As Facebook Becomes More Secure, A Compromise In Speed Is Ok!

Facebook (NASDAQ:FB) has started shifting its North American users to HTTPS, which is a relatively more secure protocol of communication over the internet. ^[1] Security becomes a critical issue when there is big networking platform involved in a a wide range of communications including casual, professional and commercial transactions.

Facebook is doing the inevitable, but it could have a slight business impact in the short-term due to the possibility of slower web browsing. HTTPS leads to slower browsing compared to HTTP, and given that HTTPS will be default setting for users, overall user browsing experience could get affected. This can potentially impact the number of page views per user, thus affecting advertising revenues. However, increasing internet speeds and Facebook’s efforts to improve infrastructure will mitigate this impact in the longer run.
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Security Is Critical As Facebook Grows

There have been many reported issues related to account hacking on Facebook, often leading to theft of private information and data. As Facebook’s user base grows, the platform will become even more lucrative for hackers and identity thieves. Facebook needs to ensure security for its users in order to make sure that they are loyal and active. HTTPS essentially places layer of HTTP protocol over SSL/TLS protocol, thus enabling the security advantages of the latter. However, HTTPS is slower than pure HTTP and the shift could deteriorate user browsing experience to some extent.

Page Views Can Be Impacted, But Good Move From Long-Term Perspective

If the browsing is slower, it will directly impact page views per Facebook user which is an important metric for Facebook’s business. We estimate that close to 65% of Facebook’s value comes from advertising business which is a function of number of page views and average revenue that Facebook generates per page view via ads.

Facebook wants its users to spend as much time as they can on its network and that means flipping through as many Facebook pages as they can. Slower browsing speeds can discourage this behavior. However, given Facebook’s efforts to improve its infrastructure and general improvement in global internet speeds, this impact should be mitigated in the medium term. Overall, the move towards higher security and slight compromise in speeds is the right one.

Our price estimate for Facebook stands at $25, implying a premium of less than 10% to the market price.

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1. Platform Updates: Operation Developer Love, Facebook Developer Blog, Nov 14 2012 [↩]