Ahead of quarterly reports, rumors of another Facebook phone rise

Today marks the day when Facebook lets everyone know of their financial state, with the company announcing their second quarter 2012 results this evening when the market closes. Perhaps not so coincidentally, a rumor of a new Facebook branded phone from HTC has surfaced right before the company's financial announcements.

HTC and Facebook have collaborated before, and the result was the HTC Status. The device is no longer available from AT&T, and let's just say it's not due to high demand. HTC is currently in a weak financial state, and their smartphones make up about 14 percent of the market in the United States. So, from the start there is a limited reach.

In the two months they've been available, Facebook's shares have dropped significantly from their $38 opening bid, down to 27.76 at 12:16PM EDT today. The company is currently valued at $59.25 billion, which is far off the initial $104 billion valuation when the company first went public. Facebook lost more than $44 billion in a little over two months, so they’re looking to bring share prices up. Maybe a branded Facebook phone could help...maybe.

Advertising is the main source of revenue for the social network, and the problem comes from the fact that Facebook users mostly visit the website from their mobile devices. ComScore reports that 80 percent of Facebook traffic comes from apps rather than browsers, which means that only 20 percent of the traffic can be used to deliver advertisements.

The revenue from mobile traffic is zero and that is why a branded phone could help.

General Motors was the first to raise a warning flag after backing off from advertising on Facebook. The company decided that the paid Facebook ads didn’t influence the sales of new car purchases. The U.S. car manufacturer invested $10 million in ads last year, with another $30 million spent in creating content for the website. So according to Facebook's numbers, that money was almost entirely lost on mobile users, who couldn't see the ads because they were using the Facebook app.

The only logical argument would be to deliver ads through their branded phone...but it's a catch 22. Who would buy a Facebook device knowing that it was created just to deliver ads more effectively? Furthermore, how relevant would it be considering that Android and iOS devices already have Facebook apps available?

The only way a Facebook smartphone would succeed would be if it brought more value to the market than competing products offering the Facebook experience. Besides delivering ads and increasing revenues for the social network, it would need useful features for users to justify buying it. Maybe ads could be given a prominent position in the phone in exchange for a subsidized upfront cost, like Amazon did with its Kindle With Offers last year, or maybe it could improve the mobile experience that is often criticized for being awkward, sluggish, and generally poor.

If today's financial announcements show a slump in advertising revenue, a second generation Facebook phone might certainly be a necessary addition.

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