Is Facebook Home a Game Changer?

Facebook's launch of Facebook Home, a user interface that can replace the existing home screen on select smartphones with features of the ubiquitous social network, may give the company a solid mobile strategy while potentially causing a headache for rival Google, Wharton experts say. It may also usher in a wave of new, innovative user interfaces for mobile devices.

Made available for download on the latest Android devices on April 12, Facebook Home largely deconstructs the social networking giant's web interface into its core functions and integrates them with smartphone communication features such as instant messaging. Facebook Home features Cover Feed, which gives users news about their friends on the home screen of a smartphone; Chat Heads, which attaches profile pictures to texts and messages; App Launcher, which rearranges apps based on preferences; and a lock screen that displays a user's Facebook friends' status updates and photos while a phone is locked.

Facebook has also teamed up with smartphone maker HTC to launch a device with Facebook Home preinstalled. The HTC First smartphone, which includes Facebook Home, will be sold by AT&T for $99 with a two-year contract. In addition,Facebook plans to partner with wireless carriers and other device makers to create Facebook Home phones that work out of the box.

"Facebook Home is the most creative thing Facebook has done in a long time," says Peter Fader, marketing professor at Wharton. "It's a game changer. For some people, Facebook Home will be a better fit."

Kendall Whitehouse, technology and media editor at Knowledge@Wharton, agrees, saying the launch of Facebook Home showed a lot of business savvy. "For Facebook, it's a brilliant move. The more time and attention [users spend] in Facebook's world, the better for the company," he notes.

Speaking at the early April unveiling of Facebook Home, Facebook CEO Mark Zuckerberg said the company's goal was to change the experience of the phone to one focused on people rather than apps. Zuckerberg, who added that smartphone users spend 20% of their time on Facebook, noted that Facebook Home is a new social wrapper that's "not quite an OS [operating system], but a lot deeper than an ordinary app." Zuckerberg also emphasized that Facebook Home was good for Android adoption and that the company adhered to the operating system's open source rules to develop it.

However, Facebook Home raises questions about the extent to which Android's developer, Google, can leverage the mobile operating system now that other firms are using it to their advantage. For example, Amazon used Android to develop its own interface for its Kindle Fire tablets. Samsung, a long-time Google partner, has built its own branded applications using Android and promoted them with its Galaxy S4 smartphone launch. And now Facebook has created a wrapper around Android to control the user experience.

On April 16 at the AllThingsD conference in New York, Google chairman Eric Schmidt noted that Facebook Home was creative and a good example of extending the Android mobile operating system. Android became popular as an "open source" product, or software whose programming code is made freely available and can be extended and enhanced by external contributors. "I think it's fantastic. This is what open source is about. Open source means open source. It's wonderful -- experimentation, new ideas, creativity," he said. Schmidt bristled when asked later whether Google would ever block Facebook Home. "You can't have half open source," he responded.

However, Google CEO Larry Page largely ducked analysts' questions about Facebook Home during the company's first quarter earnings conference call on April 18. When asked about Facebook Home, Page said: "I think that Google really focused on building and creating great Android experiences within the strong ecosystem that we have. And it's great to see developers really focused on and building for Android."

The Risks to Google

Initially, Facebook Home could boost sales of Android devices and increase the number of platforms for Google's mobile ads. However, Facebook Home enables the social network to control more of the user's experience, adding an extra layer between the user and services provided by Google and others.

"With Facebook Home, Facebook [is] the primary interaction vehicle with Android devices. This is a win for Google and Android, but it's not as optimal as having access to Google products," says Andrea Matwyshyn, legal studies and business ethics professor at Wharton. "Having Facebook Home on a user's device could put a barrier in front of Google search."

Even though it may help to promote Android phones, "Facebook Home is more of a threat than a benefit for Google," notes Whitehouse. "Facebook is moving aggressively into search, and has richer data about its users than Google, which can aid certain types of searches as well as make them easier to monetize."

Fader isn't so certain. "I think Facebook Home is a validation for Android and could lead to more adoption," he says. "Google really can't complain."

Schmidt certainly didn't complain on April 16, but then again he is unlikely to do so. If Google suddenly changed Android's open source provisions, there would likely be a backlash from the very software developers who made the mobile operating system a success. According to Schmidt, there are 750 million Android phones globally and 700,000 apps.

Kartik Hosanagar, operations and information management professor at Wharton, says Google's conundrum highlights the challenges with an open source model. "Launching Android as an open source platform was clearly the right move early on to compete with Apple," he notes. "Google was able to get a lot of different device makers to build on top of Android and clearly gained a lot of market share because of this diversity of hardware options."

The problem for Google is that open source software can be modified and used by anyone. As a result, the software can splinter into different versions, Hosanagar points out. The open source Linux operating system has various versions from technology companies who add to the core open source software and sell support services. Hadoop, which is the backbone of open source big data analytics applications, also has various versions. Android is seeing something similar as Facebook, Samsung and Amazon make versions of the software to meet their own needs.

According to Hosanagar, this fragmenting of Android may ultimately mean Google can't control and benefit from its own creation. "While Google makes little money directly through Android [because of this open source strategy], the company can still push products such as search, maps and even Google Play. But with Samsung, Amazon and Facebook reskinning Android and taking it in different directions, Google risks being in a situation wherein the success of Android may not necessarily translate to success for Google."

Indeed, Hosanagar adds that companies that have revamped Android can cut Google out completely. Facebook could route searches to Microsoft's Bing. Amazon already uses its own Android app store, media content and web browser. Samsung emphasizes its map application over Google's. Analysts following Google have raised similar concerns about the search giant's control over Android. "While Home may attract users away from iOS [Apple's operating system], the installation method highlights Google's lack of control over the Android operating system," said Oppenheimer analyst Jason Helfstein in a research note. Analysts expect Facebook to place ads on Facebook Home and usurp Google to some degree.

Experts at Wharton acknowledge that Google is in a tough spot. According to Whitehouse, "Google can't do much. There would be a serious backlash if Google tried to limit the ability of other companies to work with the Android OS, but that doesn't mean Google doesn't have options. One obvious approach is for Google to launch its own mobile interface with the same functionality as Facebook Home built around its own services." A "Google Home" approach could include Google+, the search giant's Facebook competitor; Google Drive, a cloud storage service; Google News and other popular services, says Whitehouse.

Facebook's Risk and Rewards

Shawndra Hill, an operations and information management professor at Wharton, notes that Facebook Home may prove to be a significant move for Facebook. "The implications for data collection and mobile advertising will be huge. While Facebook seeks to increase the user experience, it will in return collect valuable data from its users."

For instance, Hill points out that Facebook will be able to target better based on location and social demographics. The firm will also develop multi-channel advertising since it will know when customers are watching TV shows or shopping. "Finally, Facebook will likely be able to collect other information on consumer behavior in terms of movement usage patterns that can be offered to third parties for purposes other than advertisement," she notes.

Still, many don't see the app gaining traction among consumers right away. "Initially, adoption of Facebook Home will be relatively small," says Fader. "There will be enough usage to justify launching Facebook Home, but for most people [Facebook is] still going to be an app-only experience. The biggest users of Facebook will have a nicer experience, but the majority of consumers won't let Facebook Home take over their phone."

Fader adds that there's a "potential backlash of creepy" with Facebook Home, since it allows the social network to collect even more data about its users. While this concern about Facebook may not be warranted, Facebook Home is likely to spur a visceral negative reaction in many, as have most previous privacy adjustments and feature changes instituted by the company, Fader notes.

Reaction to Facebook Home is likely to be at the extreme ends of the spectrum, argues Whitehouse. "There will be a big split on Facebook Home. Many people who have a strong affinity for the open web and use multiple applications, perhaps including Facebook, won't want to use Facebook Home. People who use Facebook almost exclusively, however, will find Facebook Home quite useful."

Piper Jaffray analyst Gene Munster said in a research note that Facebook Home is likely to follow the "80/20 rule." "We believe that as with many products ... 20% of Facebook's power users likely provide 80% of the [activity on the site]," he noted. "For those users, who on average probably spend more than half of their time on the phone, Facebook Home is likely to be adopted." Users who may be big Facebook fans but also frequently use services like Twitter and Foursquare may stay away from Facebook Home since it de-emphasizes those other apps. However, Facebook could sell premium ads to power users and still do well, added Munster.

Privacy will be Facebook's biggest hurdle with Facebook Home, says Matwyshyn. With Facebook Home, the social network will interact with a consumer's smartphone more closely, have better location data, provide the interface to messaging and integrate its code throughout the device. "Anything Facebook does will come with privacy concerns. The company is built around maximum data acquisition," she notes, adding that Facebook hasn't helped its cause by repeatedly changing privacy settings on customers. "Facebook Home creates a heightened concern over the creepy factor."

Over time, however, Facebook can win over consumers with Facebook Home, predict experts at Wharton. In many respects, Facebook Home is similar to Google's Chrome operating system, which provides a window to the search giant's various cloud services such as Google Docs and Gmail. "Users may become comfortable with Facebook being the company that connects them to other applications and integrates them," says Matwyshyn. "But there is a perception barrier that Facebook will have to overcome."

Hosanagar notes that Facebook Home may have an uphill climb. "Getting more control over users' mobile experience is a valid investment for Facebook. That said, Facebook Home is just a small start for Facebook, and I don't think it will suffice in terms of being a solid defense for Facebook on mobile. It will need something very different to convince users to be on Facebook Home," Hosanagar states.

Sign of Things to Come

Facebook Home is further evidence that mobile interfaces are becoming more creative, and that firms are rethinking the app/icon approach that has dominated most phone screens to date, Wharton experts point out.

Facebook Home shares a number of characteristics with Microsoft's new Windows Phone mobile operating system. Google Now, a recently added Android feature that delivers relevant data on directions and weather conditions based on location, takes a similar "information first" approach. "There will be copycat approaches, and Facebook Home isn't entirely outside of the box from what already exists," says Matwyshyn.

Yet, from a design perspective, Facebook appears to have used Facebook Home to highlight its best features and services, notes Whitehouse. "Facebook wasn't developed as a 'mobile first' product and, in moving to smartphones, originally attempted to put all of its desktop features into an app. Facebook Home deconstructs the experience and focuses on what works best on a mobile device and what's most critical for people to see first."

In addition, Whitehouse sees Facebook Home as a harbinger of a new mobile experience for applications. Instead of being displayed as an array of icons, applications such as Facebook, Twitter and Foursquare will be integrated together more seamlessly with content and information brought forward without requiring the consumer to tap on multiple icons.

Other companies are likely to take a similar approach to Facebook Home. "It's a long race. Google and other companies can follow the same route," says Whitehouse. "Right now, I pick up a phone, log on, tap an icon and engage with a single application. The future is a phone that will have a collection of apps all of which work together, recognize my location and know what I care about. Five years from now, the smartphone will be very different."