Have you overdosed on Libra coverage yet?
And it’s not even been two whole weeks.
Facebook’s launch of Libra on June 18 unleashed a firestorm of media coverage, mostly repetitive, and mostly a piling on over the regulatory bear that it poked when unveiling its global payments plus cryptocurrency plans.
If you need a balanced refresher of Libra’s impact on global payments, here’s how I called it in a piece that published one minute after the Libra news crossed the wire.
In that piece, I offered a fact-based framework for understanding Libra’s future and the several big “telltales” that will shape it over the short and longer term.
I’ll reprise those for you at the end of this one.
But first, let me answer another of the burning questions on my mind as I more fully process Libra and Calibra (the Facebook digital wallet that will ride its rails).
If Facebook really wants to be WeChat, an ambition it has referenced now for several years, then why did it launch Libra?
Back to the Future of Messenger
Let me start with the punchline: Libra and Calibra are not WeChat, and they may never be.
To understand why, we need to do a little time travel back to July 2017, when Facebook’s Messenger and its monetization strategy was front and center in the company’s Q2 earnings report.
Three years earlier, Facebook hived off Messenger to become its own standalone app, and David Marcus, then PayPal’s CEO, joined the Facebook team to own and monetize it.
Life was good for Facebook in 2017 – before fake news, before it was widely known that Facebook was manipulated by the Russians to meddle in elections, before it became widely criticized for playing fast and loose with the privacy and security of user data.
In fact, on Facebook’s Q2 2017 earnings call, there were high fives all around for its Q2 results. Active users had topped two billion, daily active users reached 1.3 billion, revenue was up 45 percent, profits were up 71 percent and mobile was driving a stunning 87 percent of ad revenue, just to highlight a few of the notable and impressive headlines.
Facebook CEO Mark Zuckerberg also mentioned as part of his prepared remarks that Facebook was planning to accelerate its investment in Messenger to “move faster” to drive activation and acquisition – and monetization – which he emphasized was still in “early days.”
That day, not surprisingly, Messenger became a key topic of conversation in the analyst Q&A. Before then, there was concern that ad growth on Facebook would slow given a change in how much ad content would be shown in the news feed. Analysts wanted to better understand Messenger’s role in potentially filling that gap.
In an almost “what-are-you-waiting-for” series of questions, one analyst even remarked how rare it was for any company with a billion active users to not have a monetization strategy – or the associated revenue that goes along with a customer base that massive.
Zuckerberg’s response to that – and to many other Messenger-related questions that July day – was consistent: Messenger is not a “near-term overall Facebook growth driver.” He added that because other messaging platforms had succeeded in creating a robust ecosystem – and Facebook had succeeded in monetizing Facebook and Instagram – the company was confident that “over the long term, [Messenger] will get there, too.”
The questions posed by analysts that day were an attempt to dig deeper into a series of Messenger media roundtables held in the weeks prior.
During those sessions, Marcus provided an update on Messenger’s progress, including new features that had been launched and the impact of bots on consumer engagement. Bots on Messenger were launched in April of 2016 – two years after Marcus took charge – to much fanfare. A year later, the bot hype was in the throes of a backlash, since the bot experience on Messenger was, to put it kindly, pretty clunky.
During those media interviews, Marcus defended messaging apps as the places where consumers would logically go to find things to buy and services to leverage. Messaging apps, and Messenger in particular, would become the consumer’s new inbox, he said. Bots were the ticket to that pivot and that user engagement.
Give it time, just wait and watch – even though, by his own admission, bots had become the poster child for way more sizzle than steak. Bots, he said, would eventually power the digital contact pages inside one ecosystem, making it easy and convenient for users to do more than text their friends inside the Facebook messaging platform.
Just like Tencent has done successfully with WeChat.
Why Facebook and Messenger Are Not WeChat
Before talking about trying to be WeChat, it’s important to understand what WeChat is.
WeChat started in a very different place and in a country, China, that is culturally quite unique.
Tencent’s WeChat was an extension of QQ, an instant messaging app for the desktop. Its base was an established network of people who interacted with each other and, among other things, played games, which was Tencent’s main business. When Tencent made the move to mobile and launched WeChat in 2011, it had to persuade QQ users to download and use the WeChat app.
And they did download and use it – because that network of friends in China had no other alternative to enjoy all of the benefits of using QQ over mobile. Over time, QQ had become about more than just sending messages and slick emojis to friends and playing games as part of a social network.
WeChat soon became that place where Chinese consumers could talk to their friends and make new ones, connect with brands they like and find new ones, and transact with them on and offline.
There simply weren’t any other options. Western brands like Facebook and Google were prohibited in China, and Alipay was more transactional than social, linking to Alibaba and T-Mall and the brands that sold there.
That’s why, then and now, WeChat has evolved to become an active ecosystem that attracts app developers and brands given its sheer size and user engagement – one billion daily active users – and the relative ease with which Chinese consumers can interact and transact with those brands. Size begets scale, and scale begets developers and brands who seek distribution on a platform that aggregates an emerging middle class of Chinese consumers. In fact, just last week, Cartier, Bulgari and other luxury brands agreed to sell on WeChat for that very reason.
Like Tencent and QQ, when Messenger separated from Facebook in 2014, it needed to get consumer and their friends to download the Messenger app. When Messenger was on Facebook, it was pretty easy to punch out to chat with Facebook friends while staying inside Facebook’s ecosystem. Friends could see who were active and start a conversation.
But many of those close friends interacted with each other on a regular basis off of Facebook, and had other ways to reach each other: phone-based messaging apps, LinkedIn, email and the many other competitors that had surfaced to pull people off of Facebook, like Instagram, WhatsApp and Snapchat. So, not downloading the app in the U.S. and the U.K., for instance, didn’t come with much of a downside. Users could still stay in touch with those friends – it just meant using one of the other channels they already had in place. For some, Messenger became just one more channel to manage and check.
Back in 2014, Messenger users also had a different view of their “one place” to do all of those things – and it wasn’t any of their messaging apps. Instead, it was an ecosystem of apps that they used regularly and could access on their mobile phones: Uber, Amazon, Walmart, PayPal, Square, banking apps, OpenTable, Facebook, Instagram, Google, Venmo – and yes, WhatsApp and Messenger, to name but a few.
But they used them in the context for which they were intended, and engagement was efficient and suited their needs: messaging apps to talk to friends; Facebook to broadcast what they’re doing to big groups of people they haven’t seen in years; Amazon, Walmart and Google to search for stuff to buy and then buy it; and PayPal to check out more easily online.
Since then, many of those same apps have created and scaled their own ecosystems of services. Some now even meet a wide spectrum of needs for the users they have attracted: taking funds in, viewing and managing transactions, paying bills, sending money, paying for things on and offline, and searching for things to buy within a single ecosystem.
For example, consumers can now book an Uber from a messaging app or via OpenTable. They can load cash into their PayPal accounts and pay bills or buy things from merchants that accept PayPal. Inside the Amazon ecosystem, consumers can load cash onto Amazon store cards, buy groceries using EBT cards, search and buy things and listen to music and watch movies. Consumers in developing countries can order online from Amazon and use Western Union agents to settle up in cash and pick up their packages. Inside the Walmart ecosystem, consumers can shop on and offline using the same method of payment, send money domestically and cross-border, load cash into their wallets and pay bills. Square Cash enables P2P payments and takes in funds – now including bitcoin deposits.
The same holds true in developing countries. Grab, Paytm, Alipay and WeChat have all expanded their app functionality and acceptance regionally and globally to give users a single place to organize and manage their money, their purchases and their relationships with merchants and service providers.
And all of them – developed and developing – use regulated rails, bank accounts and compliant fiat currencies to remove user confusion and friction, establish trust, enable merchant acceptance and accelerate market entry and scale.
Just like WeChat did.
Of Messenger and Libra
Since it was set off on its own, the number of active Messenger users has more than doubled, and it is one of the most widely used apps worldwide.
Monetization strategy, however, has yet to click.
It hadn’t in 2017, and Zuckerberg made it clear he was willing to play the long game. A year later, in May of 2018, Facebook launched a new blockchain business unit, and Marcus was put in charge to lead it. A year after that, Libra and Calibra was born.
Now we know what Messenger’s monetization scheme is – and it is really, really, really a long game.
And it looks nothing at all like the WeChat playbook.
It was a big ask for consumers to download the Messenger app back in 2014. It seems an even bigger one to ask those consumers to download another app inside Messenger – Calibra – for the sole purpose of sending Libra currency via a Calibra digital wallet to friends, with no other use cases in sight for a very long time. It, in many cases, means giving up something else that they do off Messenger for something that is new, and quite limited in how it can be used.
It’s also not clear to what extent the bot revolution on the Messenger platform has inspired consumers to do more than message each other – in other words, laying the foundation for the launch of an entire “from-scratch” payments network, currency and commerce ecosystem. There are stories of micro-merchants using it as a channel to sell, but it’s not clear how widespread those use cases are and the extent to which they have traction and scale. MoneyGram and Western Union both have bots inside the Messenger platform, but no one is talking about them being used much for P2P payments.
It’s also not clear why new rails and a new global currency was Messenger’s path, instead of leveraging existing, regulated global rails of existing players in an effort to gain scale, trust, merchant acceptance and access to users with wallets ready to transact – particularly when 69 percent of people worldwide, and 63 percent of people in developing countries with money have bank accounts. As I cited in my piece on Libra, the World Bank reports that 75 percent of those without bank accounts are living in abject poverty without money to put into one.
And particularly when none of the other commerce ecosystems, including WeChat, felt the need to create an entirely new payments network and digital currency to ignite commerce on their platforms. Apple didn’t need to create an entirely new mobile telecommunications network to launch the iPhone.
It just doesn’t click.
Because if Facebook and Libra and Calibra really wanted to be like WeChat, and become that “one place” for people all over the world, they’d be doing none of those things.
Tips for Libra Watching
It will be two weeks tomorrow that we all got our first look at Libra and Calibra. No doubt there will be countless news stories to come, and opinions on why it will or will not fly. Here are the things I will be watching for over the coming months, things that I think provide a useful framework for understanding how Libra and Calibra’s future takes shape:
How many of the 28 Founding Association Members will pony up $10 million to remain members.
A point of enormous confusion in the press is what the 27 non-Facebook companies have agreed to do at this point. That agreement, as outlined in a Letter of Intent, is to show up at meetings to help shape Libra’s governance, charter and mission. That’s it. No money exchanges hands until those meetings have happened and everyone agrees to what “it” is. Among other things, that will depend on what it means to be an Association Member.
Whether being an Association Member requires an agreement to validate and process transactions on the Libra network.
The Facebook Libra whitepaper states that Association Members must agree to operate as validators on the network. For many regulated, compliant global players like Visa, Mastercard and PayPal, that could come as a big ask, particularly since it means saying yes to processing transactions that use the Libra cryptocurrency.
Given the regulators’ antipathy toward cryptocurrency, that could be problematic. Things could change if regulators give Libra the green light, but the light right now seems firmly stuck on red.
What isn’t helping – and I am sure that Facebook has had this same thought – is bitcoin’s surge post-Libra’s launch. If I were Facebook, I’m not sure I’d be thrilled to be positioned as the catalyst for bringing bitcoin and all of its big-time baggage back from the depths of demise. I’m not sure that many of the current players who’ve agreed to take a seat at the table like that much either. For sure, it just muddies the context with which regulators may look at Libra.
So, the big development to watch here is whether there will be tiers of membership that allow members to listen, observe and vote if they don’t want to participate as part of the network from a processing standpoint. To most of these players, ten million bucks is chump change, and worth the investment in keeping close tabs on what’s going on.
Who the other 72 Association Founding Members will be.
Facebook has stated they will remain actively involved with Libra throughout the remainder of 2019 in order to recruit other Association Founding Members. The goal is to hit 100 – and their $1 billion threshold for funding Libra and creating a reserve for the Libra currency. (Ten million dollars times 100 members equals $1 billion.)
In theory, as I mentioned in my initial piece, creating an Association to govern Libra isn’t a nutty idea – it is the same structure and governance the card networks used to start and ignite their global networks.
But there are two big differences.
Visa and Mastercard didn’t, as part of the ask, require banks to do business using a fake currency. Further, all of the members had similar interests, operating principles, regulatory constructs and shared goals.
The only way Libra has a shot at becoming anything close to a global payments network is to make sure its membership checks that box, too, so the governance reflects the input of like-minded players. That seems like it could represent a massive challenge today, given that the network and the currency are comingled – and one can’t exist without the other.
If regulators can’t see past the red light of crypto, and membership requires transacting on the Facebook network, that is likely to keep global banks out. It will, however, attract the zillions of crypto enthusiasts and crypto payments gateways who now view Libra as a path to their own legitimacy. Having a disproportionate number of those folks at the table increases the risk that the Association and Libra will evolve into a rogue set of alt payments rails run by people who have been waiting a decade for this big break. That would not be a good development for Libra.
Whether Libra can get past all of this in a relevant timeframe.
Libra’s plan to reinvent global payments for people and businesses is an ambitious goal. But as I said in my original piece, they couldn’t have made it any more complicated.
For Libra to ignite, everything has to change, and for everyone: regulators, networks, banks, merchants, acquirers, consumers, businesses, governments. And in every single country on the planet. And all at once. I can’t think of anything that has ever tried to do this and succeeded, in a timeframe that is relevant to anyone. Particularly when the only way to launch a new currency is to have central banks say yes and governments mandate its use.
Today, that is a material concern for Facebook and Libra. Time is an important currency, and given the pace of technology and the global scale that payments already enjoys, it poses more of a threat to Facebook than Libra does to those it hopes to serve, and disrupt.
Consumers and merchants have many other options and will continue to deepen those relationships. Banks and networks have their own traction, operating at scale globally, and with a focus on financial inclusion, in a compliant and regulated way, and without Facebook’s reputational and regulatory baggage. Regulators today have zero incentive to rush their decision about regulating crypto, not just Facebook’s Libra. And given their current attitude toward Facebook, they have no real incentive to cut the social network much of a break.
Time is an important currency for investors who, two years ago, were already impatient for Messenger’s monetization strategy, and were then told to be patient. For Libra and Calibra, their monetization strategy involves a potentially decades-long wait, laced with the uncertainty and expense of getting both off the ground and at scale. It’s hard to understand why, with Facebook’s many other issues, they decided on a payments monetization strategy that comes with so much controversy, so much complexity and has little chance of success when other viable options were available to them.
Perhaps I am missing something – a secret acquisition play or back-pocket Member that will cause everyone to sit back and say, “okay, now I get it. And it all makes perfect sense.”
I’m dubious.
It’s more likely that Libra and Calibra will become Messenger’s monetization strategy, but for Facebook and about Facebook. The 2020 version of Facebook Credits, but using the magic elixir of blockchain crypto rails instead inside of their own ecosystem.
Even without an ignition strategy, that will likely end the very same way.
And, yes, anything but like WeChat.