Business Watch: Zuckerberg saving Face with smartphone move?


Dominic White says reports that a Facebook smartphone is in the pipeline for next year are proving a welcome distraction from the social network’s floatation

What better way for Facebook to distract attention from its hapless $100 billion flotation than with reports that it’s planning to launch a smartphone next year?

The New York Times, citing unnamed sources including Facebook staffers, said that the social network has nicked half a dozen Apple engineers on mega-bucks to create a new device.

We’ll never know how this story surfaced, but it’s just the kind of rumour founder Mark Zuckerberg (pictured) needs right now.

Seriously miffed investors are planning to sue the founder, his company and his advisory banks, including Morgan Stanley, claiming that they hid weak growth forecasts for the company ahead of its float two weeks ago.

Strategic sense
Class action lawsuits are pretty common in the US, and such allegations are hard to prove. But it’s clearly not been the stock market debut Zuckerberg would have hoped for when he founded the business in his Harvard dorm all those years ago.

A move into mobile handsets also makes strategic sense for Facebook. The pressure to create its own smartphone software and hardware is growing.

In the regulatory filings for its flotation the migration of web users to smartphones and tablets was named as a key threat to its business.

Facebook currently makes no material turnover from its millions of mobile app users, even though they are growing in number much faster than its fixed line web users.

Enders Analysis also identified the threat in a piece of independent research to accompany the initial public offering.

It said: “Mobile usage is currently a foregone revenue opportunity for the company, unlike PC-based usage. As CEO Mark Zuckerberg has conceded, figuring out how to monetise mobile is the company’s number one priority in 2012, amid wider predictions about Facebook’s place as the centre of the internet’s sociosphere.”

The company making the most money out of the smartphone boom of course is Apple, particularly in the biggest mobile market in the world.

Enders calculates that in the past few quarters the iPhone has grown to 50 per cent of total smartphone unit sales in the US.

The other company dominating the landscape is Google, whose Android phone is outselling the iPhone by 2:1 globally.

News emerged last week that Google had completed its $12.5 billion purchase of Motorola Mobility, confirming its controversial move from pure mobile software into devices too.

The move only puts pressure on Facebook to act or risk becoming just another app and app store on someone else’s mobile platform.

Motorola will now be run by Dennis Woodside, former president of Google’s Americas region, who succeeds former Motorola chief executive Sanjay Jha.

The deal comes just days after the Chinese government approved the acquisition. European and US regulators approved it in February.

Buffy the iPhone slayer
Zuckerberg has doubtless studied closely the controversial acquisition by its biggest advertising rival, and its potentially seismic implications.

The New York Times said his engineers are planning to launch a device next year.

Facebook ditched its first device launch in 2010 and has reportedly since been working with Taiwanese phone maker HTC on a project called ‘Buffy’.

The new team will reportedly expand the Buffy team, and look at other smartphone projects too. Whether Buffy turns into a Google or Apple slayer remains to be seen.

All Facebook said was: “We’re working across the entire mobile industry; with operators, hardware manufacturers, OS providers, and application developers.”

One whacky idea would be for Facebook to use some of its flotation proceeds to buy Research In Motion, the troubled Canadian BlackBerry manufacturer.

It would hand Zuckerberg a heap of patents to rival those Google is acquiring with Motorola and would give him the chance to revitalise a brand that has lost much of its shine.

This week it was reported that RIM is poised for a major shake-up that will see it axe at least 2,000 jobs worldwide.

It also emerged that the company’s top lawyer had joined the conga line of executives departing since Thorsten Heins took over as CEO earlier this year.

The exit of chief legal officer Karima Bawa follows the resignation of RIM’s head of global sales, Patrick Spence, a week earlier.

Job cuts at RIM
Their goodbye parties foretell what is likely to be a mass lay-off as the group prepares to launch devices run on a brand-new operating system.

While Apple has soared and companies such as Samsung that use Google’s Android operating system have grown market share, RIM’s stock has plunged by three quarters in the past year.

Some analysts have complained that RIM was too paranoid and conservative about intellectual property and stuffed its ranks with too many lawyers.

Now Heins is stripping out some of those layers of management in a move that is causing inevitable upset among the existing hierarchy.

To take 2,000 staff out of a company that employs around 16,500 people globally would be a big bite. But Reuters has suggested that RIM may actually plan to bring its workforce closer to 10,000 by early next year.

The cuts will have an impact on RIM’s legal, marketing, sales, operations, and human resources divisions, according to one source.

Future of Three
The looming shrinkage is a response to the fact that RIM’s global smartphone market share almost halved to 6.7 per cent in the first quarter of 2012 from 13.6 per cent a year earlier, according to IDC.

All Heins has said is he plans to streamline operations and save $1 billion in the fiscal year. Whether he can cut fast enough before an acquisitor comes knocking remains to be seen.

Rumours of the lay-offs have done nothing to help RIM’s Toronto-listed share price, which was about C$11 when I last looked, versus a peak of more than C$150 in 2008.

Finally, Hutchison Whampoa chairman Li Ka-Shing has officially anointed his elder son Victor to take the helm when the 83-year-old finally makes way for a successor.

Will his son keep his jealously guarded Three Group intact?