Henry Blodget who writes a provocative investment column for Business Insider, says if Facebook announces a phone you would be wise to dump the stock. He lists seven reasons, which make assumptions about what the product is, and overlook the big advantage Facebook has, it’s huge base of users.
He assumes their starting point is a smartphone, but I suspect that’s not it. My guess is that Facebook is making a camera. Because that’s really what it’s about, photos and videos. And that’s a much more wide-open, and still largely untapped market. A social camera, as I’ve been saying since 2007, would be a fantastic even revolutionary product. I don’t doubt that the guys at Facebook see this too. And if they see it, how could they not be making it.
It’s also possible that Facebook is working with camera-makers like Canon, Nikon and Panasonic. Or possibly even Microsoft. Facebook might just be the brand and the system software, and may, as Microsoft did with Windows, spread the hardware risk among its OEMs. Of course that might not be the best strategy, because the OEMs inevitably need to differentiate, and that means less control for the system software vendor. But it could be very profitable.
Also, this makes the Instagram acquisition look smart. They don’t want to leave a big piece around for one of their competitors to buy. Corner the market that you think you see before others do. Get a better price than you otherwise would, once your strategy is public.
Blodget says Facebook has no experience with hardware. But Facebook is, in addition to a software developer, a huge hardware maker. In fact their software isn’t all that special. What is amazing is the physical plant that runs all that software. A couple of generations ago you could say that a big software company had no experience in hardware, and maybe with the advent of clouds like Amazon and their competitors, it could soon be that way again — but today, to be a net presence like Facebook means building and operating a lot of hardware.
But if they chose to manufacture mobile devices, whether they’re focused on talking and writing (unlikely) or photos and videos, they’d hit all kinds of problems they’re unfamilar with. In that way Blodget is right. But if they don’t evolve, they’re not going to thrive. So I wouldn’t be so quick to dump the stock. One reason to be happy to own the stock is that, unless they give the device away, for the first time Facebook will be charging for a product. If that works, if Facebook users are willing to put down real dollars to get the latest stuff from Menlo Park, then buy that stock. And buy more.