Facebook: Between an IPO and a hard race

Flickr user Crunchies2009

Flickr user Crunchies2009
(MoneyWatch) COMMENTARY Maybe you buy into the idea that Facebook (FB) has presided over the worst IPO flop of the decade so far. Maybe not. But there is little doubt that the company is under massive pressure.

Early on, Facebook avoided the manic race for growth that many Internet companies run. Expanding through universities and then secondary schools let it build experience, mystique (adults in our youth culture hate being locked out of trends), and operational experience. And then the gloves came off and the company successfully leapt ahead of competitors, gaining hundreds of millions of users and billions in annual revenue.

The easy and good times are over. If Facebook could set its own course and speed before, it now faces a wind sprint governed by having gone public and the geological pressure of ramping up revenue and turning a promising lump of coal into a diamond. And as CEO Mark Zuckerberg and his management team try more and more ways to make their nut, they lose the focus that made the company in the first place.

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The biggest evidence of this combination of drive and lack of focus is that Facebook again will build its own smartphone, according to a New York Times report:

Employees of Facebook and several engineers who have been sought out by recruiters there, as well as people briefed on Facebook's plans, say the company hopes to release its own smartphone by next year. These people spoke only on the condition of anonymity for fear of jeopardizing their employment or relationships with Facebook.

According to the story, Facebook has hired more than a half dozen former Apple engineers who worked on the iPhone, as well as one associated with the iPad's design. It's reportedly the company's third effort.

Why would Zuckerberg be so determined to pursue a market that is so removed from his own and in an industry Facebook has no experience in? Because the company must if it is to increase revenue to justify that initial high valuation. Facebook makes absolutely no money off mobile, according to its own SEC filings. And yet, more and more users get into the service via smartphones. There's no room for standard Facebook ads.

Apple (AAPL) and Google (GOOG) own the major mobile ecosystems. The former controls all payments in the iOS system, which would cut Facebook's in-app sales from going through its own payment scheme, and Apple has largely favored Twitter in integrating social services. Google, which is more open in terms of how money changes hands, is an outright rival.

To really break out and both protect and expand its revenue stream, Facebook needs its own ecosystem, which means its own mobile device, according to NDP Connected Intelligence executive director Ross Rubin.

But moving into mobile devices is an enormous loss of focus for Facebook. It is no more suited to creating, selling, and supporting a phone than Google, which ultimately had to partner with existing handset vendors. Nor does Facebook have the necessary relationships with the carriers to get them to push sales.

It is a desperate measure to bring in more money, and we'll be likely to see more of these as Facebook's stock readjusts to something representative of the company's true value.

Image: Flickr user Crunchies2009

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