Author(s): Martin Garner
Last week Mark Zuckerberg, CEO of Facebook, published a substantial blog piece outlining a new strategy for the company. In it he said Facebook will base more of what it does on privacy-focused communications. Much of the emphasis will go on joining up its messaging services and encrypting them, so they collectively become the main ways people communicate on the Facebook network. The company will then layer other services on top, including calls, video chats, groups, stories, businesses, payments, commerce and other kinds of private services.
In many ways he is articulating for Facebook what Tencent has already done spectacularly well in China with its WeChat platform. WeChat has become an essential part of people's daily lives to such an extent that even paying for a drink with cash has become difficult in many places.
The major factors Facebook will address with its "privacy-focused platform" are contained in six principles:
- Private interactions: users should have clear control over who communicates with them, a clear understanding of who they are communicating with, and control over any sharing that takes place.
- Encryption: communications should be encrypted from end to end, so that no one, including Facebook, can eavesdrop on a conversation.
- Reducing permanence: messages should not be kept longer than necessary, so that people can be themselves without fear of their past haunting them, but the company should also provide tools to enable long-term storage if users feel that is appropriate. Reduced permanence should also cut the quantity of personal data acquired and how long it is kept.
- Safety: the company should do what it can to keep users safe within its services, even when the services are encrypted. Encryption goes hand-in-hand with strengthening efforts to root out bad actors using the platform, so it does not simply become a large network of criminals.
- Interoperability: the three messaging services — Facebook Messenger, Instagram Direct and WhatsApp — should be linked so that people can use any of them to send messages to any of their contacts. Interoperation is likely to be extended to SMS too, although that is not encrypted.
- Secure data storage: measures should ensure that data cannot be improperly accessed by hackers or governments. This affects where data centres are built, so that less-scrupulous regimes do not have ready access to users' data.
We do not regard this shift as a sudden conversion for Mr Zuckerberg in response to recent scandals. Instead, it is the logical extension of trends that have been building for a while within Facebook, and which the CEO has mentioned in recent earnings calls. The trends include strong growth in usage of WhatsApp; the rise of Stories on Facebook and Instagram, where posts disappear after 24 hours by default; growth of groups on Facebook, especially smaller groups; and the easing of activity on the Facebook News Feed.
There are several important aspects of this strategy and the project to implement it. The first is that it's huge — converging multiple messaging platforms with billions of users and then layering a large number of services on top is a technical undertaking that few organizations could handle.
Mr Zuckerberg was clear that it will take a few years for all the services to be brought in line with the six principles. Secondly, because of the various scandals over the past couple of years, trust in Facebook is low and the company will only be able to make this shift if it also carries out plenty of consultation along the way. That will not speed things up. Thirdly, regulators will take a close interest in the implications for their country, and they may obstruct some parts of it. Mr Zuckerberg spelled out in his blog that Facebook is prepared for the outcome that some countries block its new services.
It's also important to note that Mr Zuckerberg did not say that existing business models will stop — we're not about to see the end of the Facebook News Feed. Instead the new approach will have to grow up alongside the old, and this raises its own issues.
The first is that existing Facebook services are still growing quickly. The company is building several services with high potential, and total annual revenue growth has averaged almost 40% over the past four quarters. This means the new services will need to grow faster if they are to become a material part of the business any time soon.
The second is that advertising in ephemeral posts such as Stories carries a lower price per advert, so the rise of these channels is dilutive, although their long-term scale may be larger. This effect may extend to all of the new services if encryption means that ad targeting is less accurate.
Thirdly, although there is clear potential for other non-advertising services — as WeChat has shown — the business models for those are mostly new for Facebook, and it will need some experimentation to get them right.
The fourth issue is that the principles underlying the new services will increasingly set expectations that people will read across to Facebook's existing services, so those will have to adapt too.
Facebook will need to walk a tightrope as it builds up the new areas while continuing to make the most of the old ones. Keeping shareholders, customers, users and regulators happy as it makes the shift will not be easy.
But perhaps the biggest challenges are trust and credibility. Many commentators in the media have highlighted Facebook's record of apologizing for problems, promising to do better, but not changing in a satisfactory way. Much of the world is wondering if Facebook will actually do what Mr Zuckerberg promised in his blog. Obviously, setting out schedules and launching the new services will be essential, but Facebook may need to go further and change the lines of business it reports in its financial results to demonstrate progress with its new services.