All companies face risks, but few are as dependent on a major competitor as Facebook (NASDAQ:FB).
The bulk of the social network's business is increasingly mobile and largely app-centric. Its core apps, Facebook, Messenger, and WhatsApp, have each been downloaded more than 1 billion times. Last quarter, 78% of Facebook's advertising revenue came from mobile platforms. Once, Facebook investors worried that the company wouldn't be able to transition its business from traditional PCs to mobile devices. Those fears have been put to rest, but the company's dependence on mobile now leaves it vulnerable.
Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) search unit, Google, is both Facebook's largest competitor and the owner of Android. Its app store, Google Play, is the largest and one of most significant on the planet. More importantly, it's the app store many of Facebook's users rely on. As Facebook pushes into new territory, its dependence on Google poses a risk.
Facebook is aware, but not concerned
Earlier this month, The Information reported that Facebook is aware of this vulnerability, and has plans in place to continue serving its Android users in the event that Alphabet boots it from Google Play.
Android users don't need Google Play to install Android apps -- they can load them by connecting their device to a PC, or download them directly from the browser. But apps delivered in this manner lack access to key services, including push notifications and automatic updates. Facebook is working to create its own services that would handle these functions, and has tested ways for Android users to download its apps without using Google Play. Facebook doesn't plan on using these tactics any time in the near future, but is still prepping them in the event they become necessary.
Google forbids competition
According to The Information's report, Google has allegedly feuded with Facebook over some of its recent mobile experiments. As Facebook continues to develop its apps and services, the relationship could deteriorate further.
The move wouldn't be unprecedented -- Google once removed Amazon's Android app from Google Play. The Internet retailer maintains its own rival app store which it uses for its Kindle Fire devices. In September, 2014, Amazon updated its Android app, bundling its app store with its core shopping app. Just a few days later, Google updated its developer agreement to provide "additional clarity around the distribution of third-party apps on Google Play." Google explicitly forbade the distribution of rival app stores through apps on its site, and shortly thereafter, pulled Amazon's app from Google Play.
Facebook could eventually face a similar backlash. The social network has made no attempts to establish its own third-party app store like Amazon (outside of its Oculus store, made for Samsung's Gear VR) but has been working aggressively to establish its messaging service, Messenger, as a platform for developers. Last month, it announced a partnership with Uber that lets Messenger users hail a ride from within Facebook's app. The entire Uber experience is included -- calling a car, tracking the driver, and paying. In other words, if you have Messenger, you can use Uber without downloading its app. More developments like that could draw the ire of Google, which might seem them as undermining Google Play.
Animosity between the firms appears to be a natural byproduct of their ad-centric business models: Facebook and Google compete for online ad dollars and user engagement. Google has tried (and failed) to crack social networking; Facebook has tried (and failed) to take over smartphones, and is slowly expanding into search.
Facebook's users are loyal
Facebook doesn't disclose exactly how many of its users access its services from Android devices. But it is likely the majority of its users are on Android. In September, Facebook had nearly 1.4 billion active mobile users. If Google begins to actively undermine Facebook, it could pose a significant challenge.
It's not something investors should worry about right now, but it's a possibility that can't be discounted. Fortunately, Facebook appears prepared to deal with the conflict should it occur.