Facebook poses growing threat to operators

OvumOperators are in danger of underestimating the extent of Facebook’s ambitions and the fact that it is shaping up be a disruptive, competitive presence not just online but in mobile too, and in a way that strikes at the heart of a telco’s business. Facebook is much more than a social network; its actual domain spreads much wider.
Facebook is better viewed as an increasingly rich communications and content platform that wants to integrate with everything and be the main way that people consume and share information, anywhere and on any device. Alongside this, Facebook is building a strong developer community, enticing them with attractive APIs and massive scale.
Moreover, Facebook is building its empire on a web paradigm where the rules of engagement are very different from a traditional telco environment and where operators are typically at a disadvantage. 
Facebook is not always your new best friend
When we talk to mobile operators about the biggest threat they face from adjacent players they typically cite Google, and understandably so. Google has moved way beyond search and has proven adept at harnessing key sweet spots on the communications and digital content value chain, and in areas that are not its traditional core capabilities – notably mobile device platforms, applications, and more recently Internet TV.
Facebook’s name does not typically crop up in the same competitive framework, although interestingly Google increasingly sees Facebook in this way. In contrast, operators view Facebook as a benign presence, unlike Google, and one that they like to partner with, particularly on the mobile front.
Facebook claims there are more than 200 mobile operators in 60 countries working to deploy and promote Facebook mobile products. Although there are some good reasons why operators should wish to partner with Facebook, operators should be more alert to the fact that it is shaping up to be a strong competitor. It is only by understanding Facebook fully that operators can engage with it effectively, be that on a collaborative or competitive basis.
Encroaching on operator territory, integrating across the Web
Facebook has a huge base of more than 500 million users that already love to communicate and share, and Facebook is giving them richer ways to do this. It has an integration deal with Skype for voice communications and in November 2010 took the wraps off an email offering.
It is turning increasing attention to location-based services and building up a strong applications and content portfolio, initially in the shape of virtual gifts but now across the spectrum with particular strength in games where it has several big names on board including Zynga. Facebook claims to have over 2.5 million developer and partner applications currently on the Facebook platform, while every month 70% of Facebook users engage with Facebook platform applications.
Facebook is intent on spreading its influence by integrating with other sites and devices, and the vehicle for doing this is. Facebook Connect and Social Plugins, which allows users to access their social graph from partner sites. This is proving highly effective and Facebook has reported that 250 million Facebook users are engaging with Facebook on external services each month. Facebook’s integration strategy is pulling the Internet into its orbit and control.
A growing force in mobile
Google CEO Eric Schmidt has stated that Google’s future is mobile and Facebook hasn’t been quite as explicit but it is clearly going in the same direction. Over 200 million Facebook users already interact with the service via mobile devices. This compares with about 65 million a year ago, which shows how quickly Facebook’s mobile reach is ramping up.
Official Facebook applications (as opposed to those created by third parties) already dominate app stores across all smartphone operating systems. There is intense ongoing speculation that Facebook will come out with its own phone, which in some respects would be the final piece of the puzzle. However, we don’t think that Facebook is in any rush to launch its own hardware, although it could be interested in working with partners on a customized device platform. This would in effect make Facebook a social operating system.
A compelling advertising and commerce platform
The engagement offered by social networks is compelling to advertisers, and Facebook is the best in class, providing the highest level of engagement available online, and increasingly elsewhere. Its own data shows that people spend over 700 billion minutes per month on Facebook and that the average user is connected to 80 community pages, groups and events – the latter being great for viral marketing opportunities.
Facebook is also proving a major force in driving online search traffic to other sites, begging the question as to when it might move to directly harness search advertising revenues. Facebook’s ability to attract brands and advertising revenues is being most keenly felt by other online players, but as it integrates with other platforms the impact will be wider.
For example, Facebook is pushing into mobile advertising in the shape of Facebook Deals, a form of mobile location and push marketing that has been tried before, albeit not that successfully. But Facebook has assets that can eventually make this concept fly.
Facebook has also quietly introduced a virtual currency program called Credits which was initially for virtual gifts but is now positioned as a payment platform for any other application available on the social network. We expect it to significantly ramp up efforts behind Credits over the next 12 months to the point where Credits will be the major if not dominant payment mechanism on Facebook.
It could get even more interesting if Facebook uses its Connect partners to expand the reach of Credits, a move that has the potential to promote dramatic growth of the virtual currency. If Facebook Connect partners were to adopt Facebook Credits, the reach and scale of the virtual currency would be significant.