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:
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.
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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