So, Facebook… The biggest social network in the world right? Universally loved for allowing you to put your life online and share it with your nearest and dearest. Universally hated for using that information to deliver targeted adverts to you and share market information with commercial companies. It’s a fact that most savvy Facebook users are aware of, I’ve talked about it in a previous newsletter in fact, Facebook is a product which you get for free… sort of. In return you are their product, your personal information, tastes, usual behaviours, etc are all up for grabs to any company that can afford it. It’s a fair deal really, the experience of Facebook is certainly worth the exchange of that information, almost a billion other people agree so don’t break into a sweat upon reading the previous sentence.

So with that business strategy in mind the more time you spend on Facebook the more targeted adverts hit you and the more money Facebook are able to make from you. You’ll notice these around the sides of the Facebook experience pretty much everywhere and much like Google’s placed adverts they are often freakishly accurately targeted. In fact I just logged into Facebook and was offered a 5k race and Max Payne videogame, Facebook knows I did a half marathon a few months ago and play games. This isn’t a bad thing per se, I see advertisements I might actually care about, but wait… think for a second. Where do you do the majority of your Facebooking? (Yeah it’s a verb now too.)

If you’re like me (a regular Joe really) then you have a smart phone like half the population does now. This probably means you have a neat little Facebook app that gives you access to the whole experience in a very simple touch-screen manner, customised for that experience and buttery smooth compared to loading the Facebook site in a mobile browser. So how much advertising have you ever seen in your mobile Facebook experience? That would be a big fat zero right.

If you’re an iPhone or Android user you have a pretty slick Facebook app which serves all the functions of the site but would be completely ruined by an advertising panel. I’m a Windows Phone 7 user and although there is a Facebook app it’s a blue moon before I use it as Facebook is tied into the OS all over, I can pop anything straight on Facebook without having to leave my current context, be it a photo, some music, mid messaging conversation, so there’s clearly no room for advertising there either. It seems like a big loss of money if the 3 leading smartphone operating systems can’t generate ad revenue for Facebook. Mobile is big, very big and only getting bigger, vast numbers of people are switching to using a mobile device for the majority of their online life. One look at the graph below will show you how much Facebook’s “page-views� have decreased and how it’s hit their revenue. Yet their number of users continues to grow, so it’s an artefact of platform transference amongst users and Facebook's inability to capitalise on that in any real way so far.

And this is how I think we’ve got to "App Center", Facebook’s senior execs got worried, they could see that pattern emerging, see they were gaining nothing from it and had to react. So a platform was designed to tie into the many millions of apps Facebook currently has, surely a smart move as those apps already have many millions of users. Apps tied into your Facebook social experience exist on all the smartphone platforms but historically it hasn’t been particularly easy to find these. Facebook connect and its ability to get you playing with or competing with your existing list of friends is a really great proposition, far better than Apple’s laughable game center for example. Would you really be playing Draw Something so much if you couldn’t just jump into games with your Facebook friends? At launch this isn’t going to generate any revenue for Zuckerberg and crew as such, it will of course be linking to apps that are on other store fronts, iOS, Android Market, etc.

In the long run though it’s that targeted data that I mentioned earlier that could swing this in their favour. If you boot the App Center and it offers you 5 recommendations on your smartphone platform that you’re genuinely interested in then you’ll probably buy them at some point. Facebook know’s what you like so it will offer you accurate recommendations. This means their conversion rate in the app center is going to be really high and in the long run they’ll be able to cut deals with the providers of those actual app stores to make kick backs on each app purchased using those referral links, thus they magically start making money out of mobile. In this way App Center is an advertising vehicle but it’s not in the form of some sort of annoying ad, it’s an app selection assistant linked to the ecosystems you’re already invested in that will seem personal to you.

So are they just going to offer you other people’s apps? It doesn’t seem like there’s enough money to be made there to justify that. Well no, Facebook has its own apps of course, usually taking the form of web apps that you play in your browser. They’re usually small freemium titles, Zynga really capitalised on this market for example with Farmville etc. Would people like to play these on their mobile without having a poor smartphone browser trying to compensate for not being a desktop PC? Of course they would. This is the other fork of Facebook’s plan for app center, they’ll also offer mobile optimised versions of their webapps. You’ll likely have to be connected to play just like the original web browser app but the experience will be mobile optimised, running within App Center, so you can continue your experience regardless of what device you’re on. Currently it seems that this is a longer term plan and seeing paid-for web apps in this context could be a way off but it would certainly be a revenue stream.

How the platform owners themselves will react to this should be interesting to see too. Google have no trouble allowing other stores on Android, after the Android license has been paid for usage of the OS on a device the manufacturer and owner of the device are free to install whatever app stores they like. Apple, however have not allowed this historically, their ecosystem is tightly woven into their i devices and the Apple App Store is the only way to buy apps on the device. Some companies have switched to creating web apps that execute as well as any native app through the Safari browser to circumvent this but the idea of the App Center taking payments for people to gain access to web apps right on Apple’s device will illicit some sort of response. Apple have tried to staunchly avoid this kind of in app payment system in any kind of app previously, if it happens on an Apple device is has to go through Apple. This is Facebook we’re talking about here though, the reason many people buy an iPhone in the first place, if anyone can cut a deal with Apple they can.

One thing is for sure, Facebook will be attempting plenty of strategies like this over the next year to maximise their return from that mobile market. They’ve been slow to react to it up until this point so the response now will be a quantum shift in their thinking and it should be interesting to watch.