June 21, 2019
This week, let's begin with Facebook's long-awaited entry into the crypto / payments / fintech, with the announcement of Libra. The launch of the open-sourced platform and global currency has the potential to fundamentally reshape the rails of global commerce and the internet of money, connect with billions of currently underbanked individuals, and/or expedite regulatory reaction to the social media giant's foray into fiscal and monetary policy - areas overseen by institutions and governments. We've curated and summarized three overviews on Facebook Libra: one comprehensive (and accessibly technical), one critical, and one focused on the business model.
We then provide you one longread on the history of diversity and inclusion in the tech industry, and an article on building an AI-powered organization from McKinsey. All of this week's pieces cross the 10 minute reading time mark, so we'll start you off with one very quick informational tidbit:
Slack, the workplace chat platform, went public, their stock rising almost 50% on the first day of trading. Did you know that the company is an acronym for:Searchable Log of All Conversation and Knowledge.
Focus: Facebook Announces Libra and the World Responds
Facebook has made information on its Libra cryptocurrency available with a promise of virtually zero fees. The plan is to work with sharing money between friends, exchanging points at local stores, and buying or exchanging through apps and third-party wallets.
Facebook published a white paper explaining Libra as well as its testnet, and we’ve seen major responses so far. There are plenty worth reviewing, so we’ve done some of the heavy lifting for you and highlighted three of our favorites.
Josh Constine does a masterful job in laying out the entire story. This is your go-to for the technical elements as well details around its launch date. It importantly notes that Facebook isn’t going to be fully in control of Libra, but will have one vote like the other founding members of its Libra Association. Facebook is also creating a subsidiary named Calibra that will handle crypto transactions and protect privacy.
Facebook claims that it’ll never mix financial payments with Facebook data so that they can’t be used for ad targeting. Association members will earn interest on the money used to purchase Libra, which will be held in reserve to keep its value stable.
“We believe,” says the organization that will govern the currency, “that the world needs a global, digitally native currency that brings together the attributes of the world’s best currencies: stability, low inflation, wide global acceptance and fungibility.” - Kevin Weil, VP of Product, Blockchain @ Facebook
“If more commerce happens, then more small businesses will sell more on and off platform, and they’ll want to buy more ads on the platform so it will be good for our ads business.” - David Marcus, Head of Calibra, Facebook
Also for reference regarding the composition of the Libra Foundation, from the piece:
The 28 soon-to-be founding members of the association and their industries, previously reported by The Block’s Frank Chaparro, include:
Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
Telecommunications: Iliad, Vodafone Group
Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
Matt Stoller, a fellow at the Open Markets Institute, has penned an excellent op-ed for NYT that is critical of Facebook’s attempt at a global currency, including the development of its own central bank called the Libra Reserve.
Stoller lays out four chief concerns with the new currency. First is that the global infrastructure of money is complex, deeply nuanced, and carefully calibrated with hefty compliance requirements. To date, Facebook has not demonstrated its reliability with respect to protecting privacy, monitoring users, or avoiding things like terrorist financing. Second, U.S. laws requires a division between banking and commerce, which Facebook’s Calibra may run afoul of in a few ways:
"Imagine Facebook’s subsidiary Calibra knowing your account balance and your spending, and offering to sell a retailer an algorithm that will maximize the price for what you can afford to pay for a product. Imagine this cartel having this kind of financial visibility into not only many consumers, but into businesses across the economy. Such conflicts of interest are why payments and banking are separated from the rest of the economy in the United States."
Thirdly, a run on Libra could potentially cause the need for a public bailout of a private system. And, finally, national security and sovereignty - Facebook may be used as an end-run around sanctions, such as those placed on North Korea.
The way we structure money and payments is a question for democratic institutions. Any company big enough to start its own currency is just too big.
How does this thing make money? The Verge dives in deep with both Kevin Weil and David Marcus to explore how Libra plans to monetize, especially as the Facebook team are adamant they will not mix financial transaction data with their standard advertising business model.
Financial Services: The pitch is that if enough users are transacting with and holding Libra, a "vibrant financial services economy" can be built on top of it, something that can very conventionally be monetized with new financial products and fees.
Spillover Effect: Marcus argues that if they are able to increase the speed and efficiency of global commerce, that means more online advertising, which means more money for Facebook's core business.
The Amazon Hedge: A very insightful point made is that this could be a massive hedge against Amazon's encroaching digital advertising business. Facebook has never quite made a dent in commerce, and as a result, Amazon's knowledge of a customer's purchase journey enables them to better target product advertisements. Facebook needs to get assert themselves in some way, and Calibra will plug them right back into the middle of consumer transactions (though, they insist the data will be kept separate).
14 min read
Finally, Calibra's logo looked a lot like that of a startup named Current, that bills itself as "the bank for modern life" and "connects your money to friends, family, brands, and experiences that matter."
“The problem is not that much has really been done about it,” Pao says. “Companies are treating it as a PR crisis and strategy. It’s not an operational imperative to them so you don’t see much change. You see the constant problems coming up again and again.” - Ellen Pao, Founder of Project Include (and former KPCB partner and CEO of Reddit)
An incredibly important read on the past decade and pitfalls in progress in the technology industry's march towards equality. As the U.S. approaches the point where its population will no longer be majority Caucasian, this piece brings to light the difficulties of changing companies to see diversity and inclusion a requirement for operational success. As we saw with built-in biases in facial recognition technology, how can we elevate the need for an inclusive workforce and connect it with a call for inclusive data and the undeniable downfalls of bias tech?
We know the combined length of this week's articles are novel-esque, but it's the summer, and these are really good!
A trio of McKinsey partners came together for this HBR cover story. Only 8% of firms are seeing genuine business transformation from AI. The rest only run ad hoc pilots or applying AI to a single business process.
Why the slow progress? At the highest level, it’s a reflection of a failure to rewire the organization. The changes needed are as much cultural and organizational, as they are technological.