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Facebook's mobile problem: It's not a smartphone 'super-platform'

An Instagram photo is shared with Facebook on an iPhone Monday, April 9, 2012, in New York. Unlike on desktop where Facebook has become a parallel Internet platform, on iOS or Android Facebook is just another app developer, and creating a financial ecosystem among third-party apps shared by the smartphone super-platforms and the Facebook ecosystem will be tricky.

Karly Domb Sadof/Karly Domb Sadof/AP

Daniel Ek, chief executive of music service Spotify, recently marvelled at the fact that only five years ago there was neither a Facebook platform nor an iPhone. "These two super-platforms enable most innovation we see today," he said on Twitter.

But one of these "super-platforms" also finds itself in a vulnerable position.

Facebook owns a vast network on the web, with hundreds of thousands of apps and sites building on its social network website to add friend lists or facilitate sharing. In the mobile world, however, it is just another app developer, reliant on platforms owned by Apple and Google for distribution. Both of these companies are increasingly competitors, whether for ad dollars or the affections of developers such as Spotify.

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As Facebook heads into the final lap before its initial public offering on Thursday, the company is banking on acquisitions and its new app store to appease investor concerns voiced at its roadshow over whether it can meet users' demand for mobile – and eventually make money from them.

Back in 2004, when Mark Zuckerberg and his friends coded in their Harvard dorm room, Facebook was a desktop application and smartphones were just a blip on the radar of technological trends. But while it was at the forefront of one game-changing technology – social networking – the surge in popularity of smartphones is now forcing it to adapt.

"[Facebook]is a pioneer, an attacker, a disrupter," says Jed Williams, an analyst with BIA/Kelsey. "In many ways, it's terrified of being disrupted by mobile."

Nearly half of Facebook's 900 million users access the site from a mobile device, and their numbers are rising fast, but the business is not quite ready for them. After launching its mobile advertising division in February, Facebook warned last week that it cannot show as many ads in its app as it does on a PC.

Though Facebook has been able to attract extremely talented engineering staff, it is seen as deficient in mobile design knowledge. Its iPhone app, while among the most downloaded by Apple customers, gets consistently poor reviews on the App Store, with thousands of users complaining of bugs and glitches.

"They've been relatively slow to react," says Chris Silva, an analyst with the Altimeter Group, noting Facebook's late arrival in the tablet market , and lagging implementation of mobile features.

One way Facebook can catch up, analysts say, is by acquiring other companies rooted in mobile technology. It has made three such acquisitions in the past month. The most notable was Instagram, which Facebook bought for $1-billion, but it also bought Tagtile, a mobile tool for tracking customer loyalty, and Glancee, a mobile app that locates friends nearby.

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A competition probe threatens to slow the closure of the Instagram deal. But even as Facebook releases simple, Instagram-style apps for photos and messaging, the vast numbers using its principle app could also help its mobile strategy and make it less dependent on ad revenue.

Last year, Facebook for the first time began to show activity from third-party apps – such as playing a game or uploading a photo – available on both its own website and the mobile app stores of Apple and Google. Traffic from Facebook's mobile app is already starting to transform the way other mobile apps are discovered and downloaded by its hundreds of millions of users via Apple and Google's app stores.

German developer Wooga's Diamond Dash, a "social arcade game," was one of the first beneficiaries of this. When a friend hits a new high score, a Diamond Dash notification appears in Facebook's iPhone app. Tapping this takes the user directly to the game's app, if installed, or to the Apple App Store to download it. In March alone, Wooga saw 18.5 million such referrals.

Several other developers, such as Zoosk, a dating app, and, with its Miner Speed game, have also reported big uplift from Facebook on mobile.

Appearing on Apple's "Featured" page in the App Store still drives more traffic than Facebook, developers say, but attaining that honour rests largely on the whim of Apple employees. That provides an opportunity for Facebook's App Center, announced last week. Facebook's take on the App Store will allow both mobile and web developers to pay to advertise their apps, which Apple does not, as well as providing more data about traffic than Apple does.

Making Facebook-friendly mobile apps could be even easier if Facebook were to develop its own operating system to compete with Apple's iOS and Google's Android. Rumours of a "Facebook Phone" have been circulating for two years, but such an undertaking would be risky at a time when analysts are already worried about Facebook's loss-making mobile business.

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Payments could provide a solution to Facebook's mobile money problem. Just as gamers buy virtual tractors for FarmVille or other power-ups on Facebook's website, some developers would like to use its Credits virtual currency on mobile too. Last week, Facebook encouraged developers in this direction before the launch of App Center.

However, Apple's App Store rules forbid developers from using any other payment system than its own, iTunes. Google may also bristle if Facebook moves to oust its own Checkout payment platform from Android apps.

If Facebook is to make money from this new-found position of influence in the mobile apps world, it will first have to square up to its rival "super-platforms" and force developers such as Mr. Ek to choose where their loyalties lie.

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