"I'm so grateful to be able to help build these tools for you. I feel a deep responsibility to make the most of my time here and serve you the best I can." -- Facebook (NASDAQ:FB) founder and CEO Mark Zuckerberg, from a post on the company's 10th anniversary in February.
These words are ringing hollow for a lot of Facebook users lately.
Since Facebook's decision in August to disable the messages feature in its mobile apps -- essentially forcing users to download the Facebook Messenger app -- there has been a lot of focus on supposedly more invasive company policies, and having to give Facebook even more access to your personal information and device. And while this isn't really true -- we regularly give the same kinds of permissions to almost every app we install -- there's a bigger concern for Facebook users and shareholders, one that deserves inspection.
Let's look at a big mistake that Netflix (NASDAQ:NFLX) made a couple years ago, which pushed its membership down for the first time and cost investors a large amount of money. Is Facebook walking the same path, and if so, can it turn back in time to avoid hurting itself?
It was three years ago this month that Netflix announced it would split its DVD-by-mail and streaming businesses into two entities. The decision made some business sense, as the DVD business was in decline and Netflix's future was clearly tied to growth in streaming, both domestically and internationally.
The rollout of Qwikster (the planned DVD mailer) came mere weeks after a price increase that was part of streaming becoming a stand-alone service. For users only interested in streaming, the split actually made Netflix cheaper, but for everyone else the price went up. The decision to cut streaming and DVD memberships into separate plans, with separate billing, separate websites, and separate queues, added insult and further frustration to customers.
In short, Netflix was going to take its super-easy service and make it less convenient, and it was going to charge more. Even after quickly scrapping Qwikster before it really began, Netflix saw paid membership decline by nearly 1 million users over the fourth quarter of 2011. The stock in that quarter plummeted 80% from its July 2011 high of $304.79:
What this has to do with Facebook
Despite all the negativity surrounding Facebook Messenger, it has been one of the most downloaded apps by both Apple and Android users since the enforced switch. But if the reviews are indicative of how many users feel right now, Facebook could be setting itself up for less interaction from mobile users. With mobile ad revenue being one of the company's brightest growth spots, it certainly does not want to alienate mobile users and risk reducing engagements.
Of course, it's hard to tell -- at least right now -- what the effect will be on user engagement. The Messenger app has been downloaded more than 1 billion times, with the 220,000+ ratings in the Apple App Store giving it an average rating of 3.5 out of five stars. However, the newest version has an abysmal 1.5 stars based on the average of 1,100 ratings.
The question is whether these recent reviews are the result of a vocal minority or reflect a larger number of dissatisfied users. If it's the latter, this could lead to less user interaction, which is poisonous for Facebook's user engagement-fueled advertising machine. Furthermore, how many unhappy Facebook users (raises hand) haven't even downloaded the app?
Netflix's recovery, and Facebook sticking to its guns
Three years later, Netflix's decision to trash Qwikster looks like the right call. Even as the DVD-by-mail offering continues to decline, it remains a core service for domestic users. Netflix CEO Reed Hastings has made it clear that the driving decision behind Qwikster was to focus resources on streaming, which is clearly the future, and the most important part of Netflix's business today. However, when it became apparent that the move would significantly impact member satisfaction, Netflix quickly put the kibosh on the change. Hastings wrote this in October 2011:
It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs. This means no change: one website, one account, one password ... in other words, no Qwikster.
As reported in its most recent quarterly filing, Netflix now has more than 36 million domestic and 13.8 million international streaming members. This translates into an increase of 169% in domestic membership and an incredible 9,325% for international members since the Qwikster debacle, while domestic DVD membership has fallen by more than half, to less than 6.5 million users. Netflix recently announced a price increase for new members, but guaranteed it would not change current subscribers' monthly payment for the next year or more. More importantly for investors, the stock has been hovering near the all-time high it set earlier this year. The share price today is 154% above where it was at the peak in 2011, and up an incredible 776% from its lowest point post-Qwikster:
Facebook on the other hand, is sticking to its guns so far, stating that a separate app for messaging is better for users as it's faster than the Facebook app and more conducive to messaging features like voice chat and groups. Only time will tell if users acquiesce, or if Facebook must revisit the decision to separate these features.
Giving Facebook the benefit of the doubt
I suspect the harm will be minimal, because this development certainly has less impact than Qwikster would have had for Netflix users, and there probably are benefits for heavy Facebook messenger users (which I'm not). However, for users like me -- who only occasionally use Facebook messages, don't appreciate the extra hassle, and have yet to install the app -- there will likely be some reduced engagement. I've chosen to not install the app. Maybe I'm just being stubborn, but I'm not convinced that this move is in the best interest of most Facebook users.
If we are in the majority, and active users of Messenger don't pick up the slack in lost interaction, it's hard to see this as a good thing. I'm not crazy about this "forced march" to Messenger, but I'm also not selling my Facebook shares. Now, if Facebook implements more and more changes over time that are not user-friendly, I'll revisit that decision.
Jason Hall owns shares of Facebook, Netflix, and Apple. The Motley Fool recommends Apple, Facebook, and Netflix. The Motley Fool owns shares of Apple, Facebook, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.