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April 8, 2013 2:39 PM

Bitcoins And The Future Of Business

Facebook is a license to print money.

As far as social media goes and the growth of online social networking, it's hard not to have Facebook be the first thing that comes to mind when you think of new media, at this point. The company claims well over a billion active users. They generated close to $4.5 billion in advertising in 2012, and while many were tough on the company in their post IPO performance due to a lack of mobile agility, the company has made some leaps and bound in the past short while to rectify the course in a post Web-browser world and changed that perspective around. In fact, mobile ad spending could rise to $7.29 billion in 2013 (according to eMarketer) and while Google is set to take home more than half of that, Facebook will account for close to thirty percent as well.

There is a bigger picture.

Take a step back and look at what companies like Facebook and Google have created. They are not just tools and services, but a centralized community in a decentralized geography of users who are deeply connected to one another on a global level. When you tag mobile on to that, it's not hard to imagine a world that doesn't require telephone services or even text messaging as we have known them to date. Why wouldn't those who are connected via social media, also communicate instantly and more directly through those channels? There is a profound reason why Facebook and Google offer email, messaging, video conferencing and chat services as part of their suite. Once one company has their users so deeply connected (and yes, this is about much more than Facebook's massive acquisition of Instagram), it becomes increasingly difficult for a user to leave (look no further than the slower adoption and acceptance of Google + in a Facebook world). As you continue to take this bird's eye view of these massive channels (and how deeply connected people are ingrained in them), you begin to realize that Google and Facebook are, essentially, Internets unto themselves. While many lauded the Web's arrival as a new place that would disintermediate the mass media companies, and a place where anyone can become a publisher, we went from four major network television stations, to a handful of online giants that control the bulk of online traffic. Right now, these companies see media solutions (advertising, marketing and communications opportunities) as the easiest - and most obvious - way to generate income... much like the traditional media channels that came before them.    

What if the true value, revenue and potential of companies like Facebook and Google went beyond the revenue that they generate from advertising?

It's easy for a company that attracts a lot of eyeballs to become snowblind by the money that brands and media agencies are throwing at them. Ultimately, the economics of advertising is somewhat simplistic: advertising generates the most revenue in a scarcity model. We have no printing press on the Web, and video content doesn't have to be consumed during prime time on Thursday. In fact, even your typical one thousand word article can be chopped up into multiple Web pages to serve up as many display banner ads as the publisher wants. With so many places to publish content online and so much user generated content, it's not hard to see a digital advertising world that offers more inventory than there is a market for (an abundance model). Before dismissing that notion as hyperbole, think about how many users complain about Facebook's advertising and how non-relevant/contextual the ads often are. If a brand was willing to buy that highly targeted and coveted space, we all know that Facebook is willing to sell it. What this means is that there could be other revenue models worth exploring, and one of them could be the creation of a currency.

It's not easy to make money.

Bitcoin is a peer-to-peer universal, digital currency platform that has been getting a tremendous amount of attention is the past few months. This virtual money holds no physical presence (it's all zeroes and ones) and is both used to pay for goods and services as well as being traded (much like any other commodity) in the online sphere. In the past short while, it has been gaining in both popularity and value. Currently, the value of one Bitcoin is over one hundred dollars and, to add some perspective to this, in early March there were trading below $35 and as of this past January, they were trading at under $15. Last week, GigaOm published a very comprehensive article about Bitcoin titled, Yes, you should care about Bitcoin, and here's why, that explained the currency as such: "Bitcoin is to state-issued currencies - often referred to as fiat money - as P2P file-sharing is to traditional broadcast media. There is no centralized source for it that can be controlled or moderated or regulated. It is difficult if not impossible to track from the outside... It is important to understand that, while fiat money is issued and controlled by governments and their laws, Bitcoin is generated and controlled by algorithm. While governments can always print more money according to their needs, there will only ever be just under 21 million Bitcoins (right now there are around 11 million), because that's how the algorithm works." Beyond the logistical, technical and security issues that are happening in parallel with Bitcoin's meteoric rise, it is abundantly clear that this is a first generation digital currency experimentation and that we can expect our world to see a lot more of this. What if Facebook, Google and others took on the business of borderless digital currency? Think about the current race for digital wallets and decentralized online banking opportunities. What if the real business of Facebook or Google was to become the next-generation of Bitcoin? Facebook Credits already exist (remember Linden dollars in Second Life?). Currently credits in online platforms are still centralized and controlled, but what if Facebook gave their billion-plus community their own currency system and then extended it outward - one that wasn't or couldn't be affected by local governments, markets and the like? What if one dollar for me was the same monetary value as one dollar for (in whatever country you're living in)? Clearly, there are many economic and legal hurdles that these companies are going to have to solve and jump through to create their own legally recognized currency, but Bitcoin is pointing to a fascinating new world where banks and our money - as we have known it to date - is about to become even more digitized and globalized. It's something all of us need to be watching much  more closely, because it makes perfect sense.

If Facebook is a massive global community, why wouldn't that community have a shared currency for exchange?

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