Apple (NASDAQ:AAPL) has long treasured the exclusive use of its applications by having them run only on iOS devices. The company has built its brand around unique top notch devices, and stringent procedures to having partner Applications running on its devices. Apple was the last among major software companies to allow the integration of Facebook (NASDAQ:FB) app for mobile devices in its iOS. Facebook recently launched Facebook Home for Android devices, sparking numerous opinions from analysts and media pundits, both positive and negative.
There are those who think that Facebook Home could destroy Android especially when it starts running ads in the future, as expressed by CEO Mark Zuckerberg. Others believe that Facebook Home will improve user experience in Android devices and hence the market share. You probably have your own opinion as well, but fundamentally, I believe that Facebook Home could be more beneficial to the social networking giant, than Google (NASDAQ:GOOG). In fact, in the long run, Facebook Home could be damaging from the point of view of Google's ad revenue.
In as much as advertisement revenue ranks next to bottom in Apple's portfolio, the competition in device sales coupled with aggressive pricing techniques as evidenced in India, means that Apple must raise its game in ad revenue campaigns. Not that there is any major threat, but it seems as though service provision and advertising forms the future for Smartphone producers.
In due time, releasing new version of the iPhone or iPad, may not work, as there would be nothing much to change. Service provision and ad revenue would be critical as far as total revenue is concerned. For Apple to successfully transition to that, it must avoid any chances of losing control of the home screen in its devices.
In a recent interview with Bloomberg, Adam Mosseri, director of product at Facebook was quoted saying that, the social media company was in conversation with both Apple and Microsoft (NASDAQ:MSFT) for a possible version of Facebook Home, for the respective operating systems. And while he expressed that the "Facebook Home" version for iOS may not necessarily replicate the one for Google's Android platform, the idea of having ads, and tweaking the current home screen to anything of their liking spits poison for Apple's ad campaign.
Facebook is focused on increasing user engagement on its platform for future benefits, which in black and white, translates to nothing short of ad revenue. So why allow a rival to reap more ad revenue from your own platform? Obviously, merchants will focus more on advertising via Facebook due to its ease of accessibility on smart devices. iOS application developers will be pushed away and so will ad-related revenues accruing from apps. Losing app developers means reduction in user engagement bar, engagement reported via Facebook Home.
Apple would rightly say that its main revenue comes from the sale of iPhones and iPads, accounting for about 63%. But the challenge here is that it continues to face stiff competition from Android devices, which account for about 70% of smartphone sales compared to Apple's 21%. Apple is still the most profitable company in the technology industry, partly due to its size. However, having considerably significant revenue from advertisements would work magic for diversification.
The Bottom Line
Facebook knows well that selling devices is nothing compared to reaping revenues from each and every device that is shipped across the world. It now wants to include iOS devices, but the benefits do not outweigh the costs for the iPhone maker. In a recent interview, Tim Cook was noted depicting that Apple could focus more on software and services in future. According to my understanding, service provision goes hand in hand with adverting, especially in this time and age.
If Apple rebukes this temptation by Facebook, then this would save many investors who would have bought the stock in a whim, in anticipation for upside. In real sense, an upside if any would only be temporary. But maintaining its own home screen at all costs would be breeding benefits in the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.