Facebook’s Libra ≋

European Straits #126

Nicolas Colin

Dear all,

As I mentioned in the , last Wednesday I attended Saul Klein’s briefing about London harboring the “New Palo Alto”. In a few words, Somers Town, a London neighborhood right behind St. Pancras Station, could become to Europe what Palo Alto is to the US: a hotbed of tech entrepreneurship and a magnet for the continent’s most talented people.

The event was held at Phoenix Court, where Saul and his father Robin’s firm LocalGlobe recently set up shop. Saul pitched me the whole thing at our very first meeting a few months back. The core idea is to install entrepreneurs and venture capitalists right where people live rather than simply where professionals gather during the day. And LocalGlobe wanted to show the way.

Indeed the current regeneration of the area builds upon a unique characteristic: the fact that in many parts of London, fancy houses and luxury apartments coexist with so-called council housing. Unlike Paris, where rich and poor people tend to live worlds apart, in London people from different income levels are actually rather close, geographically speaking. It doesn’t mean that they interact a lot—indeed, their children usually don’t attend the same schools. But you don’t need to add much to foster interactions.

The London startup community could play a big role in developing Somers Town. The adjacent St. Pancras is where the Eurostar connects London to the continent. Large companies such as YouTube and DeepMind have settled all around King’s Cross station. Elected officials like the leader of Camden Borough Council Georgia Gould are participating in the effort to lure tech people away from Shoreditch, which is a bit further east. And now LocalGlobe is leading the way with a compelling data-driven thesis that you can discover here: Welcome to Somers Town — a New Palo Alto?

Hello, ≋

Yesterday there was a palpable sense of excitement at my firm The Family. The reason was the launch of Libra (≋), a Facebook-sponsored protocol designed to enable a simple global currency and financial infrastructure. My cofounder Oussama Ammar deemed the day “historic”—as in “In 20 years, we’ll all remember what we were doing when Facebook announced the launch of Libra.” Meanwhile, all over the Internet, there was the expected flow of reactions, criticisms, sarcasms, cries of joy, and more.

The idea of Facebook diversifying into payments is not new. In my 2013 report on corporate taxation in the digital economy (co-written with Pierre Collin), I was already echoing the idea that Facebook, like any large tech company, would need to diversify in terms of business lines and revenue sources, with payments being the most obvious option. Here’s the (short) article by Matt Rosoff (now at CNBC) that I quoted back then: Facebook Has A HUGE Opportunity That People Are Ignoring.

But why is it happening only now, almost seven years after that article was published?

The reason is that we’re living in a different world. One point, obviously, is the crisis Facebook has gone through because of their obsessive focus on user engagement. The lesson they drew is that it had become urgent to diversify beyond advertising. A move towards cryptocurrency was then signaled by David Marcus, a prominent Facebook executive (and friend of The Family), when he left the board of Coinbase. Ever since it became clearer and clearer that Facebook was considering a bold move into the crypto space, and the stellar reputation of their engineers made it all the more credible.

Another reason for the move is the impressive precedent set by Chinese tech giants Tencent and Alibaba in deploying a massive infrastructure for seamless payments over the Internet. The story of how Tencent forced the shift to mobile payments in China is worth remembering. It was a bold entrepreneurial move during which hundreds of millions of dollars were deployed in a matter of weeks and after which the Chinese economy was changed forever: higher velocity of money, massive amounts of data, and the emergence of uniquely Chinese business models that represent a convincing alternative to advertising.

A third reason for Facebook’s initiative is that the Bitcoin bubble happened. Like every tech bubble, this provided the opportunity for some to amass a fortune, while others (including me) simply stood by, using the bubble as a magnifier to better understand what was going on.

There’s still a lot of confusion as to what took place. But as I wrote in a , I’m still convinced the best way to understand crypto fever is to think in terms of protocols rather than in terms of currencies: “This is how we need to be looking at cryptocurrencies: an attempt to renew innovation in the realm of network protocols that are neglected by today’s Internet giants.” Well, I should say that Facebook has now turned the tide: Internet giants aren't neglecting network protocols anymore!

To be fair, the fact that Bitcoin became the first crypto protocol to make it into mainstream media really didn’t help. We can understand why pioneers in the crypto world chose money as the first challenge to tackle—as opposed to, say, email or personal data, two fields riddled by problems that could be solved by new protocols. After all, it was right after the financial crisis, and the need to build a new financial system seemed obvious to many.

Unfortunately, money comes with two problems. First, it’s one of the most regulated areas in the global economy, and governments were swift in answering with hostility, constraints, mandates, and regulations (by the way, that's still going on). Second, money immediately attracts a particular crowd, namely . As a group, they were so used to knowing it all in the past century that they immediately seized the occasion to bounce back from the financial crisis that discredited their ideas and again start teaching lessons to everyone about central banks and monetary policy. In the end, it appeared as if the holy alliance of officials and economists was bound to triumph over the craziness and innovation brought about by crypto enthusiasts, and that things were now back to business as usual.

Well, they are not, and Libra is here to prove it. Quite simply, Facebook made three moves in one. They emulated the Tencent playbook, but at a global scale rather than in one country only. They drew many lessons from the Bitcoin adventure, notably in the fields of software architecture and governance. And they shifted their strategic positioning, clearly hoping (rightfully, I think) that opening a new front will help them escape the wrath of regulators, politicians, competitors, and the angry public.

You can learn more about Libra via the links in the reading list below. As for myself, let me simply highlight a few things that I like:

  • Facebook is building a new protocol rather than a proprietary walled garden. This forces them to outsource the whole effort to organizations operating at arm’s length: an association named Libra, and a subsidiary named Calibra (headed by David Marcus). This makes perfect strategic sense as Facebook itself taking charge would deter many other organizations from using the protocol. And because Facebook is so huge, they still have the capacity to deploy valuable services on top of Libra and to attract literally billions of users into early adoption. (And it’s not the first time they’ve done this: recall the Open Compute Project, which is about reinventing data centers at the scale of the entire tech industry.)

  • We’re about to witness a race to decide who will dominate online payments in the future. Will it be Tencent and Alibaba deploying their payment solutions along the Belt and Road, all the way to Africa and then Europe (as theorized in my book Hedge)? Or will Facebook’s initiative trigger the deployment of alternative, Libra-based solutions on every market that’s not China? I must say the efforts of Chinese giants to expand beyond their domestic market have been underwhelming so far, and the current trade war will not help. There is an opportunity to seize, and I admire Facebook’s big move towards doing so.

  • It all vindicates my theory that some problems may be solved by tech companies operating at a very large scale rather than by feeble governments. Indeed what we’re seeing here is a perfect illustration: while Tencent popularized seamless payments in China, we in the West (and elsewhere outside China) have been waiting forever for someone, anyone to implement a comparable approach for our benefit. It hasn’t happened, alas, because government officials are incompetent, legacy businesses are defending the status quo, and, unlike people in less developed countries, most Westerners have too good of a life to yearn for such radical innovations. And so I’m glad that Facebook is moving the needle and forcing that radical change.

I’ll wait a few more months (years?) before deciding if Libra is the new Bretton-Woods system or rather the short-lived League of Nations. But in the meantime, might I point out that the Libra association headquarters is not located in Silicon Valley, but rather in Europe 🇪🇺—in Geneva, to be more precise, a city that once hosted the League of Nations and that is now at the heart of what my friend Ben Robinson calls the Internetworked Nation 🇨🇭. What an intriguing signal!

🔑 One of our latest programs at The Family, Goldup, is all about helping women to take the first step towards building their own business. Entrepreneurship can take many forms, and ambition is a question of doing better and better, day by day. You can read more about the program here (in FR, even though the first program was held in Berlin). Also, here's the website.

🎓 We recently had Coursera CEO Jeff Maggioncalda at The Family, which was a huge thrill because we're real believers in making learning a lifelong practice. He talked with the head of our Paris office, Erika Batista, in a video that you can see here.

📚 And by happy coincidence, Jeff's visit came just a few days after Oussama explaining his perspective on learning to learn here.

💰 Our London-based program The Family (AAA), led by my colleague Pietro Invernizzi, has been publishing a set of articles with founders telling how they raised their startups’ Series A round. Read the latest one here: How They Raised Series A: Paddle.

💢 Finally, don’t miss the YouTube video of my fireside chat with Martin Gurri, author of The Revolt of The Public 🤗

Below, I’ve included some articles and others to help you learn more about Libra and crypto in general:

Warm regards (from London, UK),

Nicolas