MONEY Tech

Why “Facebook at Work” Might Not Work

Facebook at work on tablet
Alamy

Enterprise software is indeed a very lucrative space, but the time, energy, and development resources that it would require for Facebook to meaningfully challenge are simply too high.

This isn’t the first time, and it might not be the last. Dominant social network Facebook FACEBOOK INC. FB 0.2038% is reportedly looking to challenge LinkedIn LINKEDIN CORP. LNKD -0.5493% in the enterprise segment, among others. The Financial Times reported that the social kingpin is developing a new “Facebook at Work” site geared toward corporate settings.

The service is said to feature ways to communicate with colleagues, connect with other professionals, and collaborate on documents. Personal profiles and professional profiles would be segregated for the sake of privacy, and would be free initially. Beyond LinkedIn, this service means Facebook would compete with other large enterprise software makers like Google GOOGLE INC. GOOG 0.4992% and Microsoft , as well as start-ups such as Slack.

Does Facebook have a chance? Let’s look at all of these areas where Facebook wants to make a dent.

Connecting people

Helping people make professional connections is LinkedIn’s claim to fame, and the company has established an incredibly strong business in connecting recruiters with job candidates. Before even considering monetization methods, Facebook is a much larger overall network, which means it has a shot at growing its position here.

At last count, Facebook boasted 1.35 billion monthly active users, or MAUs, worldwide. That’s over four times LinkedIn’s count of 331 million registered members. Of that total, 89.7 million members log in on a monthly basis. LinkedIn reports these as unique visiting members, but in practice they are the same as MAUs for the sake of comparison.

“Facebook at Work” is unlikely to tap into Facebook’s entire network, since its rollout is still speculative and would likely be on a small scale. Still, there’s definitely some long-term potential here if Facebook builds out the rumored service, and eventually integrates it with its broader network.

Communicating with colleagues

Microsoft Exchange is the dominant player in enterprise email, but a slew of popular chat applications are also used in the workplace. Slack has been skyrocketing in popularity recently, and is now one of the fastest-growing enterprise software applications ever.

The key to Slack’s success is the ability to integrate with a plethora of third-party services that are already popular within the enterprise segment, creating a platform out of the enterprise messaging service. Slack also has powerful search features to help workers find what they’re looking for. The start-up’s blistering growth has already attracted the attention of high-profile venture capitalists. Slack recently raised $120 million at a $1.1 billion valuation.

In general, messaging is becoming an increasingly competitive arena. Facebook has both Messenger and WhatsApp under its blue belt, so the company undoubtedly has plenty of experience with developing messaging products and services. Facebook might have some strength in consumer-oriented messaging, but it seemingly lacks the deep integrations that rival services like Slack can offer.

Playing well with others

On the collaboration front, Microsoft acquired Yammer in 2012 for $1.2 billion. Yammer is a private social network that integrates with collaboration software and business applications, and is now part of Office 365. Yammer is a big part of Microsoft’s strategy with collaboration software as it transitions away from SharePoint.

Microsoft also recently partnered with Dropbox. By integrating the other’s services, Microsoft and Dropbox will bolster the collaborative features that are critical to each company’s enterprise customers. Google Apps for Business has also been winning customers from Microsoft for years, becoming a notable player in the collaboration space in the process.

This is easily the most important area of enterprise software, since employee collaboration is so critical to productivity. This is also where Facebook likely brings the least to the table. Current providers of collaborative tools offer comprehensive feature sets and have become very entrenched in the enterprise. Facebook will face a steep uphill battle in this area.

We don’t know what we don’t know

To be fair, not much is known about “Facebook at Work.” The company reportedly uses the product internally, and only began testing it at other companies within the past year or so.

Facebook’s current portfolio of consumer offerings might not be representative of what it hopes to offer the enterprise space. However, it’s hard to imagine the company could develop a full-featured offering that spans all of these areas in under a year when incumbents have spent many more years specializing and catering to these precise needs.

On top of that, Facebook is predominantly associated with personal social networking. The ability to separate personal and professional activity might be an attempt to blur the line, but consumer connotations aren’t easily shifted. Besides, aren’t Facebook’s privacy settings cumbersome enough already?

Shares of LinkedIn fell 5% of the news that Facebook could be developing a competing service, so it seems there is indeed some investor concern. However, history doesn’t inspire much confidence in Facebook’s professional abilities, which should downplay these fears.

Facebook acqui-hired job-search site Pursuit in 2011, but hasn’t done much in the job listing space that LinkedIn is disrupting. Third-party professional networking service BranchOut attempted to carve out a niche within Facebook as a free application (casually known as the “LinkedIn within Facebook”), but failed spectacularly and is now trying to sell itself.

The risk is that Facebook could become distracted by its pursuit of the enterprise segment, rather than focus on key business developments, notably building out the infrastructure for video ads or determining some type of monetization strategy for WhatsApp.

As an investor, I do like when Facebook takes calculated risks, such as Paper or Home, even if they fail. But those were inherently low risks with high potential rewards. Enterprise software is indeed a very lucrative space, but the time, energy, and development resources that it would require for Facebook to meaningfully challenge are simply too high.

TIME Security

WhatsApp Is Making Your Messages Way More Secure

New feature makes it harder for law enforcement to access contents

The latest update to the WhatsApp messaging service announced Tuesday includes end-to-end encryption by default, which means the content of a message is only decrypted and readable when it reaches its recipient. Encrypted texts via the TextSecure protocol will now be nearly impossible for law enforcement officials or WhatsApp to access.

The new feature was created using open-source code created by the development community at Open Whisper Systems. For now the feature is only available on Android devices, but in a blog post Open Whisper Systems says it plans to expand to other mobile platforms. The encryption only applies to basic texts right now, and group messages and photo messages don’t get the extra security boost.

The new encryption protocol backs up WhatsApp’s longstanding mantra of valuing people’s security over access to users’ data. CEO Jan Koum famously wrote a missive against using data mining to serve ads on social networks years before selling the company to Facebook for about $22 billion.

TIME Terrorism

Facebook and Twitter Are ‘Command-and-Control Networks’ for Terrorists

Spy chief: U.S. technology companies are in denial over the extent they aid terror and crime

The head of Britain’s equivalent of the NSA has said that U.S. technology firms that dominate the Internet must contribute more to the battle against violent extremism and child exploitation.

Robert Hannigan, the new head of Government Communications Headquarters, has accused Internet firms of being “in denial” over the role they play in crime and terrorism, demanding they work with security services to combat the growth of groups like the Islamic State of Iraq and Greater Syria (ISIS).

Writing in the Financial Times on Tuesday, Hannigan says that unlike other extremist groups, including al-Qaeda, ISIS has “embraced the web” and grown increasingly savvy in improving the security of their communications.

While technology companies may aspire to stand outside politics, their services increasingly facilitate crime and terrorism, argues Hannigan. “However much they may dislike it, they have become the command-and-control networks of choice for terrorists and criminals, who find their services as transformational as the rest of us,” he adds.

He says U.K. security agencies need better support from “the largest U.S. technology companies which dominate the web” and calls for greater cooperation, adding that most Internet users would prefer “a better, more sustainable relationship between the agencies and the technology companies.”

[FT]

TIME Earnings

Facebook Spent $21 Billion on a Company That Just Lost $232 Million

Social Networks Facebook WhatsApp.
Facebook next to the WhatsApp logo on iPhone on February 25, 2014 in Berlin, Germany. Marie Waldmann—Photothek via Getty Images

WhatsApp barely even generates revenue, but Zuckerberg doesn't care

Facebook’s pricey purchase of WhatsApp, which closed at a whopping $21.8 billion, turned heads earlier this year because few thought the startup was making much money. Turns out, WhatsApp has actually been losing money. A lot of it.

The mobile messaging platform, which had 450 million users when the acquisition was announced, posted a loss of $232 million in the first six months of 2014, according to a new Securities and Exchange Commission filing. The company’s primary revenue source is a $0.99-per-year subscription fee that only kicks in after the first year of use — the app doesn’t show users any ads. Apparently that fee doesn’t amount to much—WhatsApp generated $15 million in revenue in the first half of 2014, according to the SEC filing.

Most of the company’s massive loss came from stock sales and issuing stock options to employees, but even when just accounting for day-to-day operational activities, the company doesn’t make money. WhatsApp had a net loss of $139 million on revenue of about $10 million last year.

Facebook CEO Mark Zuckerberg, of course, knew all of this before busting out his checkbook. Still, Zuckerberg’s not at all apologetic about spending such a large sum on such a tiny business. “This may sound a little ridiculous to say, but for us, products don’t really get that interesting to turn into businesses until they have about 1 billion people using them,” he said Tuesday during a quarterly earnings call with Facebook investors. “Once we get to that scale, then we think that they will start to become meaningful businesses in their own right.”

In addition to WhatsApp, Zuckerberg noted Instagram and Facebook’s search function as platforms that have the potential to reach one billion users and become huge money faucets. And he emphasized that Facebook is planning to make more big-ticket bets in the future. The company shocked investors when it said on that Tuesday call that its expenses will increase by as much as 70% year-over-year in 2015 because of a ramp-up in staff and, most likely, acquisitions. Facebook’s shares slipped more than 6 percent on the news.

In some ways, Zuckerberg’s willingness to spend huge sums barging into new sectors echoes Jeff Bezos’s plan to expand Amazon’s reach into an increasingly broad set of categories, like movie streaming and smartphones. The difference is Facebook has built a robust and still-growing advertising business that constantly defies Wall Street’s expectations, so it has room to roam. The social network’s ambitions will only grow from here.

Read next: This Is the Single Craziest Number in Facebook’s Earnings Report

TIME deals

Facebook Completes Its $22 Billion Purchase of WhatsApp

Social Networks Facebook WhatsApp.
Marie Waldmann—Photothek/Getty Images

The final hurdle in the deal was crossed on Friday, when the E.U. approved the purchase after much resistance from Europe’s telecommunications industry

Facebook officially sealed its massive purchase of WhatsApp, a report filed with the U.S. Securities and Exchange Commission stated, with a final price of about $22 billion. The popular instant-messaging app has been operating independently since agreeing to an acquisition by the social-media giant back in February, but the finalizing of the deal is undoubtedly a step toward greater support, and control, from Facebook.

Ukrainian immigrant Jan Koum and former Yahoo engineer Brian Acton, the founders of WhatsApp, pocketed $6.8 billion and $3.5 billion in the deal respectively, according to Forbes. Koum will also get a seat on the board, where his $1 salary will match that of Facebook CEO Mark Zuckerberg.

The final hurdle in the deal was crossed on Friday, when the E.U. approved the purchase after much resistance from Europe’s telecommunications industry.

“We have carefully reviewed this proposed acquisition and come to the conclusion that it would not hamper competition in this dynamic and growing market,” the Wall Street Journal reported the E.U.’s antitrust chief Joaquín Almunia as stating.

WhatsApp, with over 600 million users across Europe, Asia and the Americas, presents an immense opportunity for Facebook, although how it will be used remains to be seen.

TIME Markets

Facebook Is Now Worth $200 Billion

Facebook Holds f8 Developers Conference
Facebook CEO Mark Zuckerberg Justin Sullivan—Getty Images

The record-setting figure is still just one-third of Apple's market cap

Facebook’s valuation passed the $200 billion mark for the first time Monday. The company’s stock closed at $77.6, a new all-time high, giving it a market capitalization of $200.26 billion, according to Google Finance.

The social network has consistently impressed Wall Street analysts in its quarterly earnings reports over the last year thanks to robust growth in mobile usage and advertising revenue. Many analysts believe future prospects for the company are extremely high because Facebook has not yet begun to monetize acquisitions like Instagram and WhatsApp or place a significant number of pricey video ads in users’ News Feeds.

Facebook is also continuing to grow its user base quickly outside the U.S. The company announced today that it now has 100 million users in Africa, which it says is half the total number of Internet-connected people on the continent.

By comparison, Apple, the most valuable company in the world, had a market cap of $590 billion at the close of trading today. Google’s market cap was about $400 billion.

TIME technology

WhatsApp Now Has 600 Million Monthly Users

Fackbook Acquires WhatsApp For $16 Billion
Justin Sullivan—Getty Images

That's 100 million more than in April

Popular messaging service WhatsApp has reached 600 million monthly active users, according to the company’s CEO, Jan Koum.

WhatsApp was approaching the half-billion user mark when Facebook agreed to buy the company for $19 billion in February, and passed that figure in April.

WhatsApp is one of a variety of SMS alternatives that allow users to send mobile photos and messages to each other via the Internet. Line, a app popular in Asia, has 400 million users and Facebook’s own Messenger service has 200 million.

Facebook’s purchase of WhatsApp is expected to be completed by the end of the year.

TIME Companies

PayPal Head Jumps Ship for Facebook

David Marcus will head up Facebook’s increasingly popular Messenger app

The president of eBay subsidiary PayPal is leaving for Facebook, where he will oversee the social network’s messaging products.

David Marcus will exit PayPal on June 27 and then lead Facebook’s increasingly popular Messenger app.

The move could be a sign that Facebook is serious about finding a monetization strategy for messaging. Right now, Messenger has 200 million monthly active users who send 12 billion messages daily, but the app is free and doesn’t serve ads. Competing apps like WhatsApp—which Facebook bought for $19 billion earlier this year—and Line make money by charging a subscription fee or selling extra features, such as stickers.

“We’re excited by the potential to continue developing great new messaging experiences that better serve the Facebook community and reach even more people, and David will be leading these efforts,” Facebook said in a blog post announcing the hire.

The company plans to continue operating Messenger and WhatsApp independently.

TIME mergers

Mega-Mergers Are Killing Innovation

The latest mega-merger in the telecommunications sector, that of AT&T and DirecTV, would be the fourth largest in history, and it comes only months after the nation’s largest cable operator Comcast announced that it was buying Time Warner Cable, the second largest cable operator. Nor is telecommunications the only sector to see such acquisitiveness. Microsoft purchased the devices and services business of Nokia for $7.2 billion late last year, Google snapped up Nest for $3.2 billion in January, and Facebook bought WhatsApp for $19 billion in February.

Such consolidation can be good for consumers as bigger companies have the resources to innovate and provide new products and services which might otherwise never materialize. However, the vertical integration of the telecommunications and technology sectors can also restrict innovation due to decreased competition and the limitation of research to specific technologies that support existing business lines.

Take, for example, the acquisition of WhatsApp. Facebook’s primary reason for acquiring the company is to utilize the chat technology on its social media platform to bolster its existing messaging application, which currently lags WhatsApp in the smartphone market. Beyond that, Facebook will no doubt try to leverage WhatsApp’s own user base, currently more than half a billion, to promote its social media offering. But either way, the integration of Facebook with WhatsApp is the main goal and driver of value instead of some trailblazing technological development in the chat space itself.

Similarly, Comcast’s acquisition of Time Warner Cable enables the company to enter complementary markets without actually having to build new infrastructure in those markets or to innovate in any way. Such plug-and-play growth engenders laziness and deprives the U.S. of necessary infrastructure improvement and development. The U.S. is currently ranked a pitiable 35th in the world in broadband capacity according to the World Economic Forum, with even smaller nations outpacing us in cutting edge telecommunications.

Even when it comes to ‘pure’ or fundamental science that can form the basis of future technology, the relentless drive for commercialization limits its destiny to whatever fuels profits in the short term and can impede future research that does not support that. True, third parties could conduct research for other applications but the ironclad patents that major corporations hold on their technology can make such efforts unprofitable. In other words, the acquisition of promising technologies by major corporations can actually limit them by forcing them along proscribed lines in the future.

Some of the greatest scientific discoveries that have fueled mankind’s advancement were made in the vacuum of human curiosity without the profit motive that has now become the norm. Today, unless the process of discovery is sponsored by some major corporation or has an obvious application to industry at the outset, there is little motive to pursue it. Even research institutions, which have historically been neutral havens for such discoveries, now require corporate money to survive and are bound by corporate rules. This is a loss for the spirit of innovation that drives human achievement.

That is not to say that all acquisitions are bad or that our biggest companies don’t move us forward technologically, but if the pace of consolidation by major players continues, it could shrink the playing field to such a degree that innovation will become the sole domain of a handful of companies who, for the most part, will only finance targeted research that promotes their own bottom line, and use patents to prevent others from advancing that technology in other directions. That may be a win for commerce but not necessarily for the type of unexpected discoveries that could improve our world in the future.

Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. Sanghoee sits on the Board of Davidson Media Group, a mid-market radio station operator. He has an MBA from Columbia Business School and is also the author of two thriller novels. Follow him @sanghoee.

TIME facebook

Facebook Seeks EU Approval of WhatsApp Deal to Avoid Antitrust Headaches

The $19 billion acquisition isn't done just yet, as Facebook still needs regulatory approval in Europe.

Facebook has asked the European Commission to perform an antitrust review of its $19 billion WhatsApp acquisition, the Wall Street Journal reports. Such approval could help Facebook avoid dealing with numerous antitrust probes from European countries.

By getting approval at the EU level, Facebook may be able to avoid probes by individual countries, where national telecom companies may lobby aggressively to break up the deal. WhatsApp, which lets users exchange unlimited messages for $1 per year, has been hugely disruptive to the traditional text messaging business, especially outside the U.S.

In the U.S., the Federal Trade Commission approved the deal in April under the condition that Facebook and WhatsApp give notice and get permission to share information beyond their existing privacy settings.

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