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Thursday, April 4, 2013

The Arrival of Facebook’s Phone

Facebook Is Expected to Introduce Its Phone

SAN FRANCISCO â€" Facebook does not have to build a phone, as its chief executive, Mark Zuckerberg, has long maintained.

Facebook’s chief executive, Mark Zuckerberg, last month. The Facebook phone is aimed at the social network’s foreign users.

But it needs to find a way to play a bigger role in delivering what consumers want from their phones: ways to communicate, find answers to questions, shop and be entertained. The company would especially like to become that workhorse for the vast majority of its users who live outside the United States and from whom, so far, it barely profits.

The company will make its biggest leap yet in that direction Thursday, when it is expected to introduce a moderately priced phone, made by HTC, powered by Google’s Android operating system, and tweaked to showcase Facebook and its apps on the home screen.

The Facebook phone adheres to two crucial product announcements in the last three months: A new search tool that encourages users to use their Facebook friend network to seek out everything from restaurants to running trails, and a news feed remade for mobile devices.

The details of the would-be Facebook-centric phone are under wraps. But the motivation is certain.

“Facebook would like to be, literally and figuratively, as close to its users as its users are to their phones, within arm’s reach when they are searching for information, news, time wasting, shopping, communication,” said Rebecca Lieb, an analyst with the Altimeter Group.

That can be especially attractive if the new phone is affordable to emerging market users: Brazil and India are home to the largest blocs of Facebook users after the United States, and their numbers are growing swiftly as smartphone penetration increases in those countries. Many Indian cellphone makers, for that reason, have Facebook already installed on their home pages.

But Facebook makes little money by advertising to those international users.

By partnering with HTC, a phone maker based in Taiwan, the social network is signaling that it is “making an international push,” says Michael Pachter, an analyst with Wedbush Securities.

“The more people you get to use it on phones, the more ads you can deliver,” Mr. Pachter said.

Facebook made a little more than $4 a user in North America and $1.71 in Europe, but barely more than 50 cents in the rest of the world, including large markets like Brazil and India.

Ads are its principal moneymaker, and Facebook is under intense pressure to show Wall Street that it can make more money, and fast. Its stock market value is still far below its initial public offering price, and many analysts blame the company’s belated push into mobile devices.

Mr. Zuckerberg announced last year that Facebook was retooling itself as a mobile-first company. He has consistently said that it is not in the company’s interest to manufacture a phone.

“It’s not the right strategy for us,” he told market analysts in an earnings call in January. He wanted rather to see Facebook integrated into every device that its billion users hold in their hands.

Two-thirds of Facebook’s roughly one billion users worldwide log in to the social network on mobile devices.

A study commissioned by Facebook and carried out by the research firm IDC found that those users checked their Facebook pages an average of 14 times a day; in short, users checked in two-minute bursts adding up to about half an hour each day. Mostly, the users check their news feed.

The new Facebook-optimized phone will use a modified version of the Android software, The New York Times reported last week. When turned on, it will display the Facebook news feed.

Facebook already functions much like a phone, allowing users to chat, send group messages and even, in one experiment with users in Canada, to make free phone calls over the Internet. Its platform hosts a variety of applications that deliver things like music and news, and its newsfeed has been tweaked to showcase photos, which is what Facebook users post by the millions everyday.

There are fledgling experiments with commerce. Facebook users can buy online and offline gifts on Facebook with their credit cards. Equally important, Facebook’s insistence on real names means that Facebook can be something like an identity verification service. It is well-positioned to be a kind of mobile wallet, containing the equivalent of an identity card and seamless way to buy things.

“They want to have all the services that consumers want to use in the mobile world,” said Karsten Weide, an analyst with IDC. “They want to be the major consumer Internet platform.”

The Thursday announcement, which Facebook has described as an opportunity to “come see our new home on Android,” illustrates a fundamental problem for the company. Facebook must accommodate itself to mobile operating systems controlled by Internet rivals, Apple and Google.

Mr. Weide described them as “frenemies, mutually dependent but competing.”

A version of this article appeared in print on April 4, 2013, on page B1 of the New York edition with the headline: Facebook Is Expected To Introduce Its Phone.