Facebook Set to Announce New Phone with HTC, But Can They Sell It?

HTC Had a 6% U.S. Market Share in Q4, so Considerable Marketing Outlays May Be Required

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After years of rumors to the effect, Facebook is finally producing a phone, but it's not going to sell itself.

Facebook's expected unveiling of an HTC phone with a custom version of Android that heavily integrates its social graph this Thursday marks the company's debut as a player in the mobile hardware ecosystem, but also potentially as a big consumer marketer.

Facebook's head of consumer marketing Rebecca Van Dyck
Facebook's head of consumer marketing Rebecca Van Dyck Credit: Michael O'Neal

The company's advertising outlays have been miniscule up to this point in its nine-year history (it spent $28 million on ads in 2011, according to regulatory filings), but bringing a piece of hardware to market might change the picture.

It also puts the company's hiring last year of Rebecca Van Dyck as its first head of consumer marketing in context. Prior to being CMO of Levi's, Ms. Van Dyck had a senior marketing and communications role at Apple, where she worked on the launches of the iPhone, iPad, iPod and iTunes. (She'll also be a speaker at Ad Age 's digital conference later this month.)

Facebook and HTC declined to comment on the phone and their marketing plans for it. And Wieden + Kennedy, Portland, Facebook's agency of record that produced a video ad in October to celebrate the social network's billionth user (which includes the meme-generating line "Facebook is like a chair"), referred questions to Facebook.

While Facebook will likely have to pony up a significant amount of money to market the phone, don't expect a carrier to pitch in unless they enter into an exclusive deal with HTC (which jettisoned its agency, Mother , earlier this year). Carriers only devote significant marketing dollars for a phone launch if they are carrying that device exclusively, and such deals are now rare.

HTC's newest phone, the HTC One, will become available next month, and AT&T, Sprint and T-Mobile will carry it. But there's no indication whether this is HTC's Facebook phone and no telling which carriers will want to offer it.

The phone's impact on the balance of power in the mobile ad ecosystem will partly hinge on the extent of marketing dollars poured into the launch and, subsequently, how effective the messaging is . Facebook has teamed up with an underdog, which means that the marketing commitment required could be considerable. Taiwan-based HTC had just a 6% share of the mobile phones sold in the U.S. in the fourth quarter of 2012, down from 14% a year earlier, according to eMarketer.

A Facebook phone could have big implications for the mobile ad market depending on the degree to which Facebook alters Google's Android OS.

Some don't expect Facebook to "fork" Android, meaning customizing Google's OS so it cuts off direct access to Google Play, Google mobile search and YouTube (which is what Amazon did to create Kindle Fire, also based on Android). Rather, Facebook's redesign is more likely to be a "skin," or a Facebook-y layer built on top of Android.

But Facebook might be attempting to replace Google as the portal HTC owners use to access the mobile web. Some reports say the Facebook-centric OS will come preloaded on the HTC phone and that the phone will immediately display a user's Facebook home page when the device is turned on.

If HTC gains share and owners start going to Facebook to search for apps and information about local businesses, Google's dominant share of the mobile ad market could erode over the long term.

"Deeper interaction with consumers' mobile behavior has pretty direct implications in terms of reach and ad revenue," said Clark Fredricksen, eMarketer's VP-communications.

Google is expected to bring in $3.98 billion in U.S. mobile ad revenue in 2013 for a 55.4% market share, according to eMarketer. Facebook is projected to earn $339 million for an 11% share.

Any immediate effects on Google mobile ad revenue are likely to be imperceptible, given HTC's U.S. market share. Still, Facebook's deep integration into Android illustrates the risks Google takes by keeping it an open platform. While app developers appreciate Google's willingness to let them experiment with Android -- especially compared to Apple's closed approach to iOS -- Google runs the risk of having Android coopted by a rival.

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