned the risk in its IPO filing. Facebook wanted to drive users to its web client. However, users had other ideas. The number of mobile users has continued to climb, and they are being met with a handicapped version of the site. It’s obvious that Facebook needs to strengthen its mobile presence, but how is not so obvious.
Mobile users expect a fast and unobtrusive experience. Advertisers are concerned that ads will be smaller and more difficult to see and understand, which could reduce effectiveness. Inserting ads when users start or shut down the application could be viewed as intrusive. Earlier this month, Facebook launched a new app store, App Center, earlier this month, which might become a key part of its mobile strategy.
The company has begun allowing developers to submit applications, and Facebook will get a percentage of the sale price for any app sold via the platform. Facebook could add mobile applications via its app store and integrate its advertising into products sold via the new App Center. The most natural move may be for Facebook to use activity streams for ads. Ads would appear like any other post in a user’s mobile news feed.
No matter what direction Facebook goes, they need to proceed cautiously. Trying to roll out new mobile features or capabilities acquired from their many new purchases hastily will likely alienate users and investors. Everyone involved with Facebook seems a bit frustrated with the company’s current mobile position. However, there is one group of people that are thrilled by Facebook’s anemic mobile presence – the companies it just acquired.