May 9, 2018 | Blog

Facebook’s move into Blockchain offers big validation for the technology

Plenty of big time corporations and prominent venture capitalists have backed Blockchain, the decentralized virtual ledger technology that promises to remake a host of industries, most notably payments and capital formation.

But Facebook’s foray into Blockchain might provide the technology with its biggest boost yet.

The social media giant in Menlo Park has launched a team to explore Blockchain, headed by David Marcus, the executive previously in charge of Facebook’s Messenger app.

In some ways, Facebook’s move into Blockchain seems counterintuitive. The technology is based on the principle that no central authority controls the information flowing through the Blockchain.

Facebook’s business model depends on its technology capturing enormous amount of user data and then selling that information to advertisers and third-party developers. The fact that Facebook holds so much data is what makes the company so powerful— and feared.

Still, here are three reasons why we should take Facebook’s move seriously:

Zuck Bucks

Facebook has long been interested in alternative currencies and micropayments.

In 2011, the company launched Facebook Credits which users could use to buy applications on popular social games like FarmVille and CityVille. Consumers could also use the credits to purchase vouchers that they could swap for real world goods and services.

Facebook even established currency exchange rates. For example, one U.S. dollar equaled 10 Facebook Credits. People could also buy the credits with the British pound, Euros, and Danish kroner.

Facebook ended Credits in 2013 but has continued to operate a payments platform. For example, consumers can use Messenger to send other people money or donate to charities.

In its SEC documents, Facebook noted that regulatory uncertainty was a challenge, especially the need to comply with counterfeit and anti-money laundering laws in foreign countries. The company has obtained money transfer licenses in the United States and an electronic money license in Europe.

Still, the company noted in its 10-K filing, “in some jurisdictions, the application or interpretation of these laws and regulations is not clear. Our efforts to comply with these laws and regulations could be costly and result in diversion of management time and effort and may still not guarantee compliance.”

“In the event that we are found to be in violation of any such legal or regulatory requirements, we may be subject to monetary fines or other penalties such as a cease and desist order, or we may be required to make product changes, any of which could have an adverse effect on our business and financial results,” it said.

Developing Blockchain technology may help Facebook to more efficiently expand its payments business without violating banking laws.

Marcus himself

Messenger is one of Facebook’s fastest growing platforms and a key source of future advertising revenue. About 1.3 billion people send 8 billion messages on the service each month. CEO Facebook Mark Zuckerberg recently announced a plan at the F8 developers conference to add video chat to Messenger.

“Messenger is now one of the most important apps in the world, and its future is unbelievably bright,” Marcus tweeted.

So to pull Marcus off Messenger just as the company is really ramping up efforts to sell advertising on the service is a big deal. Marcus himself brings plenty of clout to developing the technology. He is a former president of payments firm PayPal and currently sits on the board of directors at cryptocurrency exchange Coinbase.

Facebook is not Google

If Alphabet, the parent company of Google, said they were exploring Blockchain, I’d shrug. Alphabet invests in lots of moonshot technologies, many of which (self-driving cars, DNA research) demonstrate little or no connection to the core business.

Last year, Alphabet spent $16.6 billion on research and development expenses, or 15 percent of annual revenue of $111 billion, according to documents filed with the Securities and Exchange Commission. In other words, Alphabet spends a lot on stuff that we might never see because it can afford to satisfy its intellectual curiosity.

In 2017, Facebook spent $7.75 billion on research and development, or 19 percent of annual revenue of $40.1 billion. However, the company has been much more focused and disciplined with its R&D dollars. Facebook is exploring balloons that can connect people to the Internet so it can get more people in developing countries that lack online access onto the platform. The company backed up its interest in virtual technology by spending $2 billion to buy Oculus Rift.

So, if Facebook is dedicating resources to Blockchain, the company sees real possibilities for the technology.

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Thomas Lee

Thomas Lee

Thomas Lee is the Senior Writer at SharesPost. He was previously a business columnist at the San Francisco Chronicle. Lee has written for the Star Tribune in Minneapolis, St. Louis Post-Dispatch, and Seattle Times. He is author of “Rebuilding Empires” (St. Martin's Press), his book on the future of big box retail in the digital age.
PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is being published by SharesPost Research LLC, and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.