Carl Mortished: Facebook’s future seems rocky as it swaps new for old

The big question about Facebook is not that President Putin knows you shop at Waitrose or your boss might have seen those pictures of you skinny-dipping on holiday.

The really big question is why hasn’t Facebook stock tanked?

Last week, Mark Zuckerberg, the Facebook founder and chairman suggested that it would change its business — not just tweak the way it harvests data.

No, Facebook said it would change the way it does business to guarantee the privacy of its users.

In a rambling Facebook post, almost akin to a husband’s confession of an extra-marital affair, Zuckerberg said that “privacy-focused communications platforms” would be more important than “open platforms” and that he would “build a simpler platform that’s focused on privacy first”.

A contrite Zuckerberg acknowledged that users might have doubts, saying “frankly, we don’t currently have a strong reputation for building privacy protective services”.

But he said he would build a business on the model of the group’s WhatsApp platform, providing calls, messages, groups but also payments and commerce, all private and secured by end-to-end encryption. He would also give users the option to make messages non-permanent and guarantee safe storage.

That sounds reassuring unless you’re a Facebook shareholder, in which case you should be scared.

For those who have not been paying attention, the point about Facebook is that its business model is advertising and marketing. Its unique selling proposition is the data it collects about its two billion users which allow advertisers to target groups of consumers — where they are, what they like, where they shop, what they buy.

That data earned Facebook $55 billion in revenue last year. The key number that matters is Advertising Revenue Per User; calculated quarterly, it has risen from $6 to $35 per North American user between 2013 and the final quarter of last year.

Outside the US, Facebook earns less but the growth is as impressive revenues per European user going from $2 to $11 in the same period.

If Facebook can’t harvest your data, because you’re on Zuckerberg’s new encrypted service, how does it make money? Forget about users paying: there is simply no chance that Zuckerberg will be able to persuade anyone to pay for something that was free. About this problem, he is silent.

Yet the stock market appears oblivious to Zuckerberg’s musing about the future of the business. Facebook shares are off their peak of $218 last July; after the Zuckerberg post on Wednesday they lost $10 per share to $160, but have more than recovered to $172.