On September 30th, and shortly after its rocky website redesign (resulting in a "bring the old facebook back" petitions from all kinds), Facebook released its 2.0 application for the iPhone. In near complete contrast to the redesign-induced uproar, users quickly settled into the comfort of the enhanced application on their iPhones.
Facebook 2.0 comes in a much sleeker look, it features a scrolling menu bar, added posting options and much more. It is quite possible that the 2.0 iPhone app was Facebook's saving grace after the website redesign debacle. When it comes to user experience, user toleration, and the Facebook brand in recent months--the iPhone app may be providing a better customer experience than the Facebook site.
But as much as it has been hailed as success, I wonder if it was also one of Facebook's biggest mistakes to date. Not the app, that is--but rather the business model that came with it.
You see, Facebook continues to grow at a breathtaking rate. Facebook has more than 110 million active users overall1, had 39 million unique visitors in September alone2 and has more than 61 billion page views per month3.
Unlike social networking application, and despite competitors' best efforts, Facebook has few substitutes if at all. Loopt, Twitter, and good old text messages may have been an alternative during the earlier version of Facebook for mobile but with the new application they are no more. Making it even stickier, by the time the 2.0 app was released, Facebook's network effect was already significantly high, connecting users from early adopters to those across the chasm.
With a sleeker, easier to use mobile app which gives users enhanced flexibility and options to connect with others with near full functionality on the go, Facebook created a must-have experience--one for which users, I argue, would have been willing to pay.
So what would it have meant for Facebook? Well let's see: In July, there were over 1.5 million active users of Facebook for iPhone4. Since then, Apple has sold additional 6.9 million iPhones in the fourth quarter of FY08. And in news reported both by CNET and Yahoo!News ComScore shows iPhone adoption since June soared among lower income iPhone users, who, from what we know about the demographic, are also more likely to be younger and hence already immersed in social media and mobile networking as an integral part of their lifestyle. Facebook, to many in this demographic, is not optional.
Regardless of which numbers you choose, the revenue potential Facebook had passed on in Q4 was huge. Using a super conservative estimate, let's assume that of the existing Facebook for iPhone users, only 50% would have paid to upgrade to the 2.0 application and that 60% of new iPhone users would have paid to be able to Facebook their friends (yes, it's a verb). Again- this is an extremely conservative estimate: it's very likely that many more of the existing users who have the 2G iPhone would have upgraded to the 2.0 app because browsing Facebook was simply too slow. It is also likely that many of those--especially the early adopters--would have upgraded to 3G and would have wanted the new app with it. At $4.99 per download, we're looking at a gross revenue of $3.75mil for existing and $20.65mil for new downloads. Divide that 70/30 between Facebook and iPhone and Facebook just let go of a minimum $17.1mil it could have had in the bank or use it to finance its growth.
Facebook 2.0 for iPhone is a good looking application that brings to users the flexibility they expect and perhaps a bit more. Facebook has most certainly been cementing its status as the social media application for all. But, as any MBA textbook will tell you, no matter how good, execution is always second--a well thought-out strategy, even if slightly flawed, should always--always--come first.
