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Archive for the ‘facebook’ tag

Facebook and the Extra-National Currency

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The creation of an extra-national currency has long been a libertarian dream. Fiat currency, after all, ties our assets to the wills and whims of a central government. At times — and many people argue that now is such a time — poor government decisions can dramatically debase the value of our income and savings. Thus, the need for a widely-accepted currency uncoupled from the politicized decisions of a national government.Facebook Coin logo filed with the trademark office

While we haven’t lacked for attempts to create a new currency, pretty much all have fallen by the wayside. The biggest selling proposition of these currencies — freedom from backing by government fiat — is way too obscure for most people, and the logistics of backing issued currency with precious metals is daunting and expensive.

Could Facebook coins be the first successful extra-national currency? There are several factors going for it:

– Facebook’s huge audience and deep presence across the web
– The audience’s clear need for a standardized and trusted currency
– The ability for people to (often inadvertently) “socially endorse” the new currency to their friends
– A pool of merchants — e.g., Zynga — poised to accept Facebook currency
– Simple and seamless integration and exchange with mainstream currencies via the web and mobile makes switching between currencies less of a hassle

To be clear, there have been other virtual extra-national currencies. WoW gold and Linden Dollars are two examples. But these haven’t even touched the mainstream, even in online purchases — try paying for a book on Amazon in WoW gold. These currencies’ value is dependent on an ability to exchange them for dollars — not terribly different from the “regional currencies” that pervaded America in the early 19th century. If you were traveling in South Carolina with paper dollars backed by a bank in Massachusetts, you had to find someone who would exchange them (likely at a steep discount) for a local currency.

But Facebook coins seem fundamentally different. The audience is huge and hundreds of millions of Americans have experience using virtual currencies on Facebook. Right now we’re buying virtual cows and guns, but is it much of a leap to use virtual currency to buy online goods with real-world impact, such as subscriptions to digital content? And once we’re there, it’s a natural step to move that digital subscription into the real world — and even expand into necessities like gas and groceries. They already sell virtual currency cards in grocery stores. The relationships are there. Soon we’ll be using those cards to buy groceries.

So what could this all mean? First, it’s important to draw a distinction between the libertarian fantasy and the reality of Facebook’s extra-national currency. Most libertarians desire a value-backed currency — as in, gold- or silver-denominated – rather than fiat currency. Facebook coins are still a fiat currency. It’s just a corporate fiat rather than a federal one. Facebook coins are only valuable if it can convince buyers of the coins’ utility as a medium of exchange and (possibly) a store of value. But I don’t see any issues with Facebook making this happen: at least initially, there will be a large and defined pool of merchants ready to accept coins via Facebook apps, and exchange with mainstream currencies will be simple.

Of course, this is assuming that Facebook doesn’t throw up barriers to prevent this from happening — namely, if they forbid any part of the buying, selling and transferring ecosystem that makes a currency market successful. The market won’t work if they (for instance) prevent an app developer from exchanging Facebook coins directly with the user or p2p transactions using coins. This doesn’t mean that they have to float the Facebook coin against the dollar — although that would certainly be a fascinating turn of events for economists and currency traders alike.

If Facebook can create a true extra-national currency, it will make more money than any other company in modern American history. Entrepreneurs and VCs often talk about successful companies “printing money”. But Facebook has the opportunity to literally print money within the next five years.

Written by Brad Hargreaves

May 23rd, 2010 at 2:21 pm

Diaspora: Think about Brand

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Charlie O’Donnell had an interesting post this morning on what Diaspora should do with their Kickstarter riches. One thing he didn’t mention? Figure out your market positioning and brand.

Let’s think of this in terms of the possible likely outcomes of Diaspora’s work:

Low: The team / product / initiative falls apart for some reason or another. Nothing is accomplished.

Middle: Diaspora creates a product that is useful but is restricted to the tech community and never gains strong adoption. Even techies still have both Facebook and Diaspora profiles, limiting the impact and fulfillment of the mission.

High: Diaspora gains mainstream traction, becoming the first legitimate threat to Facebook in years.

Right now, most of the focus is on the distinction between the “low” and “middle” scenarios: How does the team focus and produce anything at all? How do they build the basic operations of their business? These are important, but they aren’t the elements that are going to separate the “middle” and “high” scenarios. And to me, that’s the really important distinction — if they’re aiming to open the social graph, they have to reach beyond a small circle. But what are some of those upside differentiators, you ask?

Usability: How easy is Diaspora to install and customize? Does it “feel” nice?

Dynamics: Facebook spread because it is viral. It uses the fundamental structure of the social graph to spread and stick. Can Diaspora capture those similar dynamics?

Brand Association: This is Diaspora’s biggest long-term problem. Right now their brand is closely associated with a techie revolt against Facebook, and there are real questions about (a) how long this revolt will last and (b) how “deep” the revolt spreads into Facebook’s user base. Diaspora is currently riding a wave that may simply peter out in the near future, perhaps withing weeks if previous Facebook user “revolts” are any indication. In this frame, the Diaspora founders need to take the money they harvested from dissatisfied Facebook users and quickly pivot to a brand that has long-lasting and broader appeal.

Many great companies do this eventually (e.g., Facebook’s shift from a geeky Ivy League classes and social site to a full-blown online manifestation of the social graph), but Diaspora risks being pigeonholed sooner rather than later. It’s getting lots of press way too early and around a message that may work for them now but probably doesn’t reinforce their ultimate goals — and risks forever framing them as something very specific to a tech audience.

This doesn’t necessarily involve a change in strategy or mission — just the frame. Product is still the king, but brand matters if we’re going to be talking about these guys in six months, let alone two or three years.

Written by Brad Hargreaves

May 13th, 2010 at 8:24 am