Facebook's Hardware Ambitions May Have Much in Common With Amazon and Intel's

 | Mar 20, 2017 | 8:54 PM EDT
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In some ways, it's quite understandable that a tech giant that produced $11.6 billion in free cash flow last year and claims nearly a quarter of the world's population as monthly users has some consumer hardware projects in the works. Even if the lion's share of its revenue comes from running ads on digital venues used for sharing things like baby pictures and "viral" dog videos. This is, after all, a world where Alphabet/Google (GOOGL) sells phones and HDMI sticks, Amazon.com (AMZN) sells tablets and home speakers and Snap Inc. sells video-recording sunglasses.

But it's worth remembering that to date, all of Facebook's (FB) hardware initiatives -- in the consumer realm or elsewhere -- have centered around developing platforms that aim to make the social media giant more effective at doing the things it does best. The same might hold for the products reportedly being developed at its secretive Building 8 unit.

Over the weekend, Business Insider reported that Building 8 is working on at least four consumer hardware products. They include a camera with augmented reality (AR) abilities, and a project that appears (based on hiring activity) to involve a consumer drone. Another project -- this seems more long-term in nature -- reportedly involves a product that enables communications via brain waves.

BI adds that Building 8's hires, along with talks with sources, point to "an ambitious effort to create and sell millions of consumer hardware units." The division is adding retail, supply chain and customer support talent -- a posting for a retail manager says the manager will be responsible for "creating disruptive ground up shopping experiences of Facebook consumer hardware" -- and is also said to be creating a Hong Kong supply chain hub.

Facebook spent $5.9 billion on R&D last year, and with the company guiding for its reported (GAAP) costs and expenses to grow 40% to 50% this year, this year's R&D spend could be above $8 billion. That leaves a lot of room to for hardware projects while still investing heavily in the company's core apps and services.

And as Facebook followers are well aware, the company is no stranger to hardware development. Its Oculus VR unit shipped its first commercial headset last year - between its cost, the cost of the high-end PC needed to power it and sub-par image resolution, it's a niche product for now -- and launched handheld motion controllers a few months later. 2016 also saw the first flight for Facebook's Aquila solar-powered drone, which the company wants to use to provide web connectivity to under-served regions.

Facebook also has a long history of designing energy-efficient servers and switches for use in its own data centers, along with those of fellow members of the Facebook-led Open Compute Project (OCP); its latest OCP hardware designs were submitted two weeks ago. And last April, it showed off Surround 360, an open-sourced design for a camera rig that shoots VR-friendly 360-degree video.

As unrelated as all these products are in most ways, they share the common thread of at least partly aiming to support and/or enhance Facebook's social media and communications services. Facebook hopes Aquila will make its services more accessible in remote regions, and that video shot with Surround 360 cameras will be uploaded to Facebook. And though VR headsets are mostly used for gaming and video-watching today, Mark Zuckerberg has repeatedly touted VR's ability to create immersive social experiences. Last October, he demoed a service in which Oculus Rift users could interact with other Facebook members via digital avatars set against a live background.

Along the same lines, it's likely that any AR camera or drone launched by Facebook will aim to provide easy ways of sharing their recorded content on Facebook's social platforms. For example, an AR camera could feature hardware controls and a touchscreen that could be used to both overlay digital content -- including the kind that appears so often in Snapchat photos/videos -- and quickly share to Facebook. A drone could feature a 360-degree camera and support for Facebook Live streaming.

Such offerings would have much in common with Amazon's consumer hardware. Whether we're talking about Echo speakers, Fire TV sticks or Fire tablets, Amazon's goal is never merely to make a hardware sale, but to get consumers further hooked on its digital media and e-commerce services, not to mention Amazon Prime. Chances are that Facebook, which is reportedly contending with a decline in the amount of user-generated content shared on its core news feed, will want to do the same.

Given its history and its goals, it's also not hard to imagine Facebook licensing some of its hardware designs to third parties. In addition to its open-source hardware work, the company has teamed with Samsung to develop the Gear VR, a line of smartphone-paired Samsung VR headsets that run on Oculus' software. And in 2013, it teamed with HTC to launch the ill-fated First, a phone featuring Facebook's equally ill-fated Home Android user interface.

These kinds of moves have a bit in common with Intel's (INTC)  hard are strategy. Over the years, the chip giant has unveiled reference designs for PCs, drones, smartwatches, tablets, VR headsets and much else, with the hope that OEMs will use these designs (crammed with Intel chips) for their own hardware lines.

What chip sales are for Intel's hardware efforts, and what e-commerce transactions and digital media consumption are for Amazon's, social service usage is for many of Facebook's. For all three, it would be a mistake to measure the real top-line impact of the initiatives based on unit sales alone.

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