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How Oculus and Libra Will Save Facebook

by Michael Szul on tags: oculus, facebook, libra, cryptocurrency, bitcoin, virtual reality, vr
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That's a pretty bold headline, no?

I have a confession: I don't actually hate Facebook. And I no longer blame Facebook for any of the societal or political upheaval surrounding it. If you follow me on Twitter, you'll likely read me tweeting disparaging comments about Facebook's practices, but is that Facebook? Or is that circumstances?

I used to believe the former, but I've slowly been shifting to the latter. Zuckerberg certainly has all the characteristics that you'd expect for a person who started Facebook as a "hot or not" for Harvard college kids, but are his awkward displays in front of Congress an indication of his detachment from societal cares, or simply a display of the disconnect between two "tribes?"

When I think of Facebook, the cringing that I do internally when I think of the Facebook timeline, their data practices, or how political ads run roughshod all over ethics is not the same feeling I get when I look for local events or put on my Oculus.

I know people who work at Facebook, and I've seen an enthusiastic approach to their work in artificial intelligence, world-building, and community outreach that runs counter to the regular media narratives we hear. Anyone who has read Clive Thompson's Coders: The Making of a New Tribe and the Remaking of the World should remember the opening story of Facebook engineers developing the news feed; They were caught off-guard by the implications of what they had created, and the downstream side effects. They had good intentions, but had been blinded by the potential negative impacts when a piece of technology built in isolation was loosed upon society.

The reality? Facebook isn't evil; Advertising and marketing is. I use "evil" there to be "shocking"—It's really more amoral indifference. Marketing and advertising is deeply invested in behavioral manipulation. The father of marketing psychology, John B. Watson, was made infamous by his 1920's "Little Albert" experiments in which he performed classical conditioning on a baby—something deemed highly unethical by today's standards and was highly controversial back then. After concluding the Little Albert experiments, Watson eventually joined an advertising agency and used his knowledge of psychology to pioneer a new field of manipulation. He even invented the concept of the "coffee break" to increase sales at Maxwell House.

Comedian Bill Hick's sums up the world of targeted advertising rather succintly (even if crudely):

By the way if anyone here is in advertising or marketing, kill yourself. It's just a little thought. I'm just trying to plant seeds. Maybe one day they'll take root. I don't know. You try. You do what you can. […].There's no rationalisation for what you do and you are Satan's little helpers. Okay? Kill yourself. […] No this is not a joke. You're [going], "There's going to be a joke coming." There's no […] joke coming. You are Satan's spawn filling the world with bile and garbage. "Ooh, you know what Bill's doing now? He’s going for the righteous indignation dollar. That's a big dollar. A lot of people are feeling that indignation. We've done research – huge market. He's doing a good thing." […] Quit putting a […] dollar sign on every […] thing on this planet. […] How do you live like that? And I bet you sleep like […] babies at night, don't you?

Yes… I heavily edited that quote.

Facebook doesn't want to be the John Watson of social media and technology. But our economy's current obsession with growth dictates that any company engaged in advertising is almost required to mine data and manipulate users to increase conversions. Sometimes, data leaks and practices fall into gray areas. We have a tendency to attack the institution rather than the processes that enable the institution. People like to quote Adam Smith on free markets, but most have never read enough of his work to realize that he fully supported government regulation because a corporation should be expected to do whatever needs to be done for shareholder success; The government is required to regulate to ensure the safety of citizens.

If Facebook is in need of shucking it's bad image, it needs to get away from media and advertising, and focus on the value proposition for its users. How can this be done?

I don't spend a lot of time of Facebook perusing the feeds. In fact, I often think the timeline is a total waste with minimal value. But there are several areas that provide significant value—either to me or to my family members.

Facebook Events might provide the best overall value and usage of your personal data. We often complain about how much personal data is being taken by Facebook and provided to advertisers, but when I log into Facebook, I'm often presented with local area events based on my interests. Not only is it the easiest way to keep track of local community happenings, but more obscure events like the 20th anniversary of the Matrix or Jake the Snake Roberts on tour have found their way into my timeline: The perfect mixture of local events and events tied to data aggregation. There is no other source of local or customized events online that matches the power that Facebook brings.

What are some other areas? Well, I'm old, so I still use eBay and Amazon almost exclusively, but my Millennial wife has participated in substantial local transactions (both buying and selling) with Facebook's Marketplace. Again, a global Internet utility is providing significant value for local commerce. This sort of minimal friction transaction allows for item reuse (rather than trashing it), limits shipping transactions, and provides a secondary community market: All factors that are better for local commmerce, community engagement, and environmental needs.

I said minimal friction, but I didn't say frictionless. This is because transactions are still made in person with cash in hand. There is no escrow. There is no credit card payment. How can Facebook make this better, digitize the transaction further, and reduce friction even more? Through payments.

I hammered Facebook for the the Libra cryptocurrency announcement. I said that the last think people wanted was the world's least trusted tech company controlling their finances as well. I wasn't the only one that was skeptical, and since it's announcement, Libra has floundered.

Facebook wanted a two-pronged approach to Libra as a regulated cryptocurrency backed by a consortium, but that also allowed Facebook to create a local currency in their Calibra wallet for the Facebook ecosystem. Libra was meant to be backed not only by companies such as PayPal, Stripe, and Visa, but also tied to real currencies to limit volatility. Most of these partners have since dropped out, as Facebook continues to be under scrutiny for its data practices.

Libra itself isn't technically decentralized. Ledger transactions are committed by the Libra Association partners, so in effect, the ledger is decentralized among the partners, but the individual transactions are initially handled by service partners. This offers two things: Control and speed. The former is a cause for concern, but the latter is a positive. The plan is for Libra to move to a proof-of-stake algorithm that would eliminate the slight centralization among members.

Much like my initial reaction, all reactions to Facebook's Libra have been a knee-jerk reaction based on Facebook's track record with user's personal data, and the large scar of Cambridge Analytica. Nobody "pays" for Facebook, so the large operational costs are covered by marketing and advertising, which puts pressure on targeted marketing algorithms, and makes all data up-for-grabs. Eliminate the Facebook timeline and advertising from the equation, and you have a company with huge equity and ambitions looking to empower microtransactions outside of the control of centralized banking. But more importantly, as commerce becomes more digitized, and technology becomes more prevalent, there is a significant population underserved by centralized banks.

Nearly 2.2 billion financially unserved adults live in Africa, Asia, Latin America, and the Middle East.

This number has fluctuated in its calculation, but trends point to 2 or 2.2 billion (down from 2.5 billion) from 2011 to 2014. These "unbanked" don't have access (or the financial capabilities) for modern banking, but are in need of ways to navigate modern technological commerce—whether for local transactions, microtransactions, or ecommerce. In fact, in Africa alone, smartphone and Internet access is outpacing banking adoption and government reform, meaning it's citizens have access to modern technology, but little outlet to take advantage. This has been such a problem in modern Africa that rapper Akon has invested heavily in building a smart city based on cryptocurrency transactions in order to enable people from his native Senegal, so they can be free from the corruption of the current banking system.

"I think that blockchain and crypto could be the savior for Africa in many ways because it brings the power back to the people," [Akon] said on announcing his plans for Akon City. "Cryptocurrency and blockchain technology offer a more secure currency that enables people in Africa to advance themselves independent of the government."

Cryptocurrency has the ability to enable lower-income individuals in the developed world—and those without the financial infrastructure in the undeveloped world—to partipate in regular commerce, but also microtransactions and local commerce. We've already seen how smaller payments and investments work with services like Kiva that provides crowd-sourced investments to individuals in the developing world. Meanwhile, Patreon, GitHub Sponsors, Kickstarter… these are all companies providing crowd-sourced funds to creatives (partially due to the lack of investment by corporations). The value with crypocurrencies is the ability to "scale down" the transaction, while scaling up the volume: Microtransactions. Microtransactions in cryptocurrencies allow for individuals to develop a portfolio of payments less than the dollar—splitting funds as they see fit—but on a global participation scale.

From a media perspective, this could eliminate the power of advertising and marketing, because the individual's engagement is no longer needed for payment. Microtransactions based on viewed content could replace them. I would much rather pay microtransactions (fractions of a cent) to articles read on news sites than get bombarded with ads and have my personal data sold off.

Outside of media and microtransactions, personal payments such as PayPal's "me" service and Venmo could benefit through microtransaction in communications applications. Facebook is planning Libra integration into Facebook Messenger and WhatsApp, but this sort of integration is already in Keybase using the Stellar Network and Lumens cryptocurrency. In fact, Facebook would do itself a favor by looking at Stellar, which uses a consensus model to stay decentralized, is faster than Bitcoin transactions, and allows for tokens anchored to real-world value to limit volatility.

Stellar is a multi-currency payment backend that tens of thousands of people use every day. It's decentralized, open-source, and developer-friendly, so anyone can issue assets, settle payments, and trade.

Stellar has the vision and the technology, but lacks the name recognition and has limited partnerships—IBM being one of the few big names experimenting with Stellar. If Libra as an organization is bleeding participants, Facebook could focus its efforts on joining the Stellar Foundation, making both organizations stronger. In the end, what Facebook really wants is for Facebook Messenger and WhatsApps to have the deep payment integration that Keybase and Stellar have developed. Where you can simply use a shortcut syntax to automatically send money through chat. In Keybase, you can use the following in a group chat:


Stellar Lumens are worth about 6 cents, so sending 100 isn't much, but that's the point of microtransactions—a limited payment for quality services. Facebook's vision is a decentralized, but non-volatile microtransaction system, which could serve not just American Facebook users, but the billions of unbanked, providing them with safe transactions.

With Calibra, meanwhile, Facebook is looking not only to establish a wallet technology, but one where Facebook ecosystem transactions are settled locally. Many see this as Facebook's control mechanism, but done correctly, it's no different than the way the Lightning Network wants to put a transactional layer on top of the Bitcoin blockchain in order to speed transactions. In my previous knee-jerk reaction to the Libra news, I said:

In many ways, Libra sends a false sense of openness by creating a non-Facebook owned entity to manage the technology, while the Calibra "wallet" essentially creates a cryptocurrency transfer mechanism, but allows Calibra-to-Calibra transfer outside of the Libra blockchain. This parallels (to a certain extent) what the Lightning Network is trying to do with Bitcoin--a transaction layer based on trust that only needs to go to the blockchain when its time to reconcile the balance. The difference is that Facebook wholly owns Calibra, and it's clear that they want to use this to create their own financial ecosystem for their users.

But again, this is based on my perception of Facebook as a media company. There is not much philosophical difference between Calibra-to-Calibra transactions that only "settle" when moving to Libra, and what the Lightning Network is trying to solve for. Nor is there much difference between these transactions and the "local currency" that has started to become a gold standard talking point for people like Douglas Rushkoff. The trade-off is that local currencies and local economies will always have their own governance, while more global standards will require greater consensus. For Facebook, "local" just happens to be their digital ecosystem rather than a city in New Jersey or something. The value for Facebook is that they can take a percentage off the top of each microtransaction for network utilitization. Maybe they're only taking 0.0005 per transaction or per dollar, but at Facebook's reach and scale, that becomes voluminous. It also provides them with an alternative growth market to advertising, which—as discussed—has consistently pushed companies over the edge towards unethical behavior. Yes, Facebook essentially becomes a bank, but does a significant public service by enabling microtransactions, safety, and a place for the world's unbanked. Such a service can be integrated into chat, can provide micro-subscription services to Facebook "Pages" and content producers who can rely on mini-payments instead of advertising, and can provide an escrow for Facebook's Marketplace, which already does a public service by enabling local and secondary markets for neighborhoods.

If you distrust this scenario (and I'm sure many do), is it because you doubt the people at Facebook, or because you doubt their reputation thanks their current business model? Is it Facebook, or is it the advertising and marketing paradigm?

Where does Oculus fit in all of this?

First, Oculus is Facebook's only successful hardware at the moment. The other smart home and IoT hardware is insignificant and untrusted by the public. The Oculus brand is powerful, the hardware is high quality, and putting an Oculus on for the first time is—dare I say—a spiritual experience.

The easy thing to say is that Facebook will take a percentage off the top of transactions inside of Oculus games (as well as games on the Facebook platform).

Forget about games.

Virtual reality and augmented reality are going to change the game with world-building. The best parts of Oculus aren't hitting blocks with light sabers (although that is fun). The best parts of Oculus are the world-building and the social interaction you bring to those world. And who knows social better than Facebook?

Facebook has been desperate to shift away from being a one-trick pony with a social media feed. Oculus takes them into the future: Virtual worlds and marketplaces fully-enabled by microtransactions that empower users. With the Facebook Horizon experiment, Facebook gets to test the waters of an open-world virtual environment rife with social interaction. This is a future where Facebook ceases to be a web site that you log into, and is instead the operating system of the virtual reality visor you put on. The world of wearable hardware.

From an operational and financial perspective, hardware sales and transaction fees diversify Facebook's revenue—reducing the need for advertising revenue, which reduces the need to satisfy marketing departments. This provides Facebook with the sort of leverage that Google can't seem to acquire. Despite it's many technological advances, 95% of Google's revenue is still from advertising. When we hear about data misuse, notice that we hear about Google and Facebook (advertising-centric companies), but don't actually hear much about Microsoft, IBM, or Apple. Companies with diverse revenue portfolios have greater leverage to align business value with collective organizational value. And if Facebook really does want to be the operating system of the virtual world—if they really want to enable the unbanked through cryptographic transactions—they have to increase the public trust by taking stances on marketing and advertising that protect users. There's no way for them to play both sides of that coin and succeed. To transition to the future, Facebook needs to leave the past behind.