How Facebook will win the Internet and why that scares the shit out of me

(This post is a longer take on the things mentioned here and here.)

Pre-condition #1: Identity

Facebook, with the release of social plugins, has officially announced that they believe they are the Internet’s digital identity system*. How so? Their new social plugins — Like buttons, Personalized widgets, site-wide toolbars — all assume that you arelogged into Facebook all the time. No one has ever made an assumption like that before, and it dramatically changes the game. Also, it’s scary because it’s probably true.

[Update: My old boss Ted reminds me that Amazon Associates widgets also assume you are logged in, to show you personalized ads. IMO, it’s more pernicious now because Facebook is approaching 500M users. If you exist on the Internet, you are probably on Facebook.]

Pre-condition #2: Traffic

Everyone wants traffic, and nobody has more of it than Facebook. So when Facebook announced “If you install our bug into your system, we’ll send you traffic”, publishers celebrated. Of course CNN wants their links in Facebook Newsfeeds. More traffic = more pageviews = higher CPMs to charge advertisers. Thanks to 20th century capitalism, everyone is chasing short-term metrics. Classic tragedy of the commons.

Scary Result #1: Ad network domination

Given pre-condition #2 (traffic), Facebook Like buttons are going to be everywhere. All of the top sites will have them, and most of the medium-sized sites will too. Who wouldn’t want more traffic in exchange for adding one simple line of code, so simple anyone could do it? 

What does this mean? Facebook is going to have a window into every important website on the internet. You went to Victoria Secret? Facebook knows (see Pre-condition #1). You then went to Gawker? Facebook can show you ads for Victoria Secret products on Gawker because it knows you were just there. It’s called ad re-targeting, and it’s the most effective innovation online ads have seen in a while. And no one will be able to do it better than Facebook.

Scary Result #2: We know what you buy

There’s been lots of talk about Facebook Credits - a Facebook created currency that allows you to buy real or virtual goods using your credit card, PayPal, etc. What if you could get a real Facebook credit card? Facebook would then be able to attain the Holy Grail of Brick & Mortar retailing - tying together what you are buying with your digital identity (again, pre-condition #1). Right now, millions (billions?) of dollars are spent by small businesses, trying to get you in the door - Happy Hour specials, Buy One Get One Free, Yellow Pages ads. But if you come in and buy something, they have no idea who you are, and therefore have no way to encourage you to come back**. 

A Facebook credit card is different. They know exactly who you are when you buy that special pair of Louboutins. And they can use that information to show you better ads or product recommendations. Remember, Amazon and Netflix give you great recommendations because they have more data, not better algorithms. And because Facebook sees financial benefits from these alternative streams, the Facebook credit card can have better rewards / lower rates than anything else, and they have the scale to do it. No wonder Blippy raised $11.2M at a $46.2M valuation.

Scary Result #3: We know where you are

f8 attendees had RFID chips implanted in their badges. To check-in, you simply swipe your badge against a kiosk. What if your Facebook credit card had an RFID chip in it? This should scare the shit out of Foursquare, Gowalla, and Bump. Imagine I walk into a cafe and the owner says, press your card against this pad to check-in; 10th check-in gets you a free coffee. No more fumbling for your iphone, waiting for the GPS / cell tower triangulation, and looking like an idiot. You don’t even have to take the card out of your wallet - wave your whole wallet over the reader and you’re in. Or, just buy something.

And don’t think Facebook doesn’t have the scale or cash or ambition to create a Point of Sale system; that’ll just close the loop even tighter.

Why this scares the shit out of me

Facebook is filled with really, really, really smart people. And they’ve shown an incredible ability to innovate at large scale, with an ambition that is unmatched. So what happens when we give up our privacy in exchange for 5% off? What happens when Facebook knows more about the economy’s transactions than Visa? What happens when Facebook is watching you closer than Google?

Data is everything in the 21st century. Who ever has more data wins the Internet, and I don’t trust Facebook with that kind of scale and power.

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*You might remember the single sign-on wars of years past: Microsoft Passport, YahooID, OpenID, then later Facebook Connect / Twitter Connect / OAuth.

**The closest thing are loyalty punch cards you get at cafes or pencil & paper mailing list signups.

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