Facebook Should Buy Stripe

Facebook recently released a “Payments Test” that allowed users at certain e-commerce websites to autofill their billing info as it’s stored on Facebook’s website (from previous Facebook purchases). There was some speculation that this was an attempt to compete with the likes of PayPal as a full-fledged payment processor, but it has since been confirmed that this is more akin to Chrome saving form details, and therefore not a threat to processors.

According to TechCrunch, the strategy behind the autofill feature is to be able to track the ROI of ad placements on Facebook – they are tracking similar metrics with Datalogix in physical stores. The hope of course is that if Facebook can prove the effectiveness of their ads (which has been disputed in the past) they can win more advertising dollars.

Facebook is (was?) in an extraordinarily unique position of being a nearly universal identity provider on the web. In the early days of Facebook Platform it seemed as though “Connect with Facebook” was going to obliterate home-grown authentication systems. While the expectations are much lower now, Facebook Connect is still an incredibly popular choice, especially for the average internet user.

Ads are not the only way to monetize their position as an identity provider. In fact, they may be the least interesting way. Google revolutionized advertising, and has able to make killing on it, but that doesn’t mean that ads are the only way forward.

While there are tons of ways to take advantage of being an identity provider, payments is an absolute slam dunk. Payments online are still roughly the same as they were 10 years ago, and there is still a lot of FUD regarding the process for end users. Having a single provider that people trust, and that has their billing information on file, would be a game changer for online commerce.

In the same way that Apple has created an environment in the App Store and iTunes Store that leads to easy, nearly thoughtless purchases, so could Facebook create a safe, simple environment for every single transaction that happens online.

Were Facebook to tackle such a huge opportunity, they would need to ask themselves whether to build or buy a solution.

While they have an enormous amount of technical talent, the regulatory hurdles involved with payments makes an acquisition much more attractive, and who better than Stripe, a developer-friendly processor that is rapidly gaining marketshare on the simple premise that accepting credit cards should be easy for the people who build websites.

Stripe could continue building an amazing product, evangelizing more and more developers to switch from something like PayPal, with the added benefit that with the flip of a switch, they could enable “Pay with Facebook” - a seamless way for users that already have payment data stored to check out in seconds.

The boost in conversions that developers would see would do the marketing for the “Pay with Facebook” option itself, and if Stripe allowed customers to save billing information with Facebook after every purchase, Pay with Facebook could rapidly become a contender in payment processing, even alongside such behemoths as Braintree, PayPal, and Square [1].

There are good reasons why Facebook shouldn’t pursue payments, of course. It takes away from their core focus, and they would be competing in a space with well-established competitors (and possibly their customers).

The reality is, however, that Facebook’s current business focus is advertising, and taking focus away from that to work on payments seems like a prudent choice. In addition, Facebook Payments would compliment advertising - imagine an ad that allowed users to make a purchase with a single click, and all without leaving Facebook.

There is very well-established competition in this space, but none of the big competitors have addressed the social aspect of commerce, or established themselves as anything close to a universal identity provider, both of which could be critical for the future of e-commerce.

It seems (and this is mostly anecdotal) that Facebook’s social product is losing steam, and they might not have this opportunity for long. Building Facebook Payments would solidify their position as necessary infrastructure for the next wave of innovation, regardless of whether the social product continues to be as successful as it has been.

The looming question in my mind is why this strategy didn’t work for Google. A huge percentage of the internet population has a Google account, and Google has a good reputation with the public and with developers. They created Google Checkout to compete with PayPal, but are retiring it this year to focus on Google Wallet, a mobile payments play. With Stripe’s success, it seems that getting merchants to switch processors isn’t impossible, so perhaps Google’s execution was simply lacking.

I still think $FB is a buy, but only if they take advantage of the opportunity that they have by making a play into an open space, like payments with Stripe. They may not have an unlimited amount of time to convert their popularity into a long-lasting business.

[1] - Google is a player in this space too, but they are now focusing on mobile with Google Wallet. PayPal and Square are also heavily involved in mobile. Facebook going after traditional e-commerce might seem like skating to where the puck is, but I think that having customers accustomed to “paying with Facebook,” having their billing information on file, and having a large installed base on mobile would go a long way towards whatever happens with mobile payments.

There is no Big Idea

There is nothing original under the sun. Everything that we see around us is a remix, a remake, a reinterpretation, or a parody of something that has been done before. Not only is every great scientific advance a giant standing on the shoulders of giants, but following in the footsteps of the giants that came before her.

This is not to say that ideas don’t matter. Ideas do matter, and they matter a great deal. There is a constant discussion in the startup community about what ideas are worth. Some believe that ideas are worthless, that the value in a startup lies in execution. Others believe that ideas do have significant value.

Oftentimes when people have what they think is a groundbreaking idea, they keep it hidden away from view. They believe that if someone else knows about this idea, they’ll take it for themselves. I myself am guilty of hiding away my ideas for fear of someone else’s execution.

But as Guy Kawasaki says, if you have a good idea, 5 people are already pursuing it. If it’s a great idea, 10 people are. This can take the wind out of the sails of anyone who thinks of themselves as an “idea person.” But why should it?

Just because someone else has the idea and is already executing it doesn’t mean that it is a bad idea. No one would argue that Calculus was a “bad” idea or a worthless innovation, despite the fact that it was discovered by two different men at the same time.

As a new student of the Lean Startup methodology, I’ve come to realize that there is no big idea. By that I mean that there is no idea that sits alone in your mind that changes the world. Look at some of the most successful internet companies of our day: Google and Facebook.

Google was not the first search engine, it simply improved the ranking of pages. And it wasn’t its search that made it a giant (arguably), it was it’s ingenious advertising model.

Facebook wasn’t the first social website, it simply improved the format, and dedicated resources to expanding features that users loved (photos, etc). In fact, Facebook’s biggest competitive advantage may have been the market that it targeted and cornered (college students).

Any idea that changes the world has to progress beyond the stage of simply idea. It has to become something. It has to flow out into the world and interact with it. An idea merges with its medium to become a work of art. While the business greats might be compared to Michelangelo in that they can see the business in the market, just as he could see the sculpture in the marble, if it does not actually happen, if it isn’t actually executed, it’s nothing. 

Like Jason Cohen says, your idea sucks, now go do it anyway. Because there is no big idea, just execution that changes the world.