In a lengthy blog post published on Wednesday, Mark Zuckerberg outlined Facebook's (FB) plans for integrating its various messaging services, as well as for supporting end-to-end encryption on them and (unless a user opts to disable this feature) automatically deleting private messages following a fixed amount of time. Here are a few quick thoughts on the business implications of the announcement.
1. Zuckerberg Has No Illusions About How Facebook Usage is Trending
"Today we already see that private messaging, ephemeral stories, and small groups are by far the fastest growing areas of online communication," Zuckerberg said. "In a few years, I expect future versions of Messenger and WhatsApp to become the main ways people communicate on the Facebook network."
The factors driving this trend aren't hard to grasp. Private messaging is a more natural extension of traditional modes of communication than sharing content to a news feed, and there are a lot of things that people only want to share with one person, or a small group of people, rather than broadcast to 500 or so "friends." Users also don't want to have to worry about likes and public comments for a lot of the things that they share to a broader audience, or about having it permanently stick to a profile.
With the lion's share of Facebook's revenue currently coming from Facebook and Instagram feed ads, and with the company still in the early stages of monetizing Facebook Messenger and WhatsApp, the shift towards sharing via messaging and stories services will weigh on revenue growth in the near-term. But Zuckerberg's willingness to call a spade a spade is encouraging, as is the traction that Facebook is beginning to see (ahead of the arrival of ads for WhatsApp's stories service) for Instagram's stories ads.
2. Interoperability Will Further Strengthen Facebook's Messaging Position
In line with recent reports, Zuckerberg says Facebook plans to let users of Messenger (over 1.3 billion monthly active users, or MAUs), WhatsApp (over 1.5 billion MAUs) and Instagram's Direct messaging service communicate with each other. He adds Facebook also wants interoperability with SMS, but notes this won't be easy -- among other things, Apple (AAPL) doesn't let third-party apps interoperate with SMS on its devices, and the SMS protocol isn't encrypted.
Linking Facebook's messaging services yields an even more powerful network effect than what they have individually, putting them on better footing against rival platforms such as Snapchat and iMessage. And amid reports that Facebook is developing a dollar-pegged cryptocurrency for WhatsApp transfers, Zuckerberg points out there are also some business use cases for interoperability; for example, allowing someone who discovers a business on Instagram to use Messenger or WhatsApp for payments and customer support.
3. Automatically Deleting Private Content Won't Affect Facebook's Ad Business Much
"I believe there's an opportunity to set a new standard for private communication platforms -- where content automatically expires or is archived over time," Zuckerberg said. "For example, messages could be deleted after a month or a year by default."
Though some have taken these comments to be a major about-face for Zuckerberg in the wake of a series of privacy and data-collection controversies, automatically deleting older private message won't have much of a financial impact on Facebook, save for perhaps lowering its cloud storage expenses a little. The company doesn't use the contents of private messages for ad targeting -- there would undoubtedly be an uproar if it did -- and Zuckerberg made no mention of automatically deleting feed posts or other data shared with Facebook that's currently used for ad targeting.
4. It Doesn't Look Like Facebook Will Be Entering China Anytime Soon
"As we build our infrastructure around the world, we've chosen not to build data centers in countries that have a track record of violating human rights like privacy or freedom of expression," Zuckerberg said. "Upholding this principle may mean that our services will get blocked in some countries, or that we won't be able to enter others anytime soon. That's a tradeoff we're willing to make."
Those remarks are being widely seen as closing the door on the launch of Facebook's services in China, where they remained blocked. As it is, Zuckerberg and COO Sheryl Sandberg's multi-year effort to engage with Beijing hasn't borne much fruit thus far, and if it were to enter China, the company would have to battle entrenched local players such as Weibo (WB) and Tencent's (TCEHY) WeChat.
E-Commerce Remains a Big Opportunity for Google
March 6, 2019 | 1:13 PM ESTThough rarely seen as an e-commerce play, Alphabet/Google (GOOGL) does quite a lot of business selling search ads to online retailers and marketplaces, and has been taking fresh steps lately to grow how much revenue it obtains from these companies.
On Tuesday, Google disclosed that it's testing "shoppable ads" within its image search results. Items available for sale are tagged and highlighted within the ads, and users are able to click through to pages where they can buy the items. Google also says it's bringing its Showcase Shopping ads, which let brands show off a set of products that users can scroll through.
There could be a sizable opportunity here: Marketing analytics firm Jumpshot has estimated that about one-third of U.S. Google searches are for images. While only a portion of the searches will appeal to advertisers, running ads against even a tenth of them would open up a lot of new ad inventory. It's also worth adding here that Pinterest and Facebook's (FB) Instagram have each had some success with ad formats that have a bit in common with Google's shoppable ads.
Separately, No. 2 Chinese e-commerce player JD.com (JD) just launched a version of its Joybuy store -- it sells a variety of Chinese-made consumer goods from lesser-known brands -- that runs on the Google Express shopping website, which lets users buy items from retail partners using payment info they've already provided to Google. The move comes nine months after Google agreed to invest $550 million in JD.
In addition to Google Express, Google has also been trying to drive e-commerce transactions through its Shopping Actions program, which lets users performing Google Assistant searches and clicking on Google Shopping ads make purchases without visiting another website or app (Google collects a commission along the way). And the company has also been working to grow YouTube's e-commerce ad business via its TrueView for Action video ads, which aim to drive actions such as online purchases and app installs.
Amazon.com (AMZN) remains a formidable rival to Google in this space -- both directly, through a burgeoning e-commerce ad business, and indirectly, through the fact that many Amazon shoppers go directly to its site or app rather than perform a Google search. And as Mark Zuckerberg made clear on his company's Q4 earnings call, Facebook is also eager to grow its e-commerce ad business, both via its core service and Instagram.
But at a time when e-commerce is still only estimated to account for around 10% of total U.S. retail sales, and around 14% if one backs out things such as cars, fuel and restaurant orders, there's ample room for multiple players to thrive. And Google, which has become a close partner for many of the large retailers and marketplaces battling Amazon, should be able to keep growing this part of its business.To see Tech Check coverage from the previous trading day, click here.
