WHAT FACEBOOK´S CRYTOCURRENCY LIBRA IS REALLY ABOUT / BARRON´S MAGAZINE

What Facebook’s Cryptocurrency Libra Is Really About

By Ben Walsh 


Photo Illustration by Joel Arbaje; Source Photograph by Justin Sullivan/Getty Images


If you’re having trouble understanding the significance of Libra, the digital currency that Facebook says will be the basis of a new global payments and financial system, you may need to think back to Farmville.

That online game was, for a period, wildly popular on Facebook(ticker: FB), as were dozens of others like it. These games were fairly cheaply produced by outside companies, conceptually simple, and, to use the preferred euphemism, extremely engaging. They kept some users logged into Facebook for hours and hours and they were free, at least initially.

But to really play these games, you needed to continually make in-game purchases. And one way you could pay was with something called Facebook Credits. Yes, that’s right, Facebook had its own currency years before the Libra announcement this past week.

Indeed, in 2012, payments accounted for just over 15% of Facebook’s revenue, according to Bloomberg data. Facebook game makers, like Farmville’s creator Zyngaand Candy Crush’s parent King Entertainment, went public. For a time, prepaid Facebook Credits cards were on sale in places like Target .

The boom soon faded. Facebook’s payments revenue fell every year after 2012 and was below 2% of the company’s revenue in 2018.

Facebook successfully shifted its business mix and is now effectively the world’s second biggest mobile-phone ad-sales company, after Alphabet’s Google.

With all of the headlines today—about data breaches, a role in influencing elections, and calls for antitrust action including a breakup of the company—it’s easy to forget that Facebook once made a significant amount of money from people paying to play online games.

Facebook changed because financially it needed to, and some analysts see the Libra project as another pivot, rather than a result of executives’ infatuation with new payments technology.

“There’s just not any innovation in it,” Gabor Gurbacs, director of digital asset strategy at VanEck/MVIS, told Barron’s. “It’s just Silicon Valley’s ongoing attempt to take bank profits from the financial-services industry to Silicon Valley.”

Facebook takes issue with the comparison. “Facebook Credits was a completely closed system, and this is open and decentralized,” a Facebook spokesman told Barron’s. The new currency “is governed by the Libra Association, an independent not-for-profit, and people will be able to use Libra with any company that chooses to accept the currency, whether or not they use Facebook.”

Still, Facebook has long been fixated on the number of users of its platform, and the Libra announcement shows the business logic behind that fixation: First, bring users onto the platform—whether it’s through games or baby pictures or politics or payments—and then figure out how to make money off them.

For years, the best way to do that was targeted advertising. But now, there are indications of that business being at risk. Regulators, on the one hand, are encroaching with data-privacy laws like the General Data Protection Regulation, or GDPR, which is crimping Facebook’s business in Europe. The company is right to fear a GDPR-style law in the U.S. and other developed countries.

And users, too, are increasingly moving to private messaging apps. Facebook, of course, owns WhatsApp and Facebook Messenger, but how to make money off private chats has befuddled the tech industry for years.

Facebook’s answer is to realize that private chatting is about confidential relationships. And money sits between and among a lot of those relationships. Indeed, exchanging money creates relationships. Thought of that way, why would Facebook not want to be in the money business?