Please ensure Javascript is enabled for purposes of website accessibility

Facebook's Hardware Ambitions Go Beyond Device Sales

By Adam Levy – Aug 5, 2019 at 9:51AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The social media giant is putting its own spin on streaming video devices to put Facebook's version in the center of your living room.

Facebook (META 2.16%) has been pushing to develop more hardware devices since it acquired Oculus in 2014. More recently, the company has seen success with its Portal video-calling devices. The launch of the Portal last fall led to a 42% increase in payments and other fees revenue from devices for Facebook in the fourth quarter.

Since last fall, the social media company has reportedly been working on a Portal device that uses a standard television set for the display. It seems to have progressed well, and Facebook is now approaching streaming media companies to support the forthcoming device with a launch date planned for this fall, according to The Information.

Facebook isn't just looking to cut out costs from its popular device and make it less expensive for people to buy and use; it's looking to compete with Amazon (AMZN 2.55%) and Roku (ROKU 5.60%) for an increasingly important space in consumers' living rooms.

A person's hand positioning the camera atop a Facebook Portal device.

Image source: Facebook.

Can your TV do this?

Roku and Amazon are pretty well entrenched in consumers' living rooms already. Amazon claims more than 34 million active Fire TV users, and Roku isn't far behind with 29 million. Along with various smart TV platforms, gaming systems capable of streaming, and various other set-top boxes, investors might not think there's room for a new competitor.

But Facebook stands to differentiate itself with its devices. The Portal could put video chatting at the center of your living room. Few other competitors offer a similar feature, and Facebook's ability to connect Portal users with the 1.3 billion-plus Messenger users makes it immensely more useful.

Likewise, the Oculus Go and Oculus Quest stand-alone devices offer unique gaming and viewing experiences and are leaders in the VR space. A key part of those devices is streaming video, bringing the living room to you.

Facebook's devices offer unique features that differentiate them from other streaming video platforms. But Facebook also needs to be sure it can offer practically everything Roku and Amazon offer as well in order to really compete for a spot in consumers' media centers. That's why it's contacting the top streaming media companies to make sure users can sign up and stream those services from day one.

The real moneymaker

Investors who follow Roku know the company doesn't generate much profit, if any, from its hardware sales. The same is almost certainly true of Amazon's Fire TV business. The real moneymaker is owning the platform. Roku generates more revenue from selling subscriptions and advertisements than it does from selling devices. And that revenue generates much higher profit margins, too.

And if there's one thing Facebook is good at, it's selling advertisements. Both Roku and Amazon demand 30% of the ad inventory from ad-supported streaming services. Facebook could eventually require the same standard take rate if it builds up a big-enough audience through Portal and Oculus users. And just like Roku and Amazon, Facebook can feature its own ad-supported streaming service on its devices -- Facebook Watch -- where it controls 100% of ad inventory.

Facebook already offers some ad-supported streaming services on its existing devices. It's not clear if there's any inventory or revenue split.

Building up an audience with the new Portal device and Oculus devices could open the door for a new source of high-value ad inventory for Facebook. That might be a few years down the line, but Facebook has been moving quickly to maximize the monetization potential of pretty much every new surface it decides to show ads on. It's looking for new surfaces now in order to keep growing for years to come.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon and Facebook. The Motley Fool owns shares of and recommends Amazon, Facebook, and Roku. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$138.61 (2.16%) $2.93, Inc. Stock Quote, Inc.
$115.88 (2.55%) $2.88
Roku Stock Quote
$59.56 (5.60%) $3.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.