The Bank of Facebook

How will Facebook and the global economy interact in the future?

There has been much speculation recently about the role Facebook Credits could play in becoming a global virtual currency, and even the possibility of Facebook becoming a bank. In many ways, it already is becoming a bank – just not in the traditional sense. Facebook is harnessing the power of the social graph, and has certainly adopted an expanded definition of what ‘currency’ means. It’s time for the rest of us to hop on board.

As I’ve been conducting research for The Future of Facebook Project, the experts and thought leaders interviewed shared some compelling views about the evolution of virtual currencies, and Facebook’s potential role in their development. A big takeaway is that while we typically associate currency directly with money, the rise of the social web and quantification is shifting that reality to become more inclusive of kinds of capital that were formerly intangible.

Money is a tool we use for arms-length transactions, where there isn’t an assumption of any kind of relationship or trust between parties. But as data is being mapped at an accelerating rate – from self-quantification, to the contextual and relational data about our location and interactions, to our preferences and opinions, to our exchanges and transactions – we are being granted access to a much richer base of information in our decision-making toolkit.

What this means is that money isn’t the only kind of currency that can facilitate a transaction anymore.

Trust networks are able to be tapped for recommendations and referrals, while predictive analysis algorithms can suggest the kinds of people, products, services, or events that would resonate with our personalities or value set. A new set of filtering tools are emerging that are shaping where we direct our attention and resources, namely intentions and actions.

These contextual clues around data become currencies in themselves, as they give us more information in order to make a choice or decide who to trust. Below are three examples of currencies that are having an impact on the formation of a new economic paradigm and redefinition of how we define, generate and exchange value: Facebook Credits, online identity, and reputation.

Credits as Currency

Facebook Credits are a virtual currency used within Facebook for the purchase of virtual goods related to applications managed on the Facebook platform. They’re like tokens you’d use to play games at Chuck E. Cheese’s – great for casual entertainment, but not particularly threatening to the real world economy. Yet.

What happens when individuals and companies become more comfortable with the idea of accepting virtual currencies in exchange for various types of interactions, goods or services?

“Increasingly as we move later into the decade, physical currency will be harder to differentiate from virtual currencies like Facebook Credits,” said Brett King, author of Bank 2.0. “We’ll start to see a new economy emerging through social media where virtual currencies will be a very real part of the way people trade and sell information, collaborate on ideas and value various products and services.”

In the near term, we’re likely to see retailers find creative ways to use Credits to entice people to interact with them, evangelize their brands, and gain customer loyalty. For example, every time you take a poll, watch an advertisement, or tell your friends about a purchase you made, you could receive Credits from that company that would then be redeemable for goods or discounts.

“We may see a kind of gamification of the real world take place through Facebook Credits, where a variety of outside vendors, businesses, and service providers can give us Facebook Credits, enable us to pay with Facebook Credits, and reward us with Facebook Credits for taking actions that they want us to take,” explained Nova Spivack, a technology entrepreneur and founder of Lucid Ventures.

In the longer term, Facebook Credits could become truly disruptive by becoming a currency for peer to peer lending, microtransactions, and for usage by the unbanked in emerging markets around the world. For instance, imagine the next time you clicked the “like” button for that social activism campaign you support, you could also add a small donation to the cause via your Credits account. Or what if Facebook evolved to have a functionality like Zopa or Lending Club, allowing you to directly lend and borrow with other Facebook users, and earn a great rate of interest. Extend that one step further to Facebook offering an entire mobile based money transfer system, something like M-PESA, which could then create a simple mechanism for international microfinance. If Facebook goes this far, Credits could quickly face regulatory scrutiny if they actually influence or devalue currencies in other markets.

As venture capitalist Eghosa Omoigui posited, “I suspect that Facebook may eventually have to create a trading platform that allows them to constantly mark-to-market what those Credits look like.”

The possibilities here are only limited by our ability to extrapolate out scenarios of what happens when transactions are made easy, secure, and frictionless. So Credits are a clear example of an emerging virtual currency that could have some far reaching implications, and will certainly face new regulatory challenges as well as a new set of competitors as they expand their offerings. But are there other currencies that Facebook is creating within its ecosystem?

Identity as Currency

How do you construct your online identity, and where is that information stored? Does it matter?

Every time you upload a photo, make a comment, add a friend, click a link, or make a purchase, that data is being harvested to create a map and a simulation of you. This is tremendously valuable information, and Facebook gets that. It hasn’t been by mistake that they’ve created a simple go-to portal to the social web, where logging in via Facebook Connect gives access to any number of other sites and services.

By analyzing even slices of this data, a wealth of information can be extracted and predicted about you. As a related example, Google vice-president Marissa Meyer was said to have claimed at this year’s SXSW festival that credit card companies can look at spending habits and predict with 98% accuracy, two years in advance, when a couple is going to divorce. Interesting. I wonder what Facebook is able to predict, and how that information can be served up to advertisers.

If the trend continues where logging in via your Facebook profile is the simple method for verification, some speculate this could lead to Facebook evolving to being an actual utility for identity. We’re already seeing companies advertising themselves through their Facebook profile (www.facebook.com/company). It seems possible that Facebook users could do the same. After all, if people are willing to trust sensitive data to Facebook, companies could use that info to offer better rates on car or health insurance, or help you secure a loan, via the platform. While this could seem convenient for the average user, it does carry serious implications in terms of how governments will respond.

“[Identity] will become the battleground within which this entire learning will take place, because today all the artifacts of a human being belong to physical and logical governments, and not to social networks. But the ability to move any form of asset between the virtual world and the physical world needs a commonality of understanding of identity,” said JP Rangaswami, Chief Scientist for salesforce.com.

The discussion around who owns your data and online identity and why it matters hasn’t really hit the mainstream yet, though there are communities like the Personal Data Ecosystem Consortium that are pushing for individual ownership, open standards and interoperability. A person’s identity is highly valuable information, and some would argue that despite the convenience of having a third party own that data, it rightly and ethically belongs to the individual. In the meantime, Facebook is playing a strong role in how we use identity on the web, and what information about ourselves and our social graph is shared every time we log in and interact.

Reputation as Currency

If you’re familiar with services like Klout and PeerIndex, you’re aware the task of quantifying reputation, authority and influence online is well underway. Just as a positive score in your eBay account matters if you plan to continue doing business there, we’re on the verge of having robust social scoring metrics that will become increasingly important for businesses and individuals to consider.

For example, when searching for a product or service, not only will we see a range of comparisons between companies with similar offerings, but also how our social network perceives the performance and quality of that brand. We can already see which of our friends “likes” a particular website that happens to display the Facebook social plugin in their sidebar. When the opinions about a brand can be displayed more robustly, we’ll know not only that you “like” a brand, but why. This gives information on both sides – the reputation of the brand, and the values of the individual. So if I choose to only interact with brands that have project both intentions and corresponding actions of what I consider “good,” which could include sustainable business practices, financial transparency, social responsibility, and, dare I say, corporate ethics, only those with a reputation that falls within that spectrum will make it through the filter in my stream.

As Brett King pointed out, “Social metrics, and the use of platforms like Facebook will have very real feedback in respect to the valuation of a brand economically, and obviously that will have an effect directly on revenues that are possible for providers in that space. So unless you’re playing in the social brand space, unless you’re engaged in the conversation, your social metrics are gonna be affected in a negative way, and that will have an effect on revenue, profitability, and the value of your brand.”

The power of this kind of sentiment analysis around brands, issues, events, people, or topics of any kind can’t be underestimated. As these metrics become more granular, it becomes easier to to make purchasing decisions and support initiatives that are more fully aligned with our values. One’s reputation and social standing, and the way they are perceived based on their words and their actions, are most certainly a currency.

Beyond its functionality for how we interact with brands, and perhaps even more interesting to consider, is how this reputation currency could impact peer to peer relationships and potential business partnerships. I’ve always felt rather disappointed in the type of information that passes for a Facebook profile. Sure, you can show where you went to high school and the kinds of entertainment you like, but none of it is particularly useful in terms of finding ways to generate economic value together with others.

Facebook has the opportunity to create a marketplace for intention, innovation, and entrepreneurship, if it expands the degree to which an individual can express their human capital and find others with common interests or goals. When I am able to express the types of skills I possess, resources I have access to, my intellectual capital, my relationships and social connections, and the types of projects or business ventures or causes with which I would like to be involved, a whole new dimension of interactivity will emerge. When others can vouch for the quality of my work or my knowledge or expertise, the kind of robust profile and reputation that then exists is incredibly valuable for me and for the potential economic opportunities that I can get.

None of these examples should seem like a stretch. In some ways, this is the next logical step in the evolution of Facebook. As technology writer Kevin Kelly said, “What we know from our very short history of living online is that community precedes commerce; there’s no commerce without community. What Facebook is doing is sort of blowing up the community to be 500 million or even a billion very soon. When we have a community of a billion, that means that the potential for commerce is enormous, is immense, and we’ve never seen that before.”

To me, that statement is speaking to us as the users, and how we can potentially be interacting with each other, not necessarily how we can interact with corporate entities or brands. Facebook has corralled us all within its walled garden, and created a place to share photos with friends, keep up on events, and perhaps click some ads. But the opportunity to use sentiment and predictive analysis to actually facilitate the connection of people around common desires and goals could be truly transformative in accelerating the rate of social innovation and job creation.

It’s not a matter of if this will happen, but when. Users already pump tons of data into Facebook about their preferences and tastes – it just hasn’t quite been served back to them in a way that’s economically useful. But if and when they do, it’s going to create a marketplace where your reputation is going to be quite important in getting prospects for what may be called ‘the future of work.’

New Currencies = New Banks

I hope this provided some food for thought on the evolving definition of currency and what we may consider a bank. We’re making formerly intangible and invisible things transparent, measurable, and tradeable, and that opens the door to a lot of new possibilities for what economic transactions and exchange look like. Social media companies like Facebook understand the enormous value in being the connective tissue of the social web and provider of your data and the social graph.

Facebook will continue to grow and face new challenges as it threatens the control traditional institutional structures have had over currency and personal identity. The implications of one entity owning this amount of information is beyond the scope of this article, but it certainly deserves a critical assessment. That huge privacy breach and wake up call hasn’t happened yet, so it’s not too late to ask what’s at stake when your data is contained in someone else’s silo.

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Content based on ongoing research for The Future of Facebook Project. Big thanks for support from our Corporate Patron, Innotribe , Executive Producer Sean Park, and Producers Dr. William J. Ward, Debra Farber, Bill Lefurgy, Guido Stevens, and Nicky Smyth. Image design by the fabulous Erica Glasier (image credit for above).

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Venessa Miemis is a Media Studies graduate student at the New School in NYC, exploring what happens at the intersection of technology, culture, and communication. Connect with her at www.emergentbydesign.com and on Twitter @venessamiemis.