Abu Dhabi, UAEMonday 16 September 2019

Why Facebook's Libra cryptocurrency will need more friends

Uber, Spotify, Visa and Mastercard are all taking part – but there’s a notable absence of banks and retailers

Chief executive Mark Zuckerberg has to prove that Libra will deliver more value to brands than their current advertising setup. AFP
Chief executive Mark Zuckerberg has to prove that Libra will deliver more value to brands than their current advertising setup. AFP

Facebook’s planned cryptocurrency is going to need more friends to work.

On Tuesday, the social media giant announced it had signed up 27 partners to develop and administer Libra, a digital medium of exchange for use on its apps and beyond. Uber, Spotify, Visa and Mastercard are all taking part – but there’s a notable absence of banks, large retailers and consumer goods companies, whose massive marketing budgets are the staple of ad agencies worldwide.

This matters because Facebook is, above all else, an advertising platform. Chief executive Mark Zuckerberg has to prove that Libra will deliver more value to brands than their current advertising setup. Judging by this initial list of partners, a lot of firms appear unconvinced. The company wants to sign up a total of 100 by the time the coin starts next year. It will need every one of them, and more.

For Mr Zuckerberg, the best possible outcome is that the coin, which is tied to a basket of foreign currencies, keeps both users and brands locked into the Menlo Park, California-based firm’s ecosystem.

In theory, a user might receive a token for watching an ad, which they then spend on something they have also seen advertised on Facebook. The company selling the product could then use that token to buy more ad space on the social network, and so the cycle would start anew. That would mean that, even if Mr Zuckerberg had to spend a little bit more to keep his users engaged, the money would ultimately flow back into his company’s coffers.

For brands, the big question is just how much data from that process will Facebook be willing to share? You can see why companies might be wary about signing up on day one. Facebook and its family of apps - Instagram, WhatsApp and Messenger - are already something of a walled garden when it comes to advertisers. They regularly complain that they have little visibility over what they call the journey of their customers: What ads did customers see before making a purchase or clicking through to a website? That anonymised data allows them to gauge whether an approach works or not.

Many purchases happen on brands’ own websites right now, which is a problem for Facebook, since it doesn’t know itself when a user has decided to buy something. Knowing what exactly prompts a purchase would help the company target future ad campaigns more effectively. Starting its own digital wallet - Calibra - should allow it to plug that gap by inserting itself into the middle of consumers’ transactions. Facebook has said that it won’t use financial data to target ads, but the wallet will nonetheless surely be optimized to execute purchases from within one of its platforms.

The model here is Amazon. The e-commerce giant knows almost every stage of an online shopper’s journey to purchasing an item, allowing it to target them with precision. That’s a threat to both Facebook and Google’s advertising models, and goes a long way to explaining why Mr Zuckerberg is so keen to make friends.

Updated: June 18, 2019 08:09 PM

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