Libra will make money for Facebook wow by increasing the price of digital ads, hmmm Mark Zuckerberg explained at a hearing on Capitol Hill today. The answer came in response to a question posed by Congressman David Kustoff (R-Tenn), who cut through Zuckerberg’s typical explanation about the project being largely charitable.
“Well, Congressman, you may not believe this, but that’s actually not the first thing that we talk about at the company,” Zuckerberg responded. “We focus on building services that are going to create value in people’s lives, and we believe that if we do that, that we’re eventually able to get some of the value downstream.”
The way that this will help Facebook over time is that basically in our ads system, it’s an auction. If you’re a small business, we don’t have a rate that you have to pay — you bid and tell us what the ads are worth to you if you can get customers into your store or if you can complete a transaction.
And what we basically see is when we eliminate friction for a customer buying something from a business, then the value for that business of advertising on our system goes up, so they bid more in the ad system. If we can make that now, in addition to finding businesses that people want to interact with, people can also transact with them directly. I would expect that over time that will lead to higher prices for ads because it will be worth more to businesses so they will bid more on the ads system.
A less charitable read on Zuck’s response could also be that if converting Libras into dollars is difficult, people will be forced to spend money — and advertise their goods— on Facebook since it’ll be too hard to do so anywhere else.
This is all predicated on Libra actually getting off the ground. So far, Facebook’s planned cryptocurrency, which launched in 2019, has been plagued with regulatory concerns from international lawmakers, wary financial partners in the US, and looming competition from China.
“But in order for that to happen, we have to build a system that passes all the regulatory approvals, it has to be useful for people, if all that plays out then we may see a positive business impact,” Zuckerberg finished.