Facebook's next billion likes hinges on Africa
North America has a population of about 500 million, and two-fifths of them are on Facebook. In Africa, with more than 1 billion people, just 120 million use the social network. That's an opportunity Facebook Inc. can't ignore, though the region poses challenges unlike those the company has faced in more developed markets.
To spur growth on the continent, Facebook next month is opening an office in an affluent suburb of Johannesburg. The sales office will be headed by Nunu Ntshingila, 51, chairman of WPP PLC's Ogilvy & Mather agency in South Africa, who will oversee Facebook's business in the region.
The company will find that winning customers in Nigeria or Kenya is tougher than in Nebraska or Kansas. Africa has few fixed Internet connections, so Facebook's original website isn't well known. And while mobile Internet is booming, data is expensive and smartphones are rare, with most people using cheaper - and less capable - devices called feature phones that can't run Facebook's full mobile application.
"This is one of the places where our next billion users are coming from," said Nicola Mendelsohn, Facebook's vice president for Europe, the Middle East and Africa. "It would be a massive missed opportunity. Africa matters."
To win over consumers concerned about the cost of data or who live in areas with lousy signals, Facebook is partnering with mobile-phone companies to offer what it calls Internet.org, which gives people free airtime when they access Facebook and a few dozen other selected websites. And it will soon introduce Facebook Lite, a low-bandwidth app that uses just a fraction of the data of the standard application.
Russia, China
"There's no point sending a video to someone with a 2G connection," Mendelsohn said in an interview. "You really want to make sure that you're delivering the right messages to right devices in the right way."
For the world's largest social network, Africa holds vast potential. Facebook has been blocked by China's censors since 2009, and in Russia it trails local sites such as VKontakte and Odnoklassniki. As sales growth slows, Facebook is working to broaden the reach of its advertisements, which generate more than 90 percent of its revenue.
A further challenge in Africa is the cost of smartphones, which are rarely subsidized with long contracts as they are in Europe and the U.S. MTN Group Ltd. and Vodacom Group Ltd., with a total of more than 225 million subscribers on the continent, are trying to change that by selling house-brand smartphones for less than $50.
'Missed Call Ads'
Chris Gilmour, an analyst at Absa Asset Management Ltd. in Johannesburg, said Facebook will need to be patient if it hopes to succeed in Africa. While the potential is huge, the region is notoriously difficult for outsiders to crack.
"Facebook has the capacity and skills and they will succeed, it'll just take longer," Gilmour said. "Africa is a fantastic prospect but it is a long-term prospect."
The shares fell 1.6 percent to $86.61 at 11:05 a.m. in New York. They have gained about 11 percent this year, valuing the company at $243 billion.
One way to keep data charges low is with what Facebook calls "missed call ads." Advertisers place links in Facebook newsfeeds. When those are clicked, the advertiser rings the user with a promotion - and foots the bill for the call.
Airtime Conscious
"We were conscious of airtime, which is the problem of most of the population in Africa," said Gil Sperling, co- founder of Popimedia, a Facebook partner in Johannesburg that uses the technology. "You need a product that's actually useful to them on a feature phone."
Ntshingila will take over the new Johannesburg's office in September. She joined Ogilvy & Mather in 1999 and was the agency's South Africa CEO for seven years before becoming chairman in 2012. Her mission is to persuade businesses and advertising agencies to promote themselves through Facebook.
"Increasingly marketers are focused on what is the next frontier," said Carolyn Everson, Facebook's vice president of global marketing. "There's going to be an incredible opportunity to develop a consumer base in Africa."