Facebook F8 – Business as usual.

Business messaging and AR dominate the agenda.

• The completely scripted keynote didn’t reveal very much that was new but was a clear indicator of where Facebook is placing its short, medium, and long-term bets.
• Facebook is refocusing F8 on the developer largely because developers are the engine of its cash machine and because it becoming increasingly clear that Facebook’s long-term outlook may depend on how well it is positioned when AR finally becomes a reality.
  • First, messaging: Here the focus is all being placed on helping businesses to connect with their customers more easily.
  • This is prevalent across both Messenger and WhatsApp and it is increasingly becoming obvious that these two systems need to merge.
  • This is a similar situation to WeChat and QQ at Tencent where users can already send messages from one to the other but where operating two systems makes no sense.
  • The apps can remain the same but the back-end should be merged into one.
  • The result of not doing this is that Facebook has to have two sections of the F8 keynote that pretty much say the same thing except that one is for WhatsApp and the other is for messenger.
  • This makes very little sense and developers and businesses would obviously find it much easier if they could develop once and then have their services run on both.
  • Instagram also featured heavily and Facebook is increasingly adding functionality that allows more beyond just messaging to be conducted between businesses and consumers from within these three properties.
  • All of the improvements announced are incremental such as improving automated answers as well being able to offer customers choices from a list and so on but the results from the tests that have been run with real customers are pretty encouraging.
  • Facebook can see the Tencent economy that has been created within WeChat and, of all of the digital ecosystems outside of China, Facebook is in the best position to replicate it.
  • I think that this is the main reason why Facebook is focusing so closely on making business-to-consumer communication through messaging as easy and as effective as possible.
  • Second, AR: With all of the billions being spent on solving the enormous technical challenges of delivering AR, it is clear that the digital ecosystems think that this will be the successor to the smartphone.
  • Facebook is developing 1^st party hardware, but I suspect that the real opportunity lies in the digital environment that these devices will enable.
  • This is what people refer to as the metaverse or the omniverse which in practice is a digital reality that will need to dovetail perfectly with actual reality.
  • Facebook recognised a long time ago that hardware was going to be a problem which is why it has gone for smartphone AR first followed by glasses when they are ready.
  • It has also copied Snap and is focusing on fun AR effects to enhance videos, video messages as well as conference calls.
  • This is important because this focus is allowing it to get the developers on board, trained up, and ready to go for when the actual glasses themselves are ready.
  • Of the majors, Facebook is making the most effort in this area as it can easily outspend and undercut anything that Snap does to ensure that its version of the metaverse is the one that everyone uses.
  • I expect that this will continue to be one of Facebook’s biggest areas of development for at least the next few years.
• F8 clearly demonstrates where Facebook thinks its short and long-term future lies.
• Expanding the ability of commerce to be conducted in its three messaging properties will bolster short to medium-term growth while the proceeds are invested in ensuring that it wins the metaverse when it happens.
• That being said, in the short to medium term, I think that the upside versus the downside risk on this stock are not very attractive and so I continue to look elsewhere for returns.