The Facebook GlobalCoin is not in my normal sphere of interest; Finteum solves problems for bank treasurers related to intraday liquidity. But when one of the biggest companies in the world creates a new currency, I think the financial world should pay attention. Maybe a lot of global commerce will be denominated in GlobalCoins in 10 years. I don’t use the Facebook website or app very much. I do use Whatsapp a lot, which is owned by Facebook. Although I’m not an expert in these areas and I’m not a Facebook analyst, I’m interested in GlobalCoin from a strategy perspective, from a technology perspective, and from a monetary perspective, so I’ve written a LinkedIn series of three articles. All the views and theories are from public sources, or are my own. Please let me know if you agree or enjoy it, and also if I’ve missed something or made a mistake.
Strategically, why is Facebook creating its own currency?
Facebook is expected to release a white paper about the GlobalCoin on 18 June and hopefully this will provide some more information on the strategic rationale. Reports in the FT, Wall Street Journal, The Information and elsewhere suggest that Facebook could be pursuing the initiative for a few strategic reasons. Three of the reasons make sense to me:
1. Payments Data. Historically, advertising linked users to external websites and Facebook would sell advertising based on “click-through rates” and “cost per thousand impressions”. The user data is less rich without visibility on whether the impressions and clicks led to a sale, what time the sale occurred, etc. and often Facebook doesn’t get that visibility. Facebook introduced the Instagram checkout feature in the US in March 2019. Now, payment is possible in the Instagram app. Instagram takes a fee and the payment is completed through Paypal. Maybe Facebook wants to provide users an alternative to Paypal for in-app purchases; one that gives more transparency to Facebook. This could help Facebook gather better data, for example on number and frequency of impressions before purchase.
2. Rewards. Some users do feel like they are being exploited for their data, especially in developed markets for Facebook. This is a threat to Facebook’s revenue model. Users have realised that if they are not paying for the product, they are the product. Facebook could turn the “freemium” business model around and make it different to what is employed today by Spotify, Youtube, etc.. Instead of “we’ll take the advertising away if you pay” the freemium model could change to “keep advertising in your Instagram and you will earn GlobalCoins that you can spend, or else reduce advertising and Instagram will be free”. Alternatively, “add occasional advertising to your Whatsapp and earn GlobalCoins”. It would allow Facebook to increase advertising revenue, monetise Instagram and Whatsapp (one of their strategic goals), and share rewards with users, improving attitudes towards Facebook. Alternatively, the rewards model could enable a user to share links to products and services through Instagram or Whatsapp with people that they know, and get rewarded with GlobalCoins if it leads to a GlobalCoin-denominated sale. Everyone would become an influencer. In order to implement that, Facebook would need visibility on payments, returns and the capability to distribute rewards and maybe GlobalCoin could be the implementation.
3. Privacy Concerns. When I ask myself why Facebook is starting GlobalCoin now and not 3–5 years ago, I usually think it is to address data privacy concerns for the organisation. Facebook operated Facebook Credits in 2010–2012 and in some ways it was similar to GlobalCoin, but it was quite focused on casual online game developers. The initiative didn’t really take off. Now, Facebook is under intense pressure on data privacy. Even Apple took a shot at them at last Monday’s WWDC saying “your personal information sometimes gets shared behind the scenes”. Facebook needs to engage in a significant project to address this and cryptocurrency projects generate a lot of headlines, possibly for less effort and cost than an alternative approach. Facebook has said the GlobalCoin will be very open, but hasn’t explained further yet. Maybe the GlobalCoin protocol could be an open source software project, or maybe the data will be open and the public will be able to see the same data as what Facebook sees. Facebook could also benefit by claiming the GlobalCoin makes the global financial system fairer by giving more people access to a stable currency, a better payment system and serving the unbanked. The more open, transparent, distributed and fair the GlobalCoin initiative is, the stronger the argument that Facebook is taking steps towards changing its organisation and addressing the data privacy concerns.
I hope some of these strategy perspectives on the GlobalCoin are interesting and provide some points to watch out for in the upcoming release. Feel free to contact me if you are also interested in GlobalCoin, or feel free to share alternative theories. If you’re interested to keep reading, please see here for my perspective on the technology aspect of the GlobalCoin and for the monetary aspect.
(republished from LinkedIn)