Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Facebook Inc (FB): Mobile Announcement Faces Too Many Roadblocks

I was talking with Nazir, a friendly AT&T Inc. (NYSE:T) customer service rep, yesterday and he told me if I put my sim card in an iPhone, I’ll automatically receive a charge for a data plan regardless of whether or not I use it. “That’s annoying. It’s my phone; I should be able to use it how I want,” I replied. Nazir couldn’t really sympathize. I imagine he doesn’t have the same #FirstWorldProblems I do.

But this is just a small part of a growing problem of closed systems, where the owner cedes control over his own property. It prevents owners from unlocking the true power of the technology in their hands, and prevents companies from innovating new solutions.

Facebook Inc (FB)

Upon reading the leaked information about Facebook Inc (NASDAQ:FB)’s “new home on Android,” I found myself frustrated by this sentence: “Facebook will initially demonstrate the capability on smartphones from HTC … but has been working to reach similar arrangements with other device makers.”

Let’s back up

Last week, Facebook released an invitation to media outlets to “Come See Our New Home on Android.” The event is scheduled for Thursday, and the rumor mill has been spinning: from a new operating system to a full-fledged Facebook phone.

The announcement is sure to be Facebook’s next step in mobile. A year ago, the company was just getting started with mobile. With more people using smartphones and tablets to access Facebook than desktops and laptops, mobile monetization is an increasingly important focus for the company.

Whichever route Facebook Inc (NASDAQ:FB) has chosen, it’s sure to face resistance. This is because we, as phone owners, actually have no control over our own property.

A new OS

Here’s a huge difference between how technology works today and how it worked just 10 years ago.

If I bought a computer, which came pre-installed with Microsoft Corporation (NASDAQ:MSFT)’s Windows OS, I could do anything I wanted with it. I could install any software I wanted, and I could even install an entirely new operating system. Microsoft Corporation (NASDAQ:MSFT) didn’t have any qualms with me installing Linux, heck they’d even let me install a hacked-up version of rival Apple Inc. (NASDAQ:AAPL)’s Mac OS if I wanted. Hewlett-Packard Company (NYSE:HPQ) or Dell Inc. (NASDAQ:DELL) wouldn’t prevent me from installing or uninstalling anything on the computer either.

The story is different with smartphones. Each entity is vying for as much control over the system as possible, leaving users with essentially nothing. Google Inc (NASDAQ:GOOG) requires phone manufacturers to sign a contract to preserve the consistency of the user experience on Android devices. The phone manufacturers then tweak Android within constraints to develop what they believe is the optimal user experience. And this is what the user gets — if he wants something else, too bad.

Facebook Inc (NASDAQ:FB) has had a lot of success with the adoption of its mobile app, but now it wants to embed its social network deeper into people’s phones. Instead of a link that pops up when users fire up the Facebook Android app and installs the new OS feature automatically, the company must go through the phone manufacturers.

HTC is the first to sign on. Smaller phone companies might agree to partner with Facebook Inc (NASDAQ:FB) as well. The big fish, like Samsung, however, will likely prove a tough catch for the company. And forget about getting Apple Inc. (NASDAQ:AAPL) to agree to anything that changes its extremely closed iOS ecosystem.

This is essentially a shot in the dark by HTC, one it’s taken before, in an effort to regain the market share it’s been steadily losing to Samsung. If it turns into another flop, it won’t really hurt HTC. Samsung, on the other hand, has built up a large following with its Galaxy line of phones. It’s unlikely to disturb its user base with a Facebook intrusion.

Google Inc (NASDAQ:GOOG), for its part, will likely welcome a new Facebook feature. As mentioned earlier, there’s essentially zero chance Apple will allow Facebook to modify iOS, so if the new Facebook Inc (NASDAQ:FB) fork proves popular, there could be an uptick in Android sales. As long as the features don’t disrupt Google’s Android requirements, it ought to prove positive for the company.

New phones

Adding to the roadblocks is the expected scenario that a new Facebook-centric OS will require new lines of phones. HTC just launched a new flagship phone, the HTC One, so we’re likely to see an entirely new phone on Thursday. It’s hard to imagine other companies installing the new OS on their flagship devices as well, so Facebook Inc (NASDAQ:FB) is banking on sales of new phones.

The reason this is a roadblock is that wireless carriers, such as AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) aren’t too fond of the features Facebook brings to mobile devices, and sales success is largely dictated by the carriers. They can choose which phones are sold in their stores, and how much they promote each phone. It’s hard to sell phones that don’t find their way in front of customers.

Facebook Inc (NASDAQ:FB)’s OS will likely push users to use its Messenger app, which allows people to send free text messages over WiFi or cellular data. Social messaging cost operators approximately $23.2 billion in lost revenue last year.

While free messenger services may boost data plan sales, it’s not worth the sacrifice for carriers. Margins on text messaging are ridiculously high as the cost for carriers is practically nothing regardless of volume. Data plans, however, provide significantly lower margins.

It simply doesn’t make sense for big carriers, which rely on packaging texting plans with data plans, to promote a product that provides a significant threat to that business.

Facebook Flop

In my opinion, this announcement looks set up for failure. There are too many roadblocks the company must overcome in order for a new OS and Facebook-focused phones to succeed. The only chance for success is to create enough buzz and demand that carriers are forced to stock new phones and manufactures all want their hands on the new OS. Although, if any company has the platform to pull something like that off, it’s Facebook Inc (NASDAQ:FB).

The article Facebook’s Mobile Announcement Faces Too Many Roadblocks originally appeared on and is written by Adam Levy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.