Facebook (NASDAQ:FB) CEO and founder Mark Zuckerberg hasn't been having the best couple of years, public relations-wise. A series of high-profile failures to protect users' data from malign actors, and the growing clarity that the Facebook platform is vulnerable to abuse, have put him and his management team on the defensive, even as the company itself continues to rake in cash from advertisers. His latest response to those slings and arrows of ill will was a lengthy blog post last week in which he promised to make Facebook more privacy-focused.
But as Motley Fool Money host Chris Hill and senior analysts Andy Cross, Ron Gross, and Jason Moser point out in this segment of the podcast, other than mentioning a new integrated messaging service that will allow more private communication across its platforms, Zuckerberg's missive was light on specifics. They consider how end-to-end encryption would impair Facebook's advertising model, its opportunity in the payments space, why Zuckerberg can't pivot the business model too rapidly, and what is preventing it from becoming the U.S. version of China's WeChat.
A full transcript follows the video.
This video was recorded on March 8, 2019.
Chris Hill: This week, Facebook CEO Mark Zuckerberg published a 3,000-word blog post outlining what he called a more privacy-focused future for the social network. This comes as Facebook is building out a new integrated messaging service that will allow users on Instagram, WhatsApp, and Facebook Messenger to communicate in private with each other. Jason Moser, I feel like we've seen this movie before.
Jason Moser: Sure. Call me a skeptic, I feel like this is just a strategy move hidden in a PR stunt, more or less. If you read the blog post, you get what I mean by "PR stunt." He equivocates, essentially, doesn't commit to anything.
We're facing a point in time here where Facebook has lost a lot of consumers' trust, and for good reason. The privacy concerns abound. We're also facing a point where we're seeing the evolution of social media, where more and more people are finding the drawbacks of living your life out in public to be a bit greater than they initially anticipated. Facebook needs to come up with something new, and messaging is it. That's not a surprise.
But, again, you go back to the actual blog post itself, there was nothing committal. He didn't commit to anything other than just things he'd like to see. I appreciate that he's getting out there and talking about privacy, it's certainly an issue. But this is something that could have a material impact on the business. If they go toward a messaging platform with end-to-end encryption, that very much limits their ability to advertise based on what they're doing today. The idea of bringing commerce and payments into their universe is a great one. That would drive revenue growth. The problem is, they've been working on that, essentially, ever since they went public. I don't know why people would bring that behavior into their universe now with companies out there like Amazon and PayPal and Square that have built such strong competitive advantages and networks in their own right.
So, yeah, if I'm an investor in Facebook, I don't know that I'm feeling a lot better about the situation. They've got a monumental task ahead.
Ron Gross: Zuckerberg and the company have been under significant pressure over the last couple of years relating to privacy, whether it's from the Senate, the media, consumers. I think it was inevitable that we would see something to shore up or move to a more privately secure functionality. But, Zuckerberg has $22 billion dollars of net income to protect here. This is not him changing the business model overnight, not unless he wants the stock to plummet and layoffs to follow. This will be a very measured move that will take quite some time. How it actually ends up shaking out, I don't even think we can envision quite yet.
Moser: There's a lot of stuff out there today comparing what they're thinking about doing what WeChat in China is doing today, essentially being that one-stop-shop. You can get everything done just in WeChat. I don't have any doubt that, in a perfect world, that's the strategy that Zuckerberg would pivot to. I think it's worth also remembering, though, this is China vs. what we're doing here. They're very different cultures. Perhaps this is a testament to the forward-thinking that was involved with what WeChat has built out. They went to that from the very beginning almost, vs. what Facebook had built up to this point. It's going to be more difficult for them to pivot into that direction when you see what WeChat has already built from the ground up in that regard.
Hill: As you indicated, Jason, nowhere in that 3,000-word post did Zuckerberg lay out specific steps. There weren't specific promises in terms of, "And here's what we're building as we try to create this more privacy-focused platform." You go back to last year, when he talked about how, "Yes, we're going to come out with this functionality where people can clear their history." That hasn't materialized yet.
Moser: Not at all. If you read that blog post, you see exactly what we're talking about. It's a lot of ifs and maybes and possiblys, but nothing concrete whatsoever.
Check out the latest earnings call transcript for Facebook.