Mark Zuckerberg’s surprise privacy pledge on Wednesday raised some skepticism and more questions for Facebook Inc., including from investors, about how the social network can execute on much stricter privacy while still keeping its business model intact.
In Zuckerberg’s blog post, he said that Facebook FB, +0.73% is going to build a privacy-focused platform, built around truly private, encrypted interactions on its Messenger, WhatsApp and Instagram messaging systems so that no one beside the sender and recipient — neither hackers, nor governments, nor even Facebook itself — can read them. He said Facebook plans to rebuild more of its services around these ideas, much as it has done with the messaging company WhatsApp, which it purchased for $19 billion in 2014.
The Facebook chief executive met the skeptics head-on in his blog post, in which he admitted that Facebook does not have “strong reputation” for privacy (“lousy” would have been more accurate).
“I understand that many people don’t think Facebook can or would even want to build this kind of privacy-focused platform — because frankly we don’t currently have a strong reputation for building privacy protective services, and we’ve historically focused on tools for more open sharing,” Zuckerberg wrote.
But he did not answer the big question for investors: How will Facebook make money with targeted ads if it doesn’t have as much precise data on its consumers to serve up relevant advertising?
“I just wonder in the long run if it’s in their business model to do it, because they make their money through advertising, just like Google,” said Daniel Goldstein, president of digital marketing agency Page 1 Solutions. “The reason they can capture so many ad dollars, the reason it has been increasing, is because it has so much good data on consumers — where they live, who they are, race, marital status, income level. It knows a lot about you.” Goldstein said if most of the communications by consumers are encrypted, Facebook itself won’t have access to them. “Not just governments can’t get to them, but Facebook itself can’t. How is it going to continue to make money?”
Zuckerberg did not offer much in terms of a more in-depth explanation. It’s possible he is thinking of offering a separate encrypted service as part of Facebook, where people can, as Zuckerberg put it, “connect privately in the digital equivalent of the living room.”
One aspect Facebook must be considering is that it may have to charge for privacy, which would be a huge turnaround in its business model, since Zuckerberg has said the social network would always be free. He also did not provide any kind of timeline, except to say that “over the next few years, we plan to rebuild more of our services around these ideas.”
Maybe Facebook could offer an encrypted messaging service that could also be used for group discussions and photo and video sharing — but it would likely have to charge for it, since it could not mine any data from it.
Perhaps Facebook is trying to head off U.S. lawmakers, who are considering various privacy laws at the federal level as well as various states looking at consumer privacy laws, such as one approved last year in California.
Or maybe Zuckerberg’s post is part of a soon-to-be announced agreement with the Federal Trade Commission, which is reportedly looking at issuing a record-setting, multibillion-dollar fine after an investigation into Facebook’s privacy practices. Zuckerberg may also be trying to stave off a mass exodus of consumers, who are becoming more leery of using the platform after more than a year of scandals involving misuse of user data. (A survey released Wednesday found Facebook has lost about 15 million users in the U.S. since 2017.)
Whatever has prompted Zuckerberg’s latest about-face on privacy, Facebook investors are going to want to learn more about how the plan’s implementation, and make sure that the company’s new privacy focus does not throw the baby out with the bath water. It’s going to be a tough — perhaps nearly impossible — order for a business built around using our data.
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