Facebook just plunked down a reported $100 million to $200 million to buy a company that trims smartphone bills. And there’s a good reason for that: The social network needs new users, and those users are increasingly cash strapped.
At a time when new U.S. users are drying up and saturation in other developed markets is on the horizon, Facebook is increasingly prioritizing emerging markets to fuel growth. It's a tricky gambit, given the paucity of online and commercial infrastructure in such markets, and one that could take years to pay off. But Facebook could reap the spoils of being a pioneer, among the first to tackle a challenge that other large internet companies, Twitter foremost among them, will soon be grappling with themselves.
Israel-based Onavo said it is being acquired by Facebook, giving Facebook a suite of apps for reducing mobile data usage via compression (not to mention its first Israeli satellite office, in Tel Aviv). Trimming smartphone bills is particularly important for users in developing countries, and Onavo is Facebook’s second big play for such users in as many months, the other being its Internet.org initiative to wire the developing world.
“We ... hope to play a critical role in reaching one of Internet.org’s most significant goals -- using data more efficiently so that more people around the world can connect and share,” Onavo CEO Guy Rosen says in a blog post.
Such a goal may sound generous, but Facebook's motives are hardly altruistic: The company needs the developing world in order to grow.
Revenue grew 88 percent in emerging markets versus just 43 percent in the U.S. Monthly users in the second quarter grew 32 percent in Asia and 29 percent in Africa, South America, and other emerging markets -- compared to just 6 percent in the U.S.
A user in the developing world still generates roughly one-seventh the revenue of a user in the U.S. But that leaves lots of headroom for growth -- the kind of potential Facebook needs to placate skeptical shareholders who worry the number of Facebook users is reaching a saturation point.
“While these ad markets are not especially large today, they will become increasingly important in the years to come,” Facebook COO Sheryl Sandberg said of emerging markets in an analyst call this past July.
That’s why Facebook developed a text-messaging interface as well as a popular feature-phone version. In April, the company even began allowing advertisers to target feature-phone users.
Facebook sometimes downplays the monetary potential of developing markets. “It may not actually be profitable for us to serve the next few billion people for a very long time, if ever,” CEO Mark Zuckerberg wrote recently. But Facebook didn’t acquire Onavo out of the goodness of its heart. The company clearly believes the developing world business opportunity is very real. Now it's putting tens of millions more dollars to back that belief up.
