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Facebook transforming itself from a social network to a communication company with 1 billion customers

Facebook is on track to transform itself from a social network to a communication company with 1 billion customers. Advertising revenue is not enough. Facebook will tap cash flow for voice, SMS and data.

The new Facebook software will likely be a skin that sits on top the phone’s operating system. There is no need to download a Facebook app to the smartphone to use Facebook. All contacts from Facebook will be available in the smartphone instantly.

It comes as little surprise to Strand Consult that the media are hyping Facebook’s announcement about its “new home on Android”, but the stories that focus on Android and HTC miss the bigger picture.

It doesn’t matter that the concept will be launched with an Android operating system on an HTC smartphone. If Facebook new concept works, it will become the standard for phones and operating systems. Not only are OTT companies such as Facebook rendering mobile operators into dumb pipes, but they are making all smartphones into dumb terminals. If all users want is Facebook, then there are few ways that operators and phone manufacturers can differentiate with services or hardware.

Facebook announcement is an important milestone for investors, for it demonstrates that the gold mine for Facebook is not advertising, operating systems or hardware. The key for Facebook is to monetize its users for the very communication it offers: SMS, voice, and data enabled services.

Facebook is not a social network; it is a communication company. Facebook is the place where people connect with friends and family, send messages and post pictures and videos. Should Facebook monetize these activities, it would bigger and richer than any telecommunications operator.

There is no doubt that Facebook’s over the top (OTT) services have impacted operators negatively. SMS revenue for operators is all but disappearing as Facebook enables instant messaging. Voice will also be dis-intermediated as Facebook moves toward VoIP capabilities. The Facebook SIM card is the next step. We can’t think of one operator that would not want Facebook as an MNVO client.

At Strand Consult we have analyzed Facebook from an operator’s perspective. Long ago we stopped defining Facebook as a social network; it is instead a competitive threat to operators’ revenues. Just as we described the negative impact of the iPhone subsidies on operators’ revenue in our groundbreaking report in 2009, we warn of the threat that Facebook poses to operators in our new report " The good, the bad and the ugly side of Facebook – A report that describes how Facebook affects the mobile industry strategically, operationally and financially”. Operators and regulators worldwide have read this report to understand the challenges posed by Facebook, the world’s largest communication company with 1 billion customers.

Here are three research notes from the report which provide valuable background to the upcoming announcement.

Facebook is behaving like a new born cuckoo - Danish SMS traffic decreased by over 20% in the first six months of 2011. This trend is continuing into 2012.
Read full research note

Facebook could add up to $800 million to its revenue by launching a Skype copy. By doing so, will Facebook disrupt the mobile industry even more?
Read full research note


A Facebook MVNO would increase revenue and profitability for the company - and be a game changer in the mobile industry. Only two questions remain, whether Facebook is willing to look beyond advertising as a source of revenue, and which operator will succeed to win Facebook MVNO contract.
Read full research note


You can read more about these threats and trends in our report “The good, the bad and the ugly sides of Facebook – A report that describes how Facebook affects the mobile industry strategically, operationally and financially”. We discuss the problems and challenges and suggest ways for operators to respond. Already a number of the world’s leading operators have purchased this report.

You can receive more information about this unique new report by simply sending us an e-mail. If you purchase the report, it can be on your desk immediately, giving you quality information about the challenges posed by Facebook.

Read more or order the report “The good, the bad and the ugly side of Facebook – A report that describes how Facebook affects the mobile industry strategically, operationally and financially”.