Facebook: A Stubborn Mark Zuckerberg?

| About: Facebook (FB)


Mark Zuckerberg is trying to unbundle Facebook's services.

The messaging app has recently caused problems with Facebook.

Mark must rectify this issue while still maintaining his unbundling strategy.

Facebook (NASDAQ:FB) is the world's most popular social network company. In June, the company had 829 million daily active users, which was a 19% increase year-over-year. The company also has experienced great growth in profitability, with net income increasing from $333 million in Q2 2013 to $791 in Q2 2014. As anyone who has used the social network knows, one of the most important features is the messenger capability. It allows you to send messages to anyone on Facebook, even people who you are not friends with. The messenger functionality has recently had major negative feedback from users. I will explain what this issue means for the company. Facebook showed its understanding of the importance of messaging when it acquired WhatsApp for $19 billion. WhatsApp has over 500 million active users.

Mark Zuckerberg views his company as a conglomerate with many different features. This seems like a rational perspective, because it gives the company more room to grow. He wants the company to be more than just the website that users check on for an average 40 minutes per day. By adding features and expanding Facebook's tentacles into other areas, he can grow the company. Instagram would be a great example of this, as the app is expected to reach 50.6 million users in America by 2016. Facebook acquired Instagram back in 2012 for $1 billion. The messenger app, Instagram, and WhatsApp are all key areas where the company is growing. They are new spaces within the company; the company is trying to separate them. This is how Mark Zuckerberg views this separation: "In mobile there's a big premium on creating single-purpose first-class experiences. So what we're doing with Creative Labs is basically unbundling the big blue app."

The unbundling of Facebook is probably a good long-term goal for the company. It can turn Facebook into a bigger company, just as Google expanded from being a search engine to a huge technology company that has a mobile operating system in Android. Facebook's acquisition of Instagram can be compared to Google's acquisition of YouTube which has over 1 billion active users per month. The strategy for Facebook to increase its reach through expansion into other services requires great execution.

This topic of execution leads us to the story of the messenger app problems that have recently plagued Facebook. While Mark wants to unbundle Facebook and make the messenger app into separate destination from the main app, he must listen to the feedback from users. The Facebook mobile app has 1 star out of 5 on the Apple App Store, and is similarly unpopular on the Google Play Store. The app on the Google Play Store is given four stars only, because it includes the ratings from older versions of the app. There were over 17,000 reviews, which were almost all negative on the App Store. This is a huge problem for Facebook. The main problems with the app are that users cannot log out, there are privacy concerns, and that users do not want to waste space on their phones by having to download a separate app. The messenger app always existed if users wanted to use it instead of just using the Facebook app, but now they are forced to download it if they want to send messages on their phones.

To provide more depth into the problems with the app, I will provide you with some quotes of reviews that users have made recently on the messenger app on the Apple App Store. One user stated "This app is forced for all people who use Facebook on their phones, immobilizing us from messaging friends until we have downloaded the app… I've already run into numerous bugs that make the app unusable… At least I could sign out of Facebook to avoid people looking at my conversations. From what I am reading in other reviews, that's not even possible here." The issues with the bugs and logging out can easily be fixed by the company. Facebook shouldn't have these problems, because it is a mature company, and a quick update of the app will likely solve them.

The idea of reversing Facebook's policy of forcing users to download the app to use the service is not an easily resolvable issue. Mark Zuckerberg wants to make Facebook decoupled from its other services, so going back on this action would be going against his long-term goals for the company. However, if he doesn't listen to consumers and is stubborn by not changing the messaging service back to the way it was before this app update, then consumers will spend less time on Facebook and may leave the social network entirely. When analyzing my own Facebook usage patterns, I would say that when I log into Facebook because I am messaging someone, I usually also scroll through my news feed for a few minutes. This allows the messenger app to help the Facebook main app gain my time. If the apps are unbundled, this effect will not happen. This makes me believe that the company should probably return to its previous messaging service.

Mark Zuckerberg must be careful about how he follows through on this unbundling of products, because it make users log into the social network and spend less time on the app. This messaging app fiasco is an example of the execution problems that can face the company if the strategy is not done properly.

I am now going to share another review of the messaging app to bring light to the privacy concerns that the company faces. "The privacy. Total access to our microphone and pictures, ALL THE TIME. App doesn't even have to open for that? Gosh they assume no one ever reads the privacy statements anymore since they're made to be so long." This issue is one that all social media companies must deal with. The firms make their profits by gaining information about you so they can target their advertisements. Facebook has to walk a fine line between gaining information about you, while at the same time not violating your privacy. Facebook and other social media companies thrive off consumers not reading the privacy statements before signing up for one of their services. If consumers begin to wake up to the fact that their privacy is being severely hampered, then Facebook can have a huge problem, as users hesitate to share their information to gain access to an app. This is why Snapchat has gained popularity, as it makes pictures and messages automatically delete and thus be more private and less traceable. This is a big picture issue that the company faces and must manage appropriately, or it will hurt the number of users that it has. This blog written by Sam Fiorella on the Huffington Post questions the privacy policy of the messenger app. Facebook should probably either listen to its users and change these terms, or at least explain the policy in a way that quells users' concerns.

This resolution of this issue will determine whether Mark Zuckerberg chooses to be stubborn or listen to his users. Hopefully, he can find a balance between unbundling Facebook's services at keeping his users happy. This article is not recommending Facebook stock to be bought or sold. I am simply providing context to this current messaging app fiasco in the hopes of bettering your understanding of the overall company's long-term direction.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.