Facebook S-1 Paints A Murky Picture For Mobile

Amidst the scramble for numbers in EDGAR lookups in the wake of Facebook’s S-1 filing, I think we’re learning something fundamental about Facebook’s strategy from its submitted documentation; mobile is a potential Achilles heel. Reviewing the S-1, while chock-full of interesting facts and figures, it was this statement that raised questions for me:

“Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results;”

Sounds like a problem – the biggest-news IPO in Silicon Valley  is essentially admitting it’s  concerned with its prospects for monetizing mobile users. This is a growing group among in any service and a self-admittedly larger and larger portion of Facebook’s valuable MAUs.  This is a problem, especially if mobile continues to grow; it will.

Let’s look at the numbers mobile represents: nearly half of all of Facebook users, 425 Million MAUs, or Monthly Active Users, out of a total of 845 Million MAUs as of December 31, 2011. That breakdown roughly corresponds to the 46% of US mobile consumers that have a smartphone today. Facebook’s users rolls are keeping pace with the general population in terms of percentage gravitating toward mobile.

The good news? Mobile is front and center in how Facebook describes serving its users and in its statements on strategy but is this lip service? If we dig deeper into those risks around mobile, a troubling picture develops; Facebook notes:

“[w]e anticipate that the rate of growth in mobile users will continue to exceed the growth rate of our overall MAUs for the foreseeable future, “

and furthermore,

“our users could decide to increasingly access our products primarily through mobile devices. We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, our revenue and financial results may be negatively affected.”

So mobile use will grow faster as a percentage of overall users. Seems likely. After all, those new mobile phone buyers? 60% are opting for app-capable smartphones.

Here’s where things get wonky, Facebook’s concern that they “could decide to increasingly access… mobile.” Facebook sees the negative impact to advertising only coming into play if mobile devices become wildly popular, leading me to question whether Facebook’s execs and bankers saw the recent news that Apple sold over 20M mobile devices, just in Q4, or that the growth in iPad sales – a device Facebook didn’t support natively until October of 2011 – was 166% higher in Q4 2011 than for the same period in 2010. Add to that data that Nielsen recently reported.  The average Android user spends an hour per day interacting with apps and the web on their device, 67% of that time is spent on apps vs. the web. Bad news for a company that is working to figure out how to monetize those in-app views. Mobile web? These users increasingly never heard of it.

I understand that a prospectus has to be conservative, but to pin doubts on an admittedly large area of opportunity like mobile makes me wonder what the strategy “to develop products for mobile devices that users find engaging” actually is. My hope? That it’s well resourced and ready to take on all comers from a platform perspective.

There’s been a lot of hype over features that later went on to be sunset: Beacon, or simply poorly utilized: video chat. Mobile can’t suffer a similar fate. It must be front and center with the massive growth in mobile users in the US – and more so, abroad – Facebook should expect the device, be it feature phone, smartphone or tablet, to be the central interaction point for users. It’s going to have to adjust its monetization model to match if it wants happy investors because mobile matters.