Facebook’s ambitions to friend blockchain and release its own cryptocurrency received a thumbs- up from Barclays analyst Ross Sandler.
In a note to clients last week, Sandler wrote that the world’s biggest social media network could mop up as a $19 billion in revenue from Facebook coin used for transactions within its site. “Merely establishing this revenue stream starts to change the story for Facebook shares in our view,” Sandler told CNBC.
Facebook had flirted with a similar idea back in 2010, when it introduced Facebook credits, a quasi-currency for conducting transactions across borders on its network. But Sandler said the experiment failed because Facebook had to bear the interchange costs “which negatively impacts the profitability of the business, especially when making high volume of lower-value transactions.”
The New York Times had earlier reported that Facebook is working on a project to introduce cryptocurrencies on Whatsapp, its popular messaging app. The coin would enable sending payments across borders at a fraction of regular costs. The report also mentioned that Facebook was in talks with crypto exchanges to list its own coin on exchanges. In December last year, Bloomberg reported that Facebook was planning to launch a remittance service to India using Whatsapp.
Sandler has calculated his estimates based on usage of the coin with a Facebook app store. According to him, Facebook could earn revenues in the same manner as Google Play, Google’s app store. The Mountain View company’s app store has reported earnings of $6 net revenue per user.
The introduction of a virtual currency would also attract makers of premium content to the social media network, Sandler wrote in his note. (It is worth remembering here that Facebook previously worked with content makers and encouraged them to “pivot” towards producing more video content for its platform. That attempt was a failure.)
Privacy scandals and an uncompromising attitude from senior executives have hit Facebook’s reputation in recent times and resulted in advertisers moving away from the platform. In response, Facebook CEO Mark Zuckerberg recently announced another pivot, this time towards privacy.
“Based on our checks, the first version of Facebook coin may be a single purpose coin for micro-payments and domestic P2P money transfer very similar to the original credits from 2010 and Venmo today,” Sandler wrote. If the Facebook coin is successful, Sandler predicted that the social media network could get into consumer lending remittance and physical payments.
Will Facebook Face Problems?
Facebook’s move towards blockchain and cryptocurrencies could bring an entirely new set of problems for the Menlo Park company.
For starters, it could multiply competitors for the social network. The ecosystem for Whatsapp, its messaging platform, largely consists of messaging companies that are exclusively used for communication purpose. The overlay of financial services would bring the app in direct competition with money transmitter services like Paypal and Western Union.
Then there is the all-important question of regulation. In spite of privacy scandals, Facebook has largely remained unregulated or is lightly regulated across borders. That might change with its move into the financial services ecosystem, which is subject to numerous regulations.
Facebook’s global ambitions are another wrinkle in this regard. China’s WeChat is often held up as an example of messaging platform and payment systems. But its operations are confined to a single country. Given that Facebook operates across multiple jurisdictions, it is more likely than not that the company’s business will come under greater scrutiny from governments around the world.
Some in the crypto industry see Facebook’s move as a positive one. “The real problem with attention platforms is micro-deception around app interactions: I use your widget, you record and sell everything about me without my understanding. Using tokenization to make tangible the Faustian bargain, and reversing that bargain to be more equitable is the right answer (e.g., opt-in with monetary rewards rather than default opt-out systems),” writes Lex Sokolin, global director fintech strategy at Autonomous Next – a research firm.