A lot of the discussion about Facebook's (FB) IPO has focused on its perceived inability to monetize mobile users. The logic is very persuasive: If the bulk of Facebook's revenue is from advertisements, and if mobile users are shown and click in fewer advertisements, then a shift of Facebook usage to mobile will be bad for the company's revenues.
In the words of one article, "On Facebook, mobile growth helps to drive users, but contains the average revenue growth per user, limiting overall revenue growth." In the words of another article, "As Facebook continues to see mobile users increase, the likelihood that ad revenues can be captured begins to dwindle. Smartphone users consistently in a hurry tend not to focus too closely on mobile ads, unlike their desktop browsing habits."
Bottom line, many analysts fear that the shift of Facebook users to mobile will reduce the company's ability to monetize its usage.
I believe, however, Facebook's mobile future is not really that bleak. A newly released report outlines a number of new initiatives underway attempting to open up new revenue streams from mobile. One particularly interesting project takes a page from Apple's (AAPL) own playbook - selling music and other media. Interestingly, it's even more so moving in a direction that Amazon (AMZN) is trailblazing.
Among the millions of Facebook status updates every day, and the billions of comments and like's every day, a huge number relate to songs, TV shows, movies and books. Facebook is researching how to turn these moments of interest into revenue.
You read on Facebook on your phone that your friend likes a new song. You might want it as a ringtone. Or as an MP3. Or on your iPod. If you could buy it and download it in one click, at a good price and in a format that your device can handle, what are the odds that you'd click?
You read on Facebook on your tablet that your friend likes a new book. You might want to buy the e-book or the audio book. If you could buy it and download it in one click, in the right format for your device, what are the odds that you'd click?
The same idea can work for movies, mobile apps, and any other media that people like, recommend and pay to download. When your friend recommends something and shares it, you might want to buy and download it.
This is what Facebook is researching - turning millions of comments, recommendations and like's each day into opportunities to buy. They will offer the media to each user in the right formats for the devices they own. They will handle the DRM (digital rights), process the purchase and download it to your device. All you need to do is click, and Facebook will do the rest.
Interestingly, Facebook may also want to get you media for free, if it's been shared legally on a file sharing system. They will retrieve the right files (e.g., songs recorded at a concert) from file-sharing systems, convert them to the media formats that you need and download them to your device. Even if they're not earning profit on these non-purchases, they'll become the one-click source for media files that your friends share or like.
On first look, this looks like Facebook copying Apple. Part of Apple's genius with the iPod, in addition to its beautiful design, was the strong integration with iTunes. Besides earning them revenue, iTunes was an essential piece to the overall user experience that enabled iPods to succeed where previous devices had failed.
I think, though, that Facebook's plan more closely resembles Amazon's recent push on mobile sales. Amazon recently introduced a mobile app that uses a smartphone's camera as a barcode scanner - if you're standing in a store, you can just point the phone at a product's barcode to see if it's cheaper at Amazon, and then click once to buy it. This is brilliant in how it turns every minute that a user is looking at a product into a chance to immediately buy it. It turns the "point of consideration" into a "point of sale."
Similarly, Facebook's plan can be seen as a "virtual barcode scanner" - when people chat about books and music more on Facebook than in person, the new "point of consideration" is on Facebook, and Facebook's plan will convert those moments into points of sale.
Most importantly, the opportunity to do this is uniquely Facebook's. When you're reading Facebook updates from your friends, Facebook has your eyeballs and your attention. On mobile, Facebook can have media installed on the user's device before any other app can get the user's attention.
Even if Facebook doesn't want to open their own media store, it can carry out this plan by earning referral income from Amazon or iTunes or other existing media stores. This approach will let them leverage its biggest asset - its users - and earn revenue particularly from mobile users, with very little investment up front.
Of course, Facebook's plan can work for PC users as well. But its ultimate customers will be heavy users of mobile devices, and its points of sale will be when people want media for their mobile devices. This is a revenue opportunity that will grow as Facebook's mobile usage grows.
Let's calculate very roughly that out of the estimated 1 billion status updates and shared pictures every day, and the 3.2 billion likes and comments each day, there are 10 million posts on Facebook each day that relate to music, concerts, books, movies, TV shows, or other media. Each of these are seen by, let's say, an average of 100 people, giving us 1 billion media-item views each day. If Facebook can translate 1% of these into sales - that makes 10 million sales a day, or roughly $1 million a day in revenue (assuming 10 cents revenue per sale). This would add roughly $90 Million to Facebook's current $1 billion in quarterly revenue, or a roughly 9% boost. Of course, any stage of this back-of-the-envelope estimate may be way off, but bottom line, the plan has the potential to earn them some money.
But that's only the start. Facebook's idea regarding mobile media can also relate to food, clothes, and other products that people mention on Facebook. Your friend likes a new flavor of tea? Click here to order it from a nearby market. Like your friend's party dress? Click on it now to order one like it. Mobile media is just the beginning.
Facebook's plan described above is revealed by a patent application that was filed in 2007. The technology they describe is less relevant now than it was then, since music and ringtone formats have consolidated and downloading has been streamlined. But I believe that the business agenda is still very relevant, and will be part of Facebook's expansion based on its IPO cash.
This is only one of several plans Facebook is working on to monetize its mobile users and expand its entrenchment in our mobile lives. Of course, which plan will take off remains to be seen. But anyone evaluating Facebook and worrying about its mobile monetization should realize that there will be new ways to monetize mobile, and new ways for Facebook to earn revenue that will grow as its mobile usage grows.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.