Facebook Could Transform Mobile Phones

Facebook is clearly leading the pack in the mobile Internet race. In December—in Britain alone—it racked up 5 million mobile users, against 4.5 million for all of Google's sites combined. Google (GOOG) now has its own phone, platform, and app store; more Google phones will undoubtedly follow, offering—as with its new Nexus One handset—an experience tightly integrated with Google services. But given Facebook's ever-expanding size, many mobile industry analysts are asking how long the social networking giant will be happy to work within another company's idea of how a mobile device should look and feel.

For many consumers, social networks are now the nucleus of their online existence. Being always on is hard-wired into their lifestyle. The rise of the so-called "Continuous Partial Attention" phenomenon—the desire not to miss anything, even for an instant—holds profound implications for the way we consume information. It is the impulse that has us clicking "Check Messages" on our e-mails, even when we know that they auto-update, checking our phones even when we know they haven't rung or vibrated, and texting friends when we have nothing in particular to say.

We get a buzz from being continually connected. We're getting used to an existence where we are never fully off the grid. Many phones on the market today, including Apple's (AAPL) ubiquitous iPhone, do not fully cater to this demand. If you want to scan the horizon for information on an iPhone, you can either choose to put yourself at the mercy of push notifications, or run down your battery by repeatedly opening and closing the relevant applications.

The default experience of an iPhone is glossy and beautiful, yet it's a fundamentally static experience. In a real-time world where we have come to expect a constant flow of data—where we are always scanning for new opportunities to contribute, create, and collaborate—this seems somehow insufficient and unsatisfying.

Facebook: the Web's best contact book

Apple has created a new computer-like experience on the iPhone and many smartphones now mimic its approach. But the iPhone is incapable of multitasking. To get to Facebook's activity feed on an iPhone, you need to open an application. To get to Twitter, you need to open yet another app. To make a call, you need to close other apps and navigate to the Contact Book screen or the dialer. The Contact Book screen and the dialer do not communicate with the Facebook or Twitter apps—even though many of your friends are on Facebook. Frankly, it's inefficient.

Apple's decision to make the iPhone primarily a computing device, rather than a communications device, left open an opportunity for disruptive innovation. Apple's notorious obsession for locking down its platform and ensuring that such applications as Facebook can't be deeply integrated with the Contact Book and the Photo Album detracts from the user experience. The contact list is still the most important asset on the phone and, for many users, Facebook is the most important and complete contact book on the Web.

Imagine for a minute what a Facebook-centric device might be capable of. It would have the ability to incorporate real-time information about friends at every stage of your interaction with them. The need to send expensive SMS messages would be reduced or eliminated by the ability to send a Facebook message from your phone as easily as you now send an SMS. Facebook would be the trigger for greater communication.

A Facebook device would open up new possibilities for creativity, too. We know that consumers more than ever carry around devices for creating and sharing content with each other. Instant and seamless uploads of photos and videos would create not just a master phone book but also a master photo and video album. Indeed, a Facebook phone could become your master life recorder—a kind of social archive of your digital life. It would transform the online and mobile landscape, reducing fragmentation and providing a level of integration among applications never before seen.

Such a device would undoubtedly terrify mobile operators, who could witness even more of their network traffic shift from voice and pricey messaging to raw streams of data. Incumbent handset makers could lose, too, as further control over the user experience shifts to an Internet company that stands to profit from dominating the online life of users. In short, a Facebook smartphone could spur a communications revolution. The sheer thought of the richness of interaction thrills me.

Need several years, better batteries

We are already seeing the first baby steps along this road as mobile operators begin to understand that their future will be dictated as much by users as by them. Vodafone 360 is an example of this, but Vodafone (VOD) lacks the digital life archive and engaged users that Facebook commands. INQ's Social Mobile also takes important strides in this direction. The Palm (PALM) Pre has done a good job in showing the way, and the active widget framework in Android provides the base. In the end, it's the service that will drive usage—and this could turn into one of the Internet's famous winner-takes-all scenarios.

Facebook has the sheer scale to take online and mobile social integration further. Surely, if the company continues growing at its current rate, its ambitions won't be limited to creating a social Web site. Facebook will look to emulate Amazon (AMZN) and Google as an "Internet hub." There's only one way this can realistically be achieved—by creating a Facebook mobile device. This will likely be a two- to three-year process that requires at least a $200 million investment and technological progress in rendering ubiquitous connectivity and longer battery life. We are, in short, about one hardware generation from this inflection point.

Facebook's ability to build its own device would rely on certain additional conditions. The company would need to double the size of its network, expand its developer community (including flushing out scammers), and then solidify its monetization program. It would also have to resolve the privacy issues that stand to threaten its "trusted brand" status if left unchecked. It would also have to execute this strategy in total stealth, while remaining in the meantime the best and friendliest partner to any enterprise wanting to integrate with it.

Make no mistake, Facebook has the assets to achieve all of this and more. It has the attitude and the talent—and can attract more of the latter now that it's generating a profit. A Facebook phone, if successful, would ratchet the company's income to a higher level, making it a prime global brand. The rewards for reinventing the phone would be massive.

Before it's here, it's on the Bloomberg Terminal.