Will the Facebook Phone Inspire a Twitter Phone?

On April 4, Facebook (NASDAQ: FB  ) introduced Facebook Home to the world, potentially changing the future of the smartphone landscape. Facebook Home is a meta-app that functions somewhere between Google's (NASDAQ: GOOGL  ) Android OS and the rest of the apps on your phone. CEO Mark Zuckerberg described it as an experience that allows you to make your phone about people, not just apps. Not only does Facebook Home reimagine how you will interact with your device, but it also opens the door for the company to break into mobile advertising in a significant way. If the release is successful, you have to wonder whether Twitter and others will soon follow suit, spawning increasingly customizable user experiences.

What is Facebook Home?
Facebook Home takes over the lock screen and home screen of the Android devices on which it's installed. As Zuckerberg explained in the release announcement, Facebook Home is possible only because of the extremely open nature of Android. Once it's installed, you're able to see Facebook updates on both the home and lock screens; the idea is to make your smartphone a portal to the people in your life rather than just a conduit for information.

Source: Facebook.

Where FB Home has real potential for the company is in all of the real estate it leaves open to place mobile ads in at some later date. The company has prudently decided to release Home without the inclusion of any advertising, but it's easy to see where they will be easy to integrate. One of the biggest complaints investors have had since the company's IPO is that it has struggled to monetize its huge user base. If the company is successful in breaking into the mobile ad space, this criticism will rapidly disappear.

The lock screen is key
Another highlight Zuckerberg pointed out in the announcement is that most of us look at the lock screen on our smartphones up to 100 times each day. If that screen can now contain information about the people in our lives, we're more likely to keep track of them . Likewise, this frequency holds the key for advertising that may give Facebook an advantage over its willing host in Google.

Where does the industry go from here?
While it's hard to imagine that Apple (NASDAQ: AAPL  ) would ever allow a third party like Facebook to take over the home and lock screen in iOS, the model may affect how Apple and others approach the precious real estate that exists on the small screen. Significant adoption could well cause Apple to consider whether it needs a significant footprint in social media. If the lock screen becomes a significant revenue source for others, that could also prove an important differentiator for Apple.

Likewise, if the Facebook Phone becomes popular, it would seem natural to see others, particularly Twitter, follow suit and release similar meta-apps. As social media becomes more fully integrated into our smartphones, you should expect to see an increasing number of choices, leading to an increasing level of customization. How, for example, will a Facebook Phone incorporate Twitter? How will a Twitter Phone incorporate Facebook? Will Google continue to allow these meta-apps to push its OS to the background?

That last question is of critical importance to investors and users alike, because it will probably affect the future direction of the industry. If Google begins to lose search prowess as a result of having Android subjugated to social-media versions of its devices, it may need to adopt a more protective posture. Google's business model has always been about directing traffic to search, but if Facebook somehow steps ahead of that effort, the landscape is likely to change. As things currently stand, Facebook is extremely well positioned to capitalize, and if Facebook Home gains traction, the stock should have plenty of room to run.

Even more certain is the introduction of a Twitter Phone if the Facebook version gains acceptance. These top two social-media competitors are always looking for points of differentiation and even footing. A Twitter Phone seem inevitable unless users quickly pan the Facebook version.

After the world's most-hyped IPO turned out to be a dud, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.


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