At the core of the Facebook phone lies a problem with HTC, the company allegedly tasked with manufacturing the device.
Indeed, HTC has been dropping off into insignificance as of late and likely believes a co-branded and co-promoted handset with Facebook would be a great way to get back on the map against Samsung.
Samsung dominates the mobile sphere by outspending even Apple in marketing, all while pushing the envelope on marketable phone features. Of course, the primary issue with the oft-rumored Facebook phone is that if it doesn’t sell well (and probably won’t), the device will take the cloud that is currently hovering over HTC and place it solidly over Facebook. In short, HTC’s failure could become Facebook’s new image and the result could be catastrophic for both firms.
Co-Branding is a Dangerous Game
This is the reason co-branding isn’t done all that often. Ostensibly, it seems like a really good idea - two companies get together to create a product that will be shared between them. Over the years we’ve had Disney PCs, World of Warcraft Laptops (they actually did OK), Transformer cars (they did OK too), Lamborghini and Ferrari Laptops, Hummer Laptops, and we’ve also seen a lot of co-branded credit cards ties to gas stations, frequent flyer programs, and other retail activity.
Typically, co-branding works best where there is either a lot of affinity, like tying a credit card to something that pays rewards, or a product to a fan base (Ferrari seems to do this best of all the car brands). It doesn't work when there isn’t a lot of affinity. To be sure, many of the PC efforts either failed outright (Disney) or died out over time (Warcraft, Ferrari, and Lamborghini).
Sometimes the brand may not translate the way you’d think. For exmaple, the LG Prada phone, thought to have provided the design guidance (nice way of saying "was copied by") for the iPhone never seemed to rise to the Prada potential and was easily eclipsed by Apple’s product.
Now if this phone had come out around the time Facebook went public they’d likely had had trouble keeping it on the shelves. But so many people lost money on that IPO that the image of Facebook as a successful company has been badly tarnished. To be sure, HTC is clearly well off their game as well and, as noted above, is looking to leverage the Facebook brand to bring itself back to relevance.
Any co-branded product will sell best when one of the co-brands is peaking in popularity and both Facebook (the more powerful brand) and HTC are well off their one time highs. People generally buy phones for status these days which is one of the reasons the comparatively high priced iPhone does so well - as the price tag makes it somewhat exclusive. This is also why Samsung has been teasing iPhone owners to make those buyers appear stupid (have lowered status) instead.
So, if you think about it, would you think more or less of a person who bought a Facebook phone? How about compared to someone who bought a Samsung or Apple smartphone? If you are like me, well, probably somewhat less, which would be a big problem for Facebook in particular if it resulted in low phone sales.
Frankly, I don’t see a great deal of natural affinity between a smartphone and one social network, and currently I don’t see a lot of pride associated with being a Facebook user, certainly not to the level that Prada, Ferrari, or Porsche imply.
Facebook lives under the increasingly questioned impression that it is a successful company, worth spending your valuable time on the social networking site and consuming ads. Should this phone be a visible catastrophic failure it will clearly hurt HTC even more, but could negatively shift the perception of social network users. In fact, given that Facebook is still a strong bellwether for social media in general, the failure of this phone could negatively alter perceptions about the entire segment and overlay many of the declining positive opinions with negative ones.
In other words, the failure of this phone, which is very likely, would do significant damage to both corporations.
This is why co-branding isn’t done that often. Simply put, the more powerful brand takes more of the risk and the weaker brand is the one that reaps the majority of potential benefit. Ferrari, Porsche, and other companies which leverage their brands this way both charge a lot of money for the privilege and boast a robust vetting process designed to assure the resulting product won’t damage their very valuable brand.
Although Facebook is a company that lives off of advertising revenue, it doesn’t seem to understand advertising and, as a result, is unlikely to protect its brand. If the phone fails, the end result could be one of the most expensive learning experiences this company has experienced yet. Indeed, recovering from such a humiliating blow would be rather difficult indeed.