Is Facebook Serious When It Says “The Future Is Private"?

Not many years ago, you could have heard Facebook (META -0.52%) CEO Mark Zuckerberg expounding on the idea that privacy was essentially over. Not anymore. Based on the historic truth that the messaging at the F8 conference tells you a lot about where his head is at, privacy is the future, and he's taking Facebook toward it as fast as possible. This leads to an obvious and vital question for investors: Can the social media company make money under those conditions?

In this segment of the Market Foolery podcast, host Chris Hill and senior analyst Aaron Bush discuss where Facebook's growth will come from, the strategies that will be used to pivot the company into a profitable business that doesn't do things with people's data that they hate, and other topics.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on May 1, 2019.

Chris Hill: F8 kicked off yesterday. This is Facebook's annual developer conference. I don't know about you, the image I could not get out of my head in all the coverage that I looked at was Mark Zuckerberg standing on stage in front of the huge backdrop, which read "The future is private."

Aaron Bush: Uh-huh, sure it is! [laughs]

Hill: [laughs] I just thought, boy! I guess we've completely turned around from, was it 2010, where he was at TechCrunch and saying, basically, "Yeah, there's no such thing as privacy." He gave an interview at TechCrunch on stage where he basically said, "I think the age of privacy is over. It's not really all that important." Anyway. There were a bunch of announcements there. I'm curious if there was anything in particular that stuck out to you.

Bush: I might rant a little bit on this. What I like about this conference is that it always shows where Zuckerberg's head is at. In 2015, it was all about video. Then it was about bots. Then it was about augmented reality. And now, privacy. Obviously, some of those topics have been hit and miss. I actually do think that this year's big topic is extra important. And I do think that Facebook is serious about changing. A lot of these bolder changes only come from founders. I respect them for that. But, it's probably not 100% as it seems. There's some spin going on there. There is a lot we can learn from what they said, but there's also a lot to learn from reading in between the lines.

Just to break that apart a little bit, what they said. They've indicated that most growth in social over the next couple of years will come from stories, private messaging, and groups -- aka, not their bread and butter, which is news feeds. They've also obviously preached recently about how they're chasing privacy, which is a big word. But really, that's driven more by public sentiment and a lot of criticisms that they've gotten more than anything. What they were able to do in this conference was, they were able to meld those two narratives together and show that, by changing how Facebook looks and what it prioritizes, it can better change its privacy image and remain a good business at the same time. That's really the message they're trying to convey.

But if you read between the lines a little bit and step back at first, when Instagram and Snapchat took off a few years ago, Facebook almost definitely noticed a hit in user engagement, especially from Snapchat. The truth of the matter is, Evan Spiegel with Snap, despite their issues and IPO-ing too soon, he actually has the correct vision for what the next phase of social is. News feeds have a place, but the future is about private messaging, groups, and stories -- those three areas where Facebook is now prioritizing and where Snap has always prioritized. Now, Facebook did a good job adjusting Instagram to compete. But it also decided a year or so ago to reorient the purpose of Facebook, bring it back to its roots of prioritizing real-life relationships over third-party content, which almost definitely caused yet another hit in user engagement. So now they're taking even larger steps to more dramatically change what they're doing, but also -- I think what they're not telling us -- stopping a leak in the core Facebook app a little bit.

Facebook's going to be putting stories and groups front and center again. They actually said that they expect stories content to surpass news feed content this year, which is a pretty huge deal in terms of monetizing with ads, and what it means for the business model. They're also going to turn Messenger itself into more of a social network, building out more features there, allowing people that you're more closely connected to to engage in more types of ways. They're adding encryption.

The truth of the matter is that Facebook isn't embracing privacy by tearing down the old. They're just adding a bunch of new stuff that they're framing up in a more privacy-centric lens without even really touching the old stuff too much. We'll see how that goes. They're certainly moving quickly. But it'll probably change how they make money.

Hill: It will be interesting to see what the reaction from the advertising community is. I'm sure that's not going to happen immediately. I think that's going to play out over the rest of 2019 and obviously beyond that. But it will be interesting to see maybe two quarters from now, what effect, if any, it has on their ability to sell ads, because that's the business they're in.

Bush: Yeah. And I actually do think they're pretty well positioned. A lot of these changes on the advertising front they've gone through with Instagram already. You see, with stories in particular, how ad prices changed. But it also increases the ad load. I think they'll be on a good trajectory there.

But, yeah, it was really interesting to see how they frame things up, but particularly what they didn't say. I think there's a lot of value in just trying to figure out, what are you trying to skirt around? [laughs] That says a lot.

But they did announce other things which are interesting. They continue to invest in their Portal device -- which, again, no one ever asked for that.

They're launching it to more countries. Again, those people didn't ask for it. But, whatever. They're adding new features around relationships, new capabilities to their marketplace. WhatsApp is testing payments in India, which maybe is a big deal. Instagram is testing letting people buy actual goods through influencers' posts, which probably is a way of strong-arming Pinterest the same way that, with Instagram, they used stories to strong-arm Snap.

I don't know. When you have 2 billion people on your site and you have a giant money-printing machine, there's a lot you can do to change. And honestly, I think what they're doing will keep them going strong for a while.

Hill: There are definitely a lot of things you can test when you have that kind of platform and that amount of money.

One thing you didn't mention that I'm curious about is -- I guess you touched on this in terms of the big themes in years past -- the Oculus headset is going to start shipping later this month. I almost forgot about the Oculus headset, [laughs] because there was a point in time where it's like, "Oh, they've got Oculus! This is going to be amazing!" We've tested out those devices. We've got a VR room here at The Fool. It's definitely something with a lot of promise. I don't think there's any real expectations, from the perspective of the stock, in terms of sales of this device really moving the needle. But it's definitely something worth watching, to see what extent, if any, if they have success with that, do they begin to start doing testing around that, whether it's around gaming or movies, television, whatever?

Bush: I think it's still early for VR to go mainstream. I also think that Facebook probably isn't the best place for VR to succeed. They just have very conflicting models. Facebook is all about horizontal integration, I guess you can say. They want to be on every different type of device, every different type of platform, to get the maximum number of people. Something like Oculus and VR, it's much more vertical in the sense that they're trying to create their own platform, where people come to them for this instead of being all of these different places. It's very different, and I'm skeptical that they'll be able to pull that off. But, again, it's early days. We'll see how things frame up.