The purpose of this article is to show how such an analysis is wrong. Let's game this out in a decision tree, shall we?
1. Will the Facebook phone be successful?
Before we even go into what the Facebook phone is (hardware and software, in different cases), the first fork in the road is to ask whether any version of this will be successful? Some might argue that if (almost) nobody decides to buy/use it, the Facebook phone announcement won't matter.
For starters, how do we define successful in this case? Do we base it on how many people actually buy the Facebook phone from AT&T ? Do we base it on how many people download the new Facebook app onto their existing Android phone? Do we base it on how much people use it, and for how long?
Let's hold those thoughts for a moment. Let's first play with the thought that "very few" people download, buy and otherwise use the Facebook phone -- hardware or software. Does this mean that we are simply in status quo, that this is neither good nor bad for any of the key players, from Facebook itself to Google and Apple?
Even if the Facebook phone turns out to be much ado about nothing, something big will have happened. You see, Facebook sent a powerful message last Thursday. It said that every app developer should refocus away from Apple, and instead devote more resources to Android.
Facebook is the king of third-party developers. It rose from a Harvard dorm room a decade ago, to 1 billion users, superstardom, a near $100 billion valuation, and IPO. Every one of the million or so third-party developers -- some of them 17-year-olds working in pajamas out of their childhood basement bedroom -- listen to what Mark Zuckerberg says. His word carries weight.
Zuckerberg just told you that Apple is soooo 2011. iOS was the mobile Web's training wheels. Now mobile users are ready to drive their own car -- that would be Android -- which gives people, developers and consumers alike, the power to customize and provider richer experiences.
Android was already catching up on iOS over the past year. One year ago, it was almost always the case that the hottest new apps became available on iOS first. Now, iOS may still have a lead, but it is slight. Zuckerberg's endorsement of Android is like to push Android over the top in Silicon Valley's developer community.
I spent the past few days talking to developers in Silicon Valley, where the vast majority of the hottest app companies are based. I couldn't find a single one who disagree with the assertion that Android is gaining on iOS in the developer community, and is likely racing ahead imminently.
Developer support is the oxygen the drives an ecosystem. The Facebook phone just injected Android with critical oxygen, sucked right out of Apple's ecosystem. This is a huge deal, and it doesn't matter whether the Facebook phone itself turns out to be a success or not.
2. Let's assume the Facebook phone is a success.
OK, let's assume people actually want this thing. This could either be the optimized phone, made by HTC, or just the new app, which you can download from Google Play. Let's start with people just starting to use it. What happens now?
The first and most important thing you must realize is that 100% of these people are now departing Apple in favor of Android. One hundred percent. Whatever Google gets or doesn't get, one thing is a stone-cold truth: The Facebook phone experience means you're no longer using Apple. Apple does not get one more penny from these people, ever. Good-bye.
I can't emphasize that enough: For every person Facebook captures, it's one person Apple doesn't get, or outright loses. Facebook has just become Apple's worst enemy.
3. What happens after people start using the Facebook phone?
Once people have either bought the Facebook phone, or downloaded the Facebook phone software, there are three factors we need to consider:
A. Do people like the experience?
B. How much do they use the Facebook phone software?
C. How will Facebook monetize this situation?
Let's deal with these in turn:
A. Will people like the Facebook phone experience?
If people like the Facebook phone experience, they will tell their friends about it. People will flock to Android, abandon Apple (and Microsoft and BlackBerry). Android's market share will increase, from its worldwide market share of almost 70% today. Android will become the equivalent of a Windows PC 1995-2009: Simply, the standard.
But what if people will not like this new experience? Then what? Then they are stuck on an Android phone, where they may uninstall Facebook and use "plain Google Android." They'll be upset with Facebook, but will be Android users for at least the next two years. Google wins big!
B. How much will Facebook fans use the new phone app?
Studies have shown that Facebook is as much as 20%-25% of mobile app usage. Good for them. That still leaves 75%-80% that isn't Facebook. Theoretically, if Facebook captured 25% of the Android advertising dollars, that would be equivalent to Google paying Facebook a 25% commission for destroying Apple's iPhone business. Considering that Google often gives away product for free, paying Facebook a 25% for nuking its archrival, sounds like an outright bargain for Google.
C. How will Facebook monetize this situation?
Zuckerberg said that while the Facebook phone won't have any ads in the early stages, we can expect them soon enough. But, of course. Will people like them? Ultimately, this will become a beauty contest between Google and Facebook as to who can deliver to you the best ads, and do so in a pleasant manner.
If Facebook delivers the best ads in a way that people like them, Facebook will be richly rewarded, worthy of its de-facto 25% "commission" for being on Android. If Facebook over-reaches or otherwise doesn't deliver ads in a better way than Google, then it risks being used less as an app, leaving Google with a greater than 75% share of the advertising dollars.
More importantly, if the Facebook phone ads aren't any good, people may switch to the "old" Facebook app, which will presumably be less intrusive. It's not as if there is some public outcry over Facebook's current mobile apps -- whether on Android, iOS, Windows Phone or BlackBerry. Sure, it's not winning any awards, but people aren't uninstalling it either, by any stretch. Remember the 20%-25% usage estimates?
Conclusion: Good for Google, Bad for Apple
I told you this already in last Thursday's article:
It may sound fashionable to try to concoct a story that Facebook's new and improved Android phone is somehow a threat to Google. A careful examination of the scenarios, however, strongly suggests that it the exact opposite. The worst thing that can happen for Google is that Facebook collects an estimated de-facto 25% advertising commission for driving customers away from the iPhone, Windows Phone and BlackBerry. And if the Facebook phone doesn't take off, Facebook has simply helped sway the (Silicon Valley) developer community to focus more on Android at the expense of Apple.
If I were Google, those are the kind of odds that I "like."
At the time of submitting this article, the author was long GOOG, AAPL and FB, and short MSFT.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.