Facebook is gearing up to announce a big, new phone product tomorrow. We don't know what it will look like, but this is already good news. Facebook needs a tighter integration with smartphones if it wants to grow. It has also reportedly paired up with Android and HTC, which suggests low-cost phones.
That's more good news. Facebook needs momentum in emerging markets, where smartphone sales are advancing at breakneck speed. With expectations high, Facebook's stock closed up 3.3% in New York today.
Now comes the tough part.
Facebook has to establish stronger international partnerships with mobile operators and app developers if it truly wants to advance its mobile prospects in emerging markets.
Take India. The country has Facebook's third largest user base with 62.6 million users in January 2013, still representing just 5.4% of the country's population. Meanwhile smartphone shipments to India grew by 75% in the second half of 2012 from the first half, and the country is the second biggest market for the Android operating system.
Plenty of room to grow. Yet Facebook could struggle to shop a more deeply-embedded mobile service in emerging markets, where local apps born on mobile platforms dominate the landscape. These are apps like WhatsApp and Nimbuzz that are not popular, but already have all-important, complex relationships with local carriers and even mobile developers.
Nimbuzz is one of India's most popular mobile messaging services, claiming 150 million global users, with more than 60% in Asia and the Middle East. Chief Executive Vikas Saxena says that Facebook's Messenger service is "pretty basic" considering it doesn't have the kind of educational apps, multimedia messaging, discounted calling and app marketplace that his platform has.
"We have apps that are relevant to local society," says Saxena, citing dating apps, and Chatroulette-like apps that are popular in local culture and countries like Saudi Arabia where greater social restrictions exist for young people, particularly young women. By contrast, he says, "Facebook is known for known friends."
Another advantage that Nimbuzz and other native mobile companies have in emerging markets is their relationships with mobile operators. With credit and debit card penetration low in India, smartphone users typically buy apps through their telco billing system.
For now if you buy an app on Facebook's App Center through a smartphone, you're sent to either Google Play or Apple's App Store to make your purchase. It is unclear if Facebook's new phone products will offer operator billing systems to make it easier for users in emerging markets to buy apps, and Facebook did not respond to a request for comment.
Nimbuzz, headquartered in India, has spent the last few years forming partnerships in India's byzantine telecommunications industry, and has subscriber billing in place for the country's eight big telco firms. India is divided into 22 geographic service areas, known as circles, and while some telco companies have centralized systems, others are decentralised so that each "circle" exists as a separate entity.
"You have to talk to each of them" says Saxena, who has at least 10 Nimbuzz staffers tasked full-time with maintaining telco partnerships. "Then you have Yemen, Pakistan, Nepal. It's mind-boggling complexity."
Nimbuzz is not the only messaging app busy forming partnerships with international mobile operators. Messaging giant WhatsApp, estimated to have between 200 and 300 million global users, has also partnered with more than 10 international operators in countries like Saudi Arabia, Hong Kong and Chile, to be packaged into data plans those operators sell. Partnerships between messaging services and the carriers whose business models they are disrupting might seem paradoxical, but they are growing according to Ovum, and happening most often in Asia Pacific.
Researchers at Analysys Mason say that Facebook needs to become more native on mobile if it wants user engagement to grow. They also say that engagement could increase six-fold for Facebook if the social network becomes the default communication platform for calling, messaging and email on smartphones.
But becoming "more native" means Facebook needs to establish clear billing systems in local markets, which means striking relationships with local carriers. It also needs to offer more compelling features than the messaging companies that are already dominating emerging markets, like WhatsApp, Nimbuzz and KakaoTalk.
According to Nielsen, WhatsApp Messenger is the most popular app in India, followed by Facebook,. Nimbuzz comes in fourth place, but Facebook Messenger, which seems key to Facebook's mobile future with its real-time chat and forthcoming VoiP functionality, comes in at 6th.
Keeping up with the messaging companies alone is enough to explain why a Facebook phone has been rumoured to have been in the pipeline for so long - since at least 2011. The shift towards more permanency on mobile phones is crucial for Facebook, but it won't be easy in emerging markets.
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