Empire strikes back with a vengeance. It is time to break up empires.
I rarely look at horoscopes. When I heard of Facebook’s Libra moment the morning of Libra announcement by Facebook, I could not resist the urge to visit these pages. Here’s what I found – “The cosmos will ask you to make more of an effort, Libra. To do so means you will have to come back down to Earth and join the rest of us mere mortals.” Then it reads, with a little rewording, “you may be cultivating your dominance a bit too much”.
They could be talking about Facebook, next line could read “you are inviting us to break you up”.
I only pretend to understand the economics of a technology proposition. I found the creation of Libra Reserve a worthy effort. To wit, it obviates a problem Bitcoin faces with structurally limited circulation; Libra embeds a market mechanism for price discovery, has enough structural guardrails to expect low volatility, thus deserving the possible moniker of a stablecoin; I hear their language “Move” is solid enough.
It did not escape my attention that the Blockchain will be a permissioned one, under supervision of a governing body that will be appointed by the Founding Members of the syndicate. It is interesting to note that virtually all members of the syndicate have a clear incentive to keep the gig economy going. As I argued elsewhere, these companies are beneficiaries of the trust arbitrage, ripe to have their lunch eaten by Blockchain enabled ecosystems. And they are being put in charge of the disruptive force of Blockchain. Funny things happen when you let wolves guard a pen of pigs.
There is a curious case of Founding Members’ and initial adopters’ incentive, including sweat equity, being paid in Libra. Documents promise a corresponding amount in a portfolio of liquid assets will be created in the Reserve, begging the question how much? There is no economic incentive to peg any price @start, and Libra coin by itself does not have any economic value – starting point matters as a result. In a conventional Fiat currency, starting valuation has no bearing to the Founders’ wallet, for Libra it does.
Forgive me for being cynical about Facebook; in an op-ed in The New York Times, co-founder of Facebook does a pretty good job. I postulate that Libra will be priced too high @start simply because Founding Members have their incentive elsewhere; price will act as a shiny new thing, a misleading advertisement perhaps to jimmy up speculative trading. Founding group benefit either way the price moves, either by price appreciation and/or by increased user engagement. Increased scrutiny brought about by being a player in financial services does not really make Facebook flinch. Not even two months back news that Facebook paid USD 5 Billion penalties to absolve itself of wrongdoing actually increased its valuation by USD 47 Billion in a single day. In 2018, in the midst of being lambasted by all parties for its conduct, its earning per share rose 40%. What is not dead cannot die by papercuts.
In technology, where most services are technically free to the customer, it is hard to argue against industry behemoths engaging in anti-competitive behavior, based primarily on price manipulation. Google and Facebook together count for 60% of digital ad revenue in the US and they have essentially zero worthy competition in their comfort zones. In areas where the domination of the top few is less prominent, we have seen new players and innovative propositions, examples include productivity (e.g., Slack and Asana), and, urban micro-transportation (e.g., Lime and Bird). Compare that with the behemoth Facebook created, an average user spends an hour a day on Facebook newsfeeds, 53 minutes on Instagram stories and estimated an hour on WhatsApp messaging – three hours of their precious time, all in, creating data exhaust for Facebook – and there is no worthy competitor. Most of it is for free, no price gouging here!!
Since a narrow lens focused on price impact will not do the job, we need a new metric. With effectively negative price – users make revenue sources elsewhere possible – we have to use an “inverse”, e.g., a proxy for user engagement, which translates into revenue for the firm. We need to intervene when one firm’s revenue is so big that it affects combined revenue users bring to competitors. A simple enforcement scheme will be to have an upper ceiling on the size of the mothership. Cutting off air when revenue gets too big implies we have to break up offenders who have already escaped – Facebook certainly did.
I will urge Congress to be blunt and effective – break them up. Facebook is but a conglomerate of a few apps which can each retain independent existence, retain linkages may stay exactly as they do now. Google search engine can be broken off from Navigation, e.g., even if they price mutual access that will still be needed, Youtube has no business within Alphabet umbrella, neither does LinkedIn within Microsoft. Examples abound.
In a 2018 Op-ed in these pages I argued that an epitaph of Facebook was being written on Blockchain (https://indicanews.com/2018/10/20/epitaph-of-facebook-is-being-written-on-blockchain/ ). I could not be more right, and more wrong. Having monopolized messaging and social media, Mark Zuckerberg has learned lessons of SWIFT – a single messaging platform in effect monopolizes transactions in the world of high finance – and brought it onto payments. The Empire not only went around the Resistance’s ragtag digs, but it also captured the Force so it can unleash more on hapless bystanders.
I could revel at possibilities. Do I not want unbanked billions in the farthest corners to access financial services? Libra will not provide banking – too messy and segregated from a regulatory point of view across countries; payment apps, some of them Blockchain based, already exist. Do I not want the convenience? One can open up a Banking app on mobile, and refrain from compromising financial data from single point access should something go wrong.
What I cannot do is to accept Facebook suddenly emerging as the go-to for payments, paying off R&D costs with revenues from messaging and social media, with a single click Facebook accesses 2.4 billion monthly users, creates a technology where it fully controls all choke-off points through the use of permission Blockchain. I cannot accept gig-economy beneficiaries creating a nested ecosystem that can be fully used by the likes of El Chapo. I cannot accept Facebook smirk smug at Congress while it sucks the wind out of creative forces across the globe and uses ‘financial access to unbanked billions’ as a pretext to buffing wallet of Master Z.
Technology behemoths are too big, too powerful and are on a rampage. Break Facebook up. And Google too. Now.
[Partha Chakraborty, Ph.D., CFA is an entrepreneur in Blockchain and Wealth Management. All opinions are of the Author alone, and do not necessarily represent that of any organization he may be part of. The author alone is responsible for any error or omission.]