Facebook (NASDAQ:FB) is really good at converting personal data into dollar bills. It might be even better than Google (NASDAQ:GOOG) (NASDAQ:GOOGL) is at it. But when it comes to enterprise data, few things are more paramount than privacy. That would make the rumored "Facebook at Work" a particularly tough sell.
In addition, Facebook would be entering a market where established players with excellent sales teams, like Microsoft (NASDAQ:MSFT), have already cornered the market. Microsoft generated approximately $20 billion in commercial Office licenses and Office 365 subscriptions in its fiscal 2014, so it's going to do everything in its power to protect its cash cow.
Various outlets are reporting that Facebook is working on a product that would allow employees to do things such as chat with co-workers, connect with colleagues, and share documents in a way that is separate from their individual Facebook accounts. The Wall Street Journal reported that a "person briefed on the matter" said Facebook plans to launch Facebook at Work in January. Could Facebook overcome the competition and the perceived privacy issues and attract businesses to use Facebook at Work?
Why Facebook at Work?
If there's one area where Facebook sees low usage, it's in the workplace. Many offices ban the website, and it's often seen as a productivity killer.
Facebook's medium-term (five years) goal is to grow a new set of services to 1 billion users. Some of those services are well on their way -- WhatsApp, Messenger, Instagram -- while others are still rudimentary and don't even exist. (Zuckerberg specifically mentioned "Search" on the company's latest earnings call.)
Workplace productivity software is a market nearly as big as Facebook's flagship social network service and indeed has the potential to connect 1 billion people. What's more, it's an area where Facebook is largely absent, so it wouldn't cannibalize existing products like WhatsApp/Messenger, Instagram/Newsfeed, or Paper/Newsfeed.
Making data secure
The biggest thing that will hold Facebook back from competing in productivity software is the idea that nothing on Facebook is private.
Facebook is working to show that it can keep information private. This week the company rolled out secure end-to-end encryption on WhatsApp, meaning WhatsApp is unable to see what its users are sending to each other. It's important to remember that behind the scenes Facebook is a technology company, and it's fully capable of providing secure data services.
It's clear that there's potential in the space for Facebook, as evidenced by Google's success with Google Apps for Business. The company, like Facebook, is strongly associated with using data to sell ads. Yet, it has overcome the stigma to create a strong customer base that's even cutting into Microsoft's business.
Microsoft, on the other hand, is the reigning champion of workplace productivity software, and its software is fully entrenched into the workflow of many companies. Microsoft's collaboration software, Yammer and Sharepoint, offer private networks for sharing documents and are closely tied with its popular Office software. Yammer is included in Microsoft's Office 365 subscription for businesses and provides private chat and document-sharing capabilities.
Microsoft is pushing enterprises to upgrade from stand-alone software licenses to Office 365 subscriptions, which compete more closely with Google Apps for Business and any potential offering from Facebook. Additionally, the company sees a higher lifetime value from the subscription-based software versus the software license business.
Microsoft and Google are far from the only companies operating in the space, and the market includes names big and small competing to provide private messaging, document sharing, and productivity software. Not only does Facebook have to overcome perceived privacy concerns, it has to overcome the competition as well.
Is Facebook wasting money?
Even though it seems unlikely Facebook would make a big dent in the enterprise productivity software market, it's hard to say the company shouldn't go for it. First of all, it fits perfectly into its medium-term goals and fills a gaping hole where Facebook goes unused.
Second, things like private messaging and document sharing apply to personal users as well as businesses. Which means Facebook would be able to improve its core product -- near-term goal -- even if the foray into enterprise software falls flat.
Entering the enterprise space is more of a risk than pushing out another app like Slingshot, as the costs will certainly be higher. The company will have to spend money to develop the more complex software as well as fund a sales team to sell the software in a highly competitive market where other companies have successfully sold for years. Of course, the payoff for success is much higher as well.
If any company knows how to dominate a market, it's Facebook. (Note the 1.35 billion Facebook users, 500 million Messenger users, 250 million-plus Instagram users, and the list goes on.) A serious move into enterprise software will prove more challenging but could be worth it.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Microsoft. 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.