An Impressive Move by Facebook

 | Apr 06, 2013 | 1:30 PM EDT
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I was not expecting much from Thursday's Facebook (FB) phone announcement, but ended up being surprised and impressed.

There is no question that Facebook was obliged to enter the phone operating system space. (When CEO Mark Zuckerberg protested last year that making a Facebook phone "didn't make much sense," I thought he was full of it.) If Facebook does not put itself at the center of users' experience, it will become just another app. Granted, it might be no better or worse than, say, Yelp (YELP) -- a fine company, but one whose stock fetches less than one-fortieth of Facebook's.

Now Facebook has answered the bell by taking the first step toward its own operating system. Its Home family of apps definitely sit at the heart of users' experience. The suite is sure to improve over time with the release of more useful iterations.

What is most interesting about Thursday's announcement, however, is the revelation that Facebook would work with the Android operating system. In essence, Facebook is using Android for its own purposes. It went out of its way to say that it was not, so to speak, forking Android -- but does the distinction really mean anything? Android is just a jumping-off point for Facebook to build its own operating system. Doing so is cheap and Facebook can control it.

Additionally, Facebook will not owe Google (GOOG) anything. All this time, most media watchers have been patting Google on the back for getting the Android activation numbers up so high. However, a quick glance across vendors of the platform suggests that many of these "partners," like Facebook, are using the OS for their own purposes.

Does Google get anything from this arrangement? In some cases, it does. But in a lot of cases -- involving China, Amazon (AMZN) and possibly Facebook -- it does not.

Also, Facebook could have bought a company like BlackBerry (BBRY), which boasts 76 million subscribers. I suspect, however, that FB executives decided that since they already have their own users, they do not need to pay for BlackBerry's. If they can throw a few people into building an Android version of their OS, that is a lot cheaper than dropping $10 billion to $15 billion for another company with its own baggage.

(I continue to believe, however, that Facebook could innovate on the hardware side, probably through a partner, for a new kind of device that perfectly attracts its core Facebook users. Here I am thinking of the way Danger's Sidekick was something total new at the time it came to market with T-Mobile.)

So while Facebook did not fork Android, it might have forked Windows Phone. Surely Microsoft (MSFT) CEO Steve Ballmer tried to leverage his relationship with Zuckerberg to convince the company to use the Windows Phone OS. But Facebook passed. Microsoft will still collect royalties indirectly from Android, in the form of license fees for Android deployments. But Facebook's decision to go Android is effectively a slap in the face for Windows Phone.

For Microsoft, the question is: If a firm that you invested in is not interested in your OS, why should unrelated companies be any different?

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