Facebook executives were upbeat on Wednesday, after the world’s largest social network faced down recent uproar over user privacy to post record profits and beat analyst expectations across the board.
But another theme also emerged from the group’s fourth-quarter earnings call: the blurring of the lines between Facebook and Instagram and WhatsApp, the apps it bought in 2012 and 2014, respectively.
While the photo-sharing and messaging apps were initially promised relative independence from the parent company, Facebook is now seeking to knit the trio closer together, sharing more technology and resources in a move that throws up clear opportunities — but also fresh concerns.
“Tighter integration is helpful,” said Brian Wieser, an analyst at Pivotal Research. “The more they share data internally, that makes for a more powerful product.”
But the move to create “Whatsabook”, as it has been dubbed in Silicon Valley, has also angered many critics, who argue it could undermine privacy by allowing Facebook to cross-reference user information obtained by the different apps.
Facebook’s shares rose almost 12 per cent in after-hours trading on Wednesday, after the group reported earnings of $2.38 a share in the fourth quarter of 2018, up 65 per cent year on year. Revenues jumped 30 per cent to $16.9bn.
The number of users rose even in Europe and North America, assuaging fears that these developed markets — typically the most profitable — had peaked.
Facebook’s chief financial officer David Wehner told analysts on Wednesday that 2.7bn people worldwide used at least one of its “family” of apps in December — and that this sort of metric would become more prevalent in future. “We will eventually phase out Facebook-only community metrics,” he said.
The shift has been interpreted by some as a way for the company to mask a slower user growth of its core Facebook product.
By contrast, photo-sharing app Instagram and messaging platform WhatsApp, which account for a far smaller share of sales, have been growing fast. Instagram’s Stories feature, where users showcase photos, messages and videos that last only 24 hours, just passed 500m daily active users, up from 400m last summer.
But Mark Zuckerberg, Facebook’s founder and chief executive, said on Wednesday that his latest integration plans were in response to user demand. He outlined his intention to unify the messaging services of WhatsApp, Instagram and Facebook Messenger into one encrypted system by 2020, while keeping them as separate apps. Currently, only WhatsApp has end-to-end encryption as default, meaning only people sending and receiving messages are able to view them.
Chart: Instagram revenues continue to climb
Encryption is “the direction that we should be going in”, he said, adding that there were also “a number of cases” where people wanted to message across different apps.
Many analysts are bullish on the prospect, arguing that it may keep users from needing to turn to other outside services.
“To me this seems like a very logical step,” said Richard Greenfield, an analyst at BTIG. “In a war for time and attention, you want to keep the consumer for as long as possible. In Facebook’s case, they monetise this through advertising, maybe eventually commerce.”
The move could also allow Facebook to create more opportunities for advertisers to target new users by pooling data from the various apps.
“Facebook’s recent announcements about harmonising the back end of its messaging apps suggests we’ll soon see new advertising and data products from the company,” said Jim Cridlin, global head of innovation at WPP’s Mindshare.
Meanwhile, some see the developments as part of necessary innovation to allow digital advertisers to be across many online platforms at once.
“We believe ultimately ad buys will be done across multiple properties using unified ad formats at scale,” said Youssef Squali, analyst at SunTrust Robinson Humphrey.
But the shake-up also could create new problems — especially with regulators.
Law enforcement has strongly criticised end-to-end encryption, fearing it enables criminals to communicate without detection, and also allows for the rapid spread of misinformation.
Meanwhile, some fear the move to integrate the three messaging services will dilute the privacy afforded to users of WhatsApp, by allowing them to be targeted by advertisers based on their Facebook data. In Europe, Ireland’s Data Protection Commission has asked Facebook Ireland for an urgent briefing on the proposed integration.
Others point to competition concerns as calls grow for big technology companies to be broken up.
WhatsApp said at the time of its acquisition in 2014 that it would continue to operate “independently and autonomously” from the new parent company. But Facebook has since begun encouraging WhatsApp and Instagram to make changes that drive users back into the main Facebook app, according to people familiar with the matter.
In 2017, Facebook was fined by European regulators for misleading Brussels over its ability to combine user information from Facebook and WhatsApp.
Both the Instagram founders, Kevin Systrom and Mike Krieger, and the WhatsApp founder, Jan Koum, left the company last year, after the departure of WhatsApp co-founder Brian Acton in late 2017.
Mr Wieser warned that integrating the three apps could also risk alienating users who have until now been drawn to the particular features of each platform.
“There is a risk of homogenisation,” he said. “You lose the diversification benefits of three different teams and three different approaches.”
He added that any biases “that inform design choices” could become more entrenched.
Mark Warner, the Democratic senator who has called for tighter regulation of big tech, said that Facebook should instead be focusing on linking its systems with smaller competing services, in order to promote “greater consumer choice, innovation, and competition”.
He said: “Much more important than facilitating interoperability between [Facebook’s] different products would be to support interoperability with third-party providers.”
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