Can Zuckerberg Sell Facebook Inc to App Developers?

In a crowded playing field that includes both Google and Apple, the social media king is pushing hard to gain more developers.

May 1, 2014 at 12:00PM

It's been nearly two years since Facebook (NASDAQ:FB) debuted its app store, though it's unlikely many app developers know this, or even care. When it comes to apps, Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Play and Apple's (NASDAQ:AAPL) App store rule the roost. But starting today, Facebook CEO Mark Zuckerberg's mission is to change all that.

In the world of app development, Facebook is viewed as the ugly step-child compared to Google and Apple. As one game developer put it, "I don't think developers really see Facebook as a tool or provider of help for developers ." That perspective presents a huge opportunity for Facebook, considering its 1.28 billion monthly average users (MAUs), of which over a billion are mobile . Talk about potential. And it's that potential Zuckerberg sold to developers yesterday at Facebook's F8 Developers Conference.

What's the big deal?
In May of last year, Apple 's App store celebrated its 50 billionth – yes, billionth – app download with a $10,000 "thank you" to a lucky iFan. Many of those downloads contributed to revenues: an estimated $10 billion worth for Apple in 2013 alone. Google isn't quite in the same league as Apple in terms of app sales, despite its dominant mobile OS position, though it generated a still-impressive $1.3 billion in 2013.

The primary difference in Apple and Google app sales is exactly what Facebook is going to address at today's F8 conference. Google Play is viewed by developers as too fragmented, much like Facebook, making the process of uploading new apps more cumbersome. Also, Google limits how much developers can charge for their apps to $200, compared to Apple's $999.

Less potential money in developer's pockets, combined with a more difficult process to post new apps and longer Google Play update cycles, are lessons Facebook needs to take to heart to convince developers to get onboard. Zuckerberg will also reinforce Facebook's strong mobile presence at F8, a huge market that app developers have embraced. The conference gives Facebook a chance to introduce and sell Parse to developers, too. Facebook acquired Parse a year ago to make the process of developing new apps easier and more successful.

Like Google, Facebook doesn't report its app revenues as a separate line item, but the majority of its "payments and other fees" revenue is a fairly good indication. In its recently completed 2014 Q1 financial results, payments and other fees generated $237 million in revenue. Certainly not in Apple's league, and still trailing Google, but enough to warrant Zuckerberg's F8 show to be sure.

Let's not forget ad revenue
In addition to revenues directly attributable to app downloads, Facebook's renewed emphasis on bringing developers into the fold will almost certainly boost its primary source of sales: ads. Successful apps do more than drive direct sales, they increase user engagement. And Facebook has proven time and again it's able to translate user engagement to top line growth via ads.

Catching Apple, let alone Google, in the world of app sales is going to be an uphill battle, to be sure. But the potential for Facebook warrants hosting its first dev conference in three years. Diversifying revenue sources is always a sound business objective, and boosting Facebook's app revenues – be they gaming or otherwise – is a no-brainer. A jump in ad sales via more apps is just icing on the cake.

Final Foolish thoughts
Facebook has a lot of irons in the fire after its multiple acquisitions in the past month, but if the F8 conference tells investors anything, it's that Zuckerberg hasn't taken his eye of ball. Concerns that Facebook was spreading itself too thin after buying WhatsApp, Oculus, and Ascenta were valid, and hosting a dev conference won't entirely mitigate the angst. But F8 does serve as a reminder that Facebook is still focused on its users and, by extension, its shareholders.

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Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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