Facebook is a media and tech giant. With two billion users worldwide, few can doubt its influence. And when it launches its Libra coin next year, its two billion-strong community will have its own currency. It is something to pause and consider. Two billion is one-quarter of world’s population, and more than half of the 3.9 billion people with Internet access.
As Jon Markman writes at Forbes, “the global payments world will never be the same.”
There are other companies operating on a similarly massive scale: Netflix, Amazon, Apple and Google all have huge communities of users.
Markman also makes another important point: “Facebook is the granddaddy of social media because it has something other platforms can’t easily acquire: all your friends and family.” Its sheer scale makes it one of the world’s most important businesses.
Take a look at Huawei’s predicament. When the blacklisted Chinese telecommunications company, lost access to its U.S. hardware vendors, its managers claimed they would manage. However, when Facebook officials said Instagram, WhatsApp, Messenger and Facebook apps would no longer come preinstalled on its phones, Huawei managers stopped production lines. That is the power of Facebook.
Mark Zuckerberg purposefully worked a strategy to achieve this dominance by acquiring 92 smaller software competitors and shuttering their operations. It has followed this route since 2007. Markman says, “Facebook earned a reputation for moving fast and breaking things — a label Zuckerberg embraced. Libra, which is set to launch to the public in the first half of 2020, shatters everything.”
A Facebook payments system effectively creates a new digital system for most of the connected world, and it transforms Facebook into a “true living, breathing ecosystem.”
Tencent in China used the same approach with WeChat that connects its billion daily users to their local bank, so there is no need for ATMs, paper money or cash registers.
How should investors approach Libra?
Libra is going to be stable by design. It should not be subject to wild price swings. Nor should it attract the legions of speculators who trade Bitcoin. Libra will be directly backed by government currencies like U.S. dollars or the euro. And to acquire digital coins, holders will need to show some form of government identification.
Furthermore, Libra will be independently managed by a Swiss non-profit called the Libra Association, overseen by a consortium of 27 companies including eBay, Uber, Mastercard, Visa, Spotify and PayPal. This ‘feeling’ that it is independent will encourage software developers to build new applications on top of the platform, making it more sustainable.
It’s also easy to see why Libra might really catch on among the under-banked, and in the developing world where many people don’t have bank accounts.
Regardless of any weaknesses, there are many reasons for investors to take Facebook’s Libra seriously.