Chris Peoples, Founding and Managing Partner of PP&A
Facebooks recent announcement that it will launch a cryptocurrency called Libra has spurred a wave of both positive and negative sentiments towards this concept. Even blockchain enthusiast communities show a division of opinions on the topic. There is a camp supporting the project, as the Libra project represents a potentially unprecedented step in furthering efforts to provide alternatives to central bank run currency monopolies. This belief comes from Facebook's current network reach. This reach allows Facebook to almost instantly influence its significant active user base on its platform in one shot. Others, however, are less than enthusiastic around the concept of giving Facebook the ability to host and coordinate large swaths of transactions on a global scale. Facebook in recent times, continues to garner intense scrutiny, repeatedly making headlines for misinformation, personal privacy violations, and control overreaches. Opponents of the Libra platform contend that Facebook, as a company, has lost the trust of its users and should fix its current issues before undertaking this next ambitious venture.
Indeed even U.S. regulators and government officials have now taken increased notice. Libra's initial announcement has triggered a wave of swift responses from Congressional members calling for a moratorium and requests that Facebook appears to testify before Congressional committees. James Powell from the Federal Reserve has also called for caution around the concept. Even President Donald Trump has unleashed Twitter barrages illustrating disapproval and seeking regulations around the prospective new currency. While it is unclear what such rules would look like, Facebook's Libra has definitely stirred the pot.
Blockchain technology has seen a steady progression since the first genesis block of Bitcoin was mined in 2009. IDC estimates that spending on blockchain technology, which has already reached $1.5 billion in 2019 will reach almost $12 billion by 2022 as the technology develops. At PP&A, our market intelligence platform projectScape also shows a continued evolution of new decentralized transaction ecosystems. These evolutions include the emergence of new concepts around blockchain as a service as well as innovative ways to deploy and utilize tokenization schemes. Libra, even in its early stages has already signed up around 27 affiliates for its Association including industry-leading players such as PayPal, Vodafone, Visa, and MasterCard with a plan to reach 100 partners by 2020.
The potential scale of the Libra undertaking is why business leaders around the world should take note of the project and understand the implications it may bring. Facebook as an organization is indeed in a unique position to champion and deploy cryptocurrency with more speed and resources than, arguably, any other organization in the world. Having achieved a global reach of over 2.32 billion active users and revenues of almost $56 billion in 2018, the organization has many of the foundations in place to facilitate a decentralized transaction ecosystem. Network effects are considered to be the primary success factor for platform-based businesses. Through its existing operations, Facebook already has a platform which enjoys network effects only dreamed about by other organizations.
One must wonder whether Facebook's ultimate objective is to one day operate similarly as China's WeChat. WeChat is a Chinese social media platform which plugs into almost all aspects of a user's transactional lives. This platform has become a one-stop-shop for social messaging, banking, shopping, transportation, dining, and much more. One thing is for sure, blockchain as a technology is here to stay. The question, however, remains, which business leaders will be able to navigate these changing times successfully. Successful leaders must focus on leveraging these new concepts and technologies to not only avoid disruption but also redefine the status quo's in their respective sectors.
With the announcement of the Libra platform, here are the five implications business leaders must know:
1. Transaction dynamics on a global scale are set to change
Blockchain as a technology is designed to serve as a disintermediator of centralized authorities who currently coordinate and facilitate transactions between parties today. The value proposition behind this disintermediation many times is the reduction of transactional friction between parties resulting in lower costs and more secure transactions between parties. What Facebook's Libra seeks to provide is precisely this type of platform. Ideally, the platform would provide a stablecoin, a "currency," which aims to maintain a stable value by virtue of the underlying assets which back the coin. The underlying asset backing Libra's coin is one of the main differences between Facebook's Libra and other cryptocurrencies. Cryptocurrencies seek to derive their value from mathematical operations used to secure and track activities on their respective networks. Libra, by contrast, looks to derive its value from securitized fiat currencies which are put into place, at least initially, by its affiliates.
Libra as a ubiquitous platform which spans freely between international borders certainly does provide exciting prospects to businesses transacting not just domestically but also internationally. Managing and hedging for currency risk effectively is a crucial element in ensuring global operations are sustainable and profitable. A Libra currency for this purpose serves as a pre-hedged product allowing organizations to reduce impacts of currency volatility, thus improving planning and stabilizing earnings. However, at the same time, there are a host of new challenges to consider regarding compliance around know your customer (KYC), anti-money laundering (AML), and adhering to government-imposed sanctions.
2. Libra doesn’t just impact the future of money but also the future of the customer relationship
A centralized payment and transaction mechanism like Libra, does indeed have to potential to help organizations expand their reach into previously untapped markets. However, business leaders should consider the cost of eroding their overall connection to the customer by leveraging Libra or a similar platform as the transactional middleman.
Customer touchpoints along the transaction lifecycle are key customer relationship drivers. These interactions between suppliers and customers, create opportunities to build customer loyalty, enabling repeat business, up-selling, and cross-selling increasing total customer lifetime value. Some of the methods traditionally used to help accomplish these objectives include perks, effective payment plans, outstanding service, and of course, communication. It is still unclear how exactly customer interactions will play out with Libra or for that matter, many other decentralized platforms. One thing is clear though, while organizations explore new untapped customer touchpoints, they would do well to try to maintain the integrity of touchpoints already in place.
3. Libra is currently set up as a pay-to-play platform targeting large established organizations
At present, Facebook’s Libra Association is relatively exclusive to organizations of a specific size and financial criteria. These criteria can include being recognized as a top industry-leading organization, achieving a market value of more than $1 billion, or having the ability to reach over 20 million people on a global basis. The costs to gain access as a founding affiliate of the Libra Association at present are relatively steep. The Association requires most incoming affiliates to contribute up to $10 million to the Association’s fund to join. This type of affiliation model is not uncommon in the space. The Energy Web Association, an energy-focused blockchain platform company, employed a similar model in the energy sector. They were at one time requiring a contribution of $250,000 to become an affiliate to compare. The Libra Association intends to use these contributions as the backing behind the Libra currency. Once approved, affiliates of the Libra Association pay an estimated cost of $280,000 to host a node on the network.
4. Organizations will have to build internal industry-specific blockchain talent pools to succeed in future markets
Libra reiterates the need for businesses to understand and prepare for the shifts created by blockchain technology. The demand for talented blockchain developers, strategists, and eco-system participants has seen a steep increase. However, most opportunities sit with a few key players and start-ups. Since 2016, Indeed reports that the overall volume of blockchain-related job postings has increased by over 4,000%. However, most of these postings are situated with a small group of technology-focused players, consultancies, financial service providers, and blockchain start-ups to include Microsoft, Accenture, IBM, Consensys, JP Morgan, and others. Many of these organizations primarily serve as service providers to the industry, indicating that the actual market participants are likely missing sufficient in-house talent. In the short-term, it is not a bad idea for business leaders to rely on outside expertise when dealing with new concepts and technologies. For the mid to long, however, best practices typically dictate the establishment and development of in-house talent to maximize value.
5. It’s time for business leaders to be up to speed on blockchain technology
One hears the phrase all too often from business leaders, "I’ve heard about blockchain, but I don’t know too much about it." The initial hype around blockchain did indeed bring a significant amount of enthusiasm around the potential applications of the technology. The early days of the Crypto Wild West saw a slew of initial coin offerings (ICOs ) freely released to the public touting grand visions of decentralized utopian concepts. During these peak hype periods, founders were able to successfully raise millions of dollars of capital in support of these visions without the need for traditional sources of capitalization. The problem was that this early excitement also brought in a host of bad actors, under-qualified participants, and ultimately failed concepts. These factors eventually lead to a variety of regulatory agencies, like the SEC, having to step in as a watchdog to establish rules, guidelines, and consumer protections around the sector. The impact of these controls can be seen by the ICO market, which, since the beginning of 2019, has taken a steep cliff dive and shows no indications of re-emerging.
These negative elements aside, there are still plenty of projects and concepts which are alive and doing well. It is a bit ironic that in many cases, centralized organizations are now spearheading efforts around the development of decentralized business models. These are the same centralized organizations which some members of the blockchain and cryptocurrency community sought to make obsolete. Business leaders at the front lines of innovation understand that blockchain technology does hold the potential to revolutionize many aspects of their businesses today. Banking, retail, health care, and automotive, to name a few, are industries which may soon be seeing seismic shifts in status quo transaction models. Today, for example, over 40 central banks are actively exploring concepts utilizing blockchain technology. The energy sector is another excellent example of an industry showing a significant amount of blockchain activity, including accelerators of green economies, connected ecosystems, peer to peer platforms, and even operational optimizations at the utility-level.
With the announcement of Libra, Facebook has kicked open the door for platforms which look to redefine how people transact around the world. From enabling financial inclusivity to streamlining cross-border transactions, a platform of this magnitude can significantly impact the dynamics of our world today. The question remains, is Facebook the right organization to facilitate this transition. Also, with the advent of this concept, how long will it take for another tech, social, or media giant from around the world look to join the fray? One thing is for sure, business leaders around the world are in for changing times with the advent of these types of platforms filled with both new challenges to navigate and new opportunities to capture.
About the Author
Chris is the Founding and Managing Partner of PP&A, a boutique strategy consultancy, and IT solutions provider. He has earned a Master’s Degree in Management with a focus on Strategy and Strategic Information Technology from Germany’s prestigious business school the EBS University of Business and Law and has also studied at other top universities such as Tsinghua University in Beijing, China. Working at the intersections of strategy, technology, policy, and investment banking, he sits on the Advisory Council of the Maryland Clean Energy Center, leads the Energy Working Group at the Government Blockchain Association, and serves as the Washington D.C. Chapter Lead for the Energy Blockchain Consortium.
Professionally, he has gained more than ten years of consulting and industry experience in and around the energy and environment sector. Starting his energy career in Germany with a brief stint at E.ON Climate and Renewables, he transitioned into M&A consulting and generation development, where he quickly gained an affinity for tackling challenging topics in project finance, valuation, deal execution, and project development. Working with leading Fortune 100 organizations in advisory roles, he supported the development and execution of over $4 billion in assets and acquisitions including renewables, conventional generation, and an LNG export facility. In addition, Chris has worked at the highest levels of the energy and natural gas retail and wholesale sectors, where he concentrates on helping organizations achieve operational excellence and discover new innovative business models.
Since founding PP&A in 2016, Chris has returned his focus to the world of innovative technologies. As a technologist and an avid developer, Chris has built and deployed a variety of applications and platforms to include the recently developed projectScape, a market intelligence platform focused on collecting and curating project-level data on some of the most innovative topics of our time. Also, Chris works with PP&A’s cutting-edge IT team to develop and deploy solutions utilizing IoT, big data, and blockchain technology.