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Why Facebook Should Avoid the Temptation to Build Its Own Phone

The tech world is abuzz with the rumor, first dropped by TechCrunch's Michael Arrington, that Facebook is secretly working on a phone. On paper, there are a lot of compelling reasons for the dominant social network to pursue its own phone.

But stepping back to look at the big picture, Facebook would be wise to avoid the complications of building its own device and focus instead on working its way inside the data and revenue streams of major mobile apps.

There are two principle arguments for why Facebook should pursue a phone. The first is user data. On the web Facebook is now the leader in engagement and it users share truckloads of personal information. But without its own OS, Facebook is missing out on a lot of the activity happening in the rapidly growing world of mobile.

The second half of this equation is platform revenue. On the web Facebook takes a hefty 30% of the money spent on popular games like Farmville. But as those apps migrate to Apple (APPL) and Android, Facebook could see one of its principle revenue streams erode.

These are legitimate concerns, but before it rushes to build a phone, Facebook should study a few lessons from other tech titans. Microsoft (MSFT) recently introduced a phone, The Kin, with an emphasis on social networking and deep Facebook integration. The Kin was a dismal failure and a serious embarrassment.

On the hardware side, the Nexus One should serve as a warning to any company thinking it can go it alone without the help of the major manufacturers and carriers. Even with its massive capital and global scope, Google (GOOG) failed to find viable sales channels or provide adequate customer support for its phone.

Facebook is estimated to generate between $1-2 billion a year and its stratospheric valuations have enabled it to splurge recently on hiring and acquisitions. But the social network is still nowhere near as large as its competitors in the mobile space. Microsoft recently estimated that it would spend as much as $1 billion on its new smartphone, and that's just subsidizing the initial cost of engineering and development.

Dan Frommer over at Silicon Alley Insider writes that, "Facebook is increasingly competitive with Google and Apple, which both have their own phone platforms, and if Facebook is going to be one of the titans of the Internet going forward, it only makes sense to build a phone platform."
That's not necessarily true. Facebook has had a lot of success extending its reach across the web with Facebook Connect and the "Like" button. I currently sign on to many of the apps in my phone using my Facebook account. That gives it access to the data it craves.

Similarly, Facebook is using its sizable leverage to insist that apps running on its web platform use its credit system. It should be focused on extending that payment system as an option to mobile apps. Chances are people who use Facebook credits on the web will find it convenient to use them on mobile as well, as opposed to registering for a separate payment system.

Facebook should concentrate on deepening its integration with with mobile data and revenue in these ways and avoid the potential pitfalls of a large, costly phone project.

Image from Flickr user Kozumel
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