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With mobile role in question, Facebook turns sights towards virtual reality

Oculus

An Oculus VR headset

Facebook is riding high in mobile right now but the company’s $2 billion acquisition of Oculus VR this week suggests it recognizes some fundamental challenges in driving further growth.

While Facebook is a wildly popular app on mobile, its fortunes – although significant – are dependent on consumers continuing to embrace the app. With the Oculus deal, Facebook is making an expensive bet that virtual reality will be the next significant phase in how consumers use the Internet while at the same time admitting that it has, in some ways, missed the chance at a broader role in mobile.

“We are consistently amazed at how successful Facebook has been yet we can’t quite figure out how it doubles from here,” said Mike Mothner, CEO of Wpromote, El Segundo, CA. “It is unclear what the next big thing is for Facebook.

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“At this point, for Facebook to say we are going to be the fourth mobile operating system is unrealistic and that is why they are taking these other moves,” he said. “They tried the Facebook phone, with the operating system built around Facebook and that did not pan out for a number of reasons.

“So far they have failed at creating the next app that is anything remotely close to Facebook. These most recent acquisitions – they’ve spent $22 billion in six weeks – and none of them are making any revenue so that is definitely the long view.”

Resonating with consumers
Facebook said this week that it is acquiring Oculus VR, which makes virtual reality headsets and has been gaining traction in the gaming industry.

In general, virtual reality is gaining steam although its appeal is still fairly limited in scope.

However, the technology could be used to create a social platform on which developers would build applications for entertainment, communications and other purposes.

Facebook’s plan ultimately would be to generate revenue through Oculus via software and services as well as advertising.

“It may be a swing and a miss,” said Mr. Mothner. “It might be that it doesn’t resonate with enough people but it definitely falls into that category of, 'I don’t want to miss a trend.'

“If it works, if virtual reality really resonates with people and they want to play games and communicate in that way, it has the potential of becoming a platform similar to how Google is a platform and how the old Facebook was a desktop platform for developers,” he said.

Killer app
Facebook continues to experience strong results in mobile. During a conference call to announce the Oculus deal, the company said it now has 1 billion monthly active users on mobile, up from 945 million in December 2013.

It is also a forced to be reckoned with in mobile advertising, with a recent report from eMarketer forecasting that Facebook will account for a 21.7 percent of the global mobile advertising market this year, up from 17.5 percent last year. Additionally, Facebook’s rapid growth is causing Google’s market share to drop, with eMarketer forecasting the search giant to have a 46.8 percent share in 2014, down from 50 percent.

A vast majority of Facebook’s mobile advertising comes through its app on various platforms. This means if Facebook were to start to lose users, its advertising revenue would drop.

Such a scenario is not unthinkable. Recent reports have suggested that teens are increasingly losing interest in Facebook, a trend that prompted the social network to acquire the popular messaging app WhatsApp last month for $19 billion.

“Facebook is doing a fantastic job of soaking up today’s mobile marketing dollars,” Mr. Mothner said. “They’ve mostly been able to do this because they have an app, a killer app called Facebook and nearly all of those dollars that are soaking a quarter of all mobile marketing dollars are basically going through the use of this one app.

“I think the scary part is they don’t have a platform,” he said. “This is why buying WhatsApp or Instagram a couple of years ago fulfills this need of we don’t own a platform, we don’t get this 30 percent toll that Apple does on every app.”

Owning the pipeline
Facebook has been taking a variety of steps to try to broaden its role in mobile.

For example, last year Facebook teamed up with HTC to launch First, a smartphone that puts the social network front and center. There was also Facebook Home for Android, that replaces a standard home screen on an Android device with a more immersive Facebook experience.

With neither of these gaining much in the way of traction, the consensus is that Facebook has pretty much missed its opportunity to extend its role in mobile beyond owning apps. This could explain why the company was willing to pony up $2 billion for Oculus VR, giving it a chance to own the pipeline in what it expects to be the next big shift in computing.

However, running a hardware company – where the margins are very tight – is not easy. Just ask Google, which shelled out $12 billion to acquire Motorola Mobility in 2012 and sold most of the company – while holding onto most of its patents - to Lenovo for $2.91 billion at the beginning of 2014.

“It is a tough sandbox to play in,” Mr. Mothner said. “I think they are doing it so that they have a head start in a potential market.

“I would highly question the logistics of having this big thing you are doing where you are trying to connect the world and also, you make headsets for gamers,” he said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York

Associate Editor Chantal Tode covers advertising, messaging, legal/privacy and database/CRM. Reach her at chantal@mobilemarketer.com.

 
Related content: Social networks, Facebook, Oculus VR, Wpromote, Mike Mothner, mobile marketing, mobile

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