What has happened to Libra? Facebook announced the scheme back in June 2019 in a blaze of publicity, almost immediately followed by a massive negative reaction: central banks on regulatory grounds; commentators on dystopian grounds; just about everybody on the grounds of Facebook’s reputational difficulties. Although there have been no formal announcements of closure, it really does look as if the whole project has hit the wall. So where did Facebook go wrong?
- By opting for a Blockchain/Cryptocurrency implementation path the project inevitably attracted high-level regulatory attention. Governments and central banks could afford a ‘watch and wait’ approach to phenomena like Bitcoin, but Facebook, with over two billion users and an avowed intention to operate a shadow currency and banking operation offering a range of financial services, could not be ignored.
- In anticipation of this regulatory attention Facebook had created the ‘Libra Association’, a consortium of organisations designed, through co-ownership and control, to distance Facebook itself from its creation. This strategy introduced a new vulnerability: key Association partners like eBay, Mastercard, Mercado Pago, PayPal, Stripe and Visa soon left in the face of regulatory opposition.
- The co-ownership Association route represented a ‘top-down’ approach to business/product development – not Facebook’s strategic forte. As the Libra Association failed to hold together, Facebook’s found itself in unfamiliar territory, trying to maintain a complex web of relationships with more conservative partners, some of them well-established before Facebook came into existence. Moving slowly without breaking things is not a corporate strength.
- And then there’s the technology – why blockchain? Billions of users making billions of transactions entails a massive processing overhead. Is blockchain a sufficiently mature technology to handle the task? From the beginning, there may have been a strong element of hubris in the project.
Will Facebook Give Up and Go Away?
Unlikely. There’s simply too much at stake. An alternative strategy might look this:
- Abandon top-down and go bottom-up. Start low-key and let it build. Stick to what you know and creep in under the radar.
- Go it alone. Own the data. Sharing and caring, whatever its rhetoric, is not a Facebook strength. Again: stick to what you know and creep in under the radar.
- Forget about cryptocurrencies – they make regulators and governments too nervous. There’s nothing wrong with the US Dollar.
- Forget about creating a shadow bank – if your long-term strategy calls for one, let it evolve slowly and organically out of a massive global payments system.
Where Do the Telcos Fit In?
Libra’s most radical potential has gone unremarked thus far: its ability to monetise the entire Internet through micropayments for content. Currently payment for content is limited to clunky subscription models (these are a barrier to information flows because they don’t allow customers to pay only for what they consume) or digital begging letters as deployed by The Guardian and Wikipedia. Libra can end all that by allowing us to make tiny payments for content access on a ‘penny a page’ basis.
This would give Facebook a strategic drop on Google by generating proprietary data on everything we consume online – not simply a record of what we were looking for. As such, Libra could be viewed as a strategic grab for Facebook’s permanent data dominance across the entire online domain.
But there’s an elephant in the room here – the long-established existence of a payment mechanism geared to taking very large numbers of very small payments: the telephone bill. Furthermore, this mechanism is perfectly congruent with internet access – you can’t use the Internet without using a telco and paying a bill. So why have the telcos failed to exploit this simple fact and re-monetize the Internet to their advantage? One answer might be found in the context of the engineering culture of telcos. They are engineering operations with their roots in state monopolies; they view the value of their organisations as residing in the physical networks that they operate – this is a natural way for engineers to view the world. But with the comparatively recent advent of the Internet, value relationships have changed. Telcos need to see the value of their organisations as residing in the billing relationships they have with their customer base.
The i-MPay Solution
i-MPay has published an outline solution to payment for online content, one that enables consumers to avoid subscriptions and pay only for what they consume, while offering publishers of valuable content a mechanism for monetizing their intellectual property. The proposal is set out in this white paper.Key aspects of the solution are:
- Exploitation of pre-existing, ubiquitous, mature, trusted billing systems that are geared to tracking and processing large numbers of small payments.
- A scalable implementation that can evolve, over time, into a more generalised (i.e. not merely for online content) payment system.
- A stimulus for the availability of higher quality (i.e. value) online content.
Conclusions
- Facebook’s Libra failed to meet regulatory and reputational objections and its ‘top-down’ implementation strategy proved to be highly flawed.
- It is unlikely that Facebook will give up and go away, but it will need a complete strategic re-think if it is to stay in the game.
- Telcos have existing billing systems that are fully congruent with Internet use and do not rely on unproven technologies like blockchain to operate at the required scale. (Indicatively, the only telcos to be part of the Libra Association were Iliad SA and Vodafone, with Vodafone withdrawing in January 2020.)
- There is an implementation path for a credible online payments system as set out by i-MPay in its white paper. This system would require participation and co-operation by telcos on a global scale.
Footnote: The Internet’s connectionless packet switched technology took the telcos out of a potential revenue stream arising from a direct payment for content model. The Internet’s subsequent evolution has created a low-quality information ecosystem (a de facto global empire of vanity publishing through ‘social media’) in parallel with a dystopian monetization process through the harvesting of personal data. i-MPay’s proposed payments system can reverse this trend, and should be highly attractive to telcos on strategic grounds.