Could Facebook be the first social operating system?

Listening to Bret Taylor, Facebook’s CTO speaking at Mobile World Congress yesterday, something struck me that the post-event reaction seems to have overlooked. Could Facebook be planning an operating system for mobile?

Facebook and mobile have enjoyed a harmonious relationship:  over 50% of Facebook’s 845 million users worldwide access the service through their mobile phone, and in developing countries these numbers are even more astounding. As reported by TechCrunch, 90% of Nigerian users access Facebook on their mobile devices and 30% of Indian users have set up new accounts via the mobile.

Facebook has invested heavily to build out to a wide range of mobile devices; 2,500 different models according to Bret Taylor. And you can understand the attraction:  Facebook is the network of our personal relationships, an access point for communication and the glue that keeps us connected across the world. What better marriage for Facebook than with the personal, portable communications device:  the mobile phone.

Does Facebook have the building blocks for a mobile operating system?

Facebook’s announcement yesterday that it wants to create the standard for the mobile web puts in to context their ambition for greater integration with the mobile device. But could they go as far as to develop an operating system for mobile? Facebook already gives us a rich app marketplace, with over 7 million apps and websites integrated with the service, and a content platform for both professional and user generated material. And the added advantage that Facebook offers over Microsoft, Google and Apple is a network of personal relationships that is gradually becoming integrated into the mobile phone contact book.

The final piece of the jigsaw arrived in yesterday’s announcement that Facebook will start offering direct-to-bill capability, enabling seamless transaction and subscriptions via the mobile operator bill. At Redshift, we know from our work on Project Abacus, an initiative to establish a common billing system for video on demand content in the UK, that this is a hugely important step.

A rich marketplace of low priced apps needs a simple to use one-click billing system, because the propensity for consumers to enter full credit card details for low value purchases is incredibly small. Apple’s App Store has been able to generate four times more revenue than Google’s Android Market because it understood the importance of a one-click billing system, making it as easy as possible to make a £0.99 purchase. By enabling third party app developers, content providers and retailers to charge direct to the mobile bill, Facebook has created its own one-click purchasing environment that will drive higher levels of transaction and allow greater access to the customer relationship.

At a time when all parts of the value chain are staking their claims to “own the customer”, Facebook has the potential to make a big stride as the first truly social operating system.

The “Consumer Engagement” opportunity

The broader opportunity that Facebook is helping to facilitate is the concept of Consumer Engagement, a buzzword around the Redshift Tech Suite. One of the big changes that we at Redshift have observed over the last 18 months is the ability for “second screen” and connected TV devices to create an environment where consumers can become more actively immersed in their content experiences. Content creators, broadcasters, brands, retailers and many more are now able to combine compelling content with social interaction, communication, ecommerce and analytics to build deeper relationships with consumers, encouraging stickiness and driving value.

I’ll come back to the evolving connected TV landscape and the opportunities for Consumer Engagement in a later post.

What does this mean for mobile operators?

For the mobile operators, the loss of control of the mobile operating system is posing an ever greater threat to their traditional business models.

One of the biggest challenges facing operators today is the rapid increase in competition for the provision of basic telephony services. Voice remains the most valuable part of an operator’s revenue line and text messaging the most profitable. Yet competition from the likes of Facebook, Skype, Whatsapp and others is beginning to erode value.

In today’s environment where the operating system is no longer controlled by the mobile operator, consumers can choose to “replace” the traditional telephone and messaging icons on their smartphones with VoIP and social messaging apps from third party providers. In a truly social operating system, Facebook will be able to integrate its own IP-based communications as the default. In both cases, the value erosion facing mobile operator telephony service is getting progressively worse.

What should be the role of mobile operators in this new world, and how will they continue to drive value for consumers and shareholders? There are two unique assets that mobile operators should leverage.

The first is that mobile operators have access to millions of individual consumer financial relationships, something that many in the content, retail and manufacturer industries would look on with envy. It is incredibly difficult to convince consumers to hand over personal financial information and mobile operators have a distinct privilege. Direct-to-bill initiatives, such as the one announced by Facebook yesterday present new opportunities to drive value, but what more should operators be doing to ensure they continue to control and monetise the consumer relationship?

The second big advantage mobile operators have is their unique position in the distribution chain. For example, Everything Everywhere has 720 stores across the UK, more than Currys, Dixons and PC World combined, making it one of the largest outlet chains for electronic goods. Combined with their ability to provide highly attractive financing plans for expensive smartphone and tablet devices, mobile operators are lowering the barriers for the mass market to gain access to the very latest technologies. What more should operators be doing to leverage this unique position in the value chain?

I leave you to ponder these questions until next time…

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