Saturday, January 29, 2011

one ring to bring them all and in the darkness bind them

Fortune | As Facebook starts to host all sorts of commerce -- and is now mandating the use of its currency -- perhaps it's time to stop thinking of it as a company and start thinking of it as a country. "The strength of a nation's currency is based on the strength of a nation's economy." Richard Nixon, circa 1971, announcing that foreign governments could no longer convert U.S. dollars into gold.

"If you're a very large company, and supporting you is going to cost us tens of millions of dollars, then we want to at least have an understanding of how you're going to use what we're doing, and that you're not going to just import the data but also contribute back to the ecosystem and make peoples' Facebook experience better." —Mark Zuckerberg, circa 2010, explaining its agreements with social game companies that bring in 30% revenue cuts to Facebook.

Earlier this week, Facebook announced that by July 1 developers that have apps on the site must make their users pay for virtual goods using Facebook's official currency, Facebook Credits. Along with Credits come fees: 30% of every credit spent goes to Facebook.

Smaller developers, of course, aren't pleased. They would rather avoid paying Facebook altogether. Facebook, meanwhile, would rather avoid being a site that confuses its users with dozens of currencies.

At first glance, the move suggests Facebook has become a monetary autocracy, forcing the companies critical to its success to use its currency, and to pay a fee for doing so. But on second thought, isn't that more or less how taxes work? As Facebook grows and starts to host all sorts of commerce, perhaps it's time to stop thinking of the social network as a company. Maybe it's best to think of it as a country.

Imagine, for a moment, that you're the central banker of a country with nearly 600 million residents. Your economy is growing quickly, and the bigger it gets, the more foreign investors are knocking at your door, trying to hawk their wares and build within your borders. Nobody knows how much your economy is actually worth -- some place the GDP at $50 billion, making it the 73rd largest economy in the world, though everyone agrees that your country will be a global force for years to come.

But there's one sector of your economy that won't fall in line. By the end of the year, it'll be worth over a billion dollars and it has proved to be sustainable even during an economic downturn. But a lot of the companies that make up the industry don't want to use the national currency. They'd rather use their own currencies and avoid a hefty 30% tax on all transactions.

But, as a wise central banker, you know that for a country to grow its economy, it needs a singular currency so the proletariat doesn't get confused. You've been able to convince the largest companies to use the national currency, but rogue stragglers remain. What do you do?

Tell them they can either use the currency or get the hell out.

3 comments:

Tom said...

Good point, good point.

ProfGeo said...

Amazon, eBay and PayPal blazed a trail here I think. They were the butterflies flapping their wings over the Internet sea. I recall deciding whether or not to participate in eBay's consumer universe early on. (I didn't, not seeing the draw of auctions except as plot points in movies, but tried it later when eBay became, as the article suggests, more of a "country." If you want to see another culture, hang around that marketplace for a while.) Facebook is not exactly leapfrogging but taking advantage of all that has gone before. They're the butterflies, is it the hurricane half a world away?

CNu said...

Facebook is not exactly leapfrogging but taking advantage of all that has gone before.

Nah.., facebook is very clever, very simple, very lucky, and very hyped.

In my opinion, the battle is between social media which depend on "how people are?"(Facebook) and "what people do?(eBay/Google)

After all these years, eBay/Paypal continues to rock steady http://files.shareholder.com/downloads/ebay/1148565529x0x160230/D11C904B-4EEA-4821-9C42-D0228F676BAD/eBay_Metrics.pdf - and I think that's a telling metric.

Facebook - OTOH - strikes me as just the latest in a long line of social media to capitalize on the human penchant for butt-sniffing (think dogs in the park) with oversized pretensions of Westphalian greatness and accompanying complicit 1st-4th estate backed narrative like no other.

All this hype is a bubble - rooted in the totalitarian utility of the thing - said utility being overwhelmingly attractive to the PE. Maybe it's just wishful thinking on my part, but I'm more favorably inclined toward the Google model consisting of a myriad of applications in support of constructive and productive "things that people do". Google's biggest challenge, outside of pushing it's crawlers into the deep web, is making its multitude of "if we build it they will come" products as user friendly and accessible as possible. I think folks still have a LOOOOOTTTT of catching up to do with the myriad of integrated and integrate-able applications comprising the Googleplex. Meanwhile, my fanboy penchant takes comfort in the fact that GMail had 193 million users in November 2010 and continues to rock on like eBay, steady, and steady growing.

I don't believe Facebook can replicate even a fraction of Google's existing functionality, and let's not even get started on the Google's platform penetration experiments (ChromeOS/Android) which seem to be putting a whole bunch of other folks to the test on multiple fronts, as well.