facebook home: so...what?

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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?

1

2

3

4

So… What does this mean for Facebook’s strategy?

So… What is the HTC First?

So… What is Facebook Home?


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

1


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

2


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

3


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


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

3


“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


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


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


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


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


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