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Cartesian Perspectives
Facebook Home: So… What?
April 2013
2Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved.
So... What?
Recently, Facebook unveiled Facebook Home, its long-awaited and long-rumored “Major Mobile Announcement.” Like all things Facebook, this has made quite a splash
“Facebook Home Is Brilliant”
“Facebook's First MobileOperating System”
“Facebook Home Phone PullsYou Back Into Facebook”
“Facebook Home, a visually arrestingplace where Facebook and Google split
custody of your attention”
“Facebook invades Android with a new lockscreen and a new chat experience”
“Facebook Home Review: Slick, Fun and, for Now, Superficial”
“Facebook Home: A Nice Place to Visit, but Not Quite Home”
“Facebook Home: People aremore Important than Apps”
So… What does this mean for mobile ecosystem players more broadly?
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2
3
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So… What does this mean for Facebook’s strategy?
So… What is the HTC First?
So… What is Facebook Home?
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So… What is Facebook Home?
Facebook Home expands the current Facebook mobile application set by essentially taking over the home screen, the app launcher, and the general UI of Android phones
Facebook Home Overview
Facebook Home is an incremental step in Facebook’s mobile strategy
Source: Facebook, Cartesian
• An integrated “family of apps” providing a home screen and lock screen on Android Devices
• Displays newsfeed updates with photos from friends (Cover Feed)
• Brings Facebook Messages and SMS forward with Chat Heads, accessible on top of any app
• Downloadable on select Android phones, preloaded on the HTC First
• Will be updated on a monthly basis via app updates
What Facebook Home Is
A Home Screen
• Brings newsfeed content forward
Messaging Application
• Chat Heads now prominently displays notifications when a FB message or SMS is received
• Chat window can be opened and closed on top of any app
App Launcher
• Accessible with a swipe in the home screen
What Facebook Home Is Not
Not a Phone
• No hardware investment from Facebook, contribution to HTC First investment unlikely
Not an OS
• FB did not create a forked version of Android
–Uses standard Android tools to create downloadable app and UI
Not Platform-Agnostic
• Android only - unlikely to be available on other OS
Facebook Home Screenshots
Launch on April 12, 2013
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So… What is the HTC First?
To support Facebook Home’s launch, HTC and AT&T have partnered to offer a phone with Facebook Home preloaded
Source: HTC, Cartesian
• HTC has partnered with Facebook and AT&T to offer the first phone that has FB Home preloaded
• Ability to show notifications from other phone apps (including Google Calendar, Outlook email, etc.) is the primary distinguishing feature from the downloadable Facebook Home version
• $99.99 price point represents a low-end smartphone play, perhaps catering to a younger category
• Users are able to disable Cover Feed
• 4.3-inch screen, dial-core processor, 1GB of RAM and 5-megapixel camera
HTC First
$99.99With contract
While the HTC First represents an important proof of concept, the success of Facebook Home will depend primarily on the downloadable version
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5Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved.
Facebook Strategy
So… What does Facebook Home mean for Facebook’s strategy?
Facebook Home addresses several key strategic goals, the most obvious of which is increasing user time spent on mobile, which increases the number of ads seen
Source: Facebook Annual Report, Cartesian
Facebook Home aims to drive higher engagement and monetization on mobile devices
Grow Users and Engagement
Improve Ad Monetization
Enhance Developer Offering
• Grow underpenetrated segments and geographies
• Enter new markets
• Improve user experience
• Improve mobile ad targeting
• Develop mobile ad model
• Grow advertiser base
• Grow and diversify partner base
• Offer new platform capabilities
• Regulatory barriers
• User migration to other media
• Loss of user trust
• Non-monetized mobile usage
• Inability to balance monetization with user experience
• Competitive/pricing pressure
• Inability to balance user and developer needs
• Key developers move to OTT
Role of Facebook Home
• Drives FB mobile consumption and engagement for existing users but will not necessarily lead to new FB users
• Helps retain use of FB relative to other media and networks
• If FB soon releases ads on the Cover Feed it will be able to monetize the increasing time spent on mobile
• This will drive incremental mobile monetization
Key Risks Key Goals
• Limited impact on developer offering
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40% 42% 44% 47% 51% 54% 57% 60% 64%
83 102 126 157
So…What are Facebook's challenges in mobile?
Facebook Home is intended to address the increasing Facebook mobile user base (64% of users today) by driving consumption and mobile monetization
• Due largely to smaller mobile device form factors, mobile FB users see fewer ads than desktop users today, accounting for only 11% of total advertising revenue
Source: Facebook, JP Morgan, Cartesian
“…we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal computers for the foreseeable future and that the usage through personal computers may be flat or continue to decline in certain markets… in part due to our focus on developing mobile products to encourage mobile usage of Facebook.”
– Facebook Annual Report 2012
FB Monthly Active Users (MAU), M
245 288 325 376 432 488 543 604680
363393
413424
413413
412403
376
608681
738800
845901
9551007
1056
M
200M
400M
600M
800M
1000M
1200M
Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12
Mobile MAUs Non Mobile MAUs
Note: Mobile MAUs includes both desktop and mobile usage, with Mobile0only MAUs representing the # of users that only access FB via mobile
$3,154 $3,534 $2,841 $2,425
$275 $847 $1,153
$470 $1,873
$3,339
$3,154
$4,279
$5,562
$6,918
$M
$2,000M
$4,000M
$6,000M
$8,000M
$10,000M
2011A 2012A 2013E 2014E
Desktop Right Rail Revenue
Desktop News Feed Revenue
Mobile News Feed Revenue
FB Desktop and Mobile Advertising Revenue, $M
100% 83% 51% 35%
0% 6% 15% 17%
0% 11% 34% 48%
3
Mobile MAUsas % of Total
MAUs
Mobile-OnlyMAUs
DesktopNews Feed
DesktopRight Rail
MobileNews Feed
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So… What has Facebook done so far to get here?
Facebook has been pursuing multiple approaches to drive higher usage and engagement on mobile
Key Facebook Mobile Announcements
Source: Tech Crunch, GigaOM, Company press releases, Cartesian
2010 2011 2012 2013
April 2013Facebook HomeApp/Homescreen
•Replaces Android home screen•Chat Heads • Facebook notifications
FB Mobile Ecosystem Expansion
October 2011iPad AppApplication
• FB released its own iPad app almost two years after the iPad first launched
August 2012New iOS App
Mobile UI
•Rebuilt from the ground up with native iOS elements enabling better functionality
FB Mobile Apps
August 2012Poke
iOS App
•App for self-destructing messages to rival Snapchat
September 2012iOS 6 Integration
Mobile OS
•New release of iOS featuring deeper FB integration w/ ability to use in iOS apps
April 2013Osmeta
Acquisition
• Small mobile software startup•Acqui-hire for mobile
software talent
October 2010 Windows Phone 7
Integration Mobile OS
•Deeply integrated into WP7 via People Hub and Live Tiles
Jan 2013VoIP Calling
Messenger Update
• Free call button within Messenger App testing in US •Data usage fees apply
February 2012Payments
Carrier Billing
•Carrier billing integrated directly into FB platform for apps, other content
August 2011FB Messenger
Application
• FB launched a standalone messenger app • Syncs with FB
June 2012Sponsored Stories
Mobile Advertising
•Mobile-only sponsored stories (ads within newsfeed) available
August 2012InstagramAcquisition
•Acquired for $1B•Remains standalone
app, with deep FB integration
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“First impressions of Facebook Home for Android are a surprising ‘Like’”
— GigaOM
“I found Facebook Home to be easy to use, elegantly designed and addictive.”
— Wall Street Journal
“Facebook Home gets SMACKDOWN from irate users”
— The Register
So... What?
Post release, Facebook Home has a lackluster rating on the Google Play store
• However, for those that have downloaded the app, FB consumption and engagement have increased, thereby furthering a main goal of Facebook Home
Initial Responses
Drivers of Adoption
• Heavy Facebook usage would incent a user to adopt FB Home
• Preferred UI to Android home screen
Barriers to Adoption
• Potentially intrusive to phone experience overall
• Potentially intrusive to usage or access of other apps
• Detrimental impact on battery life
• Usage of customized Android widgets and launchers preferred
• Facebook “overload” of notifications
• Privacy concerns (e.g. ability to see friends’ information in locked screen)
Drivers and Barriers to Adoption
Google Play Store App Reviews
3
Source: GigaOM, Google Play Store, Wall Street Journal, The Register, Cartesian
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1056M
680M
470M
176M107M
M
200M
400M
600M
800M
1000M
1200M
Total FB MAUs Mobile FBMAUs
SmartphoneMAUs
Android AppMAUs
Daily AndroidApp MAUs
So… Will this move the needle for Facebook?
While Facebook Home has a small addressable market (100M users or about 10% of total FB users), this is likely significantly larger than the addressable market for a Facebook-owned phone
• For reference, the top-selling Samsung Galaxy S3 sold 40M units in seven months
• Mobile usage of Facebook overall is increasing
• Of mobile users, smartphone users will increase as smartphone adoption increases
• Android is projected to maintain its majority share of smartphone platforms
• FB Home is not likely to be available on iOS, Windows Phone, or Blackberry (though Facebook is already highly integrated into iOS and Windows Phone
Facebook Home Global Addressable Market, 2013
FB Home Adopters
Drivers of Increased Facebook Home Addressability
100% 64% 45% 16% 10% ?
?
Source: Enders Analysis, Facebook Annual Report, IDC, Cartesian
Mobile MAUs (FB Annual Report)
Remove feature phone and mobile web users (Enders)
Limit to Android Platform (Enders)
Limit to FB App daily users (IDC)
Adoption drivers
3
% Total FB Users
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So… Is this a ROKR?
Facebook Home can be best viewed as another experiment with mobile devices, similar to early activities by Apple, Google, and Amazon
Source: Company press releases, GigaOM, Cartesian
Platform Providers Entering the Mobile Device Ecosystem
• Launch: September 2005
• ROKR was the first ever phone to have iTunes integration
• Users could transfer only 100 songs to phone
• Launch: June 2011
• First phone to have a dedicated Facebook button as part of a QWERTY keyboard
• Facebook button takes users straight to FB App
HTC Status
Motorola ROKR Apple released the iPhone ~16 months later
• Launch: January 2010
• Presented as Google’s first flagship smartphone with “pure” version of Android OS
• Manufactured by HTC via partnership
Google Nexus One
Discontinued after a few months due to
low demand
Google continues to offer Nexus phones
and tablets via OEM partnerships
• Launch: September 2011
• Amazon-owned tablet running a forked version of Android OS designed to showcase Amazon ecosystem
• Comes with Amazon store and media apps preloaded
Amazon Kindle Fire Successful entry into tablet
market
• Launch: April 2013
• First phone to have FB Home preloaded on Android device
• A low-risk strategy for Facebook to see if a Facebook-branded phone would sell well
HTC First ?
3
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So… What does this mean?
Facebook Home presents the greatest potential challenges to content providers and OS providers
Source: Cartesian
Facebook Home Implications by Player Type
MNOs
Device Makers
Content Providers
OS Providers
Minimal
Significant
Minimal
Moderate
• Limited risk from home screen capture since MNOs already lack control of UI compared with OS providers and OEMs
• Chat Heads is a compelling OTT messaging offer, though most MNOs have existing strategies to mitigate the threat from OTT (e.g. shared data plans)
• Usage of Facebook Home may drive incremental data usage
• For FB Home users, other smartphone apps could recede in importance • Content providers may attempt to create their own versions of “Homes” for example a
Twitter home screen, Evernote home screen, etc. • Other content providers may integrate more deeply with Facebook to try to gain
mindshare by being part of the News Feed and Cover Feed
• If the HTC First gains traction it may make sense for other OEMs to also partner with with FB to offer a preloaded FB Home device
• Not relevant for Apple, Microsoft, and Blackberry ecosystems (assuming these platforms do not allow a fully functioning Facebook Home app)
• Will be available on tablets soon, thus impacting tablet makers as well
• Facebook already has deep levels of integration within major OS platforms, especially Apple and Windows Phone
• Apple probably will not allow Facebook Home on iOS given their closed ecosystem and high level of control over user experience
• Android OS will be most threatened to provide a compelling home screen that can compete with the Facebook Home experience
Minimal
Moderate
Moderate
Minimal
Threat OpportunityType Potential Implications if Facebook Home is Successful
4
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So… What will happen next?
Fundamentally, Facebook Home should be viewed as another incremental step by Facebook to increase its mobile presence and engagement, as part of a “try-everything” mobile strategy
Facebook Home could potentially address 10% of total Facebook users
For the small subset that do adopt Facebook Home, consumption and engagement will increase
The HTC First is a low-cost Android smartphone which showcases Facebook Home and if successful, may indicate Facebook’s willingness to dive deeper
Partnership opportunities for MNOs exist in providing FB-home centric devices like the HTC First, though market demand has yet to be proven
Facebook is still trying to figure out how best to engage and monetize mobile users, and Facebook Home is a low-risk way of testing the mobile waters
13Confidential and Proprietary — Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved.
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