Facebook’s latest privacy push
Zuckerberg’s new vision will help the bottom line, write Madhumita Murgia and Hannah Murphy
Mark Zuckerberg used more than 3000 words to outline his vision for the future of Facebook last week, detailing how the world’s largest social network would build products focused on privacy and control for its users.
But what the Facebook founder did not explain was what impact a shift from an open social network towards a more walled-off messaging platform would have on its highly lucrative business model.
On January 31 the group reported earnings of US$2.38 per share in the fourth quarter of 2018, up 65 per cent year on year. Revenues jumped 30 per cent to US$16.9 billion, more than 90 per cent of which came from advertising on Facebook’s core social network and its Instagram photosharing app.
Last week’s blog post built on announcements Mr Zuckerberg made in the January earnings call, when he said he was seeking to blur the lines between Facebook and the apps it bought in 2012 and 2014, Instagram and WhatsApp.
The company hopes to to integrate the messaging services of the trio into one encrypted system, allowing users to communicate across the three platforms seamlessly, and preventing third parties — including Facebook itself — from viewing their messages.
Last week, Mr Zuckerberg said the company was also weighing how to allow users’ messages and metadata to auto-delete after a certain amount of time.
This pivot towards more private communication has been interpreted by some as a response to slower user growth in the company’s core Facebook product.
“Through 2018, Facebook usage in the US was pretty consistently down month by month by a low doubledigits percentage,” said Brian Wieser, president of business intelligence at GroupM and a former digital advertising analyst.
“Ever since late 2017, they’ve been working on different ways to orient their platforms around this concept of ‘time well spent’.” At the same time, Facebook is under the microscope of competition and data protection regulators across Europe, Australia and the US. The company is in talks with the US Federal Trade Commission to settle an investigation into whether it broke a consent order signed in 2011 that required it to be clear with users about how their data were being shared with third parties. If Facebook is found to have broken the order, it could face a record, multibillion-dollar fine.
While Mr Zuckerberg has pitched his new plan as a conciliatory gesture to appease Facebook’s privacy critics, the social media group’s watchers say experiments with unifying its apps will not materially affect the advertising strategy that remains core to its growth.
“It’s certainly not a change in business model. Nearly all of their revenue comes from the public platforms — mostly the core app and Instagram — [and] this doesn’t indicate any changes to those platforms,” said Jason Kint, chief executive officer of Digital Content Next, a US trade association for online publishers.
Other analysts have argued that
the move is part of a shrewd strategy to explore new revenue streams and resist regulatory scrutiny.
In his blog post, Mr Zuckerberg said: “We plan to build this the way we’ve developed WhatsApp: focus on the most fundamental and private use case — messaging — make it as secure as possible, and then build more ways for people to interact on top of that, including calls, video chats, groups, stories, businesses, payments, commerce and, ultimately, a platform for many other kinds of private services.” Thomas Husson, a senior analyst at Forrester, said: “It basically means that Facebook is entering a transition phase where it will continue to sell targeted ads on its public social networks, while inventing a new business model.
“In these private groups, if you end up transacting, there might be an opportunity for a marketplace, or commission programme, more like WeChat in China,” he said. “I think it makes sense for them to try to diversify their revenue streams.” Facebook is exploring ways to allow shopping
It basically means that Facebook is entering a transition phase where it will continue to sell targeted ads on its public social networks, while inventing a new business model.
Analyst Thomas Husson
on Instagram. It is also developing its own cryptocurrency to allow payments on WhatsApp.
“People are looking at it as cannibalistic. It’s actually incremental and synergistic,” said Rich Greenfield, an analyst at BTIG.
“Transforming advertising into commerce is what they want to do at Facebook. Having a way to communicate and a way to pay — that’s the way you transform traditional advertising into actual actions and commerce,” he said.
Facebook may also be able to cross-reference user data across the three platforms, allowing for more targeted advertising opportunities — a suggestion that has angered critics.
To date, Facebook has not been able to monetise Messenger and WhatsApp, leading some analysts to argue that Facebook is moving to capture users first, without a clear monetisation strategy in place.
“It may not be necessary to figure out the new commercial model for messaging products yet because the core [advertising] is such a cash cow,” said Mr Wieser at GroupM. “It’s hard to know if they haven’t started making money from messaging because efforts have failed or they haven’t needed to push too hard. It’s not like the business is depending on a WhatsApp business model.”
Nevertheless, the move is not without risks. While the promise to protect users’ privacy more effectively might be cheered by regulators, a move towards end-to-end encryption could end up pitting the company against law enforcement officials, who fear the system allows criminals to communicate without detection and makes misinformation harder to track.
Last month, the German Cartel Office told Facebook that it should not share data across messaging apps without user consent.
In his blog post, Mr Zuckerberg said the company would only store data in countries where governments did not violate citizens’ privacy — even if it meant its services were blocked in countries such as India and China.