Facebook's Critical Weakness, Revealed!

According to reporting by The New York Times, Facebook (Nasdaq: FB  ) is working on a smartphone.

Um, haven't we heard this one before? Indeed. The first time, in September 2010, rumor had it the social network was reaching out to handset makers in order to find a partner to make a phone tailored to the needs of the socially addicted.

More recently, the U.K.'s Daily Mail published a story predicting CEO Mark Zuckerberg would engage in a bidding war with Vodafone for the rights to acquire ailing handset manufacturer Research In Motion (Nasdaq: RIMM  ) .

Have the Interwebs gone loony? Have we forgotten that it was only last July when Facebook introduced a software app for dumb feature phones, expanding access to the social network for hundreds of millions of users worldwide? Every phone is a Facebook phone, it seems to me.

For its part, The Times is reporting that Zuck isn't satisfied with his company's mobile strategy. Reporter Nick Bilton quotes an anonymous employee who says that, without a phone, Zuckerberg fears Facebook becoming just another app on other mobile platforms.

Really?

Several observers have already pointed out that entering the phone business is difficult, and that even if Facebook is hiring former iPhone developers to gain expertise, there's no guarantee of success. Google's (Nasdaq: GOOG  ) purchase of Android did nothing to boost the success of the Nexus One smartphone.

Even so, it's possible to buy relevant expertise. It's much harder to change consumer habits, which is exactly what Facebook would have to do.

Consumers have come to see smartphones as a sort of indispensible digital Swiss army knife. Apple (Nasdaq: AAPL  ) reinforces this belief by proclaiming that "there's an app" for virtually every need. The iPhone isn't a phone; it's an assistant.

How does Facebook position a distinct device -- designed solely for its network -- without first getting consumers to buy into the idea that its platform is the everyplatform, an iPhone-like collection of apps and related goodies that makes life easier than it would be otherwise? Frankly, I don't see a way, which suggests this rumored pursuit of a smartphone is a dead-end waste of shareholder capital.

Worse, it reveals a perceived weakness so big Zuckerberg apparently feels compelled to spend millions to fill it. But is mobile really as big a problem as the rumors make it out to be? I'm not so sure. I still believe the Facebook Connect universal login system is one of the world's most valuable marketing databases. A profitable payments system only adds to the allure, which is why, earlier today, I made an outperform CAPScall on Facebook.

Think I'm right? Wrong? Weigh in using the comments box below. And if you're interested in more social media stock ideas, consider the Fool's newest special report: "Forget Facebook -- Here's the Tech IPO You Should Be Buying" that profiles a social media stock that has an even longer runway for growth than Facebook. The report won't be available forever, so click here to get access today -- it's totally free.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple and Google at the time of publication. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Google and Facebook. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Google, Vodafone Group Public, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 29, 2012, at 4:05 PM, SailorSam13 wrote:

    Tim, Facebook is traded under NASDAQ. You have it under NYSE.

  • Report this Comment On May 29, 2012, at 4:15 PM, TMFMileHigh wrote:

    @SailorSam13,

    >>Tim, Facebook is traded under NASDAQ.

    Duh. Thanks for the correction, sir. I very much appreciate it.

    Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On May 29, 2012, at 4:47 PM, SailorSam13 wrote:

    No worries, Buddy. Thanks for the inside scoop on FB.

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