Facebook's bet on privacy may threaten advertisers' sophisticated targeting, and it could 'dramatically change' its relationship with brands

Facebook CEO Mark Zuckerberg speaking at F8

Facebook CEO Mark Zuckerberg outlined a number of high-profile changes to its services during a keynote at its F8 conference as it focuses more on privacy.
The move to encryption has big implications for how advertisers use Facebook's troves of data for targeting ads.
Facebook is also emphasizing its messaging apps, which have a smaller reach than Facebook's newsfeed that advertisers pump ads through.
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Facebook's core message at its annual developers conference F8 this week is clear: Facebook is betting big on privacy. But how those changes will affect Facebook's seven million advertisers is less clear and could result in dramatically scaled back reach for marketers.

During an opening keynote, Facebook CEO Mark Zuckerberg talked at length about numerous changes coming to its ecosystem of apps over the coming years that address privacy and the spread of misinformation on its platform, including a bigger emphasis on messaging platforms WhatsApp and Messenger and a new redesign of Facebook's flagship app that priorities one-to-one communication through groups and stories.

"I believe that the future is private — this is the next chapter of our services," Zuckerberg said during the keynote. "I know that we don't exactly have the strongest reputation on privacy right now to put it lightly, but I'm committed to doing this well."

One of the biggest implications for advertisers is that encryption could significantly cut down advertisers' targeting abilities, said Amanda Martin, VP of enterprise partnerships at Goodway Group. The duopoly of Facebook and Google continue to control the bulk of digital ad budgets, and if Facebook's moves result in less advertising data, it's possible that advertisers could pull budgets from Facebook, she said.

The focus on privacy will also shift advertisers' audiences. Encryption entails tech companies passing along and storing less data. Advertisers dig into browsing and audience data to power billions of ad campaigns, and moving towards encryption has broad implication on Facebook's revenue that mainly consists of advertising. Facebook reported $15 billion in revenue during its recent first-quarter earnings.

Without the ability to target specific segments of people, Facebook may shift from pitching advertisers on granular targeting to reaching millions on its platforms.

"It's leaving open a lot of questions — they didn't address advertising at all because it's complex," she told Business Insider after the keynote. "They still have a fruitful advertising business but the play they have with brands could change dramatically."

Facebook is looking for revenue outside of advertising

Instead of focusing on advertising, Facebook talked about how it's moving into new areas like payments, messaging and shopping. Martin said that the messaging positioned Facebook as similar to Chinese app Tencent that helps consumers do everything from pay bills to buy coffee.

Facebook's expansion into commerce and payments could open a new revenue stream, but Martin also noted that it could cause Facebook's clout to grow more as the company is under scrutiny from regulators who want to break up the tech giant.

"They're kind of speaking in their own bubble — even though their bubble is huge," she said.

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