The Monday Note covers the intersection between media and technology and the shift of business models. It is jointly edited by Frédéric Filloux, a Paris-based journalist and Jean-Louis Gassée, a Silicon Valley veteran currently general partner for the venture capital firm Allegis Capital in Palo Alto. Their column appears on CBS News.com each Monday.
This week's question: Will Facebook launch a so-called "PayPal killer," a micropayment system for members to pay for goods real or virtual? To me, this is a Flat Earth debate, meaning there is no debate: Facebook is ideally placed to become a powerful payment system player.
First, a bit of history: the Minitel. Once upon a time, a rather statist country, France, decided to equip telephone subscribers with a home information terminal. Merchants of various persuasions were invited to connect their servers to Transpac, the backbone network. Sellers could tout physical, groceries, or logical, entertainment, information, goods and services. For the logical kind, the phone company graciously did the billing and the collecting for the merchant, taking a courtesy 25% fee for its pains. The buyer saw a new section at the end of the phone bill, everything automatically deducted from the subscriber's bank account - after a legally mandated 10-day bill presentation delay.
Effective and efficient
This reduced the overall cost of doing business for all, sellers, buyers, the phone company, that's the efficiency part. And effectiveness manifested itself in a huge spurt in new enterprises. So much so the network, Transpac, initially underwent several major outages because buyers and sellers had much more fun than expected. Although the French phone company would rather forget, it became the largest pornographer in the Western world for several years. I won't dwell into the phone company's initial resistance to the Yankee invention, the Internet, but all is well now: French netizens now enjoy very good broadband services, and the Minitel is largely forgotten.
But the micropayment lessons shouldn't be discarded. And, in a way, they aren't: Look at Amazon.
Imagine a purely hypothetical situation: someone wants to add SSD memory to a Dell Mini 9 netbook. The additional memory would help build what is known as a Hackintosh, that is running Apple's OS X on non-Apple hardware. This hypothetical situation would happen in violation of the EULA (End User Licensing Agreement) and is therefore discouraged. Moving on: the SSD module is found on Amazon but sold by someone else, TigerDirect. Never mind, one click and we're done, Amazon will oversee, you can even write "police" the transaction, vector the information and the money. All TigerDirect has to do is what's known as the "physical fulfillment"- in English: ship the goods.
For music or e-books, we're getting closer to Ye Olde Minitel: small transactions, less than one dollar sometimes but the phone bill is now my credit/debit card statement, auto-deducted.
Moving to Facebook. What's their current business model? Non-believers (in dwindling numbers) contend it has none. I try to think of Facebook using the following metaphor: Facebook is a forum, a "paseo," a promenade, a huge one, where users socialize in a (growing) number of ways. When you have lots of people walking around a reasonably well-policed forum, you can set up stalls, you can rent those to people who want to sell cotton candy, palm reading and the like. Climbing down into reality, Facebook will probably exceed $500M in revenue this year, mostly from advertising. Not yet profitable, not yet cash-flow positive but not gasping for green either.
One of Facebook's remarkable achievements has been watching and learning from Google. That is keeping the UI simple, or even, recently, simplifying it. And making sure the nascent business is backed up by a muscular (and scalable) server infrastructure. Think of Yahoo's, MySpace's and eBay's sins in both UI and infrastructure regards.
Now, imagine a new version of Facebook's Terms whereby you supply a credit card and/or a pipe into your bank account. This enables you to buy goods and services offered on the Facebook promenade stalls, as opposed to clicking on a link and being "taken" to a merchant site. Just as Amazon (and Apple) do with credit card companies, Facebook would make it its business to manage sub-dollar transactions. Regrettably, this is something an independent merchant can't realistically achieve because of the onerous terms imposed by the credit card issuers and processors.
"Walled Gardens" micropayment systems such as Amazon's (its main store one as well as its Flexible Payment System), iTunes' and, I believe, Facebook's, will keep growing. This, I hope, will force the "Old Guard," today's issuers and processors to react.
Speaking of incumbents, we have PayPal, so far, a successful system, working hard to spread beyond the mothership, beyond eBay. But, if you ever compare a Buy Now transaction on eBay with a one-click purchase from TigerDirect via Amazon, you'll see how cumbersome, rigid PayPal still is. This is a great opportunity for Facebook to implement something simple and safe at the same time. And immensely profitable.
Some say, jokingly, that Facebook will ultimately turn the Internet inside out. In other words, Facebook will become the Internet as users will enter the Net through, after, Facebook. That's a stretch, of course. But watch Mark Zuckerberg's interview here. It's short and to the point: Facebook isn't a web site, its a platform. While the p-word has been much abused, here it really means something. Facebook's Applications Directory isn't the iPhone's App Store, but it's real and, if you browse it with a Facebook PayPal-killer in mind, you might get a sense of the possibilities.
Before we go… I'm puzzled by Google's perceived inertia. The search giant missed the social networking wave, with the exception of Orkut's success in Brazil, perhaps. Also, it's reasonably competent Google Checkout payment system shows little sign of gaining traction in the marketplace. Once touted as a PayPal-killer, it has achieved nothing of the sort.
We'll see if Facebook succeeds where Google seems to have stumbled.
By Jean-Louis Gassée and Frederic Filloux
Special to CBSNews.com