Mark Zuckerberg recently wrote a long post outlining Facebook’s shift from open sharing to private communications. It makes sense. People are waking up to the anxiety and depression caused by open sharing and are moving to smaller and more intimate online spaces instead. Facebook has no choice but to change course.
But this shift begs one important question: how will Facebook make money?
Making Money with Private Communications
Social apps have historically made money by adding public broadcasting, putting those broadcasts into a feed, and then putting ads into that feed. Facebook has the news feed, Snapchat has stories, and Twitter has the timeline.
We never added broadcasting to our chat app Kik. We worried it would encourage people to focus on putting on their best show, instead of just being their true self. Today Kik is used by millions of people who spend more time in Kik than Snapchat, Twitter, and Instagram. People love hanging out in a world free of broadcasts, feeds, and likes. But without a feed to put ads in we’ve had to think of other ways to make money.
After ten years of searching the only good way we’ve found is with a cryptocurrency. By creating a cryptocurrency that is used as a medium of exchange in our app we can create something valuable like Bitcoin or Ether. This allows both us and our users to make money by selling pieces of the currency as the economy grows and the currency becomes more valuable.
In 2017 we launched Kin, a cryptocurrency for the digital world. We created 10 trillion Kin tokens. We sold 1 trillion tokens for $100 million, we allocated 3 trillion tokens for Kik, and we allocated 6 trillion tokens for other app developers who wanted to use Kin as a new way to make money too. Last month 80,000 people spent Kin across 40 different apps. Kin is one of the most used cryptocurrencies in the world.
We now know that Facebook is going to launch their own cryptocurrency too. But instead of creating a currency for the digital world, it looks like Facebook is going after something much bigger. It looks like they are going to create a currency for the physical world. And they have a proven playbook to get people to use it.
The WeChat Playbook
In 2014 I published a post The Race to Become the WeChat of the West. Nine months later WeChat invested 50 million dollars into Kik at a billion dollar valuation. The WeChat playbook is clear:
1. Make it compelling for people to bring their money into the messenger
2. Make it easy for them to move their money around
3. Create more and more reasons for them to keep their money inside the messenger
In 2014 WeChat used the cultural phenomenon of red envelopes to get people to bring their money into WeChat. Instead of waiting to hand out envelopes of cash at special occasions, people could send virtual envelopes right inside their chats. Soon millions of people were bringing their money into WeChat, putting them into virtual red envelopes, and sending them all over the country.
WeChat allowed people to take their money out at any time, but they also added more and more reasons for people to keep their money inside: paying hydro bills, buying food, booking vacations, and more. Soon no one was taking their money out.
Today 900 million people use WeChat for daily transactions, totaling nearly $10 trillion of payments per year. In China WeChat replaced cash.
Executing the Playbook
Facebook is about to have all the pieces needed to execute the three step WeChat playbook.
First, the compelling need: remittances.
Every year people working in foreign countries send hundreds of billions of dollars home to family and friends. Today this process is slow, expensive, and complicated, with an average fee of $14 to send just $200. If Facebook could offer people a way to send money home for free it would be a game changer for tens of millions of people.
Second, moving money: the blockchain.
One of the key breakthroughs of the blockchain is that people can move money digitally without needing to trust a third party. This was impossible before the blockchain. This allows Facebook to enable payment functionality in their apps without needing to become a bank. So instead of working with regulators like WeChat did in China, Facebook will be able to roll out a global financial system without needing to go through the time intensive process of working with banking regulators country by country.
Third, keeping money inside the system: the platform.
By adding the ability to remit money inside their apps, and by using the blockchain to power those remittances, Facebook can quickly roll out a ten times cheaper solution to a problem experienced by tens of millions of people. But what will people do when they receive those remittances?
Initially they will cash them out for life’s daily expenses. But just like what WeChat did in China, Facebook will add more and more ways to spend money directly inside their apps: paying utility bills, getting food at restaurants, topping up phone minutes, and more. New ways of spending money through the app will become simpler and more powerful than the previous alternatives. Soon enough there will be no reason for anyone to take their money out.
How It Could Play Out
Right now we already know quite a few things about Facebook’s plans. We know they plan to offer stablecoin powered remittances. We know they plan to start with Whatsapp. We know they plan to start in India.
This makes perfect sense. India receives more remittances each year than any other country in the world. Whatsapp is the most popular app in India. And a stablecoin allows money to move on the blockchain without the risk of it becoming more or less valuable than the local fiat currency.
So what could come next?
Let’s call Facebook’s stablecoin “Facecoin”. Facebook could allow people to buy Facecoins right inside of Whatsapp and send them home to family and friends in India for free. People in India could convert their Facecoins into cash, but Facebook could create more and more reasons to just spend Facecoins using Whatsapp. Just as WeChat replaced cash in China, Facebook could soon replace cash in India.
As India gains momentum Facebook could look to expand. First into other countries where remittances are popular. Perhaps the Philippines and Egypt, followed by Mexico and Vietnam. To get adoption in more developed countries Facebook could combine Whatsapp, Instagram, and Facebook Messenger together, allowing Facecoins to move across all three services. Facecoins could start to replace cash in each of those countries, becoming the primary currency for billions of people.
The End of the Dollar
People who understand crypto might argue that this doesn’t matter. That because the value of a Facecoin is pegged to the value of a dollar, they are essentially just dollars that run on a blockchain. To me this is the most important part. Not that long ago the world’s reserve currency was gold, where the value of a dollar was pegged to the value of gold. But then one day the US decided to unpeg the dollar from gold, paving the way for the dollar to replace gold as the world’s reserve currency. So here is my question: what will stop Facebook from doing the same?