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Facebook: The Living Dead – Facebook, Inc. (NASDAQ: FB)



The "New Facebook": A privacy champion?

Facebook (FB) CEO Mark Zuckerberg's recently published U-turn on privacy immediately think if this old DirecTV commercial:

Sometimes the only way to stay alive

Soon after Zuckerberg's letter, everybody recognized the (unmentioned) model he was talking about: WeChat. The media also pointed out why it would be difficult to transform Facebook into some kind of Western WeChat. One of the most frequently stated reasons is the lack of a widely used payment service and the most likely difficulty at something similar to the ubiquitous WeChat Pay

My own idea is different.

Personally I believe that Zuckerberg's letter had two major objectives:

1) Divert the public's attention from the current scandal-ridden Facebook to a "New Facebook" that does not exist yet and may never become reality in the outlined fashion.

2) Start a process inside additionally businesses similar to the services offered by WeChat.

Whereby the first objective is by far the most important one. Everybody knows that Facebook is in trouble. Managers are leaving. The British parliament called the company a "digital gangster" and is recommending a thorough investigation of "the addictive nature of social media" and whether is should be classified as official disease . Elizabeth Warren called for the company to be broken up (alongside other tech giants), and Facebook temporarily removed her ads. The Cambridge Analytica scandal is still dragging on. And there's much more. Management is clearly in emergency mode.

However, I do not have much news on these aspects, which have been widely reported. I can say something on the second point, which means taking Mark Zuckerberg's letter at face value – at least for now – and ignoring the many difficulties (acknowledged by Zuckerberg himself) to realize the plan.

Here's the outline:

"We plan to build this way we've developed WhatsApp: Focus on the most fundamental and private use case messaging – make it as secure as possible, and then build more ways for people to interact on top of that, including calls, video chats, groups, stories, businesses, payments, commerce, and ultimately a platform for many other kinds of private services. "

Interactions should remain absolutely private, while users should have total control over who can communicate with them and who can read their content. This should be secured by end-to-end encryption, which would even prevent Facebook from seeing what people share. All data should be stored safely and only in countries that do not have "weak records on human rights."

The most important and obvious implication would be that, since Facebook wouldn't know its users anymore, they couldn't be targeted with tailored ads, thus basically destroying the current business model. But this might not be bad for business. In fact, as marketing experts are aware of, a WeChat user is more valuable than a Facebook user. – Why? – Because WeChat users need to actively search for an "official account" in order to be able to follow it. There are no suggestions for "people you might know" or "accounts you might like." Which means that WeChat users are probably more interested in the accounts they follow. They follow lesser accounts and their interest is more genuine. And businesses have to capture them through influencers or even offline (see the very expensive TikTok customer acquisition campaign).

According to its founder, WeChat was conceived to be "like a friend" and therefore will never show the typical ad before opening

While its owner Tencent (OTCPK: TCEHY) doesn't have a lot of money directly from WeChat , showing users almost no ads, the strong service orientation of the app has made it the best loved partner (or friend ) or 90% of all Chinese smartphone owners. In my recent article on Apple (AAPL) we have seen that WeChat has effectively disinterested the smartphone giant's ecosystem. To make sure it remains in this position, Tencent applies a set of ideas which in a typical U.S. business would be outright shocking: For example, key performance indicators are only considered to be of secondary importance. Hence, it's not management's focus to increase traffic. While over one billion of MAUs are targeting to sell something new to, we remain focused on what users need and what they would like them to do.

Overall, a Facebook similar to WeChat could in theory be an excellent foundation for a series of very lucrative businesses. The cultural differences between the two models are so deep that Zuckerberg is very unlikely to be transformed his company.

These cultural differences might be best expressed by the following antinomies.

  • Focus on quantity vs. focus on quality
  • Focus on manipulation, i. the artificial creation of needs vs. focus on what users genuinely want.
  • Owning the user vs.

Why we will probably never see the "New Facebook"

After this quick overview, let's take a look where Facebook could effectively start with its transformation: Certainly not in China, where it's not even available, but also not so easily in the US where Apple has a large share of encrypted messaging, establishing a powerful network effect thanks to its large smartphone market share. As iMessage for Android, Apple knows how valuable the iMessage network effect is in order to lock users into its own ecosystem. Recently, it also has been hammering away on its superior privacy protection, thus highlighting its trustworthiness, i. its " being a friend. " I would not like to be able to appear more than trustworthy in messaging.

town

In Europe Facebook could – in theory – have a chance to win in private messaging, given WhatsApp's and Facebook Messenger's already large share, coupled with Apple's far smaller share. However, Europeans have always been much more thoughtful when it comes to privacy. E.g. in Germany there's almost no Google (GOOG) (NASDAQ: GOOGL) street view, as the homeowners won the right to have their homes blurred one by one if they don't want to be displayed on the Internet. So would not be on Facebook becoming the Europeans' messenger app of choice when it comes to a platform of trust / privacy-focused services.

This leaves a large number of poorer countries with less interesting possibilities for Zuckerberg's "platform for many other kinds of private services. " I will Facebook focus on these first.

In fact, it appears that it's testing payments in Thailand:

We will probably see some experiments in smaller markets first before Facebook will attack in the most important ones. Which also means that this project will take a lot of time. Many of WeChat's additional services do not make sense for a platform that is not used by almost the totality of customers (eg e-government services offered by cities)

So Facebook will remain the business we know for a long time, before it will maybe add or try to add some services on top of something like the platform outlined by Zuckerberg. This is why I believe the main objective of this project is, at least for now, to divert the attention from the many problems and make the current Facebook appear like an outdated model.

Maybe this pseudo-funeral is the only way to escape scrutiny and ultimately help it survive

Truly independent research is rare

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Subscribe now to Stability & Opportunity and get access to a treasure trove of independent research! provides frequent alerts to short- and long-term investment opportunities with multiple layers of safety arising from carefully identified market inefficiencies. [Disclosure: I am / we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. 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