Letting people say what they want, to whomever they want, is great for business and makes a great business. But when liberty becomes license you have a problem that doesn’t scale. It’s like a huge, crowded theater with thousands of people shouting “fire.” This is the problem Facebook (NASDAQ:FB) faces, as it tries to save the free web from government intervention.
Facebook used free services to build a scaled cloud network worth $564 billion, as trading opened on Nov. 22. Defending the $19.5 billion in annual free cash flow that results is becoming expensive.
Even the First Amendment isn’t absolute, and advertising is under more restrictions than other types of speech. But these are local (and national) ordinances. Facebook is a global business. The question for 2020 is whether Facebook’s freedom, and ours, can survive.
Government is a human activity. It’s all about learning to handle exceptions. It doesn’t scale well.
That’s because any limits on what can be posted would require constant, expensive monitoring that would threaten the business model. Facebook brought 27% of the last year’s $66.5 billion of revenue to the net income line. It had $52 billion of cash and cash investments at the end of September, and no debt, even with a capital budget estimated at $15.3 billion per year.
This has let Facebook disintermediate all the world’s phone companies. Not just America’s AT&T (NYSE:T), but telephone and postal services in Africa, Asia and South America that once limited communication in the developing world. Free internet services have brought an estimated 1 billion people out of abject poverty since Facebook’s founding in 2004.
It’s this traffic, now being unified to try and stave off antitrust action, that is Facebook’s secret sauce, and the world’s biggest headache.
Having been stymied in its effort to launch a crypto-based payment system called Libra, Facebook is going it alone with Facebook Pay. This is an in-app payment system that has already turned its Instagram service into a virtual shopping mall.
In theory it’s no different from services like Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Pay. Users load their purchase credentials and Facebook handles the back end. It’s built on an alliance Facebook has had with PayPal (NASDAQ:PYPL) since 2016.
But bringing Facebook’s low costs to international payments is seen as a threat, not just to Visa (NYSE:V) and MasterCard (NYSE:MA), but to functions now conducted by government. The Federal Reserve has warned that putting such international money flows into entirely private hands is dangerous.
Is it any more dangerous than putting the definition of free speech in private hands?
The Bottom Line on Facebook Stock
As Facebook keeps expanding, it naturally is entering areas previously untouched by non-government entities. But Facebook refuses to create the bureaucracy governments depend upon to maintain ordered liberty, however they define it.
Who can say what without getting into trouble? Who defines value and oversees the transaction? These are big questions, and the different answers define the modern nation-state.
Now comes Facebook and the free web, promising one ring of open rules. One ring to rule them all, one ring to find them. One ring to bring them all and in the darkness bind them.
Freedom has always been the threat the web posed to governments worldwide. How shall the global government called Facebook be governed?
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.