During his hearing in congress yesterday, Mark Zuckerberg was asked by Congressman David Kustoff (R-Tenn) to explain how Facebook will monetize Libra.
“When you came up with this idea and went to your board of directors, how did you tell them that Facebook could monetize or profit from the creation or use of Libra and Calibra?” the congressman asked.
Zuckerberg then explained how, if more of these purchases happen on Facebook, the social network will be able to corner the Ad market by decreasing friction for shopping through their platform compared to making purchases outside of Facebook:
“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.”
In his explanation, Zuckerberg describes how eliminating the friction of purchasing items with Libra through Facebook, which implicitly creates friction when purchasing products through competitors, will raise the price of Facebook ads.
Of course, first Facebook needs to withstand the pressure from lawmakers and the growing list of partners jumping ship.
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