Meta AI transcript and summary - episode of podcast Acquired

October 28, 2024 · 356 min read

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Episode: Meta

Episode Shownotes

Meta is a company everyone knows (literally, everyone). But, somehow, it’s also a company that few people feel they actually understand. Their products are used by more humans than any other’s in history — almost half of the entire world’s population daily. But… what is Meta? Why do they do

what they do? How do they do what they do? Ask ten people and you’ll likely get ten very different sets of answers.Today, we dive deeper than we’ve ever gone trying to find Acquired’s answers to those questions. And after months of research and 6+ hours of incredible stories about how they (and really “they” being Mark himself) bet it all and win time and time again in the face of overwhelming odds, we arrive at our answers. Facebook, Instagram, WhatsApp, Threads, AI, Oculus, Orion, it’s all here. Tune in for one of the greatest corporate stories of all time: Meta, a Mark Zuckerberg Production.Sponsors:Many thanks to our fantastic Fall ‘24 Season partners:J.P. Morgan PaymentsStatsigCrusoeHuntressLinks:Please take our 2024 Acquired Survey if you have a minute. It'd mean the world to us!Our past episodes on Instagram, WhatsApp, Oculus, Snapchat, the Snap IPO, TikTok, NVIDIA, Microsoft, and the Mark Zuckerberg InterviewWorldly Partners: Meta multi-decade studyEpisode sourcesCarve Outs:Ben Cohen’s piece on NotebookLMMr. McMahonThe Dwarkesh PodcastMore Acquired:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Check out the latest swag in the ACQ Merch Store!‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

Summary

This episode explores the rise of Meta, previously known as Facebook, highlighting its journey from a college project to a dominant player in global connectivity. Hosts Ben Gilbert and David Rosenthal analyze Mark Zuckerberg's innovations and strategic decisions, including products like Facebook, Instagram, and WhatsApp that connect nearly half the world. They delve into the company's challenges and triumphs, from its controversial launches to navigating complex issues such as user privacy and competition from TikTok. Through engaging narratives, the episode emphasizes Meta's significant influence on technology and society.

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Full Transcript

00:00:00 Speaker_05
All right, so I was up late last night. Late for me as a dad is like 11 p.m. But I'm sitting here at my computer in my dark basement, you know, pulling notes together. David, what music did I have on? You have one guess.

00:00:14 Speaker_01
Oh, oh, I know exactly what you had on. You had Trent Reznor's Social Network soundtrack.

00:00:21 Speaker_05
It makes anything you're doing feel, you know, twice as important and twice as revolutionary. And it just felt very apt for this episode.

00:00:28 Speaker_01
Oh, man. So I have been listening in the last 24 hours to 50 Cent Into Club because that came out my freshman year of college, same year as the Facebook.com and like, man, 50 Cent, Facebook.com, can't get any better than that.

00:00:45 Speaker_05
Perfect, match made in heaven. Well, I'll check out our wall-to-wall from the old days and see if there are any posts about that. All right, let's do it.

00:00:54 Speaker_01
Let's do it.

00:00:58 Speaker_03
Is it you, is it you, is it you who got the truth now? Is it you, is it you, is it you? Sit me down, say it straight, another story on the way

00:01:12 Speaker_05
Welcome to the fall 2024 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Resenthal. And we are your hosts.

00:01:24 Speaker_05
Today, we are studying a company whose products are used by more humans than any other company in history, Meta, of course, formerly known as Facebook. So I figured I would contextualize these numbers a little bit.

00:01:38 Speaker_05
Meta has 4 billion monthly active users.

00:01:42 Speaker_01
And daily active users are over 3 billion.

00:01:45 Speaker_05
Yeah. Nuts. There are only 8 billion humans on Earth.

00:01:51 Speaker_05
So as I started to brainstorm what the closest competitors could be to serving half of the humans, I thought, surely I can find it in empires or governments from the past where there is some larger percentage. Yeah, makes sense. Nope.

00:02:05 Speaker_05
The Roman Empire, at its peak, was only 40% of humans, tops. You know, the data's a little bit hard to actually find from that period of time.

00:02:14 Speaker_05
But the British Empire, which we have a little bit better handle on, at its peak was only 23% of the global human population. So no government, tech company, utility, etc. has ever addressed so much of the world. It's just wild.

00:02:29 Speaker_05
There's no other way to put it. In the over 20 years since its founding, Meta truly has connected humanity through its apps. Facebook, Instagram, WhatsApp, Messenger, and now Threads. So today, we're going to study how they did it.

00:02:43 Speaker_05
there's been a lot of ink spilled writing about Facebook over the years. And for its first 10 years, most of that writing focused on the many benefits to society with breathless exuberance over milestone after milestone.

00:02:55 Speaker_05
And for the past 10 years, it's kind of seemed like Meta could do nothing right. Reporting focused on its many stumbles, the massive mistakes, the incredible controversies surrounding the company.

00:03:07 Speaker_05
And while we will, of course, discuss these events as part of our story and analysis,

00:03:11 Speaker_05
Our goal today on this podcast episode is really to understand how it is that Meta became the dominant fabric that connects the human race, and why they've been so successful at continuing to win over and over again.

00:03:26 Speaker_05
No matter what you think of the company, it is undeniably one of the most important institutions in the world. and their global scale is no accident.

00:03:35 Speaker_05
It is the result of careful actions from some of the most motivated and brilliant people in the world who believe in one mission, connecting as many people as possible.

00:03:45 Speaker_01
I hadn't thought about this till now, but almost sort of tautologically, this is like the most important episode we'll ever do to try and understand this. Like, it's the biggest company that has ever existed. It's the biggest thing that's ever existed.

00:04:00 Speaker_05
Yeah, by these measures that we're talking about right now. Right. Now, of course, the story of how we got here is nuts. It is the perfect acquired stew. Like you're saying, David, they speed ran their startup phase.

00:04:10 Speaker_05
They swerved through multiple disruptive technology waves. They battled fierce competitors. They invented or maybe discovered one of the greatest business models ever.

00:04:19 Speaker_05
And they're now trying to pull forward the next technology generation through sheer force of will with AR, VR and AI. So finally, listeners, we tackle one of the greatest corporate stories ever. Facebook, the Mark Zuckerberg production.

00:04:34 Speaker_05
So listeners, we have one big announcement for you today. It is time for our annual acquired survey. If you have three to five minutes, please click the link in the show notes or go to acquired.fm slash survey to take it.

00:04:45 Speaker_05
We'll be raffling off a pair of shiny new meta ray bands and giving away a bunch of ACQ dad hats as well.

00:04:51 Speaker_05
This is really our one big ask of you all year, and it helps us immensely with making the show better, to hear your suggestions, and also to help our sponsors understand just how impactful the Acquired audience is.

00:05:03 Speaker_05
So go to acquired.fm slash survey, and David and I are both eternally grateful.

00:05:09 Speaker_05
After this episode, discuss it in the Slack and check out ACQ2, our second show where we just had Clem DeLong, the CEO of Hugging Face, on to talk about his view on how the open source AI ecosystem will play out.

00:05:21 Speaker_05
And before we dive in, we want to briefly thank our presenting partner, JPMorgan Payments.

00:05:26 Speaker_01
Yes! Just like how we say every company has a story, every company's story is powered by payments, and JPMorgan Payments is part of so many companies' journeys from seed to IPO and beyond.

00:05:36 Speaker_05
So with that, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. David, Roman Empire? Like, what's our starting place here?

00:05:49 Speaker_01
No, man, we gotta start in 1984 or we're never gonna finish this episode. And really, I mean, where else can you start? I can make up, you know, Roman Empire, classics, Aeschylus, whatever t-shirt saying Mark has this day of the week.

00:06:04 Speaker_01
But Facebook has always started and ended with Mark Zuckerberg. So we start in May of 1984 when Mark Elliott Zuckerberg is born as the second of four children to Karen and Ed Zuckerberg in Dobbs Ferry, New York.

00:06:21 Speaker_01
Small little suburban town, suburb of New York City. Yep. And his mom is a psychologist and his dad is a dentist. Is that right? That's right. Ed studied dentistry at NYU.

00:06:33 Speaker_01
He was always like really into math and computers though, but growing up the son of Jewish immigrants in New York City, you know, the expectation was you're going to be a doctor or a lawyer. So he goes to dentistry school, becomes a dentist.

00:06:47 Speaker_01
He meets Karen. They get married. After Ed finishes dental school, they move up to Dobbs Ferry in Westchester County. And Mark and his three sisters grow up as prototypical middle-class suburban American kids in the 90s. Life is good.

00:07:01 Speaker_01
Your grandparents worked really hard to make a bunch of sacrifices for your parents. Your parents are now professionals. They're also working hard to give opportunity to you. And the family is kind of leveling up in America. It's the classic story here.

00:07:14 Speaker_01
You can play sports and you can hang out with your friends and play video games. Indeed. And for Mark and for me growing up and maybe you too, like, it's kind of amazing. Like, there's no reason not to just explore your passions.

00:07:28 Speaker_01
And for Mark, those passions become threefold. One, turn-based strategy video games, most particularly Sid Meier's Civilization. Two, programming computers.

00:07:42 Speaker_01
And three, as you mentioned and everybody who watched our Chase Center show knows, ancient Greek and Latin history. Classics. The classics. And pretty much in that order of importance, both to him personally and the future course of Facebook and meta.

00:07:57 Speaker_01
So, let's start with civilization. September 1991.

00:08:01 Speaker_05
David, I toyed with the intro to this show being, and we are your hosts. Civilization is a video game upon which, but I decided not to.

00:08:10 Speaker_01
Right? I mean, it's kind of laughable, but like, no, this is really important here. So September 1991, when Mark is seven years old, Civilization or Civ, as its fans call it, comes out for PCs and young Mark gets hooked.

00:08:27 Speaker_01
And for those of you who haven't played Civ, It is a very particular type of turn-based strategy game, and is probably the foremost example of what is known as the 4X genre.

00:08:38 Speaker_01
That's the number 4, letter X. And 4X stands for Explore, Expand, Exploit, Exterminate.

00:08:48 Speaker_01
And despite that sort of nefarious sounding nature to the last one there especially, Civ and 4X games were kind of this radical branch of video games at the time where the action of playing and the way to win wasn't just about like killing all the enemies on screen.

00:09:06 Speaker_01
It's a lot more like a board game or like Risk, if you're familiar with that. It's about strategy. It's about growing and marshalling your resources effectively. And most importantly, there are multiple ways to win the game.

00:09:19 Speaker_01
Most other games out there, you can win by defeating all the other players, but you can also win by completing a technology development tree and reaching like the peak of technology, which is in the game, launching a spaceship to go colonize a new planet.

00:09:35 Speaker_01
So that's another way to win. And in modern versions of the game, you can also win by diplomacy, by getting elected the leader of the UN. You can also win by dominating all the other players on either culture or religious dimensions too.

00:09:52 Speaker_01
So it's kind of like this amazing simulation of what it's like to run one of the top 10 market cap mega capitalization companies in the world today.

00:10:03 Speaker_05
But, to your point, this idea that it's turn-based, you try to amass resources, figure out how to deploy your resources, have multiple concurrent strategies so that you, as the roll of the dice of the universe happens, and things unfold before you, and you're- And other players make their moves, yep.

00:10:22 Speaker_05
Right. To be able to effectively react to it all and use your resources to win in whatever way winning means to you.

00:10:29 Speaker_01
It's kind of funny, this is way too simplistic of an analogy and not fair to Mark on any dimension.

00:10:35 Speaker_01
But the whole construct here sort of reminds me of the book Ender's Game, where it's these kids growing up playing this game and they didn't realize all along it was actually the real game.

00:10:48 Speaker_01
So playing Civ and other video games when he's young, PC games, leads young Mark to want to learn how to program himself. So when he's 10, he has his parents take him to the local Barnes and Noble one day and begs them to buy him C++ for dummies.

00:11:03 Speaker_01
And he dives into the book, learns everything in there, and He's like, I need more. I need more. So after that, his parents hire a local tutor to come and tutor him for an hour a week in programming and learning how to write software.

00:11:17 Speaker_01
And Mark has this quote that he says later, I'd go to school and I'd go to class and come home. And the way I think about it was, Awesome, I have five whole hours to just sit and play on my computer and write software.

00:11:30 Speaker_01
And then Friday afternoon would come along and it would be like, okay, wow, now I have two whole days to sit and write software. This is amazing.

00:11:38 Speaker_05
It really is astonishing as a 10 year old to be learning C++. This is not basic. This is a language where you are thinking very close to the metal. You have to be very aware of the constraints of your system, of manually managing memory.

00:11:54 Speaker_05
It's impressive for 14 or 16-year-olds to be learning simplistic languages. This is a whole different ballgame.

00:12:02 Speaker_01
as it always is with Mark. So while he's a kid here, you know, in Dobbs Ferry, he codes up all sorts of little projects, including a family chat tool for all the networked computers in the house.

00:12:14 Speaker_01
And also his dad's dentistry office is attached to the house. So he builds this network called ZuckNet, which is family chat between all the computers. Very prescient here.

00:12:25 Speaker_01
And then, speaking of family and friends chat, in 1997, when Mark is 13 years old, AOL launches AIM. AOL Instant Messenger.

00:12:38 Speaker_05
Ooh, I remember it well.

00:12:39 Speaker_05
Many, many, many hours lost to AIM and warning my friends and other dynamics of the AIM system to gang up on people and to have other people gang up on me and- Oh man, punting people off AIM and- Yes, having to create a new screen name and log off and log on and message someone and pretend you're someone else.

00:13:00 Speaker_05
I mean, the whole, this was middle school.

00:13:03 Speaker_01
This was middle school for all of us. And this was middle school for Mark too. The crazy thing about AIM, to go on just a quick little digression here, I had no idea until doing the research. It was actually like a rogue skunk works project within AOL.

00:13:17 Speaker_01
Did you know this? Hmm, no. Yeah, so it was a couple engineers that just went off and built this almost against the wishes of management. It was not originally intended to really be for social use or for kids at all.

00:13:31 Speaker_01
It was more like the idea they had was it was going to be kind of like Slack, like chat for workplaces. Oh, wow. They ended up using it internally at AOL to communicate. And that's actually where away messages come from.

00:13:44 Speaker_01
So they came up with away messages because people would be in meetings or, you know, this is the days of desktops. There's no cell phones, barely even laptops.

00:13:52 Speaker_01
People would go out to lunch and they'd have to put up a message so that when their colleagues were trying to communicate with them, they'd be like, no, no, I'm in a meeting. No, I'm away. That's the origin of away messages.

00:14:02 Speaker_05
That's fascinating. And it is interesting how you ended up kind of using away messages after a while, even while you were there, just to indicate status.

00:14:10 Speaker_01
It was the ultimate emo teenager thing. It was like, I am expressing my whole self through this one line away message.

00:14:16 Speaker_05
A hundred percent.

00:14:17 Speaker_01
So I mean for people all of our age, Mark's age at the time, I mean that completely changed our social experience when that came out. So the other important thing about AIM when it came out that I had no real conception of at all as a kid,

00:14:34 Speaker_01
was that it was free. So my family was an AOL family, like we were AOL subscribers, we had the You Got Mail, et cetera. But you didn't have to be a paying AOL subscriber to download and use AIM and join the network.

00:14:49 Speaker_01
AIM goes on to become this total viral thing in North America. I mean, kinda concurrent with Napster, a little bit before Napster, it's the first piece of consumer viral software.

00:15:04 Speaker_01
And so by 2001, a couple years after launch, it has 36 million users, including, as we've been talking about, basically every middle and high schooler with access to a computer. And, you know, 36 million users doesn't sound like a lot today.

00:15:20 Speaker_01
But you got to remember, the Internet was way smaller back then, way, way, way smaller, not just in terms of number of people had access, but also just number of people who were literate in how to use it.

00:15:32 Speaker_05
Totally. It's the early broadband era is that era we're talking about. And you're right. Tens of millions of people, at least in the U.S., had Internet access at this point in time.

00:15:42 Speaker_01
Yep, and basically all of them and certainly all the young people were on AIM.

00:15:47 Speaker_01
So the other important thing about AIM and AOL here is it was pretty easy to hack, but like, oh man, there was just a field day that kids and teenagers had with like AIM bots, punting software, wares, hacking programs.

00:16:07 Speaker_01
If you were someone like me, you were just downloading this stuff off of FTP servers on the internet and installing it on your machine. And it let you kind of be a punk and like kick people off of AIM by bombarding them with messages.

00:16:22 Speaker_01
You know, you could do some like teenage punk stuff. But it also let you extend the functionality of what AOL and AIM was. You could add graphics, you could add emojis, you could draw pictures.

00:16:34 Speaker_05
Add lakes in your profile.

00:16:36 Speaker_01
Yeah. Oh, the ASCII art in your profile and your away message. Totally. And like this becomes such an important part of Teenage culture on the internet as we're growing up.

00:16:47 Speaker_01
It's like all this personalization of like, hey I don't want just what AOL gives me. I want to control this. So for me, I was downloading and using this stuff You might have been writing it. Although you might have been a little young.

00:17:00 Speaker_05
No, I didn't learn PHP until I was 15 or 16 so call it 2005. Okay. So yeah a little later. Yep

00:17:12 Speaker_01
Mark is one of the kids that's writing this stuff. And, you know, I think that's where he got his start. He was doing ZuckNet.

00:17:18 Speaker_01
He was doing all these little projects, but like, you know, here's AOL, this sort of unintentionally, infinitely hackable and extensible canvas that he can play around on.

00:17:29 Speaker_01
So that's number two for Mark, you know, passion number two, computers and programming. And then passion number three is classics.

00:17:36 Speaker_01
So Mark, when he enters high school, he'd gone to public school all through elementary and middle school in the Baron Dobbs Ferry in Westchester County. He does two years at the local public high school at Ardsley High School.

00:17:49 Speaker_01
And after two years at Ardsley, Mark is like, well, you know, a couple of things. I'm not sure that this is the right high school for me for the rest of my high school career.

00:18:01 Speaker_01
One, I think I would enjoy just being in a sort of like better school, like a higher level of competition, higher level of learning. You know, he's definitely at the top of the class at Ardsley.

00:18:13 Speaker_01
Two is, you know, I'm really into Latin and classics and like I'm going to tap out on that real fast here at Ardsley. There's got to be a place I can go where I can really study this. And that takes us to Phillips Exeter Academy.

00:18:28 Speaker_01
In New Hampshire, right? Yes, in New Hampshire. And so Exeter is one of these private boarding high schools that have existed basically as long as Ivy League colleges have. And they're there just kind of as feeder schools into Ivy League colleges.

00:18:43 Speaker_01
So Mark applies to Exeter, gets in, and the summer before he's about to go, the school hosts an event in New York City, in the city, for incoming two years to meet each other, get to know the school, get ready, etc.

00:18:58 Speaker_01
and there mark meets another kid who's a lot like himself who also is really into computers really into aim and everything going on there and mark's like yeah man i really made the right choice like everybody here is going to be just like the two of us

00:19:16 Speaker_01
And that person is Adam D'Angelo, future CTO of Facebook. Amazing they met in high school. Now the great irony of this story is that Mark and Adam ended up being like the only two kids who are really into computers in the class.

00:19:30 Speaker_01
It was just the two of them. They just happened to meet in New York City at the pre-school event.

00:19:36 Speaker_05
Which is probably one of the last few years that that would be the case. I'm sure if you went to this school today, it'd be 80% of the classes or 100% of the classes really into computers.

00:19:44 Speaker_01
Yes, I think in large part because of Mark and Adam, it's quite different these days. Yep. So the two of them, when they get to Exeter, become fast friends. They work on all sorts of computer projects together, software projects.

00:19:58 Speaker_01
And by the end of their senior year, to graduate from Exeter, you have to do a senior project. And you know, most people do this like a mini college thesis or they do something in the community, et cetera, et cetera.

00:20:10 Speaker_01
Mark and Adam are like, now we're going to build some software. This is what we do. So Mark one day is listening to music on his computer. I think probably on Winamp, which is how everybody listened to MP3s that you got from Napster back in the day.

00:20:25 Speaker_05
I think I listened on Sound Jam, but it's just because I had a Mac. Oh, yeah. Future seeds of iTunes. Yep, that's right. It got acquired by Apple, and then eventually they, I think, built off the same code base and turned it into iTunes.

00:20:40 Speaker_05
But everyone used Winamp. That was the aim of music players.

00:20:43 Speaker_01
And in fact, AOL, I think, would acquire Winamp a couple years later. bring it all into the fold.

00:20:49 Speaker_01
So, legend has it, Mark is listening to a playlist in Winamp one day during his senior year, and he gets to the end of the playlist, and he's like, why did the music stop?

00:21:00 Speaker_01
I listen to so much music all the time on Winamp, it should just know what I like and automatically pick the next song. It should just be a DJ. And then inspiration hits, and he calls up Adam, and he's like, I've got our senior project.

00:21:14 Speaker_01
We are going to build an AI DJ plugin for Winamp. And they call this Synapse. And like, they did it.

00:21:24 Speaker_01
These two high school kids, they build an AI, you know, I wasn't called AI at the time, but like a, you know, a recommender system that looks at the data of what songs you've consumed on Winamp and predicts what song you're going to like to consume next.

00:21:38 Speaker_01
I mean, it's basically Spotify today. What year is this? This would have been spring of 2002.

00:21:44 Speaker_05
Yeah, real early days.

00:21:46 Speaker_01
So they build this thing and then they release it to the internet and people start using it. It starts getting some adoption and a couple companies, including Winamp itself, reach out to Mark and Adam and are like, Hey, do you want to come work here?

00:22:02 Speaker_01
Like, can we buy this?

00:22:03 Speaker_05
Yeah. And I think Microsoft was one of them too. It was for like a million dollar acquisition offer or something like that. It wasn't, you know, crazy, but these are high school kids.

00:22:11 Speaker_01
Right. In 2002. Yes. But yeah, this is really important because they're about to graduate. Adam is going to go off to college at Caltech. Mark is going to go off to college at Harvard in the fall. But Mark is not just like any student coming into Harvard.

00:22:26 Speaker_01
He's like, I can build these things and they have value. big companies are going to be willing to pay me for them. I don't need to be that worried about getting a job.

00:22:35 Speaker_05
Right. He sort of always knew he had a great fallback plan, so it kind of let him be risk on.

00:22:40 Speaker_01
So Mark graduates. He goes off to Harvard. It's the natural choice on many fronts. I mean, one, Mark, of course, aces his SATs. I think he gets a 1600 on the SATs. There's this great legend about you had to take SAT twos to get into college back then.

00:22:56 Speaker_01
I don't know if you still do, but I think you had to have a minimum of three. Mark doesn't study or prepare for them at all. He walks in the day of the test, says, I'm going to take all three that I'm going to take on the same day.

00:23:07 Speaker_01
He gets 800s on all of them. College admissions was not going to be a big deal. And his older sister, Randy, was already there at Harvard. So, clearly, gotta go to Harvard if he wants. Yes. And I think he wants enough.

00:23:21 Speaker_01
Like, I don't know that it's that important to him, but he's like, yeah, sure, Harvard, it's the best, I'm gonna go there. Yep.

00:23:26 Speaker_05
In fact, there's a video of that.

00:23:28 Speaker_01
That's right.

00:23:28 Speaker_05
Have you seen this? His dad sort of filming his reaction, and he's pretty measured about it. It's very, yep, got into Harvard, and then kind of goes back to doing something else on his computer.

00:23:39 Speaker_01
Yep. And I think for most

00:23:41 Speaker_01
kids for most people in the world you would look at that and be like what arrogance and look it's not like 18 year old mark is not arrogant but i think it's also this is why all this stuff we've been talking about is important it's just not that important to him you know he likes building stuff he likes making stuff he knows it has value he knows people will use it

00:24:03 Speaker_01
Whether he goes to Harvard, doesn't go to Harvard, goes to college, doesn't go to college, it's just not that big a deal to him, I don't think.

00:24:10 Speaker_05
Yeah, reading in between the lines, it seems like the thing that he was most excited about is, oh good, a challenging environment where I will encounter other really smart people like myself who are ambitious.

00:24:19 Speaker_01
Yes, I think that is totally right. So Mark gets to Harvard in fall of 2002 and, you know, like you said, he goes to class, he does well, but He wants to meet other people and be around other smart folks.

00:24:32 Speaker_01
He ends up joining the AEPI fraternity there, like my co-host here, my esteemed colleague, Ben. Indeed. Also my father while he was in college. Ah, I didn't know that. Yeah, that's right. That's right. AEPI.

00:24:44 Speaker_01
Adam, meanwhile, of course, goes off to Caltech, you know, 3,000 miles away in the opposite corner of the country.

00:24:50 Speaker_05
Also, can I just say, how crazy is it that Adam D'Angelo would become Facebook's first CTO? They don't go to college together.

00:24:59 Speaker_01
Right. Well, I was going to get into this in a sec. Adam has a very different experience at Caltech. He ends up graduating from Caltech. I think they probably do not have the same generous leave policy there that Harvard does.

00:25:09 Speaker_05
Because Harvard's is weird, right? It's like you can leave and if you ever want to come back, you just, it's like you never left.

00:25:15 Speaker_01
Oh, we're going to come back to that in one sec. Put a pin in that. But for Adam at Caltech, he still finds time while he's there to keep working on these projects. So during his freshman year, he builds something called Buddy Zoo.

00:25:28 Speaker_01
you know, kind of building on Synapse and the success that they had in their senior project. BuddyZoo takes your buddy list from AIM, from AOL, and effectively turns it into a social network. So you upload your entire buddy list to BuddyZoo

00:25:48 Speaker_01
and then you get your friends to do so too. BuddyZoo then analyzes and gives you a list of who are the friends of your friends, how many degrees of separation do you have to them.

00:26:00 Speaker_01
It automatically identifies clicks of like, oh, who of your friends are part of these clicks and who are their friends? It measures popularity among users. This is starting to sound pretty familiar here.

00:26:11 Speaker_01
And this is pretty advanced stuff for 2002, 2003. Very advanced stuff, especially for a side project for a very busy Caltech student. Yep. So, BunnyZoo, pretty quickly in the months after Adam launches it, gets a couple hundred thousand users.

00:26:28 Speaker_01
There's gravity to this thing. It's becoming fairly big, especially given how small the internet was at the time. Yeah. And Atom is like, whoa. OK, this is interesting. So this is kind of what scale looks like.

00:26:42 Speaker_01
Synapse was cool and we had a bunch of people downloading it, but this feels like something more on the order of AIM itself. Like, this is really interesting.

00:26:50 Speaker_05
And the important thing with Synapse was it was a single user application, so it could analyze my songs and tell me what to listen to. This is the first time Adam, Mark, you know, particularly Adam in this case, is discovering

00:27:04 Speaker_05
a very different type of application that gets better as more people join it.

00:27:08 Speaker_01
Yes. Now, we say Atom, and Atom definitely built and launched it, but it's not like Mark wasn't involved. They're staying in touch the whole time and collaborating and working through coding challenges together on, what else, on AIM.

00:27:23 Speaker_01
It's kind of serving its original use case, like they're collaborating through it across the country. So that summer, 2003, after their freshman year, Adam comes to Boston and gets an internship at the MIT Media Lab.

00:27:35 Speaker_01
He discovers this thing called Friendster, another social network out there. And Adam is like, whoa, this is a dedicated standalone kind of version of what I just built with BuddyZoo. This is like really interesting. And it's all on the web.

00:27:51 Speaker_01
Now, Friendster was based out here in Silicon Valley, had raised money from Kleiner Perkins. And Benchmark, right? Oh, Benchmark too? I didn't know that. Yep.

00:28:01 Speaker_05
Yep, which is what tied their hands and why they could not pursue an investment in Facebook.

00:28:08 Speaker_01
Oh That's funny.

00:28:10 Speaker_05
Not that I think that was a real possibility anyway because things were kind of moving so fast But you never hear them in any of the discussion about who was pursuing Facebook and who was iced out They just they had a competitive investment

00:28:21 Speaker_01
That's right. It's funny. I never even think about that because obviously Matt Kohler would go on to become a partner, an important partner at Benchmark. And of course, Matt was an early executive at Facebook. Yes, exactly. Interesting.

00:28:34 Speaker_01
So here's Friendster, this example of like a real standalone company, social network growing virally, funded by venture capitalists, based in the San Francisco Bay Area. Adam's like, oh, Maybe that's sort of what we should be focusing on.

00:28:51 Speaker_01
And by the end of the summer in 2003, Friendster had over 3 million users. So like really interesting, growing really quickly.

00:29:00 Speaker_05
Friendster had real scale and grew really fast. That is something that has kind of been lost to history. Friendster is like the butt of a lot of jokes, but it exploded out of the gates.

00:29:10 Speaker_01
True. So Adam's playing around with Friendster and Friendster had this feature called Testimonials, which was kind of like a Facebook wall.

00:29:20 Speaker_01
But in the long run, one of the core problems with Friendster was it positioned itself as a social network and about friends. But really, it was kind of intended to be a dating site underneath it all.

00:29:33 Speaker_05
Absolutely. That was, wink, wink, not a dating site. It was this idea that, like, there's all these other things that are dedicated to dating, so there's this weird stink about it.

00:29:43 Speaker_05
But if you just naturally meet a friend of a friend online through a thing that's totally not a dating site, then great. There's no stigma around it.

00:29:52 Speaker_01
Yep. So specifically when it comes to testimonials, the purpose of testimonials was supposed to be like, why you should date somebody or why they would be a great partner, which is funny.

00:30:03 Speaker_01
So Adam, while he's playing around with this and he's telling Mark about it. He actually posts on Mark's Friendster profile a testimonial, and he says that, quote, Mark gets way too lucky. And he posted this in the summer of 2003.

00:30:20 Speaker_01
And Adam was telling me this story, and he was like, you know, I have thought about that post for 20 years since then.

00:30:28 Speaker_01
Because on the one hand, it was like a stupid throwaway, you know, double entendre that I put on there because it was a, you know, a dating site.

00:30:35 Speaker_01
on the other hand it is both absolutely true about mark that he always gets way too lucky and facebook and meta always gets way too lucky but it's not luck yeah it's actually mark there's something very different about the way he operates and all the reasons that meta and facebook get lucky over the years mark was always that way

00:30:58 Speaker_01
And it's always because of Mark. Mark is unbelievably good at positioning himself for luck to do its thing. And specifically at this point in time, you know, what Adam talked about is like, he was always looking around.

00:31:10 Speaker_01
He was looking at Friendster, he was looking at what we did with Synapse, he was looking at what I did with Buddy Zoo, he was looking about the projects at Harvard he did that we're about to talk about.

00:31:20 Speaker_01
And he was always thinking like, how do I incorporate all of this and make whatever I'm doing better? This was the stew that Facebook is about to come out of.

00:31:30 Speaker_01
So this brings us to fall semester, 2003, 2004, Mark's sophomore year, and the famous Kirkland House Suite H33 with Mark Zuckerberg, Chris Hughes, Dustin Moskowitz, and Billy Olson as the four roommates there.

00:31:47 Speaker_05
Three of the four of those names are names you may know as the founders of Facebook.

00:31:51 Speaker_01
Yes. So Mark is focused, heading into his sophomore year at Harvard. And he's not focused on classes. He's focused on projects.

00:32:00 Speaker_05
And he's done like 10. I mean, this is something that, again, is kind of lost to history. People talk about, oh, there's the one FaceMash thing that he did that led to Facebook. He did like 10 side projects.

00:32:09 Speaker_05
I mean, I remember being in this era of my life where you feel like you have superpowers as a programmer and you're looking around and you're like, oh, I can make a website for that. I can make a website for that.

00:32:18 Speaker_05
I had the same thing where the world wasn't saturated with apps yet. And so you could just like make things that made your life better or other people's lives better or cool ways to connect people.

00:32:29 Speaker_05
And I distinctly remember feeling like, how come nobody else realizes you can just do this? I know what that sort of feels like, and I know that mentality he was in. There were 10 things that he had worked on even before FaceMash.

00:32:41 Speaker_01
Yep. So the first of which, right as they're getting back to campus that fall, is Mark builds a tool called CourseMatch. Oh yeah, that's right. And this is as students are shopping for classes for fall semester.

00:32:54 Speaker_01
You can upload which classes you're thinking of taking or which classes you've signed up for, and you can see who of your friends have also signed up for that class or are planning to sign up for that class. This is just text.

00:33:08 Speaker_01
All this is is a list of classes and a list of people who sign up. and it takes Harvard by storm. I mean, think about it, right? Like, it's obvious in hindsight.

00:33:18 Speaker_01
A bunch of college undergraduates, yeah, you want to take classes you're interested, but, like, really, you want to make sure you take the classes with the people that you want to be around.

00:33:27 Speaker_05
I was literally texting my friend yesterday who was at Harvard at this time, and she said, oh, yeah, people totally chose their classes based on who was in them.

00:33:35 Speaker_01
Of course. Of course. So Mark sees this, and he's kind of like, You know, again, it's one of these learnings, an observation about the world. He's like, wow, people are spending a lot of time on this tool.

00:33:46 Speaker_05
It's literally just lists of people. You click on a class name and people would spend a lot of time just combing over that list of people.

00:33:53 Speaker_01
Totally. There's nothing visually compelling here. So he's like, well, okay, now it's time for my next project. You know, people have registered for classes. What if there was something visually compelling for people to spend time on?

00:34:05 Speaker_05
What if I overstepped a little bit and, uh. Yeah.

00:34:09 Speaker_01
And this is Face Mash. Well chronicled in all the many books, stories. The Stephen Levy book, the David Kirkpatrick book. Movies. You know, whatever. Movies. Movie. Movie. Mark codes this up in one evening in his dorm in Kirkland House.

00:34:26 Speaker_01
And it's basically the website Hot or Not for Harvard with a couple of like actually interesting mechanical twists on it. Now, The two big problems with it are, one, this is probably just not a good idea or not, like, kind.

00:34:40 Speaker_01
Generally, it is a head-to-head voting mechanic on which picture is quote-unquote hotter than the other picture. The other thing that is really not great is rather than having users upload their own pictures,

00:34:54 Speaker_01
Mark hacks into the Kirkland House servers and downloads the Facebook photos of all the students to populate the website.

00:35:04 Speaker_05
Lowercase face, space, lowercase book.

00:35:08 Speaker_01
Yes. So we should probably spend a minute and talk about what a Facebook was before Facebook. So my big question for you is, did Ohio State have a Facebook? It did not. It probably would have been like a telephone book size thing if they did.

00:35:23 Speaker_05
I mean, I went to college in the fall of 2007, and so you could look up people's email addresses if you had their first and last name. You might be able to get some other, maybe major, but it was a text blob. It wasn't a photo.

00:35:37 Speaker_01
Well, I think most, if not all Ivy League schools back in the day had these. Princeton, where I went, certainly had these when I showed up on campus.

00:35:44 Speaker_05
In fact, Phillips Exeter had one. The private high schools did too.

00:35:48 Speaker_01
That's right, that's right. So you had to give the university, or in Exeter's case, the high school, a school photo of you when you were coming in before you matriculated.

00:35:59 Speaker_01
And then they would literally make a book, like a printed book, with the names and class years and photos of all the incoming students from the freshman class.

00:36:09 Speaker_01
And I think if I remember right, at Princeton at least, they would republish the book every year for your class, because some people would leave, some people would join, et cetera, et cetera.

00:36:18 Speaker_05
All right, so these are photos stored digitally that Mark then, while plugged into the campus network from his dorm room, is... accessing, downloading, and then putting up on his own website that he is hosting.

00:36:32 Speaker_01
Yes, called FaceMash. Now, a couple interesting things about FaceMash. One, gosh, if Mark was blown away by the engagement of the Harvard population with CourseMatch, FaceMash

00:36:45 Speaker_01
takes that to such a whole nother level that it actually melts down the servers in Kirkland House and the IT department at Harvard has to shut off internet within hours of it going live to all of Kirkland House, lest this like continue to spread virally within Harvard and take down like all of the servers.

00:37:04 Speaker_05
Oh, so maybe he didn't actually rehost the images. Maybe he was just pointing at the URLs that were hosted by Kirkland House. Oh, I didn't think about that.

00:37:10 Speaker_01
Yeah, that might have been how it worked.

00:37:12 Speaker_05
But either way, dude knows how to make something that gets engagement.

00:37:16 Speaker_01
Yes. Yes, he does. So the other interesting thing from Mark's perspective about FaceMash is that it was the first time he was building a rich web app as one of these projects, you know, fully built on the LAMP stack.

00:37:32 Speaker_01
And he had probably used the LAMP stack Linux, Apache, MySQL, PHP for course match.

00:37:40 Speaker_05
And so to be clear, that's an operating system, a web server with Apache, MySQL, the free open source database, PHP, the free open source programming language.

00:37:50 Speaker_01
Yes. But this is the first time that he's building like a real rich consumer grade web app on top of the LAMP stack.

00:37:58 Speaker_05
Rich consumer grade. It's the technical requirements of course match, but with photos. Photos and voting. Sure. Yeah, you have like probably an additional table of information in the database or something.

00:38:11 Speaker_05
But the big takeaway here is A, of course, the use case shouldn't have done it. B, wow kids engagement. C, this is training wheels of how to use these new open source web technologies

00:38:24 Speaker_05
If you go back two, three, four years, you're going to have to go to Oracle. You're going to have to go to Microsoft. You're going to have to buy like enterprise grade, super proprietary systems to do this.

00:38:35 Speaker_05
And this is all just like free and something you can cobble together and upload onto some Linux web hosting and boom, there had to be a hundred times more, a thousand times more web applications created by the Mark Zuckerbergs everywhere in this period of time doing whatever random little project that they thought would be fun or funny or useful.

00:38:54 Speaker_01
Yeah, it's such a perfect example, despite its problematic nature, of this is like the first time in history where you need neither money nor permission to launch an application like this on the internet.

00:39:09 Speaker_05
Totally. $10 domain, $100 a year web hosting that includes the database, no licenses required, PHP is all free. Maybe the bandwidth would have been an issue, but this is on the order of $100 to do this.

00:39:21 Speaker_01
Yeah. Well, clearly the bandwidth was an issue because they shut down internet to Kirkland House.

00:39:26 Speaker_05
So David, this feels like a thing you should get kicked out of school for doing.

00:39:29 Speaker_01
Yeah. Harvard, as you imagine, is not pleased about this. They haul Mark in front of the administrative board, which is a disciplinary committee for students when things like this happen.

00:39:40 Speaker_01
He and his fraternity brothers are pretty sure that he's actually going to get thrown out of school for this. So the night before the ad board meets to make their final decision, AEPI, the fraternity, throws a goodbye Mark party that night.

00:39:55 Speaker_01
And legend has it that this is where Mark and Priscilla Chan meet for the first time. And Priscilla, of course, is now Mark's wife. Yup.

00:40:04 Speaker_01
So, the ad board meets the next day and decides not to throw Mark out of school, but to put him on disciplinary probation for the rest of the year. Basically, don't do this again. Slap on the wrist. Slap on the wrist.

00:40:16 Speaker_01
So Mark doesn't end up getting kicked out of Harvard, but he does kind of end up becoming like the Harvard computer celebrity, even before Facebook. Right.

00:40:28 Speaker_05
I mean, this is a big deal. Everyone on campus knew about FaceMash. A lot of people already knew about CourseMatch anyway, so he's now the guy who can make websites and web applications here at Harvard that people use.

00:40:40 Speaker_01
Yep. And it just so happens that there's a group of upperclassmen at Harvard led by two twins, the Winklevoss twins, who have an idea to digitize Harvard's Facebook.

00:40:53 Speaker_01
and build an online version of it that they're thinking of calling the Harvard Connection. Then they think maybe we could actually take that to other schools too and call it ConnectU as sort of the broader version. This was not at all a unique idea.

00:41:07 Speaker_01
Not at all. Lots of people at lots of schools had this exact same idea. In fact, Harvard itself had this idea.

00:41:16 Speaker_01
The IT department at Harvard had been promising for years and talking about how they were going to build a digital version of the Harvard Facebook.

00:41:24 Speaker_05
and Friendsters out there, and I looked it up, Stanford had Club Nexus, Columbia had CU Community, Yale had Yale Station. I'm sorry, there's a whole movie made about the drama of how novel this idea is. It's not.

00:41:38 Speaker_01
Totally not. I'm pretty sure Princeton had one too when I was there, pre-Facebook. Yeah, totally not a novel idea. Lots of people have it. Nope. The Winklevoss twins, though, you know, Mark is now this celebrity on campus.

00:41:50 Speaker_01
They need somebody to be a programmer to write the site. So they talk to Mark, and Mark agrees that he's going to help them out and help code this site that they're thinking about.

00:41:59 Speaker_05
Also, again, the chutzpah to say, we have this idea, you are a programmer, you will program our idea. Clearly, Mark can come up with his own ideas that get people excited enough to use the stuff he builds.

00:42:14 Speaker_05
Now, so far, it's been a little unsavory, but he doesn't have a problem coming up with ideas with product-market fit and executing them end-to-end. The only thing he hasn't done so far is made money, made anything as a business.

00:42:26 Speaker_05
But what other pieces of the puzzle does he really need from some people with an idea?

00:42:31 Speaker_01
None. It's funny, I was going to save this for a little later, but let's talk about it now.

00:42:35 Speaker_01
In addition to technically, because of open source and the lamp stack, and also socially because of AIM and everything going on, the world sort of, for the first time, something like Facebook being able to be built for no money and no permission.

00:42:53 Speaker_01
Also, this was the first time that a technical person, because of this, could just do everything. Like Mark didn't need anybody. Mark didn't need a non-technical co-founder. Mark didn't need a CEO.

00:43:05 Speaker_05
He was the CEO. I remember thinking the same thing when I shipped my first app to the App Store. Co-founder Ian and I in 2009, I think, made something called Seize the Day. Got over a million downloads.

00:43:16 Speaker_05
Two programmers uploaded something to the App Store. That's a slightly different era, because that's mobile, not web. But I remember looking around being like, whoa, we didn't need a business guy. That's the craziest thing.

00:43:28 Speaker_05
You can make stuff, and you can put it in the world.

00:43:30 Speaker_01
Totally. So this takes us to Harvard's Christmas break. Now at the time, Harvard did final exams for the fall semester after Christmas break in January.

00:43:40 Speaker_01
So the idea is all the students go home for Christmas break, you come back in January, and then there's a week of reading period where you re-familiarize yourself with all the material from your classes, then you take final exams, then there's a little break, there's a course shopping period for spring semester, and spring semester starts in February.

00:43:58 Speaker_01
So Mark has a few weeks to program a new idea. Exactly, to not study and program a new idea. And during Christmas break, he had actually come out to Silicon Valley, to the Bay Area, to hang out with some friends out here.

00:44:12 Speaker_01
And seeing, you know, the physical embodiment of all these great tech companies, Yahoo, early Google, etc., I drove by them all. And so he comes back and he's like, extra, extra motivated.

00:44:25 Speaker_01
He's like, you know, this digital Facebook idea, I think this is something that a lot of people want. I bet I can code this up in a week and just launch it.

00:44:34 Speaker_05
And again, not a business, just like a project. He has this gut feeling that people will use this if he makes it.

00:44:42 Speaker_01
Totally. Now, importantly though, all the stuff he'd been doing throughout the year, he's like, well, I can incorporate that into this project too. It'd be pretty boring if it's just a digital Facebook.

00:44:56 Speaker_01
Like, I don't think people want that, but I've made all this other stuff that people really, really like and engage with.

00:45:01 Speaker_05
And when you say just a digital Facebook, you mean like essentially the profile page would just be a photo and a name.

00:45:07 Speaker_01
Right. Just like the physical version of like, here is a list of all the students in the class and here is their, you know, stock profile picture. Yeah. So later, after thefacebook.com blew up,

00:45:18 Speaker_01
Mark told the Harvard Crimson in an interview, I don't really know what the next big thing is because I don't spend my time making big things. I spend time making small things, and then when the time comes, I put them together.

00:45:30 Speaker_01
That's the kind of stuff I do. Small little projects, and eventually they all fit together. And that's what thefacebook.com ends up being. So Mark gets back from reading period. Instead of studying, he dives in.

00:45:42 Speaker_01
He IMs his friend Andrew McCollum, who he knows from CS classes, and asks Andrew to do the page design. Andrew says, yeah, sure thing. I'll help you out. Andrew goes and fires up Photoshop.

00:45:54 Speaker_01
He finds an image on the internet of some guy who looks kind of cool and puts it in the header of the design for the site. Behind a cloud of ones and zeros because it's cool. It's like the matrix. Yes.

00:46:08 Speaker_05
It's gradiented, you know, it's sort of white on the left, blue on the right.

00:46:12 Speaker_01
And for like, you know, a year or two, however long the Facebook guy was at the header, everybody's like, who is the Facebook guy? People think it's Al Pacino. People are like, is it a student? Do you know who the Facebook guy was?

00:46:24 Speaker_05
I totally do. I looked this up. I spent like two hours trying to figure this out. Really? Yeah.

00:46:28 Speaker_01
It's amazing.

00:46:29 Speaker_05
Because everyone always said it's Al Pacino. I'm like, it doesn't really know. Al Pacino must have looked really different when he was younger. And it's not.

00:46:38 Speaker_01
Tell me your answer. I'll tell you if it matches mine.

00:46:39 Speaker_05
All right. So there was an 80s song that got really big called Centerfold.

00:46:45 Speaker_01
Oh, yes. This is it.

00:46:47 Speaker_05
And the image is of Peter Wolfe.

00:46:49 Speaker_01
Yep, who is the lead singer of the Jay Giles band.

00:46:52 Speaker_05
We'll link to that image. There's this great Quora post, which we should say, Adam D'Angelo, founder and CEO of Quora, after Facebook.

00:47:00 Speaker_05
There's a great Quora post about this where there's unmistakably the photo of Peter Wolfe that Facebook guy is based on. They just sort of pixelated it and, you know, made it duotone instead of the original photograph.

00:47:12 Speaker_01
So great, so great. So on the evening of February 4th, 2004, after final exams, right when students are coming back, getting into the mode for the new semester, starting to shop for spring semester courses, Mark Zuckerberg launches thefacebook.com.

00:47:35 Speaker_01
And right off the bat, from the moment somebody logs in, The functionality is like awesome.

00:47:42 Speaker_01
So the registration page reads, you can use the Facebook to search for people at your school, find out who are in your classes, course match, look up your friends' friends, buddy zoo, see a visualization of your entire social network.

00:47:59 Speaker_01
Buddy Zoo plus graphics. And then at the bottom of every page is the famous copyright 2004, the Facebook, a Mark Zuckerberg production.

00:48:11 Speaker_05
Awesome. I feel like it's like one of the most infamous screenshots is the screenshot of that original homepage.

00:48:16 Speaker_01
So, so great.

00:48:18 Speaker_05
So importantly, things that did not exist here yet, messages, wall posts, even I don't think pokes were in the original very first version. That's a good question.

00:48:29 Speaker_01
If they weren't in the very first version, they launched pretty quickly thereafter.

00:48:33 Speaker_05
Yep. But no Facebook events, no photos other than your profile photo. I mean, no, I don't even think status updates were in the very first one.

00:48:43 Speaker_01
I don't think status updates were there yet. No. But all the lessons from all the other projects, all the elements of them are coming together here. So once again, registration is limited to email addresses on the harvard.edu domain.

00:48:59 Speaker_01
That was part of the magic of what had made all the other projects so successful is like, it's not randos in here. It's other people at Harvard. It's your classmates. It's the people you care most about. Yep.

00:49:11 Speaker_01
And by the nature of that, it's their real identities.

00:49:13 Speaker_05
And that's what makes it different than all these other social networks. MySpace existed. Friendster existed. But anyone could sign up for these. And in part, that meant that they had more explosive growth because there was no governor on the growth.

00:49:27 Speaker_05
And we'll talk about all the problems that sort of come from anyone anywhere can sign up at any time, but the very core thing here is authenticated people.

00:49:37 Speaker_05
The people who are signing up for Facebook at the start are people you know go to the same college as you and have to use their real name matched against a university-issued email address.

00:49:48 Speaker_05
Identity, an authentic identity, is a part of the company from its first moment.

00:49:53 Speaker_01
Yep. Coupled with super important learning number two from FaceMash, it's all user submitted content. So no pre-population with anything from Harvard, you know, no scraping from Harvard servers, etc.

00:50:08 Speaker_01
And like, yeah, on the one hand, that prevents Mark from getting into trouble. On the other hand, though, It sets the expectation and the requirement and trains the behaviors of the users of you got to enter all the content into this site yourself.

00:50:23 Speaker_01
You put in your aim screen name, you put in your cell phone, you put in your interests, you put in your classes.

00:50:28 Speaker_05
Also, isn't it crazy that they displayed cell phone numbers for the longest time?

00:50:33 Speaker_01
Right. Well, again, think about the functionality and the utility to the users. On the one hand, you would never disclose your cell phone number to the general public.

00:50:42 Speaker_01
On the other hand, other students and your friends at Harvard knowing your cell phone number, well, that's actually pretty useful for getting in touch, for going out, for going to parties, for planning things, et cetera, et cetera.

00:50:54 Speaker_05
These are all people you would give your email and phone number and maybe even birthday to if they just asked.

00:51:00 Speaker_01
Totally. You would probably also give them your relationship status, which is in there. Formalizing your relationship status for the first time here on thefacebook.com. You can add a photo of your own choosing as your profile picture.

00:51:15 Speaker_01
So big difference from old school Facebooks where it's whatever the university chooses or it's a stock school photo or whatever. Like, no, you get to express your personality. You get to Photoshop it as much as you want.

00:51:27 Speaker_01
And you can update it whenever you want. And you can update it whenever you want.

00:51:30 Speaker_05
So, it is amazing how much of the next billion-plus people's source of value comes from this founding moment.

00:51:41 Speaker_05
The Facebook grows tremendously in functionality over time, but everything is like a natural outcropping out of authentic identity, user-submitted content, trust that the people who are seeing this content are people in your sort of private network.

00:51:56 Speaker_05
The whole thing is here in this first few weeks of coding that got done and then threw up the landing page.

00:52:03 Speaker_01
I would even go one step further than that. the actual nature of the seeding of the network here is maybe the most important thing. And here's what I mean by that. Once Mark launches this, it takes off like wildfire within Harvard.

00:52:20 Speaker_01
Of course, he's already a celebrity, already known for launching these projects. People are tuned in waiting for the next Mark Zuckerberg production. Within the first 24 hours, 650 people join.

00:52:31 Speaker_01
There's only 2,000 people in a class at Harvard, so I think there's about 7,000 or 8,000 undergraduates total. Within two weeks, over half of the entire undergraduate population is active on Facebook.

00:52:46 Speaker_01
So now, here's what I mean and why the seeding is so important. This initial network is super dense, super engaged, and super active. That not only sets the norms for how you're going to behave on Facebook going forward,

00:53:03 Speaker_01
It also means that as the network grows virally, it radiates out from this like nuclear reactor of a base.

00:53:12 Speaker_01
Contrast that with an approach of something like Friendster that's default open to everybody, backed by Silicon Valley venture dollars, trying to grow, they're doing marketing.

00:53:22 Speaker_01
Okay, let's say somebody in Ohio hears about Friendster somehow, maybe they see an ad for it, they sign up. When they join the service, there's no friends there. There's nothing to do. There's no functionality. It's not alive.

00:53:38 Speaker_01
When you join the Facebook, even though it's limited to just Harvard students, you sign up and you're like blown away by how alive this site is.

00:53:49 Speaker_05
Right. Almost nobody can use the Facebook, but for the people who can, it's an unbelievably great experience. As they expanded, that stayed true. It was either you're not allowed to use it, or if you are, it's blow away great instantly.

00:54:03 Speaker_01
That's basically always true. And the moments when Facebook stops growing is when that's not true. And then they sort of refocus on it. And then that gets the growth back. Yeah.

00:54:14 Speaker_01
Here's another thing that I think was really important about this seeding of Facebook was actually that it happened at Harvard. Harvard is the top global brand among universities.

00:54:28 Speaker_01
Whatever you personally think about Harvard, it's undeniable, especially back then, that it was like the top. If you were a kid or a family pretty much anywhere in the world, you knew what Harvard was.

00:54:40 Speaker_01
This was really important as Facebook expanded because it had this patina to it. It was like elite, especially as they grew. There were clones. There were lots of other Facebook copies out there.

00:54:53 Speaker_05
And even if they were as good as what Mark had built, they didn't start at Harvard.

00:54:58 Speaker_01
It's kind of like civilization. Nobody else could ever invade Facebook's turf, but they could invade other people's turf.

00:55:05 Speaker_01
So somebody put it to me in the research, like there was a fairly big competitor in Germany, I think maybe called SteadyVise or something like that.

00:55:14 Speaker_01
Facebook could really easily go into Germany, and people in Germany would be like, oh, Facebook, I've heard of that. This is interesting. Studyvice could never go into Boston.

00:55:24 Speaker_05
Like, ever. Hmm. It's interesting. Yeah, that's a great point. Okay, so weeks go by and they've saturated Harvard. And not only that, you start seeing this thing happen, which just to level set with listeners, this stayed true for several years.

00:55:42 Speaker_05
This is a crazy stat. 70% of people who ever signed up were active that day. There are not user engagement retention metrics better than that in the world.

00:55:55 Speaker_05
The fact that as they grew, it didn't matter how many more people they added, it was still the case that 70% of users ever were daily active.

00:56:05 Speaker_05
And so you have this crazy situation at Harvard where it's just like, to your point, nuclear reactor levels engaging. In fact, this term wouldn't get coined till later in the summer, but this is from The Facebook Effect, David Kirkpatrick's book.

00:56:18 Speaker_05
They had coined a term for how students seem to use a site. Zuckerberg, Moskowitz, and Parker, Sean Parker, who we'll talk about who comes in, called it the trance. Once you start combing through the Facebook, it was very easy to keep going.

00:56:32 Speaker_05
It was hypnotic. You just kept clicking and clicking and clicking from profile to profile, viewing the data.

00:56:39 Speaker_01
And every single one of those clicks is a page view. So yeah, this hits Harvard like an earthquake. It's FaceMash all over again, except a good problem, not a bad problem. It's all legit. The servers are melting down.

00:56:57 Speaker_01
Even Mark is blown away by how big this thing gets so quickly.

00:57:01 Speaker_05
Yep, right away they add the wall. So there's a way to publicly post things like testimonials on your friends' walls.

00:57:09 Speaker_05
You could view a wall-to-wall so you could see the public posts that you were making back and forth to each other so that you've got your profile information, wall posts, and that's it.

00:57:19 Speaker_01
Yeah, but to your point, very quickly, Mark is adding features, adding functionality, adding things to do to the site. The other thing that he does right off the bat is say, OK, we're taking this to other colleges, too. So he recruits his roommates.

00:57:34 Speaker_01
Dustin Moskovitz comes on to help maintain the site. Dustin was actually an econ major. He had no idea how to code. He goes out and buys Perl for dummies. And Mark's like, uh, that's great that you read that. The site is written in PHP.

00:57:51 Speaker_01
So, Dustin goes and learns PHP, too, and helps with coding the site and keeping up with everything.

00:57:57 Speaker_05
You know, Perl, you can learn PHP. It's much easier.

00:57:59 Speaker_01
Chris Hughes joins, too. Andrew McCollum joins. And then they need to keep buying servers to keep up with the traffic or else everything is going to melt down. So, one of Mark's fraternity brothers in API is a guy named Eduardo Saverin.

00:58:14 Speaker_01
And Eduardo was, I think, part of the Business and Investing Club at Harvard. So they recruited Eduardo in, and Eduardo invests $1,000 in infrastructure for the site. Mark invests another $1,000.

00:58:25 Speaker_01
So together there's $2,000 of investment in the Facebook.com. And the deal they strike is that Mark gets two-thirds of the company, and Eduardo gets one-third of the company.

00:58:35 Speaker_01
And Eduardo sets up a business entity to formalize all of this as a Florida LLC. Eduardo was from Florida. Right away, as we were saying, Mark's like, great, this is not just a Harvard thing. We need to bring it to other colleges.

00:58:49 Speaker_01
And he specifically chooses Columbia because, Ben, as you said, there was an existing competitor there. And he's like, I want to see how Facebook competes. And like, I want to know right away, can we displace it?

00:59:02 Speaker_05
It's so interesting. He doesn't go to the schools where there's nothing. He goes to the schools where there is something and wants to be better than it.

00:59:09 Speaker_01
which is so counterintuitive to how most people would think. They say like, oh no, this is a race, I'm gonna go to the white space, I'm gonna gobble everything up and then wait to take on competitors when I'm bigger and stronger.

00:59:19 Speaker_01
Mark's like, nope, right away.

00:59:21 Speaker_05
This is a early mindset of we are gonna be globally dominant. If you're okay splitting the market, you go for the white space and then you say, let's see how much of the low-hanging fruit we can easily get.

00:59:31 Speaker_05
But if you're Facebook, you're going to say, let's go to the hardest possible competitor, extinguish them, and then we'll have a better shot at owning the whole market and we can get to the low-hanging fruit later.

00:59:45 Speaker_05
By the way, their strategy once they did win at a school like Columbia was to go figure out all the schools that were like closest to Columbia in terms of network connections and then win there too, to kind of like build a moat around their victory.

01:00:00 Speaker_01
Yep. So, there we have the initial crew. Mark, Dustin, Chris, Andrew, and Eduardo. The five co-founders of Facebook. The other interesting thing about going to Columbia, which they do three weeks after the launch at Harvard. 22 days.

01:00:19 Speaker_01
It was the same month all within February 2004. They set up Columbia as a completely different network than Harvard. So if you join the Columbia Facebook, you can't then go access all the profiles of Harvard students. Right.

01:00:38 Speaker_01
At first, there was zero connectivity between the two. Which is another sort of counterintuitive thing. You'd think like, oh, great, I want to build this as big as possible. Mark clearly wants to conquer all these other schools.

01:00:49 Speaker_01
The best way to do that is to have all this alive content come right to them from Harvard, I think he realized that had he done that, it would have socially inhibited sharing within Harvard.

01:01:01 Speaker_05
Yeah. The scarce commodity is trust. That is the important lesson here. It's also a very convenient infrastructure decision, where if these two systems truly don't need to talk to each other, that's great. Put different servers in different data centers.

01:01:19 Speaker_05
Don't worry about overloading the database. Don't worry about number of writes per second and reads per second. It's great. If every school gets its own server rack, you'd end up not having some of these issues that the other social networks have.

01:01:32 Speaker_05
Friendsters out there trying to compute second-degree friends of friends, which is this crazy hard computer science problem, especially as the global number of people growing. It's an n-squared problem.

01:01:44 Speaker_05
And Facebook is over here, or the Facebook at the time, in the land where they're keeping n small.

01:01:49 Speaker_05
So even anything that's n squared is contained within that school, and their servers aren't falling over and taking 20 plus seconds to load pages the way that the Friendsters of the world are.

01:02:01 Speaker_01
This is such an interesting point because technology infrastructure advantage has always been a core part of Facebook, even back to this very beginning.

01:02:12 Speaker_01
What's interesting is that it flips at some point as Facebook grows and eventually becomes open to everybody.

01:02:20 Speaker_01
Their competitive advantage becomes their tech is so good and their infra is so good that they can do everything you were just talking about that Friendster couldn't do and that MySpace couldn't do.

01:02:31 Speaker_01
But in these early days, their competitive advantage is actually like, no, we're scale out, not scale up. And then Mark was totally willing to just flip the bit later.

01:02:40 Speaker_05
Right. It's effectively counter-positioning. They're building the Facebook in such a way that the use cases don't require incredibly sophisticated technology to accomplish those feature sets.

01:02:51 Speaker_05
There's this funny chicken or the egg thing here, and I think the answer, like many chicken or the egg, is both. Mark, at the moment he conceives of an idea

01:03:00 Speaker_05
thinks through the technical requirements and the user experience, and they're sort of co-mingled in the product development process.

01:03:10 Speaker_05
And so I really do think even at age 19, he was sort of aware of the scaling benefits in addition to the user experience benefits of launching in this way.

01:03:19 Speaker_01
Totally agree. Okay, fun bit of trivia about Harvard's leave policy that we referenced earlier. Do you know what else Mark does on the same evening that they launch Columbia? No idea. He goes to hear Bill Gates speak on campus.

01:03:38 Speaker_05
That was the same night?

01:03:39 Speaker_01
The same night during which speech Bill mentions that he actually felt comfortable dropping out of Harvard because he discovered that Harvard had this really generous leave policy.

01:03:54 Speaker_01
that you could take an infinite leave of absence and pursue something else and come back anytime you want. And Mark would actually say later that Bill saying that at the event was part of what got him comfortable doing the same thing.

01:04:07 Speaker_05
Unbelievable. It is crazy. Tying this back to our Microsoft episode, this would have been, what, early 2004? And so this would have been right after Bill stopped being CEO, handed the CEO reins to Steve.

01:04:20 Speaker_05
He was still the chief architect and still chairman of the board, but it's sort of this like post-DOJ time for Microsoft where Bill is just technically focused and can do things like go speak at Harvard.

01:04:32 Speaker_01
Yeah. It is amazing how much influence Microsoft had on Facebook and on Mark. We have a lot more to talk about on that front. So next couple of days after Columbia launches, Facebook launches at Stanford, at Yale.

01:04:48 Speaker_01
By the end of the semester, they're in over a hundred schools in like, you know, what, three, four months? Like the speed they're moving with is crazy.

01:04:55 Speaker_05
And they start building these wait lists. I mean, this is the other, there's so many common startup things that Facebook kind of invented. They built tremendous demand before they would light up the network.

01:05:09 Speaker_05
They knew that as soon as you're in Facebook, you want to quickly get to seven friends or ten friends or whatever the metric is to create that sort of magic moment where you're like, oh yeah, Facebook now works for me.

01:05:19 Speaker_05
So they wanted to wait until they had sufficient demand to boom, open that school. And then once it's open, everybody should have the best possible experience. And so you're seeing

01:05:29 Speaker_05
Facebook basically say, OK, wherever there's really strong demand, that's where we'll open next. And we're not going to open anywhere where we see like, you know, middling demand for our product.

01:05:39 Speaker_01
Yep, totally. Meanwhile, here we are at the end of the school year. The Winklevoss twins take the whole ConnectU situation to Harvard's president, Larry Summers, to adjudicate this dispute between them and Mark.

01:05:52 Speaker_01
Larry says, hey, Harvard is not going to get involved here. This is a business dispute between students. Eventually, the two twins sue Mark and Facebook. They settle for $65 million, $45 million of which is paid in pre-IPO Facebook stock.

01:06:10 Speaker_01
Obviously, that grows a large portion of that, then I think they sell and put into Bitcoin in like 2011 and 2012 timeframe. So they end up pretty fine out of all this. They did great. They did great.

01:06:26 Speaker_01
But here we are at the end of the school year, summer comes around and Andrew McCollum has some connections out in the Bay Area. He had interned at Electronic Arts. Adam D'Angelo is going to be spending the summer from Caltech.

01:06:40 Speaker_01
So the crew all decides like, hey, great, let's not get internships. Let's go rent a house out in Palo Alto. move to Silicon Valley and work on Facebook there for the summer and see what happens. And yes, the house did indeed have a pool.

01:06:56 Speaker_01
Yes, they did indeed install a zipline off the chimney. That was not fiction in the movie. That did actually happen.

01:07:04 Speaker_05
And it is important to know, to this point, it is a project.

01:07:09 Speaker_05
Mark and Dustin and Chris and everyone who moves out, they are there to work on a project that they think is cool and seems to be working and get exposure to Silicon Valley and venture capitalists for when they start their startup, having a network.

01:07:25 Speaker_05
That is literally the mentality. Facebook is live at how many schools, David? A hundred. A hundred schools.

01:07:32 Speaker_05
And they are going out not with the intent to make this a company, but to contemplate what company they could start and meet people that can help them with that.

01:07:41 Speaker_01
Yep. Now, when we say crew who moves out, that crew did not include Eduardo. Eduardo had an internship in New York and decided that he was not going to move out for the summer.

01:07:52 Speaker_05
Yeah. Tough decision.

01:07:54 Speaker_01
Not a great decision. On the other hand, he ends up with 2% of Facebook, so he's also fine.

01:07:59 Speaker_05
Yeah. So to make a long story short, yes, everything you saw on the social network around this, the result is effectively correct that Eduardo Saverin goes from owning a third of this Florida-based LLC to something like 2% of this C Corp.

01:08:14 Speaker_05
That is a Delaware C Corp. based in California that goes on to become or is Facebook Inc. And the justification that they effectively use in changing this structure is, hey, a bunch of us moved to California to start a company together.

01:08:30 Speaker_05
You stayed back and yes, you sold some ads in the meantime, but like, you didn't come start the company with us. Listener, we leave it to you to sort of decide how that should have played out and what's fair. None of us were there.

01:08:42 Speaker_05
He was a co-founder of Facebook and then ended up with 2% and lived on a different coast. Okay, so they're in California. They get really serious about the Facebook.

01:08:51 Speaker_05
They actually are still working on something else called Wirehog concurrently within the same team, but they're starting to realize, okay, this, the Facebook thing really, really has legs.

01:09:01 Speaker_05
And as they're sort of contemplating their next move, they literally run into someone on the street who will change everything. David, who is this person?

01:09:10 Speaker_01
That person is the co-founder of Napster, Sean Parker, who would have a brief but very, very large impact on the company.

01:09:20 Speaker_05
Yes. So before we tell the Sean Parker chapter of the Facebook, Now is a great time to talk about our presenting partner, JP Morgan Payments.

01:09:30 Speaker_05
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01:09:41 Speaker_05
But unfortunately, it's not just the good actors who take advantage of these opportunities.

01:09:46 Speaker_01
Oh yeah, there are always bad actors on the other side of the same new technology, and this is especially true whenever money or value is exchanged, whether it be phone scammers taking advantage of international networks in the 80s and 90s, viruses spreading through the early internet,

01:10:02 Speaker_01
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01:10:08 Speaker_05
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01:10:19 Speaker_05
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01:10:28 Speaker_05
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01:10:40 Speaker_05
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01:10:48 Speaker_05
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01:10:57 Speaker_01
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01:11:10 Speaker_01
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01:11:14 Speaker_05
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01:11:21 Speaker_01
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01:11:27 Speaker_01
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01:11:41 Speaker_05
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01:11:50 Speaker_05
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01:12:03 Speaker_05
Check out more payment solutions and stories at jpmorgan.com slash acquired. Okay, David, Sean Parker enters the picture. Here we go.

01:12:13 Speaker_01
So, Sean Parker had, of course, started Napster with Sean Fanning back in the late 1990s. And after the whole Napster saga, Parker ended up starting the email contact list company called Plaxo, which was kind of its own proto-social network and

01:12:33 Speaker_01
pioneered email address book exploitation and exporting.

01:12:38 Speaker_05
Which is how every social company got its start. Facebook did a ton of this. LinkedIn did a ton of this. WhatsApp did this.

01:12:45 Speaker_01
Exactly. It pioneered the first bootstrap viral social network mechanic.

01:12:50 Speaker_05
Hey, let me see who all the people you know are so that on this new thing that you want to be connected to all the people you know. You're connected to all the people you know.

01:12:58 Speaker_05
Oh, by the way, we might also invite all the people that you've ever contacted.

01:13:01 Speaker_01
Yep. So Sean and his co-founders at Plaxo raise money for Plaxo from venture capitalists. And not just any venture capitalists, the best venture capitalists from Sequoia Capital. And all is going well. Plaxo is going fine.

01:13:20 Speaker_01
Sir Michael Moritz is on the board of the company. Anyway, after a couple of years, Sean Parker ends up getting kicked out of the company by the board. Now... Sean wasn't exactly the most, like, reliable employee and definitely was, um, quirky.

01:13:40 Speaker_01
But the result of this is Sean's everlasting enmity for Sequoia and paranoid distrust of all venture capitalists and company boards. This is going to become very, very, very important here in a sec.

01:13:56 Speaker_01
So rewind slightly back to the spring of 2004 when the team is still at Harvard. Sean is living in Palo Alto and one of his housemate's girlfriends, who's I believe a student at Stanford, pulls up the facebook.com on her laptop.

01:14:15 Speaker_01
And it's kind of like the scene where this happens in the Social Network movie. Sean is like, holy crap. This is it. This is the winning social network. And Sean, I believe had actually been an advisor to Friendster as well.

01:14:29 Speaker_01
So he was like between Plaxo and Napster, Friendster, really believed social networking was going to become a thing. Totally.

01:14:37 Speaker_05
And it is kind of crazy to think about, unless you had a student show you on their computer, this is what Facebook is. There's no real way for you to know other than the signup page.

01:14:46 Speaker_01
Right. Which you can't get past it and see how alive the thing is. Yep. So Sean, being the enterprising person that he is, he cold emails the company's business email address and asked to set up a meeting.

01:15:01 Speaker_01
And Eduardo Saverin replies to Sean is like, Oh, cool. You're the co-founder of Napster. Yeah. They set up a dinner in New York city. This is while the spring semester is still going on at Harvard.

01:15:14 Speaker_01
and mark and eduardo and sean all get dinner together and mark and sean really bond mark is super pumped to meet him but that's about it like there's no you know discussion about you know what's cool a billion dollars you know etc etc as dramatized in the movie that doesn't happen

01:15:32 Speaker_01
They kind of think that they're just going to go their separate ways. Right.

01:15:35 Speaker_05
Nice to meet you. I don't think even Mark knows yet that he's moving to California this summer.

01:15:40 Speaker_01
Nope, totally not. So here we are now in June. The Facebook crew has moved out to Palo Alto. They're walking down the street one evening. Sean is also walking down the same street in Palo Alto, sees them, and is like, Hey, it's the Facebook guys.

01:16:02 Speaker_01
And at this point, Sean Parker was living in a different house, specifically the house of his girlfriend's parents. Not a good situation.

01:16:12 Speaker_01
And he makes a split second decision right there on the street to insert himself into Facebook and is like, Hey, I'm actually looking for a place to stay. Do you think I can crash with you guys in the crash pad for the summer?

01:16:27 Speaker_01
And he joins the crew, and this is how it all starts. That is wild. Yeah, it's like, uh, you ever play old school like Super Nintendo role-playing games like Japanese RPGs like Final Fantasy or whatnot? Uh, it's been a while.

01:16:44 Speaker_01
I mean, it's just like you meet somebody on the street and they join the party. And like, you know, you always know the character on the street that's gonna join the party because their pixel sprite is more highly detailed than the regular NPC pixel.

01:16:57 Speaker_01
I mean, this is exactly what it is like here. Sean Parker had a very detailed pixel sprite. Yes. So while he's there, you know, living in the house, uh, crashing with the college students, he basically takes Mark aside and he's like, look,

01:17:11 Speaker_01
You've got something really special here. I have been in your shoes. Let me tell you exactly what is going to happen this summer. You have created something magical. You're now out here in Silicon Valley. You are going to be the bell of the ball.

01:17:27 Speaker_01
All the venture capitalists out here, all the big companies, they're going to whine and dine you. They're going to court you. They're going to tell you you're great. And they're going to want to invest in your company.

01:17:39 Speaker_01
And then they're going to turn around and they are going to screw you. They're going to take control of your board. They're going to force you to bring in quote unquote professional management. They're going to kill all the magic.

01:17:50 Speaker_01
Growth is going to slow. Then they're going to blame you. And then they're going to fire you. And then they're going to put the company up for sale.

01:17:56 Speaker_05
And here's the thing, to this point in history, he really wasn't wrong. He was absolutely right. There wasn't Founders Fund yet. There wasn't A16Z yet. There wasn't, like, the notion of founder friendliness.

01:18:09 Speaker_05
What venture capitalists did is they invested in founders' companies and then brought in management to take them to the next level. It's what happened at eBay. It's what happened at Google. This is a pattern that happened over and over and over again.

01:18:23 Speaker_05
And usually they would try to do it with the sort of help and support of the entrepreneur to build this like really great team together. But oftentimes that backfired and they just hot swap the CEO with a big grown up manager and a nice suit. Yep. And.

01:18:37 Speaker_01
That was not the wrong playbook until this moment in time. Because as we've been talking about, until now, if you wanted to scale something, you needed money, you needed permission, you needed business people, you needed deals, you needed contacts.

01:18:55 Speaker_05
Yeah, that's true. The open web kind of changed the hard requirement on that.

01:19:00 Speaker_01
Yes. And I think, Sean, As bitter as he was about his own experience, I think he probably also recognized that and recognized that the Facebook and Mark had the potential to start a new paradigm of how to do this differently.

01:19:18 Speaker_01
So Sean says to Mark, look, if you just go out on your own, that's what's going to happen. I am going to take you under my wing and make sure that that does not happen.

01:19:27 Speaker_01
And I'm going to help you reset up the company so that you permanently control the board and no one can ever fire you because you are what is important here.

01:19:37 Speaker_01
And I'm going to help you go about fundraising, but I'm going to make sure we find the right people who are cool with that stipulation. Number one, because if you go try and do it by yourself, like you don't know enough, you don't know these people.

01:19:52 Speaker_01
You're not going to find the right folks. And it's kind of wild. I mean, Sean was also in a position to take advantage of Mark and the company, and he didn't.

01:20:03 Speaker_05
There was some nice self-interest in all of this. It's not like this was, like, charitable.

01:20:07 Speaker_01
He ends up being the president of Facebook.

01:20:09 Speaker_05
And he ends up with a pretty decent chunk for a non-founder, and he ends up with a board seat. Now, granted, it's technically Mark's board seat, but, you know, Sean's the one sitting in it.

01:20:19 Speaker_01
Totally. But it would have been really easy for him to do one of two things, you know. One, obviously, take advantage of Mark and the company and get a lot more for himself.

01:20:29 Speaker_01
Two, I think he also could have been so jaded by the Plaxo experience to say, we shouldn't raise venture capital at all. But actually, what he counsels Mark to do is the right thing. No, we should raise venture capital. We should professionalize.

01:20:47 Speaker_01
And the whole Silicon Valley machinery really can help us, but we're going to do it in the right way on our terms. I think he just really wanted to help Mark win the game. I think you're right. The other thing that Sean does, by all accounts, is

01:21:04 Speaker_01
He makes sure that everyone in the house that summer gets equity in the company.

01:21:09 Speaker_05
Okay, so what's Wirehog? What's the second project that's going on here?

01:21:13 Speaker_01
Yes. I really would love to know what Sean thought when Mark and the crew told them about Wirehog. Wirehog was basically going to be a captive Napster to Facebook.

01:21:26 Speaker_01
everybody on Facebook in these private networks, walled gardens, what is something that college students really, really wanted to do and was happening internally on college servers all the time? Share files, share music, share movies.

01:21:43 Speaker_01
Wirehog was going to be a product to make this happen. And actually, legend has it, I think in Steven Levy's book, While they're talking about this, Sean Parker actually comes up with a name for the product.

01:21:55 Speaker_01
It's like, oh, if you launch this, you should actually call it Dropbox.

01:21:59 Speaker_04
No way.

01:22:01 Speaker_01
Yeah, like a year before Dropbox, the actual company, gets founded.

01:22:05 Speaker_05
That's so funny. But they really are sort of thinking of themselves as this almost like incubator lab.

01:22:10 Speaker_05
I don't really understand how this is true, but they really did convince themselves that their current frontrunner for the product they were most excited about was Wirehog.

01:22:18 Speaker_05
And Facebook might be like a good distribution vehicle for it, or maybe at some point they don't even focus on Facebook anymore and they go all in on Wirehog.

01:22:25 Speaker_05
And they're actively talking about this insanity while speaking with investors about raising capital.

01:22:34 Speaker_01
Yes. So to the investors that Sean goes out and helps them find.

01:22:40 Speaker_01
Sean at this point knows basically everybody in Silicon Valley and he's like, okay, I need the pretty tight window of people who a have money, B know what they're doing and C are okay with our terms that Mark is going to control the board and control the company.

01:22:55 Speaker_01
So we need an individual, not an institution. So he calls two angel investors who he knows pretty well and he thinks might be the right fit.

01:23:05 Speaker_01
One is Reid Hoffman, who Reid had been running LinkedIn and Sean had been in this early social networking thing. And he just started LinkedIn.

01:23:14 Speaker_05
They actually knew each other because Reid was an early investor in Friendster.

01:23:18 Speaker_01
So Sean calls up Reid and he also calls up Mark Pincus. Mark had been Sean's boss at an internship that he had in high school. And then Mark had gone on to invest in Napster when they started Napster as a company.

01:23:32 Speaker_01
And we should say who Mark Pincus is for anyone who doesn't know.

01:23:35 Speaker_05
Mark would eventually start Zynga.

01:23:37 Speaker_01
Yes. Could become a very important person and company in the Facebook ecosystem. The maker of FarmVille. Yes. So Pincus and Reed meet up with Sean and Mark, and they're just blown away by the Facebook.

01:23:52 Speaker_01
And Ben, as you say, Mark starts talking about Wirehog, and apparently Reed is like, no, no, no, no. Stop talking about this Wirehog thing. Like, I'm running LinkedIn. I can tell you this is special. Like, do the Facebook thing.

01:24:05 Speaker_05
Not only do the Facebook thing, but like, music is kryptonite as a space right now because of what Napster did to the music labels. How is Sean not the one being like, stay a thousand yards away from music, my God?

01:24:19 Speaker_01
I mean, amazingly, a couple years later, you know, Sean, being so open-minded, I mean, he was one of the ones who really helped Spotify get going.

01:24:27 Speaker_05
Yep. And really brokered the relationship with Mark for Daniel and Mark to hit it off and obviously Spotify to have a huge amount of growth on Facebook.

01:24:35 Speaker_01
Totally. So, okay, Reid, really excited, he's like, no, no, the Facebook, focus on the Facebook.

01:24:40 Speaker_05
Your user numbers are what? Your engagement is what? Your retention is what? Your Dow-Mao ratio is what? Oh my God!

01:24:48 Speaker_01
So Reid's like, look, I'm running LinkedIn. Pincus and I don't have that much money together. We'll give you some, but we can't fund a whole round for you.

01:24:57 Speaker_05
And they're kind of conflicted, both with Friendster and LinkedIn.

01:25:01 Speaker_01
But he's like, I think I know the perfect person who can put this together.

01:25:05 Speaker_05
I worked with this guy at PayPal.

01:25:08 Speaker_01
My old colleague from PayPal, who actually, as luck would have it, is thinking about starting his own venture capital fund. This could be a really good fit. Why don't you meet Peter Thiel?

01:25:24 Speaker_01
And Peter, yes, indeed, was just in the process of starting what would become Founders Fund. Ben, you already alluded to this, but like Founders Fund was such a radical idea when Peter started it.

01:25:39 Speaker_01
The idea being baked into the name that they will always side with founders and never push a founder out of a company.

01:25:45 Speaker_05
I was shocked. I mean, it just. It's so easy to forget this, but it was just 20 years ago. The idea that a venture capitalist makes an investment in a company and they are not the controlling shareholder was blasphemous just 20 years ago.

01:26:00 Speaker_05
Totally blasphemous.

01:26:02 Speaker_01
And of course, PayPal has its own crazy history where you can understand why Peter would arrive at this conclusion. But he really was like,

01:26:11 Speaker_01
Maybe the only person in Silicon Valley that hit that Venn diagram that I talked about a minute ago of like super legitimate would actually help the company and help them navigate Silicon Valley had money because the PayPal exit had just happened and was going to be cool with Mark controlling the company.

01:26:32 Speaker_05
Yeah, it's a one of one intro to make. I mean, they probably would have had to be someone else in the PayPal mafia that kind of fits that.

01:26:39 Speaker_01
Yep. But I don't think at that time, you know, Elon wasn't doing investing. I don't think there was anybody else who really could have done it.

01:26:46 Speaker_05
Yeah. That's a crazy counterfactual, thinking about if Elon had invested in Facebook instead of Peter Thiel.

01:26:53 Speaker_01
Right. What if Elon hadn't started SpaceX?

01:26:56 Speaker_05
He wasn't just as good a position.

01:26:58 Speaker_01
Totally.

01:26:58 Speaker_05
Had Roloff gone to Sequoia yet?

01:27:00 Speaker_01
If he had, he would have just started.

01:27:02 Speaker_05
This is effectively the pool of financiers who could have done this deal.

01:27:06 Speaker_01
But Sequoia wasn't going to do this deal under those terms, so Ruloff couldn't have done it. It was maybe one of two with the other one potentially being Elon. Wow, that would be a really different world that we would be living in today.

01:27:22 Speaker_01
Okay, so they take the idea to Peter. In the meeting, Reed brings along a young guy who's working for him at LinkedIn named Matt Kohler to come help, you know, talk to Peter, evaluate this from an investing standpoint. They strike a deal.

01:27:39 Speaker_01
that Peter's going to lead a round of $500,000. Reed and Mark Pincus are each going to invest $37,500. Peter's going to do the rest at a $5 million pre-money valuation, so 5.5 million post. Which, you know, on the one hand is like laughable now.

01:28:00 Speaker_01
On the other hand, at this point in time, for a bunch of kids who started this a couple months ago, it's crazy that this would be worth $5 million.

01:28:09 Speaker_05
Out of $5 million valuation, the multiple cents then has been about 250,000x.

01:28:17 Speaker_01
So that takes us to the end of the summer. So everybody now has to make a decision. Do they stay in Palo Alto and keep working full-time on Facebook, or do they go back to school?

01:28:36 Speaker_01
So Eduardo never came out in the first place, so he did his internship in New York. He goes back to Harvard and starts his junior year.

01:28:44 Speaker_01
Chris Hughes also goes back to Harvard, starts his junior year, graduates in 2006, and then rejoins Facebook after graduation. Andrew McCollum stays in Palo Alto for a couple years and then goes back to Harvard later and completes his degree.

01:29:02 Speaker_01
He takes the, you know, Bill Gates road, not traveled option. Dustin never goes back, stays with the company until 2008 when he leaves to start Asana. And Mark, I think probably never really even considered going back.

01:29:18 Speaker_05
Yeah, at this point, the 70% stat keeps being true. Despite the fact that they keep opening all these new schools, it keeps being true that 70% of people who have ever signed up are daily active users.

01:29:29 Speaker_05
So I think Mark realizes, oh, I have created one of the most engaging technology applications ever.

01:29:36 Speaker_01
Yes. And certainly at this point, the combination of Sean, Peter, Reed, Mark Pincus, all advising and being part of the company, they know. And they have certainly helped him realize that.

01:29:54 Speaker_05
Yep.

01:29:55 Speaker_01
Adam D'Angelo does go back to Caltech and then through AIM, I guess, remotely helps collaborate with the company until he graduates in 2006 and becomes CTO officially. Got it. Sean, like we said, his impact on the company was huge.

01:30:11 Speaker_01
I really want to underscore this again. Mark having full control over the company as we are gonna see time and time and time again as we go through the story here Makes all the difference in the world and that is 100% because of Sean Parker.

01:30:26 Speaker_05
Yep. So how long is Sean at the company?

01:30:29 Speaker_01
Not very long, because at some point in time, the next spring.

01:30:34 Speaker_05
So it's like nine total months at the company.

01:30:36 Speaker_01
Yeah, I think about nine total months. Sean ends up leaving the company after charges get filed against him as a result of some drug incidents at a house party during a trip to North Carolina.

01:30:49 Speaker_05
Charges do eventually get dropped, but in the meantime, the decision is made, hey, this is not something the company is going to get sucked into.

01:30:56 Speaker_01
Yep. He immediately joins, where else? Founders Fund. Founders Fund. Which Peter, partially on the back of this Facebook investment, has now set up and raised officially.

01:31:08 Speaker_01
And like we said, Sean goes on to find and fund and really help nurture Spotify through his role at Founders Fund.

01:31:17 Speaker_05
Yep. It's kind of amazing thinking about Founders Fund raising capital on the back of this investment. One pitch is, we invested in Facebook.

01:31:25 Speaker_05
The flip side of it is we just invested in a company, we're currently holding it flat because there's been no markup yet from any other investors, and they're not generating any revenue.

01:31:37 Speaker_01
Well, let's talk about other investors. By this point, kind of towards the end of spring semester 2005, Facebook had now dropped the the, become just Facebook. That was one of Sean Parker's

01:31:53 Speaker_01
final impacts on the company is he actually negotiated the domain name purchase of Facebook.com. I didn't know that. Yeah. I believe they bought it for $200,000. Hmm. Which actually was a good chunk of that venture money that they raised.

01:32:07 Speaker_05
Right. Because it was 500k that they raised before.

01:32:10 Speaker_01
It was 500k. Yep.

01:32:11 Speaker_05
And they're actively spending that. The company has never consumed that much capital, but they are having to spend it on servers.

01:32:18 Speaker_05
As they stand up new colleges, they are having to go into data centers and rack servers or rent servers on a monthly basis. And the server bills are starting to add up, especially as they scaled to how many schools were they at in the fall of 2004?

01:32:31 Speaker_05
Several hundred. Well, Sean Parker introduced Mark to Western Technology Investment, WTI. The debt fund, yeah. Yeah. And so they basically invented venture debt. And so they make a $300,000 loan.

01:32:48 Speaker_05
It's like, I think, like a revolving credit line in the fall of 2004. And that comes with warrants that if the company ever goes public, that they can then exercise. they do a deal again the next spring for another $300,000. So they're in for $600,000.

01:33:07 Speaker_05
I spoke with someone years ago who told me this ended up being phenomenally, phenomenally successful. And the warrant exercise on this, I think, is the greatest venture debt deal of all time.

01:33:18 Speaker_00
Has to be.

01:33:19 Speaker_01
Nice. Spring 2005, Excel comes in, leads a Series A, $12.7 million at a $98 million post-money valuation. That's sort of like crazy in and of itself for the time. And though, still being okay with Mark having board control. Yes.

01:33:41 Speaker_01
Which, you know, one thing for like, okay, at the angel round, maybe like that's still pretty crazy, but whatever. This is angel round, but like, no, like a real venture capital firm, real series a 2005.

01:33:55 Speaker_01
A, $100 million valuation, B, being okay with that, that was wild. Oh, also C, getting less than 20% of the company. Like rule of thumb venture investing back in the day was you need at least 20% of the company, ideally more like 25 or 30.

01:34:10 Speaker_05
Yes. So Kevin Afrusi, who ran down the deal and did the diligence at Accel, and Jim Breyer, who was the partner and took the board seat. This is one of the all-time great venture investments, and so it's worth talking about some of the deal mechanics.

01:34:23 Speaker_05
It was the very first post-dot-com institutional venture capital deal where the founder maintained control. Certainly, the norm was as soon as a VC gets involved, it is a VC-controlled board and company.

01:34:39 Speaker_05
The other thing that's worth noting is this is a company getting a $98 million valuation. Now, the silly land that we live in now are like, this happens all the time. This didn't happen, and we were only just coming out of the dot-com era.

01:34:53 Speaker_05
So eyeballs and clicks had just had four years of demonization from everyone, from the press to the public to limited partners.

01:35:02 Speaker_05
In fact, Excel had limited partners drop out of this fund who were LPs previously, including your beloved Princeton, including Harvard. I think Stanford was one of the only ones that really stuck with them for this $400 million fund.

01:35:18 Speaker_05
And they're kind of looking at this realizing, This might be one of the greatest companies of all time, and we are going to have to do the type of deal that everyone got raked over the coals for five years ago in the mania for doing.

01:35:31 Speaker_05
And no one is doing this type of deal in this environment. But it's Facebook, so we're going to do it. I think the level of risk and reputation risk that they took on this cannot be underscored enough.

01:35:44 Speaker_01
Totally. I was trying to think of Were there any other deals like this that you could even kind of point to as a comparable from the past?

01:35:55 Speaker_01
And the only one I can think of was the Google Series A, which was $25 million at a $100 million post-money valuation split between Michael Moritz from Sequoia and John Doerr from Kleiner Perkins. But it was in the dot-com run-up. Exactly, exactly.

01:36:11 Speaker_01
It was a totally, totally different paradigm. Legend has it, I don't know if this is apocryphal or not, is that after making the investment, Moritz told Don Valentine at Sequoia, never have we paid so much for so little.

01:36:26 Speaker_01
And I think he was actually referring to like the small amount of equity that they got by having to split the deal in Google. So yeah, in the dot-com bubble that happened, but like that this would happen in 2005. Excel went way out on a limb for this.

01:36:41 Speaker_05
Yeah. So some other interesting deal points, $1.1 million of this $12.7 million round was done by Jim Breyer personally. Wow. Yeah. The shares were acquired at 4.5 cents per share. Facebook just recently hit $600 a share.

01:37:01 Speaker_05
So, Excel and their limited partners and Jim, for anyone who's still holding the shares after they distributed them, that is a 13,000x return. Another interesting thing on this, do you know the whole Don Graham dynamic with this deal?

01:37:18 Speaker_00
Yes.

01:37:19 Speaker_05
The original deal was that Don Graham from the Washington Post was going to invest, and it wasn't going to be a VC deal. That was at a $60 million valuation.

01:37:28 Speaker_05
Excel comes in over the top, and in part of the negotiation to get it up to this $98 million deal, there was actually a secondary. Oh, wow. 3 million went to Mark, Dustin, and Sean as a secondary in this deal.

01:37:48 Speaker_01
Wow. I had no idea. Yep. Wow. I mean, add to the litany of things that were not done back then.

01:37:56 Speaker_05
This is Facebook having all the leverage and full deal control in negotiating this Series A. Wow. And still, it was one of the best venture capital investments of all time.

01:38:07 Speaker_01
absolutely man that is freaking wild yeah wow okay well that is a lot of hype to live up to which brings us now to the summer of 2005 where mark motivated by this perhaps i hadn't quite thought about that

01:38:26 Speaker_01
announces to the company his product roadmap for the summer. And it is a six point product plan. Number one, a redesign of the site. Bye bye, Facebook guy. Number two, a photo application.

01:38:46 Speaker_05
Which, by the way, photos got written by like one guy in two weeks.

01:38:50 Speaker_01
Yes. Move fast and break things. Yep. Number three, a personalized newspaper based on all of your friend's activity. Number four, an events feature. Number five, a local business product.

01:39:05 Speaker_01
And number six, a sort of vague idea for a feature called I'm Bored. which would let users on the site who were bored consume media and play games. That's a pretty big feature mandate. This is a freaking wild.

01:39:24 Speaker_01
So now, okay, of that, I think only the redesign and photos would actually ship in 2005. Maybe events did too, I'm not entirely sure, but this is incredible. Photos, newsfeed, platform, which is really what this I'm Bored feature is.

01:39:42 Speaker_01
Summer 2005, it's all right there in the vision. And Mark thinks they can accomplish all of this by the end of the summer. And the wild thing is they do accomplish all of this in the next two years, which two big points on this for any other company.

01:40:01 Speaker_01
These are all like multi-year long development processes. Well, and each one is its own company.

01:40:06 Speaker_05
Exactly. Photos is Flickr. There are independent game platform companies out there.

01:40:12 Speaker_01
Miniclip, etc. Yeah. Flash games. What were some of the other ones? Events. Eventbrite. Yep. Personalized newspaper. Well, that becomes a true, true innovation in Newsfeed. But I think at the time, there was a lot of

01:40:28 Speaker_01
buzz and talk about personalized portals and like Yahoo was really big on this and Google was even kind of big on this like, oh, make this your homepage.

01:40:36 Speaker_05
Oh, iGoogle.

01:40:37 Speaker_01
Do you remember iGoogle? Yes, iGoogle. Exactly. And I think that might have been somewhat of the inspiration, although obviously Mark was thinking way bigger than that. But like, yeah, again, local business product, Yelp, each one of these

01:40:50 Speaker_01
under the old paradigm was its own company. And Mark was like, no, this is all part of Facebook. Crazy. Super crazy. And this really, I think, speaks to the genius of Mark as a product strategist.

01:41:05 Speaker_01
It's one thing to say, I'm going to add a lot of random features to my site and I'm going to throw spaghetti against the wall. This was not a random grouping of features. Everything reinforced one another and drove the engagement loop of the site.

01:41:24 Speaker_01
So just as one example, let's take from, you know, this roadmap that Mark lays out. Events, let's start there. Events and parties planned on Facebook get tagged with who's gonna attend the events.

01:41:40 Speaker_01
All of those tags get published out as activity to newsfeed. That drives interest in FOMO among the friend network, so more friends come to the actual event. At the event, photos get taken, and now there's more people there.

01:41:58 Speaker_01
Well, those photos get posted back to the site afterwards, and they all get tagged with the people who were there who were in the photos. All of that becomes activity that then gets published to News Feed.

01:42:11 Speaker_01
That generates more desire from more people who see that on Facebook in the news feed to either engage with the photos and like and comment on them, or if they're hearing about it from their friends and they're not yet on Facebook to now register for Facebook and get involved in this loop.

01:42:28 Speaker_01
All of that now gets published back to News Feed, so now it's time for the next party, and you can see how this just grows and builds on itself over and over and over again.

01:42:36 Speaker_05
It's funny, as you're saying all this, it sounds like very old hat, like almost boring. Of course it does all of that. At the time, it was so revolutionary.

01:42:44 Speaker_01
Everything I just described was there within the next 18 months.

01:42:48 Speaker_05
So photos, I think, was like late summer of 05. Interestingly, photos did not originally include photo tagging. Photo tagging was like a pretty new concept.

01:42:57 Speaker_05
I think Flickr may have had it, but the idea that like you're tagging a person and then you can go browse that person's profile by photos they've been tagged in, that wasn't brand new innovation.

01:43:08 Speaker_05
That is a mechanic that was not thought of in social networks before. If you think about what Friendster and MySpace were, You could upload a limited set of photos, which, by the way, you'd have to delete one to add another.

01:43:20 Speaker_01
Yes. So MySpace only allowed you to have eight photos maximum at the time. And this is, A, Ben, what you're describing of person tagging and photos. Incredible innovation. Right. drives the whole viral loop.

01:43:34 Speaker_05
And this is a through line through the whole episode. What social media or social networks are definitionally changes every year.

01:43:43 Speaker_05
And often Facebook was the one in the early days to push the envelope and say this is what it means to be a social network. In the later years it was Facebook's competitors that then they had to sort of adopt that functionality. But

01:43:54 Speaker_05
The idea that a social network includes an infinite number of photos that you can tag and give XY coordinates on the photo to map to a specific person that is another entity in the social network, that was actually a new component to what it meant to be a social network.

01:44:10 Speaker_05
And as you were saying with News Feed, that wouldn't happen for another, what was that, late summer of 2006 or something? September 2006.

01:44:18 Speaker_05
Yeah, so another year, year and a half after this, that completely turned what social media, social networking was on its head again.

01:44:27 Speaker_01
Yes. Oh, we're going to talk all about it in a sec.

01:44:29 Speaker_05
To this point, a social network is a set of static profile pages that you can navigate to. And if you go to home, like the root, you know, facebook.com slash instead of slash profile PHP, it's pretty useless.

01:44:42 Speaker_05
Like the home page is actually an uninteresting place to hang out. There is no, hey, let me see what's going on in my network.

01:44:49 Speaker_01
Yes, until Newsfeed.

01:44:52 Speaker_05
Okay, but before we get to that, 2005.

01:44:53 Speaker_01
To your broader point here, though, yeah, for the first six or seven years of its life, Facebook was a change maker, defining what social networking was. And then after that, it became a change taker. And we'll talk about this when it happens.

01:45:11 Speaker_01
Again, the mental flexibility of Mark and the company to be like, okay, I'm not going to have pride about that anymore. I'm going to adapt and still win is incredible. Very Microsoftian. Very Microsoftian. Okay.

01:45:25 Speaker_01
So even this, even though it takes two years to roll out the full roadmap, photos, events, but especially photos. The 2005-2006 school year is just off the charts for growth, sharing, engagement among college students.

01:45:42 Speaker_01
Ben, you found an incredible stat about Facebook's page views, right?

01:45:47 Speaker_05
Yeah, this stat is crazy. By November of 2005, they were getting 230 million page views daily, which means that they had passed Google in page views. Wow. Google, the company started six years earlier.

01:46:04 Speaker_05
And the reason is because when you're on Google, you do like one or two searches and then you go to your destination. On Facebook, you get caught in an hours-long trance of looking at everybody you know and what they're doing.

01:46:16 Speaker_01
Right. Which was already the case when it was basically text only, but adding photos, I mean, oh my God, every photo is a page view. With such a small user base at that point in time, I think what, probably, certainly less than 10 million users.

01:46:32 Speaker_01
to have 200 million plus page views every single day and be passing Google in traffic is wild.

01:46:40 Speaker_05
I mean, let's say it's 10 million. It's 23 page views per day per person. That's assuming that every single person who is a monthly user is accessing it every day and loading a page 23 times.

01:46:50 Speaker_01
Right, right.

01:46:51 Speaker_05
In our mobile age now, that doesn't really sound like much. I bet the number of photos that someone scrolls through on Instagram is way higher than that. But for the time, that interactivity was just nuts.

01:47:01 Speaker_01
I mean, certainly Flickr, MySpace, Friendster couldn't hold a candle to that type of engagement.

01:47:08 Speaker_05
Yeah. So here's their user growth. In June of 05, as you mentioned, they were at 3 million. By September of 05, they were at 5 million users. That was 10x their user base just a year ago in September of 04. And almost a third of all US college students

01:47:28 Speaker_05
were included in that 5 million. So by September of 05, they had a third of US college students. Of their 5 million users that they had about 18 months in, 70% were daily active, 85% were weekly active, 93% were monthly active. Wow.

01:47:47 Speaker_01
Those are just insane numbers.

01:47:49 Speaker_05
Yes. I could go on and on and on, but one interesting thing to also point out at this period of time, October of 05, they were up to 8.3 million users. They were the 10th most visited site on the internet.

01:48:02 Speaker_05
But the important part is they were doing a million dollars a month in revenue. They had actually started figuring out the advertising business model. So here we are 19 months after founding. They're no longer burning capital.

01:48:15 Speaker_01
Yes. Well, when you say figured out the advertising business model, they just had such a high volume of page views that they didn't have to figure anything out. You just plug in some crappy ad networks and print money. Fair.

01:48:29 Speaker_05
Yeah, you're right. Actually, I completely misspoke. I would say that they were nowhere near figuring out the advertising business model.

01:48:35 Speaker_01
But they had a traffic machine. They were able to, through alchemy, turn page views into revenue. Yeah. But they had not, by any means, figured out their business model.

01:48:47 Speaker_05
And in this world where startups glorify raising capital, burning huge amounts of money, delaying monetization, and then having these amazing screamin' returns when they finally do turn on the money faucet, Facebook was just the opposite.

01:49:02 Speaker_05
They lost money and not that much money for like a year and a half. And then from that point on, they were just profitable.

01:49:07 Speaker_01
Yes. So the 2005, 2006 academic school year, incredible for the company, everything we just talked about, but there were a couple yellow flags, shall we say that popped up.

01:49:23 Speaker_01
During that year, Mark, of course, was already starting to think about, well, how can this keep getting bigger? People graduate from college. This is great in colleges, but like, I don't want to just build a college site.

01:49:39 Speaker_01
I want this to be a lot bigger. And obviously that was what Excel was investing into at that valuation. So they launched two sort of tests throughout the year.

01:49:51 Speaker_01
One was opening up Facebook to high school students and the other one was opening Facebook up to workplace groups. And both of them kind of flopped.

01:50:03 Speaker_05
And for different reasons, right? The workplace ones, they were like, the workplace thing is going to be awesome because it's authenticated email addresses the same way that the colleges had authenticated email addresses.

01:50:13 Speaker_05
Most high schools don't have authenticated email addresses. So we expect these workplace networks to work better.

01:50:18 Speaker_01
Yep. But the problem was going into workplace networks, people didn't want to share with their colleagues.

01:50:25 Speaker_05
I don't want some low res party photos of me from last night showing up on my workplace.

01:50:30 Speaker_01
And I think also just the density wasn't there.

01:50:32 Speaker_01
It was violating the principles that got them there, of like, this thing needs to be alive, and every way we fractally spread out needs to be bringing that nuclear reactor of what's happening along with it.

01:50:45 Speaker_01
Going straight into workplaces, like, you've got 60-year-olds, and they're like, there's going to be nothing compelling for them right now.

01:50:51 Speaker_05
The extreme bear case on Facebook at this moment in time is you started with a group of people who are the most social and the most open to share in their entire lives. You've already saturated a third of them.

01:51:04 Speaker_05
Every single cohort that you add from here is probably going to be worse.

01:51:09 Speaker_01
Yep. was a very rational argument. Now, high schools, as you say, failed for a different reason. There wasn't the same standardized email architecture in high schools across the country.

01:51:21 Speaker_01
It was just way more fragmented, so you couldn't elegantly set up these private networks in the same way.

01:51:27 Speaker_05
Yep. And in fact, what they ended up doing, because I was in high school at this time, it was technically a different Facebook. In fact, I will quote the homepage when you went to sign up.

01:51:35 Speaker_05
If you went to Facebook.com in 2006, the title was, Facebook is an online directory that connects people through social networks at schools. Now there are two Facebooks, one for people in colleges and one for people in high school.

01:51:48 Speaker_05
The site is open to a lot of schools, but not everywhere yet. We're working on it. And so if you signed up as a high schooler... You got the crappy one. You had to log into hs.facebook.com, and it looked mostly the same.

01:52:01 Speaker_05
It had slightly different features. But there was this weird thing where somebody who was already in college had to invite you. It's not like anyone could sign up for High School Facebook.

01:52:11 Speaker_05
You needed a college student who went to high school with you to basically vouch for the fact that you are a real high school student and thus eligible to sign up for hs.facebook.com.

01:52:20 Speaker_01
Oh, man, I vaguely remember this of my younger friends who are still in high school asking for this.

01:52:27 Speaker_05
And the subdomaining thing was that lasted for a long time because the college Facebooks were subdomained as a part of their like tech infrastructure. you know, harvard.facebook.com only went to the set of servers that they had set up for that.

01:52:43 Speaker_05
It made it all really easy from an infrastructure perspective. I was on hs.facebook.com for a long time as a college student.

01:52:51 Speaker_01
Right. Yeah, because there had to just be one hs.facebook.com for all the high schools.

01:52:59 Speaker_05
Yes, exactly. And it meant that they needed to like manage scale and load balance really differently because very quickly, the largest network or like certainly the largest subdomain was the high school one.

01:53:10 Speaker_05
And so I think like within a month or two of allowing high school signups, you know, high school as a whole was much, much, much, much larger. And they had to solve for the technology constraint of what do we do with this?

01:53:21 Speaker_05
It doesn't behave like any of our college networks.

01:53:23 Speaker_01
Yep. So the academic school year in the core college user segment went great. But once you hit summer 2006, all those kids go on break and college growth stops for the moment. So summer 2006 was kind of a scary moment for the company.

01:53:44 Speaker_01
The initiatives to expand outside colleges were not going super well. College growth had stopped for the moment.

01:53:49 Speaker_01
And yeah, Ben, like you said, like very rational argument that like, okay, this thing is going to be a really interesting niche site for college students. And how valuable is that? Well, Viacom, which owned MTV,

01:54:04 Speaker_01
thought that that was worth $750 million, which is what they offered to buy the company for in the summer of 2006. Well, there was another party that really, really wanted to own Facebook at this point in time, and that was Yahoo.

01:54:22 Speaker_01
And Yahoo was willing to top Viacom and pay a billion dollars to buy the company. So here we are, a billion dollar offer on the table. And growth is slowing. Exactly, exactly. There's this existential question mark about the company.

01:54:42 Speaker_01
Growth has slowed a lot. You've got a billion dollars on the table, which is a lot of money, especially in those days. It was shocking six years later when Facebook bought Instagram for a billion dollars.

01:54:56 Speaker_01
This would have made the careers of everybody involved. Yep. And, you know, Mark, of course, controls the company, controls the board, thanks to Sean Parker. He doesn't have to sell. But the whole management team is like, yeah, we should probably sell.

01:55:11 Speaker_01
And I think the board, you know, it's hard to know. They obviously know they can't force him to sell. But I suspect if you had asked all of their opinions, and certainly Mark did, they probably would have been like, you know, it's been a great run.

01:55:24 Speaker_01
We should probably hit this bid. So Mark actually agrees to the Yahoo deal. Billion dollars. It's going to be all in stock. Yahoo's going to buy the company.

01:55:41 Speaker_01
In the interim between when they shake hands on the deal and while the docs are being drafted, Yahoo announces their quarterly earnings, and they have a bad quarter, and the stock drops 20%.

01:55:55 Speaker_01
And Terry Semel, who was the CEO of Yahoo at the time, said, OK, the deal is for the same amount of stock. So commensurately, the deal is now worth $800 million, not a billion dollars. And that was history turning on a knife point.

01:56:12 Speaker_01
And that was all Mark needed to say, you know what? Thanks, but no thanks.

01:56:16 Speaker_05
And this part of the story never gets told. The fact that actually, at first, Mark did not turn down the billion dollar offer from Yahoo.

01:56:22 Speaker_05
Mark actually accepted, or at least said, let me turn over another card and get one inch closer to the negotiation being final. You know, it wasn't an outright rejection at first. It was, yeah, come back with the papers.

01:56:34 Speaker_01
Yep, totally. That is not the way it gets talked about today. But I think actually makes the story like kind of even more powerful. It almost really did slip away.

01:56:45 Speaker_05
Well, it's certainly much more realistic. It's a simple and powerful story to say they just outright rejected it. But that's just never how these things go. It's like, show me you're real.

01:56:55 Speaker_02
Yep.

01:56:56 Speaker_05
Okay, so analyzing, let's say he just did turn it down outright. Well, here's a reasonable way to look at it. If what you want to do is run a great company for the rest of your life, it actually was totally rational.

01:57:09 Speaker_05
Mark has said publicly, I mean it's like 15, 18 years ago, I didn't have any more ideas as good as Facebook. But that's like way underselling it. There aren't better companies to start.

01:57:21 Speaker_05
Yes, it would have been nice to have certainty on a billion dollars, or whatever percent of the billion Mark owned at that point. And also, a year before, Myspace had gotten bought for $580 million. Right, by News Corp. So it's like, geez.

01:57:33 Speaker_05
Okay, twice as much as Myspace? But rationally, If the optimization function is I want to run the best company I can for a very long time, almost nobody has started a better company since.

01:57:46 Speaker_05
So if you're looking at the engagement, you're looking at the potential, the rational thing actually is just keep running this company because I'll never discover something like it again.

01:57:56 Speaker_01
Yeah, I completely agree with you. And Mark has said so much in so many words to you and me personally that he's not optimizing for financial outcome here. He's optimizing for impact.

01:58:09 Speaker_05
And I think he likes running this company. He would want to go start a similar company if he didn't have this one.

01:58:14 Speaker_01
Yes, totally. Also, though, to his skill as a strategist, even at this very young age, Yes, Ben, you and I just made a compelling argument about why you could have believed Facebook was going to top out with the college market at this point in time.

01:58:30 Speaker_01
Mark knew though, and he had planted the seeds that both News Feed and Open Registration were gonna be coming later that year.

01:58:39 Speaker_01
And he was definitely making that calculus here too, of like, well, I don't know what the probability necessarily is that those are gonna hit, but Mark had the belief like, A, if they do, they're gonna be really big.

01:58:50 Speaker_01
And B, I think the probability is higher than the people around me think it is.

01:58:54 Speaker_05
Yep, that's totally fair. Even if you weren't gonna bet on the growth, The user engagement was still currently great and you had a lot of reason to believe that it was going to get even greater.

01:59:04 Speaker_05
And you compare all the metrics with Friendster and Myspace as time went on got worse. People churned, their daily active to monthly active would just go down over time.

01:59:16 Speaker_05
The page loads times would take forever, especially with, well, actually with both. Friendster just was not architected properly. It was a software engineering, computer science issue.

01:59:25 Speaker_05
MySpace was this weird thing that was sort of born out of this combined media conglomerate, and they just never really had excellent tech architectural talent.

01:59:36 Speaker_05
And so as you sort of looked at, not the high level metrics of how many users have ever signed up, because MySpace and Friendster, I think we're still way ahead at this point.

01:59:45 Speaker_05
If you looked at like, hmm, but how is this going to play out if it sort of keeps compounding? And you looked at the deeper metrics, you kind of thought, oh, I'm running the better company by a lot.

01:59:54 Speaker_05
Once especially, you know, we got to figure out the business, but I am running the better product by a lot.

01:59:59 Speaker_01
Yeah. So, okay, to figuring out the business coming out of this episode with Yahoo. They say no, the whole management team churns. The whole management team basically churns over the next set of months. Mark gets religion on a couple things.

02:00:14 Speaker_05
And actually, we should say not Dustin, but a lot of the people around the table who were expecting a nice cash payout and now aren't getting one or are not pleased.

02:00:24 Speaker_01
Yep. Totally. So what are they going to do? The first thing is I think Mark had always operated the company this way, but now he gets real religion of like,

02:00:35 Speaker_01
We need to get more revenue and we need to focus on becoming truly cashflow positive so that we are never in a position again where we would even consider doing something like this. So in August of 2006, they do the first partnership with Microsoft.

02:00:52 Speaker_01
It's funny that the Microsoft-Facebook relationship in some ways is sort of a precursor to the Microsoft-OpenAI relationship today and how that gets built. Here's what it is.

02:01:04 Speaker_01
Microsoft says, we're gonna take over selling all of the display ad inventory domestically within the U.S.

02:01:13 Speaker_01
for Facebook, and we will give you a guaranteed CPM that we can sell, and then we are gonna use this to help bootstrap our online services division, which, as we talked about in our Microsoft series, becomes super, super important, not only for their efforts launching Bing and making that into, ultimately, a successful business,

02:01:33 Speaker_01
but even more importantly for Azure that comes out of it. Microsoft knows they need some scale to bootstrap up and get started with both the ad business, but also just like the online services division, period.

02:01:46 Speaker_05
Yeah. This is a ton of inventory. Like you just think about the amount of page views that are happening here. Suddenly Microsoft's problem is not how do we find enough inventory to sell?

02:01:54 Speaker_05
It's how do we go find enough advertisers to actually fill all these slots on Facebook?

02:02:00 Speaker_01
Yes. And Microsoft have been trying to do this. They tried to do this with MySpace a little bit earlier and they lost that deal to Google. So they really need Facebook.

02:02:10 Speaker_05
And on the other hand, this is a great deal for Facebook because Facebook sucks at selling ads and Facebook has no targeting or anything. So they really shouldn't justify high CPMs at this point. Yeah.

02:02:19 Speaker_01
Outsource it to a good third party network. Right. So this is like basically all of Facebook's revenue for the next couple of years here. So Facebook had made $9 million in revenue in 2005 when they were selling themselves.

02:02:34 Speaker_01
This is, Ben, as you were saying, like, hey, they're starting to turn on ads in 2005. It's starting to work like $9 million. That's amazing for year two as a company. Got to cash flow positive. Got to cash flow positive.

02:02:45 Speaker_01
In 2006, with this Microsoft partnership, that jumps to $48 million in revenue.

02:02:53 Speaker_05
Oh, that's where the money spigot is.

02:02:55 Speaker_01
Now we're talking. And then the next year in 2007, again, I think almost all of this is Microsoft, that goes to $153 million in revenue. So like, okay, we are way out of any league where we would consider selling ourselves here.

02:03:12 Speaker_01
we can control our own destiny.

02:03:14 Speaker_05
Isn't it wild thinking about you thought it was crazy to turn down a billion dollar offer, or many people thought you were crazy, and then just two years later that is only a 6x revenue multiple and you're tripling year over year?

02:03:29 Speaker_01
Oh, and by the way, in the second iteration of this Microsoft partnership, which we will talk about in just a minute, it included an investment from Microsoft at a $15 billion valuation.

02:03:42 Speaker_05
Oh, hold your horses. Let's finish this great 2006-2007 arc and then we'll get there.

02:03:47 Speaker_01
Yes. Point being, though, Mark made the right decision for all shareholders of Facebook to walk away from the Yahoo deal.

02:03:53 Speaker_05
I mean, it's at an all-time high. In walking away from every deal ever, he's made the right decision. Yes. Within a year, he made the right decision. Yes. Oh yeah, that's true. This became obviously right fast. Very fast. Very fast.

02:04:06 Speaker_01
So how does this happen? Okay, Adam D'Angelo finally graduates from Caltech, joins Facebook full-time as CTO.

02:04:13 Speaker_05
I love that Adams are like second protagonist here. I know, I know. I don't know if you did that intentionally, but yeah.

02:04:18 Speaker_01
Well, he was right there. I mean, they were at Exeter together. Like, I don't think you can separate it out.

02:04:23 Speaker_05
Yeah.

02:04:23 Speaker_01
And, you know, I think here, part of the reason why Adam keeps coming into the story is he is a really, really great technologist. And even though he's young, same age as Mark, when he now arrives full-time as CTO,

02:04:38 Speaker_01
This is when Facebook starts to be taking the steps to be building, like, real technology infrastructure. So before Adam joins full-time, the team was shipping new code to the website, like, at a high velocity relative to everybody else out there.

02:04:55 Speaker_01
You know, it was weekly-ish, maybe every couple days, you know, maybe even up to daily, like... Well, they were a web company.

02:05:02 Speaker_05
For the first time in history, you actually could. All these companies with big client... I mean, Microsoft would ship every three years with a service pack once a year.

02:05:08 Speaker_05
It's a whole new era where all you have to do is, you know, upload some new PHP code to the FTP server and then, boom, the application behaves differently the next time someone pulls down the page.

02:05:18 Speaker_05
It's the new technology era of interpreted languages running on web servers in a browser, now that products are in browsers, meant you could architect your company differently and ship differently.

02:05:31 Speaker_01
Yes. And when Adam becomes officially a CTO, he's like, actually, we should probably just ship multiple times a day. We should just be shipping all the time. And also we should probably start recruiting like a real top tier engineering team.

02:05:48 Speaker_01
Because remember, it's still kind of nuclear winter for startups. Great tech talent is available. So they start going and recruiting like really, really top tier engineering hires. And it's a pretty compelling offer.

02:06:04 Speaker_01
Like, A, we've got real revenue from this Microsoft partnership. We're the best funded startup in the valley. People want to buy us for a billion dollars. We turn them down. That's all sort of the financial reasons to take it.

02:06:19 Speaker_01
For a lot of people too, it was like such a breath of fresh air. I think Facebook was potentially maybe the first company, first startup to have an open office plan. Like just everything about how they ran the company was different.

02:06:34 Speaker_05
It was the prototypical startup. I mean, to this day, early Facebook is still what most startup culture is aspiring to be. I think often without knowing it.

02:06:42 Speaker_05
I mean, everything from the sort of posters on the walls with your mantras and your values, to almost having like an employment brand that you really care about cultivating, to the idea of like we're having just as much fun together socially as we are working together.

02:06:58 Speaker_05
I think the modern startup culture Especially when you factor in the shipping every day, open office. Why Commodore kind of trains companies to become like Facebook was?

02:07:09 Speaker_01
I mean, there was Google out there, which had a lot of this element, but it was a very different thing. It was very academic, very wonky. These guys were hackers and they shipped, you know, and they were all in it together.

02:07:23 Speaker_05
The other thing that was basically true is they were not really interested in recruiting industry veterans, especially on the technical side. And Mark says this in early talks, that he was just prioritizing raw intelligence over experience.

02:07:38 Speaker_01
So one of those super intelligent, super talented young engineers with a high slope who joined back in Fall 2005 was an engineer named Chris Cox who joined from the Stanford AI Lab.

02:07:50 Speaker_01
And Chris joins a team of other young smart engineers led by Ruchi Sanghvi and Andrew Baz Bosworth working on Mark's personalized newspaper product idea.

02:08:03 Speaker_01
Ritchie was one of Facebook's very first engineers, and along with her husband Aditya Agarwal, they run South Park Commons now.

02:08:11 Speaker_01
Boz was two years ahead of Mark at Harvard and had actually been Mark's TA in the Intro to Artificial Intelligence CS class that he took. And then he later joined the company.

02:08:22 Speaker_05
Which is actually not how he ended up getting a job, but they did happen to cross paths that way before.

02:08:27 Speaker_01
Yes. Boz went to Microsoft, I think, before joining Facebook. Yep. Just for a few years. So the three of them start working on News Feed. And so we've talked about things like photos and the fundamental architecture of the site.

02:08:42 Speaker_01
News Feed required, like, a whole new level of engineering prowess to get this thing to work. Like, you're not just going to code this up in PHP. Like, photos also required real engineering.

02:08:53 Speaker_01
But Newsfeed was pushing the state of the art of what was possible in technology and on the internet.

02:09:00 Speaker_05
So the first question you have to ask yourself if you're a good product designer, developer, capital allocator, someone in Mark's shoes saying, should we do this, is do people want this? If we build this, will it be valuable?

02:09:14 Speaker_05
The reason they knew it would be valuable is because the company is data obsessed and they watch the analytics like a hawk to figure out what are people doing on our site.

02:09:23 Speaker_05
And they noticed this behavior where people were browsing to other people's profiles just to look at them and see if anything changed.

02:09:31 Speaker_05
The user was doing the heavy compute lifting rather than having a personalized newspaper of just bouncing around to a bunch of people's profiles and saying, anything new here?

02:09:40 Speaker_05
So there was an engineer who did something really kind of hacky because they didn't want to at first put all the engineering resources into building out something like News Feed, which is, well, when something changes for some period of time, we'll just highlight it in yellow.

02:09:52 Speaker_05
Yes. So it's easy for you as you're bouncing around to different profiles to just see, oh, hey, this thing changed. And that totally worked. They watched the lift in that and they were like, oh, it's a good feature. People like that.

02:10:03 Speaker_05
So that sort of gave them the confidence of we should find a way to make it more obvious to you when new updates happen, when things change.

02:10:12 Speaker_05
Technically, David, for people who aren't in the sort of tech ecosystem, why is it so difficult to build something like a news feed? Because now we're all trained to believe that like a feed is, um,

02:10:23 Speaker_05
you know, a primitive that is available to you as a developer when you're building a product because feeds are everywhere. Feeds are the core feature of most products. When you hit the homepage, it's some sort of feed. That was not true at the time.

02:10:35 Speaker_05
That was not true in any product. I actually challenge you right now. Think back to 2005. What was a feed on the web? What was sort of an infinite scrolling?

02:10:45 Speaker_01
They didn't exist. This was the first one, right? This was the invention of the feed.

02:10:50 Speaker_05
Like maybe you've got Reddit and dig and you could sort of make an argument that their feeds, their paginated rankings of stories. So you could see like, oh, what are the most important stories? But even that's a pretty different fundamental thing.

02:11:05 Speaker_05
I don't think Reddit had launched yet.

02:11:08 Speaker_01
Dig maybe exist. But yes, as you said,

02:11:11 Speaker_05
Oh yeah, Reddit was in the first YC batch, which was 05, so it wasn't really — it was right around this same time. Okay, so how do you make a feed?

02:11:19 Speaker_05
Well, if you are an algorithms developer, the way you would sort of think of it is, okay, well first I need to pick a point in time.

02:11:27 Speaker_05
And from that point in time, and let's call that maybe the last time someone looked at their feed, I need to store that timestamp and now I need to go look at every single profile of someone that you are connected to, so this is N, and download or cache all of their recent updates since that time period.

02:11:48 Speaker_05
So I need to store that somewhere. I need a new place to store a copy. of all of this information that lives on someone's profile, or at least pointers to that on everybody's profile. And I need that to happen for every user. So now it's n squared.

02:12:07 Speaker_05
Every single person on the entire Facebook needs to have something running in the background that is looking at every other person on Facebook since a particular time.

02:12:17 Speaker_05
And then that compute and storage all needs to happen fast enough such that by the time they want to go check the feed again, it's happened again. And obviously, like now that happens in real time.

02:12:29 Speaker_05
And I think it was something like every three hours, there was like a new batch.

02:12:33 Speaker_01
Yeah, it was four times a day when it initially launched. There was like a 4x a day refresh.

02:12:39 Speaker_05
Okay, so every six hours.

02:12:40 Speaker_01
Yeah, it was a cron job because they didn't have enough memory to run it in real time.

02:12:44 Speaker_05
That's right, they needed to happen on separate boxes to run this process, cache the results, and then when you loaded your newsfeed, go fetch them.

02:12:52 Speaker_05
So this is like a whole new application using the same data that the company has to build in order to make newsfeed happen.

02:13:01 Speaker_01
And so what you just described is all the technical work just making a feed possible.

02:13:07 Speaker_05
On the back end, this doesn't contemplate any of the front-end design or engineering or incredible permutations of how to display this data when it does come back, given a massive combinatorial problem of how might this data come back?

02:13:19 Speaker_01
Exactly. Then you need to make the feed actually compelling. I don't really care about, you know, somebody who I'm tangentially connected to what they had for lunch today, but I really care about like a photo of Ben at the acquired meetup.

02:13:34 Speaker_05
Right. So now you're telling me you want to rank order it by something other than chronology.

02:13:39 Speaker_05
Make another pass and figure out what I think is going to be the most interesting to you, which on its own is an incredibly difficult computer science problem. What is interesting to you? What data should we use to inform that decision?

02:13:50 Speaker_01
Right. Totally. Who are your close friends? Who do you care about the most? You know, what general news do you care about the most? What types of stuff do you care about?

02:13:59 Speaker_05
Do we have to put weights on every relationship in this entire complex friend graph between every single entity and how close they are and then re-rank that very often? Eventually, yeah.

02:14:09 Speaker_01
Yes. So the team spends the better part of 2006 working on this. By September, it's ready. And so by September 5th, 2006, just in time for the new school year, they launch it. And people noticed, because they launch it to everybody right away.

02:14:30 Speaker_01
And this is a massive paradigm shift.

02:14:33 Speaker_05
Yeah, it's not opt-in or anything.

02:14:34 Speaker_01
This is Facebook changing the game of social. Not opt-in, everybody gets it right away. They get 30,000 angry emails to support on the first day from users who are really upset about this.

02:14:53 Speaker_01
10% of the entire global user base signs up for a group, a Facebook group, called Students Against Facebook News Feed. I'm pretty sure I was part of this group.

02:15:06 Speaker_01
The irony here is they had only just launched open groups across school networks days or weeks before, so they enabled the tool of their own vitriol here.

02:15:17 Speaker_05
And also, guess how people are finding out about this group? Through newsfeed. Yes. This is the great irony of the whole situation. There's a literal panic in the streets. There are people protesting outside the office.

02:15:30 Speaker_05
There is somebody trying to use a crane to get into the third story. Basically, a TV truck is trying to cover what's happening in the pandemonium. And at the same time, despite everyone telling them, I hate this thing, it's the worst thing ever.

02:15:45 Speaker_05
If you look at the analytics, people love it. People cannot get enough of scrolling through the new news feed. And the reason they're really upset is actually quite interesting. They're saying, oh, it's sharing this with my whole network.

02:16:00 Speaker_05
OK, but you updated it on your profile, which has always been public to your whole network.

02:16:05 Speaker_05
And I think Facebook, for the first time, kind of stepped in it and realized, oh, even though technically this data has always, you know, we didn't change how public or private it is. It's just as accessible.

02:16:17 Speaker_05
people react really strongly when you change the ease of obtaining that information or whether it feels like you are pushing that information out versus someone is sort of pulling by going to your profile and viewing.

02:16:30 Speaker_01
It went from pull to push. Yes. So it's the start of the new school year. We've just come off this sort of tumultuous summer. Growth had slowed, walked away from the Yahoo deal.

02:16:43 Speaker_01
There's this revolt in the streets against News Feed, which to Mark's mind, along with Open Reg, which was supposed to come like two days later of opening up Facebook to anybody, they delayed that because of the News Feed reaction.

02:17:00 Speaker_01
But to Mark's mind, the two of these things are like the big growth levers to reignite growth for Facebook. The board, the management team, everybody's like, all right, we got to roll news feedback. People hate it. This is PR 101. We apologize.

02:17:17 Speaker_01
We roll it back. And to add a kicker, newsfeed actually significantly hurt Facebook's revenue because where do you think all the page views were coming from and all the refreshes? Oh, loading a new ad.

02:17:32 Speaker_01
Yep, loading all the profile views and clicking around. So page views are actually gonna go down in this new paradigm. Every reason is aligned to roll this back. So Richie and Chris and Boz though are looking at all the data and they're like, Holy crap.

02:17:50 Speaker_01
Engagement is through the roof. Yeah. People can't get enough of this. People say they hate it, but yeah, it looks like they can't get enough of it. So Mark decides that he is going to write a post on Facebook about this and it's titled calm down.

02:18:07 Speaker_01
Breathe. We hear you. And he announces that they're going to launch a set of controls for you to control what of your activities get published to newsfeed and what don't.

02:18:20 Speaker_05
Which, by the way, sounds like something that Mark would say today. I think this 2006 era is like the last time, and then you would have had like a 17-year break, and now we're sort of getting that mark again. Yes.

02:18:34 Speaker_05
You can't imagine Mark circa 2018 saying, calm down, breathe, we hear you.

02:18:40 Speaker_01
Yes. So it's kind of a brilliant strategy of like, hey, I acknowledge that this was surprising. We didn't handle the rollout right. I'm seeing that you all actually like this in the data.

02:18:54 Speaker_01
Let me give you some controls so that what you're really worried about, you have some control over, and then let's just see what happens. And within two weeks, it's like magic. Everybody just gets used to it and that this is now the way

02:19:10 Speaker_01
Facebook and social media operates, and engagement continues to skyrocket.

02:19:15 Speaker_05
Yep. But it's funny, I did just pull up. We've been getting a lot of feedback about Newsfeed. We think they're great products, but we know many of you are not immediate fans and have found them overwhelming and cluttered.

02:19:25 Speaker_05
I don't think clutter was what people were complaining about. Little bit of redirection there. Yeah. It's funny. We didn't take away any privacy options. Your privacy options remain the same. The privacy rules haven't changed.

02:19:36 Speaker_05
None of your information is visible to anyone who couldn't see it before the changes. Blah, blah, blah. It's like, it is interesting. It's true and not relevant. That's not what people are mad about.

02:19:46 Speaker_05
People are pretty aware that this is the same information.

02:19:49 Speaker_01
Well, and I think to sort of set a theme here that we're going to come back to several times, the definition of what social media is, is actually very fluid. And it changes in the consumer's mind.

02:20:07 Speaker_05
I'd even say before this, there wasn't social media, or at least Facebook wasn't social media. Facebook was a social network, but this was the first time they introduced a media component, a thing you would read.

02:20:18 Speaker_01
Right. Inspired by a newspaper. Right. And I think when these paradigm shifts happen, people get upset because their expectations are being violated. So it actually doesn't really matter what the privacy is or isn't, it's the expectations. Right.

02:20:32 Speaker_05
I'm glad you planted the seed because this will come back over and over again in their history of people now feel differently and the product needs to change with those societal expectations in order for people to not be upset about it.

02:20:44 Speaker_01
Yep. Unfortunately for the moment, I think the lesson that Mark and the company took from this experience was Well, we actually know what's best and the user base will just get used to it whenever we make a change.

02:20:58 Speaker_01
It just happened to be that that was true with News Feed, but that wouldn't always be true. So originally, the two big initiatives, News Feed and Open Registration, were supposed to basically launch together.

02:21:10 Speaker_01
And they chose to do News Feed first because it was gonna be, A, a little bit easier to roll out and be more valuable to the core college audience that was just starting back for the new semester, the fall semester at school.

02:21:23 Speaker_01
So they launched that first. And then, yeah, the original plan was Open Registration, Facebook is now open to anybody in the world, was gonna come two days later on September 7th. They obviously put that on the shelf for a long time.

02:21:36 Speaker_01
Two and a half weeks. At the end of September, open registration launches. Anyone can sign up for Facebook. This is another major, major change. Before, all these networks were siloed.

02:21:51 Speaker_01
You had to be part of a verified email address network to join Facebook. Now anyone can sign up.

02:21:56 Speaker_05
This is the beginning of, uh-oh, my mom is on Facebook.

02:22:00 Speaker_01
Exactly, exactly, exactly. Which ultimately would be a problem because that's what created room for Instagram, for Snapchat, et cetera, et cetera. but that would actually be down the line.

02:22:12 Speaker_01
In a weird sort of perverse way, I think because of all the controversy around newsfeed, when OpenReg launched, there wasn't the same kind of controversy.

02:22:23 Speaker_01
People were already desensitized or they had just been through newsfeed and they're like, all right, yeah, whatever. Nobody even really like noticed that much, especially because the product experience didn't change for the already engaged users.

02:22:37 Speaker_05
And to the extent that you did feel that privacy had changed, you're now kind of used to anything I put on Facebook gets broadcasted, so who cares if more randos come in? It's already getting broadcasted.

02:22:49 Speaker_01
Yep, yep. And now with News Feed, there is this mechanism that makes sure like, hey, even as randos from your perspective join Facebook, you're still seeing the updates of people you care about.

02:23:04 Speaker_05
Well, I don't think at first when it was this like pure chronology. Yeah, I guess that's a good point as they make it more algorithmic. But this was still a period in time where your friends were your friends. I mean, Facebook was only two years old.

02:23:16 Speaker_05
And so for the vast majority of users, they joined in the last year. So they didn't have anybody who wasn't really their friend as a friend. Now, I just have to treat Facebook posts as if they're public because the group of friends is aged.

02:23:32 Speaker_05
But in that period of time, you could trust if something was getting published to your friends that, like, it's just going to your friends.

02:23:38 Speaker_01
Right. The age of the network itself was only two years. So your friendships hadn't shifted that much. Well, OpenReg, despite high schools and workplaces not working well, OpenReg works really well.

02:23:55 Speaker_05
Yeah. I mean, Facebook has a brand at this point. It's the best social network. It's the fastest growing social network. It's the one that all the college kids will always be the cool people in any society at any time.

02:24:06 Speaker_05
That's the age group of trendsetting. And they have conquered that market. High school kids want to be like college students, and people not in college want to be like college students.

02:24:15 Speaker_01
Yep. So over the summer, Facebook was adding like five to 10,000 users a day. By late fall, after launching open registration, they're now adding 70,000 users a day. Wow.

02:24:28 Speaker_05
By fall of 06. Yeah.

02:24:30 Speaker_01
Wow. Growth really picks up. So this brings us now to Spring of 07, and the final piece of Mark's original product roadmap, I'm Bored, aka Platform. And Platform is this kind of forgotten thing right now.

02:24:49 Speaker_01
I mean, like, it's FarmVille, it's Zynga, it's apps on Facebook. It's quizzes. It's quizzes, yes.

02:24:56 Speaker_05
That will come back up later.

02:24:58 Speaker_01
That'll come back. For a period of about four years, from 2007 to 2011, this is the most important thing in the company, and this is what everybody believes the core and future of the company is. Facebook has become a platform.

02:25:18 Speaker_01
This is the goal of a technology company, become a platform, be like Microsoft. This is now, Facebook is like Microsoft, we are a developer, platform.

02:25:27 Speaker_05
And there was this incredible tension. At least it seemed like the tech media wanted to play up this tension. Are they an advertising company or a platform company?

02:25:36 Speaker_05
Because they're super different business models with very different incentives and users kind of need to know how to think about it. And it was kind of at the same time Cheryl had just joined the company or was about to join the company.

02:25:47 Speaker_01
the next year in 2008. So yeah, not yet.

02:25:49 Speaker_05
And so they really hadn't gotten serious. She sort of led them to figure out, hey, let's survey all the business models, do some work on each of them and figure out and commit to being an ads company.

02:25:57 Speaker_05
At this point in time, like they were showing ads, but the whole leadership team, at least I'm convinced, believed we are on the way to becoming a platform.

02:26:09 Speaker_01
A hundred percent. So, May 24th, 2007, Facebook holds its first developer conference to launch their developer platform, F8. Which, again, let's take a step back. This whole idea is kind of wild. a developer platform on the web.

02:26:25 Speaker_01
The web is a developer platform. Facebook is now becoming a platform on top of an open developer platform.

02:26:33 Speaker_05
But they have two important things that as an application developer you're interested in. One, user attention. You know, the same way that Microsoft had user attention with PCs because they had the install base of Windows.

02:26:45 Speaker_05
And two, a whole crap ton of data about each person that you could then build into your application to make it really rich and feel personalized.

02:26:54 Speaker_01
And it turned out that that was really attractive to developers. So at EFI, they announced that the Facebook user base is now over 20 million, and it is growing by over 100,000 users a day. So growth is accelerating.

02:27:08 Speaker_05
Wait, it's 20 million total and growing by 100,000 a day?

02:27:12 Speaker_01
Yes. I mean, OpenReg had just launched a couple months before, so like this thing is really taking off.

02:27:18 Speaker_05
Oh my God. Every 10 days, they're adding another 20th of their user base and they're growing by five. What is that? It's like 7% every two weeks. It's like three and a half percent a week.

02:27:29 Speaker_01
Yeah, pretty good. Wow. At a scale of over 20 million already. Wow. It is the sixth highest trafficked site in the world, and they're announcing to all the developers in attendance, the Facebook API, Facebook Graph is now open to you.

02:27:47 Speaker_01
You can build apps and publish and run them natively on Facebook. For users, and part of Mark's original product roadmap from 2005, this is huge. Until this point in time, Facebook was about digitizing everything that happened in your offline life.

02:28:07 Speaker_01
Your real friends, your real parties you went to, the real photos you took. There wasn't anything detached from your offline reality to do on Facebook.

02:28:19 Speaker_01
Now all of a sudden you can play games on Facebook, you can take quizzes on Facebook, you can use apps on Facebook, and you can do them all with your friends.

02:28:28 Speaker_05
It's pretty compelling. I remember playing, was it Scrabulous?

02:28:31 Speaker_01
Yeah.

02:28:32 Speaker_05
I think I was playing with my sister, with my grandma. I mean, it is a great way to like do things digitally with the people that matter to you.

02:28:40 Speaker_01
Yep. And I think it's also an early foreshadowing of the job that mobile and the smartphone would really do in people's lives, which is, hey, there's actually like a lot of white space. where you're just bored during your day.

02:28:53 Speaker_01
I mean, Mark's original title of the feature of I'm Bored was perfect. This is the cure for boredom. It just so happened that it was on a desktop. And so when you were bored at your desk or bored at your home,

02:29:07 Speaker_01
mobile then opened that up to like, hey, I'm bored anywhere. Right.

02:29:11 Speaker_05
And it gave Facebook from a business perspective, it sort of gave them another stakeholder. Hey, developers are someone who can keep people on the platform longer so we can show them more ads.

02:29:22 Speaker_05
They might do their own advertising, so they might drive traffic to Facebook that they could help grow the core platform itself. It gives us sort of more lock-in as people develop for us and as users seek out applications on us.

02:29:38 Speaker_05
They're hoping for sort of that Microsoft playbook of platforms get really epic lock-in.

02:29:43 Speaker_01
Yep. Oh, and by the way, developers on the platform will probably have their own business models where they'll make revenue. And especially if we ultimately introduce our own virtual currency, we can probably make revenue from their revenue too.

02:29:59 Speaker_01
So the internal goal of the company was to get 5,000 developers in the first year who would be making social apps on the platform. How many did they get? They got 5,000 in two days. Developers went freaking nuts. It was a great keynote.

02:30:19 Speaker_01
It was a great keynote. Yes. You know, they went nuts because, yeah, Ben, as you say, like, oh, distribution to a lot of people and then like bringing along your friends and data on them.

02:30:30 Speaker_01
very powerful incentive as a developer to go make an app or a game for the platform.

02:30:35 Speaker_05
You're building a web app that has an unbelievably rich set of data that you can hook into.

02:30:40 Speaker_05
The thing that I was, I don't think I could have put into words then, but I can now, is has a successful scale, durable platform ever been built that wasn't an operating system?

02:30:54 Speaker_05
Like, it always felt weird to me in that moment that Facebook thought they could be a platform. Because I was like, well, it's a website. I mean, it's a web app. And I have profile, and I have all this rich information.

02:31:05 Speaker_05
But it's not like running on my device.

02:31:11 Speaker_01
Well, Ben, turns out you would have been right.

02:31:15 Speaker_05
If only I had the words. But what do you do with that information? What was I going to be bearish on the company? That would have been a super wrong call.

02:31:22 Speaker_01
Right. Well, this is the amazing story that we're telling here of like they keep surviving and thriving despite not having the operating system.

02:31:30 Speaker_05
Yeah.

02:31:31 Speaker_05
Listeners, write in if you can think of one, a successful, scaled, durable platform where the platform is able to make money and they're able to make a lot of money for developers, for people on the platform that is not an operating system that runs on hardware.

02:31:47 Speaker_01
Hardware either Captively controlled hardware like Apple or open hardware like Android and Microsoft and this gets into the question of what is a platform?

02:31:56 Speaker_05
Because let's say I make a web app that I run on my own website.

02:31:59 Speaker_05
I do my own marketing I do my own monetization, but I let users authenticate Facebook so I can pull some information out of their profile It's like it's not really built on the Facebook platform.

02:32:10 Speaker_05
It's not like the core API's that enable my application to run our

02:32:16 Speaker_05
using facebook's apis i'm using facebook's apis to grab some data the core api set that allows it to run is the browser yep it's almost like if you think about the intermediation layers facebook was trying to build a platform on top of a browser that was a platform on top of an operating system that was a platform and it

02:32:33 Speaker_05
The reason why we aren't all using rich Facebook apps all the time today and think of it as the default platform, it was just too many layers of abstraction away from the hardware to win.

02:32:42 Speaker_01
I think that is totally right. But for the moment, thousands and thousands of both indie devs and venture backed companies like flock to the platform.

02:32:50 Speaker_05
But what this does tease out is Facebook, and now we can talk about this 15 plus years later, has kind of a weak position for launching a platform since they don't control the OS or the hardware.

02:33:04 Speaker_05
And so they have to make a little bit more of an appealing sale to a developer. And that includes big distribution for you, but it also includes a ton of access to data.

02:33:14 Speaker_05
And I remember being an early Facebook developer and after user authenticates, looking at that JSON and being like, okay, so it's their whole profile. Oh, it's their whole friends list. Wow, I get a lot of stuff here.

02:33:25 Speaker_05
And Facebook was incentivized to do that because they almost had to sell harder than other platforms who controlled hardware historically would have had to.

02:33:34 Speaker_01
Yep. It's a super great point. Now, also, the reality was at the time, I think developers were getting plenty of value just out of the distribution, and that was coming from News Feed.

02:33:47 Speaker_01
If a user starts using your Facebook app, and then the activity that they're doing on your app is getting published to the News Feeds of all their friends.

02:33:55 Speaker_05
Oh, yeah.

02:33:56 Speaker_01
You could build a whole Zynga on that interaction paradigm. Oh, yes, you can. There's this great quote from Josh Ellman in the Steven Levy book.

02:34:04 Speaker_01
Josh says, if you're a developer and you can get someone to bother 10 friends to get one more user to join, you're very happy because you just got one more user. Facebook, though, has nine other people who've just gotten bothered.

02:34:18 Speaker_01
And he doesn't say it, but they are quite unhappy about that.

02:34:21 Speaker_05
And that's the trade-off they have to weigh. That's sort of their, in the type of platform they are trying to build, they have set up that incentive set and they need to figure out what to do with it.

02:34:29 Speaker_01
Yup. So for a year or two, that is the state of play. Facebook, brilliantly for them, eventually pulls back on organic newsfeed distribution for apps. It says, Hey, like we got to stop this. We got to take care of the problem.

02:34:46 Speaker_05
You don't need to know every time there's a new mafia war move by so-and-so showing up in your newsfeed.

02:34:51 Speaker_01
And that does effectively kill a large percentage of developers and apps on the platform.

02:34:57 Speaker_05
Yep. But it's the right long-term move. That was the right thing to do for Facebook with a 20-year view.

02:35:03 Speaker_01
Absolutely. And it doesn't kill the platform, though. It actually makes it even more valuable to Facebook.

02:35:11 Speaker_01
Because for the developers and apps who have gotten to scale, they kind of look at this and they say, okay, my organic distribution just got kneecapped. But Facebook is still this pretty powerful platform. What if I just buy ads?

02:35:29 Speaker_01
How well would that work? Can I generate positive ROI if I buy ads to effectively accomplish the same thing natively on the platform and drive usage back to my app?

02:35:42 Speaker_01
Turns out that there was a very profitable arbitrage there still for many years to come. And for Facebook, they're like, well, hell yeah, okay.

02:35:51 Speaker_01
We're monetizing the platform through user engagement and ads that we're showing on the right rail while people are using Facebook apps.

02:36:01 Speaker_01
We are also monetizing through currency and commerce that is happening in the apps where we're taking a cut of that through payments.

02:36:10 Speaker_01
Now we're gonna monetize platform in a third way, which is the biggest scale developers and app distributors on the platform are going to use our native advertising as their primary form of distribution.

02:36:26 Speaker_01
I mean, you can see why for a couple of years here, Facebook is like, well, this is it, we've won. We are a platform, this is it. Yep. And then mobile comes along.

02:36:42 Speaker_05
Oh, mobile. That is quite the chapter in the Facebook story. But before we do that, now is a great time to tell you about one of our favorite companies, the climate aligned AI infrastructure company, Crusoe.

02:36:55 Speaker_01
Yes, Crusoe is a vertically integrated cloud platform built specifically for AI workloads that was recently named the gold standard of AI cloud providers by Dylan Patel over at Semianalysis.

02:37:08 Speaker_01
And, something that's new and really cool since we started working with Crusoe last year, They've opened up the raw metal in their data centers to customers.

02:37:17 Speaker_01
So let's say you're a large enterprise who wants to run your own infrastructure and not use a cloud layer.

02:37:22 Speaker_01
You could actually now do that with Crusoe directly as a data center customer, which several of the largest companies in the world are now doing.

02:37:29 Speaker_05
Yep. They've totally reimagined traditional data center architecture to support the huge power, cooling, and compute density needs of AI.

02:37:37 Speaker_01
Yep, that's important because power demand in GPUs is increasing dramatically, which means the traditional datacenter design and engineering of the hyperscalers is no longer optimal.

02:37:48 Speaker_01
So Crusoe's infrastructure, built from the ground up for GPUs with elements like high-density racks, direct liquid-to-chip cooling, that enables them to support the most demanding AI workloads that traditional datacenters just can't handle.

02:38:01 Speaker_05
And at the same time, as GPU cluster sizes continue to increase, there's an ever-increasing demand for energy. Crusoe has 15 gigawatts in its development pipeline, which is an astronomical amount of power.

02:38:14 Speaker_05
Their Abilene, Texas facility alone has over 1.2 gigawatts planned, which will make it one of the largest clusters in the world.

02:38:22 Speaker_01
Yep, and it's also not just about the amount of capacity in the pipeline, it's about how fast it can come online.

02:38:28 Speaker_01
Crusoe's team has decades of experience constructing and operating datacenters, which enables them to bring these new datacenters online super fast.

02:38:36 Speaker_05
As many of you already know, Crusoe sources the energy for these datacenters in the most efficient and climate-aligned way in the entire industry. through clean, low-cost, and abundant energy that otherwise goes to waste.

02:38:48 Speaker_05
For example, in oil fields where natural gas is flared, in congested parts of the grid where renewable power is curtailed, or other areas where energy is stranded. Which, actually accomplishing that is a crazy hard thing.

02:39:01 Speaker_05
Crusoe's energy-first approach means they can build data centers in some of the most challenging locations on Earth, bringing computing to the energy rather than the other way around.

02:39:11 Speaker_01
Yep. The net of all of this is that Crusoe can provide nuclear levels of power for far less cost than other providers and with low or in some cases actually negative emissions.

02:39:23 Speaker_01
And that's super important because the biggest bottleneck to AI progress is actually energy. It's not compute.

02:39:28 Speaker_05
Yep. So anyway, they're just a great company. We're super proud to work with them and to be investors. So to learn more about Crusoe, you can go to Crusoe.ai slash acquired. That's C-R-U-S-O-E.AI slash acquired.

02:39:40 Speaker_05
Or click the link in the show notes and just tell them that Ben and David sent you. Thanks Crusoe. All right. So David, we're here in the era of mobile, right? This is January 2007. Steve Jobs just announced the iPhone. The whole world changed, right?

02:39:55 Speaker_01
Well, actually, ironically, no. Or at least not for quite a while. Yes, January 2007, Steve Jobs announces the iPhone. People forget though, it took five years for mobile and smartphone adoption to really ramp up and actually change the world.

02:40:11 Speaker_01
There was no SDK in that first iPhone and iOS. That didn't come till 2008. It was $700.

02:40:16 Speaker_05
Android was a BlackBerry clone at the time, not an iPhone clone. The Droid Does campaign wouldn't be another year or two. Yep.

02:40:24 Speaker_01
Yeah, I think two years. I think that was 2009 if I remember right.

02:40:28 Speaker_05
Yeah.

02:40:28 Speaker_01
So yeah, I mean, hell, Facebook platform didn't even launch until May 2007. So after the iPhone announcement.

02:40:35 Speaker_05
Yep.

02:40:36 Speaker_01
So for the moment, Platform is rocking and rolling. Like we were just talking about, Facebook is becoming the next Microsoft, which brings us to the second Microsoft partnership in October of 2007.

02:40:49 Speaker_01
So just five months after F8 and Platform launch, Facebook now has like all of the leverage. Dan Rose has some great stories on Twitter about how this negotiation goes down. Oh yeah, you spent time with Dan, didn't you, prepping for this?

02:41:03 Speaker_01
Yep, and I chatted with Dan about this. This is great. So Microsoft, perhaps obvious now in retrospect to everybody, really just wants to buy the company. But Mark's, of course, not going to do that after the whole Yahoo experience, etc.

02:41:17 Speaker_01
Microsoft is also happy, though, to just keep the partnership going and expand it. Because one, it is really helping them spin up their online services division and get really good at online ad sales and ad serving.

02:41:29 Speaker_01
And two, they know they made a huge error in missing search and letting Google get big, and social sure seems like it's gonna be the next search-sized platform.

02:41:39 Speaker_01
So they're happy to just be in bed with Facebook in a way that they never will be with Google.

02:41:44 Speaker_05
as long as they can keep it going. I mean, for them, I think the thing that shocked them about Google is, oh my god, the business model of the web is advertising.

02:41:54 Speaker_05
Search and browsers and everything are monetized by advertising, and that's completely orthogonal to our traditional license-based business model.

02:42:02 Speaker_05
Social sure looks like where all the page views are going and is going to monetize exactly the same way as search. So actually, the thing that's important to them is locking in those page views to the extent that they can participate in this market.

02:42:16 Speaker_05
It kind of has to be either we own you or we are the long term ad provider, which they didn't end up being. Or we're a big equity holder.

02:42:24 Speaker_01
Yeah. So enter this second partnership negotiation. October 2007, Microsoft comes down to Palo Alto. Facebook tells them that, hey, Google is actually really interested in taking this partnership over.

02:42:40 Speaker_01
Larry and Sergey have been banging down the door, and we've been trying to hold them off, but they're coming to meet with us tomorrow to talk about switching our Facebook ad-serving partnership over to Google. And this has been great.

02:42:55 Speaker_01
We love working with y'all. You are our preference, our preferred partner. We want to keep it going with you, but we need to get the deal done tonight." So they lock themselves all in a conference room. They start negotiating. It's getting late.

02:43:09 Speaker_01
10 o'clock goes by, 11 o'clock. The Microsoft team, by Facebook standards, is all old guys. They're getting tired. And then, you know, old guys, like, you know, 40, like, ooh, so old. And then at midnight, this is amazing. You can't make this up.

02:43:27 Speaker_01
Facebook probably planned this. All of a sudden, this really loud, like, house music starts blaring, like, with, like, heavy bass in the office. And the office is hopping. Like, everybody's there. The whole company's there. It's midnight.

02:43:41 Speaker_01
The Microsoft guy's like, what's going on?" And the Facebook side is like, oh yeah, we have a hackathon scheduled tonight. And actually, Javier Olivan had just started at Facebook. Who's now COO.

02:43:58 Speaker_01
Who is now the COO of Meta, had just started at Facebook as an engineer, and he had organized this hackathon to begin work on internationalizing the site.

02:44:10 Speaker_01
So tonight is the beginning of internationalization, which is a critical, critical part of Facebook's next chapter of growth. Yes. And it is beginning at the same time that this Microsoft partnership is happening in a conference room.

02:44:25 Speaker_05
And didn't this Microsoft deal end up being about international?

02:44:28 Speaker_01
Yes. Yes, it did. So they keep going. At one point during the night, one of the Microsoft guys, according to Dan, looks at him and says, wow, this is awesome. This is just like the old days of Microsoft. So they finish the negotiation at 6 a.m.

02:44:47 Speaker_01
They announced the new partnership that very same day, as promised with the threat of Google. Microsoft becomes the worldwide exclusive third-party advertising network for all display ads on Facebook. So it was domestic in the U.S. before.

02:45:03 Speaker_01
Now it's international too, and domestic, everywhere around the world.

02:45:07 Speaker_01
Facebook, of course, can still also sell their own inventory themselves, but anything that they don't want to sell themselves or that is excess inventory, Microsoft gets exclusive access to be the only ad network where you can access it.

02:45:21 Speaker_01
And the big kicker, Microsoft is going to invest $240 million in Facebook at a $15 billion valuation. This is like 13 or 14 months after the failed Yahoo deal for $1 billion.

02:45:39 Speaker_05
That is the thing that no one talks about here. I'm so glad you brought this up, because before they started this negotiation, the attempt was to buy Facebook. The highest offer floated. We talked about this in the Microsoft episode.

02:45:49 Speaker_05
It was a complicated set of deal terms that basically netted out to a $24 billion offer. And that was less than two years after the $1 billion offer that everyone talks about with Yahoo.

02:46:01 Speaker_05
Oh, remember the time where Mark Zuckerberg turned down $1 billion? Less than two years later, he turned down $24 billion. And they were really good for the money. It's Microsoft.

02:46:11 Speaker_01
but turned it around into an investment at 15 billion. Yeah, it's crazy. So the great thing is, like all great partnerships, everyone makes out wonderfully here.

02:46:23 Speaker_01
So except maybe the venture capitalists in Silicon Valley, because this just like breaks everyone's brain.

02:46:29 Speaker_05
It was the high watermark for Facebook's valuation for a while because the great financial crisis would happen after those valuations would all reset. And then Facebook's next deal would get done, I think, with Yuri Milner at 10 billion.

02:46:41 Speaker_01
$10 billion valuation with Yuri. Yup. And Yuri would actually also buy common stock through a secondary tender offer in that. So his dollar cost average would get down to more like six. So he got a screaming deal.

02:46:55 Speaker_01
But for the moment, there are no comps to this ever. Dot-com bubble, you name it. never has been a comp like this for an investment in a private technology startup.

02:47:05 Speaker_01
The closest comp that I can even sort of think of was Google's market cap at IPO was $23 billion. So like higher, but not that much higher.

02:47:16 Speaker_01
And Google at IPO was a $2 billion revenue run rate spitting off hundreds of millions of dollars in free cash flow annually. Facebook at this point in time is basically breakeven and doing $150 million in revenue, most of which is Microsoft itself.

02:47:35 Speaker_01
All that said, Microsoft, this is a home freaking run. Like we've been saying all along, helps them spin up Bing, doing all the ad serving for this, getting into like real online services.

02:47:47 Speaker_01
And then B, you know, Microsoft is not a hedge fund as we talked about on that episode, but that $240 million investment, by the time they start selling it down years after Facebook is public, ends up being worth $8 billion. Wow.

02:48:03 Speaker_01
And then maybe the most important benefit to Microsoft out of all of this is like, Microsoft and Facebook have always had a good relationship, unlike Microsoft has with Google and Apple.

02:48:14 Speaker_05
I remember Facebook events, like when you look at the page, it was a Bing map, not a Google map. That always like felt emblematic of the partnership to me.

02:48:23 Speaker_01
Yep.

02:48:23 Speaker_05
Every single place it could be a Microsoft product, it was.

02:48:26 Speaker_01
Yes, and it wasn't a Google product.

02:48:28 Speaker_05
Yep. Okay, so, interestingly, here we are, 2007, Facebook is still saying, we don't need to be in control of the core revenue creator for us. Like, we think platform is the future. Microsoft, you're our preferred partner to handle making the money.

02:48:46 Speaker_01
Yes. And I think, you know, there's two things here. Yes, I think that is true specifically at this moment in time.

02:48:54 Speaker_01
But this is where, you know, again, Mark is just master strategist, you know, kind of like calling it all the way back to civilization and the forex strategy game. He's got multiple bets he's placing on the chessboard.

02:49:05 Speaker_01
One, as you said, is like platform, like, hey, platform is rocking and rolling. We think we're building the next great technology company and the next great business model just on platform.

02:49:16 Speaker_01
Also, yeah, we're a social media company that involves a lot of page views and engagement and like the right way to monetize that is advertising.

02:49:25 Speaker_01
So yes, we've just continued this big Microsoft partnership, but we have the right to sell our own inventory and we should probably start building that muscle too.

02:49:36 Speaker_05
The other thing that's happening here is Mark still kind of thought ads were gross at this point in history.

02:49:42 Speaker_05
So the things he cared about were product and engineering and design, and he kind of wanted to outsource everything else, or at least have someone else at the company think about it.

02:49:53 Speaker_05
And having Microsoft take care of the ads was, I think in his mind, kind of a win-win. That way the commodity stuff can happen elsewhere and I can focus on the thing that really matters. And the company really did not have the insight yet

02:50:06 Speaker_05
Oh, we can do ads different and better than anyone has ever done them before.

02:50:15 Speaker_01
In practice, for this moment, yeah. In reality, they were trying to build their own native Facebook advertising unit, so to speak. It was just Beacon.

02:50:31 Speaker_05
Yeah. Beacon is one of the most epic failures in Facebook's whole history.

02:50:36 Speaker_01
Yeah. Okay, so Beacon. First off, you were totally right, and I think you were foreshadowing Sheryl Sandberg there, of like, Mark wants somebody within the company to just, you know, run and manage this thing and build it, great, world-class.

02:50:51 Speaker_01
Before Sheryl, do you know which Facebook executive led Beacon? I do not. Chamath Palihapitiya.

02:51:01 Speaker_05
No way! He always talks about the growth team. I never knew he was in charge of Beacon first.

02:51:07 Speaker_01
This was Chamath's big thing before growth. And actually, the epic failure here of Beacon leads directly to growth, as we shall see in a sec. Now, what was Beacon? So, like you said, Mark is kind of allergic to traditional advertising.

02:51:24 Speaker_01
but he's like, well, we have this incredible social activity happening on Facebook and we know through newsfeed that people engage with and they love it.

02:51:34 Speaker_01
What if there were a way for a native ad baked into the very fabric of the product itself that brands could sort of control and monetize? Well, if we gave brands a way to essentially boost how people are already engaging with them,

02:51:55 Speaker_01
that might be the way to do this. And what this ends up being in practice is brands publishing your friend's e-commerce activity into your newsfeed.

02:52:07 Speaker_01
Now, to be fair to Mark and Chamath and the company, we didn't know yet what the right advertising unit on Facebook was gonna be.

02:52:18 Speaker_01
And this is probably as good an idea as any because like the core thing that you do on Facebook is you engage with your friends and you engage with their stories on newsfeed.

02:52:28 Speaker_01
There's kind of no evidence really that people would wanna do anything else but that. And so you're trying to kind of think of like how do we shoehorn advertising and brands into this?

02:52:39 Speaker_05
I actually, I don't buy it at all. The obvious thing is show an image that people can click on and take them to a website. It's display ads.

02:52:50 Speaker_05
And like, I don't understand why they needed to try to way overthink it and say our ad format has to be something that no one's ever thought of before. Like just offer advertisers to do the thing that they know how to buy.

02:53:04 Speaker_01
Well, I was trying to like think of how to be the most charitable possible to the company and how they can come up with it. But yeah, I have next in my notes here, to be clear, this was a truly, truly terrible head up your rear end idea.

02:53:22 Speaker_05
These are actually two different things, I think. There was Beacon, which was JavaScript that an advertiser could embed on their website, on an e-commerce provider's website, that would do exactly what you're talking about.

02:53:33 Speaker_05
Publish into the newsfeed purchases that people were making. This was at the point where you wanted to publish all sorts of interesting different things on social media. I don't think we knew for sure that purchases wasn't going to be one of them.

02:53:47 Speaker_05
Like, people still keep their Venmo history public. You don't know what people are going to do. The second thing that I think is in your description there a little bit is the idea of social ads.

02:53:56 Speaker_02
Yep.

02:53:57 Speaker_05
That brands could take interactions that happen on pages and boost them, but they couldn't just take out a regular old ad.

02:54:08 Speaker_05
So it was this weird thing where you could only advertise as a brand to people where someone in their network had interacted with your brand page. Pretty convoluted.

02:54:20 Speaker_05
I get that it's this super natively social thing, but again, it did feel like they started in this place where they're like, let's get way too clever for our own good first and then work backward to the most basic ad unit.

02:54:33 Speaker_01
Yep. Totally agree. That said, like, as soon as it's live, it becomes clear, like, one, nobody wants this, either of these things.

02:54:42 Speaker_05
Yep. Users don't want it. Users are confused why they're seeing. I mean, certainly there's instant blowback against their publishing my purchases. Someone, I think, had an engagement spoiled by a diamond ring getting broadcast.

02:54:56 Speaker_01
Yes. Oh, yeah. I was gonna say, I mean, this is number two, like the privacy implications here actually are like horrific. Yes. Like spoiling engagements, like that's the wholesome, horrific privacy things.

02:55:07 Speaker_01
Like you can imagine the non-wholesome publishing stuff that you're buying versions of this.

02:55:12 Speaker_05
Yep. And then, of course, advertisers are confused and people don't really understand what's an ad, what's not an ad. They just burned credibility everywhere by launching both of these things.

02:55:22 Speaker_01
Yep, totally. And Mark and the company is coming off the News Feed experience where they're like, yeah, if we just give it enough time, users will get used to it. So they let it run for a couple of weeks. They run the News Feed playbook of like,

02:55:36 Speaker_01
Yeah, yeah, yeah, we hear you, you know, but you'll get used to it. Here's some more controls.

02:55:41 Speaker_05
Oh, the social ads was years and years, but the purchases, you're right. That was just, I think, a couple of weeks.

02:55:46 Speaker_01
Yeah, for Beacon. Ultimately, after a few weeks, they do acquiesce and they say like, okay, we will turn Beacon off. We'll make it opt-in as opposed to opt-out.

02:55:57 Speaker_01
And you can have a way to like completely turn off all Beacon tracking permanently from your profile. A lot of people do that.

02:56:06 Speaker_01
beacon activity basically drops to zero and then yeah two years later it's like completely killed off and this sets the stage for Cheryl joining the company because I think you know Mark's takeaway from this is like

02:56:19 Speaker_01
Okay, maybe I don't understand, you know, advertising as well as I thought I did. Like I thought I didn't like it, but I thought I could be clever and engineer this new thing.

02:56:28 Speaker_01
And like, actually let's bring in somebody who like really, really does understand this. And Sheryl was the perfect person coming from Google. Sheryl joined Google in 2001, right as they were figuring out AdWords.

02:56:43 Speaker_01
I mean, that's like three years after the company was founded. Totally. Well, and the company didn't figure out AdWords for a couple of years. So it was like that was like the key moment.

02:56:50 Speaker_01
And then Cheryl built and ran the whole self-serve business at Google, which was the most important and the most technology like enabled part of what they were doing.

02:56:59 Speaker_05
She had built the greatest digital advertising system in the world. And Mark was like, oh, I'm trying to build the greatest digital advertising system in the world. Who could I ever get to do that with me?

02:57:13 Speaker_05
And, wouldn't it be great if that person was also a good, like, manager and leader who could teach me how to manage and lead? Yes.

02:57:21 Speaker_01
Yes. And I think that really is the quote-unquote deal they make. And they say, and, you know, Cheryl agrees, too. It's not like, hey, Mark said, like, you're going to take this side of the company and I'm going to take that side of the company.

02:57:32 Speaker_01
She always reported to him. Like, the whole company was his company. But Mark is really focused on product, engineering, and importantly, platform. Cheryl takes ads, Cheryl takes operations, et cetera.

02:57:45 Speaker_01
And when she comes on board, like you referenced this earlier, Ben, there's basically no ad targeting that's happening natively on Facebook.

02:57:55 Speaker_01
Like there probably is targeting that's happening through the third party Microsoft advertising network, but none of that is like technology that Facebook's building or value that's accruing to Facebook.

02:58:07 Speaker_01
And so the first thing Mark and Cheryl did when she joined was like, okay, The beacon was such a disaster. We've got this great partnership with Microsoft. Like, let's just do a full exploration. Should we be in the ads business at all?

02:58:21 Speaker_05
Yeah, she definitely famously kind of led the exploration of what business are we actually in here?

02:58:27 Speaker_01
Yep. And, you know, ultimately they decide, yes, we are in a media business. Thus, we should be in the advertising business and we should do it right and we should make it work.

02:58:39 Speaker_01
And like, ultimately that is going to be building a really, really, really great targeting engine, which is the thing that Facebook is like uniquely capable of doing. Yep. So though, back to here where we are in 2008,

02:58:52 Speaker_01
Two, you know, seemingly unrelated, but about to get very related things are going on. One, after the Beacon fiasco when Cheryl joined, Chamath kinda needs a new job at the company.

02:59:05 Speaker_01
And you know, like total credit to Mark, to Cheryl, to Facebook as a company. I think at most places, like Chamath would have been fired immediately for what happened with Beacon.

02:59:15 Speaker_01
But the culture at Facebook is like, nope, we move fast, we break things. And like, we're always on offense and this didn't work. Let's find the right thing for you to do. And thank goodness, because that brings us to number two.

02:59:29 Speaker_01
Right around this time, once again, user growth slows at Facebook.

02:59:34 Speaker_05
Yeah, so it's funny that I don't feel like in the public eye, we really knew these things. But as you kind of dig into the company history, you're like, oh, there are these moments in time where growth really did stall out.

02:59:46 Speaker_05
And, you know, Chamath has said on stage since then, oh, I totally thought that growth was done. And there's a few things to note about the growth team. One is, it was effectively the first growth team.

02:59:58 Speaker_01
I think it was the first growth team.

03:00:00 Speaker_05
Yeah. Everyone who wants to get into growth now, I don't think really fully grasps. That is a brand new discipline invented in 2008.

03:00:08 Speaker_05
And the way they sort of defined it at Facebook was, there's marketing, there's product, but marketing and product both touch customers in different ways. And so the left hand needs to talk to the right hand.

03:00:21 Speaker_05
So for example, you should not have a marketing team that is sending out emails through an email marketing system and a product team that is sending out notifications to users through the product with no notion of how they're speaking to each other.

03:00:34 Speaker_05
you should A, unify those efforts through one team, and B, that team should live within product, or at least that team should be tightly coupled to product with the general belief or reason for being that your product is the best lever to grow.

03:00:53 Speaker_05
No amount of marketing you could ever throw at something that is not integrated into your product will be as effective as your product doing a good job with features

03:01:04 Speaker_05
hitting the right users with the right message and the right value at the right time in a native way to the core feature set of the product. And so you've got Shamath, you've got Alex Schultz, you've got Naomi Gleit and Javier Olivan.

03:01:19 Speaker_05
And so you've got this core early team, it's four people and then it expands to kind of six or seven folks that are formed

03:01:27 Speaker_05
really on this agreement between Chamath and Mark of we're going to have this dedicated growth team and our mission is going to be to grow Facebook using Facebook itself, not through extrinsic measures.

03:01:39 Speaker_01
Yeah. And this was like an incredible insight and was so perfect for Facebook because like I think this growth insight of growth through product can apply to any company, but it especially applies to a virally growing social network like Facebook.

03:01:57 Speaker_05
Yes. There's interesting things that make it tick. The first of which is, this has to be the most data-obsessed team in the company. Every team should be data-obsessed, blah, blah, blah.

03:02:07 Speaker_05
But the growth team is really the one who sort of discovers, oh, here are the obvious places where users are deriving value. Here are the obvious places where users are getting confused. Here are the obvious opportunities to find new users.

03:02:20 Speaker_05
Here are the obvious opportunities to reduce friction. Analytics is the answer for that.

03:02:25 Speaker_05
And I think that there's a lot of really interesting stories, especially around internationalization of the growth team and partnering with other product teams around the company to say, what is an engineering and product approach to something that traditionally has been done other ways?

03:02:44 Speaker_05
Like the way most people would translate their product is by hiring translation servicing firms or by hiring a dedicated person to go through string by string and edit. Well, we're Facebook. We have all these users.

03:02:59 Speaker_05
What if we just, you know, when we're launching in Spain, surface different words to Spanish speakers and say, OK, is this the right word for Spanish or not? Hey, can you translate this and crowdsource it and double check it with everyone?

03:03:13 Speaker_05
And that way you can not just translate five or 10 of the top languages in the world. You can be in every language all the time, up to date. using Facebook itself because, oh, by the way, when you translate the product, way more people can use it.

03:03:28 Speaker_05
And so translation itself, internationalization is a growth lever and we have product ways to do the translation with our users.

03:03:35 Speaker_01
Yep. And that's what actually started even before the official growth team with with Javi in that first hackathon. Yes. But that was the seed of this idea of like, oh, actually, the way to get past this

03:03:45 Speaker_01
growth wall, as people refer to it, in retrospect that we're hitting is use the product itself. And internationalization, there's even more to it than what you said.

03:03:55 Speaker_01
One, when you have the users themselves who are translating a product as you're seeding it in these new markets,

03:04:05 Speaker_01
They're so much more bought in and like feel a sense of ownership over it versus like, oh, I'm just airdropping this, you know, translated American product onto your country here. So it's not just that it's a better translation.

03:04:19 Speaker_01
It's that like you're actually seeding those first power users who are going to be deeply engaged and feel ownership over the product.

03:04:26 Speaker_05
Yeah.

03:04:28 Speaker_01
And then two, the nuance in like this local markets that might even be in the same language. I mean, Spanish is the perfect example.

03:04:37 Speaker_01
Spanish is spoken in so many places around the world, but like the local nuances and needs in Spain are like super different than Mexico or Argentina or Latin America, et cetera.

03:04:48 Speaker_05
That's exactly right. And I think my point with all this is, A, growth is a pretty new discipline in our industry. Two, growth is not marketing. It's very tempting.

03:04:58 Speaker_05
You see, especially with incumbents, like big Fortune 500 companies who have someone whose title is growth, and then you ask them what they do, and you're like, oh no, that's not growth, that's marketing. You don't actually modify the product at all.

03:05:08 Speaker_05
So that's a different thing. And it's important to realize, not only did Facebook kind of invent the discipline, they are perhaps still the best at it. They really eat, sleep and breathe the idea that growth comes from product.

03:05:21 Speaker_01
Yup. It was that core initial team, all of them of which Javi, Javi is now the COO. Alex, Alex is now the CMO of Meta. Naomi, Naomi is now Meta's longest tenured employee besides Mark and runs a ton of stuff at the company.

03:05:36 Speaker_01
And Chamath who deserves so much credit for starting the team, pulling it together, protecting it, advocating for it within the rest of product, you know, in the way that only Chamath can.

03:05:47 Speaker_05
Man, it really is crazy with the Facebook diaspora. We're going to keep seeing this as we go along. There's other names where people will be like, well, I didn't realize they were at Facebook. But many of the names that have come up so far.

03:05:57 Speaker_05
Yeah, the diaspora is pretty talented.

03:05:59 Speaker_01
Yeah. So there were a million things that growth did over the years within, you know, the blue app and then ultimately within all the apps at Facebook.

03:06:07 Speaker_01
Growth today is a core center of excellence discipline that spreads across all the products at the company at Metta.

03:06:14 Speaker_01
But the other big thing in the early days besides internationalization is people you may know, which crazy, like the carousel of people you may know on Facebook is still a core part of the blue app to this day.

03:06:25 Speaker_05
Dude, I just got lost in it. Did you know that that's what I was looking at right now? No. I was sanity checking. I was like, oh, is that person part of the original growth team? And I opened Facebook. The news feed distracted me. I scrolled down.

03:06:38 Speaker_05
There were stories at the top. I scrolled down one post. Below that first post was an ad. Below that is people you may know. And I am like three panels over in people you may know because I was like, oh my gosh, I'm not friends with them.

03:06:50 Speaker_05
We're doing a podcast together live. And I just had that experience.

03:06:55 Speaker_01
Totally. People you may know become such an important lever and I love it. I love it.

03:07:06 Speaker_05
Okay. So people you may know become such an important lever.

03:07:09 Speaker_01
Yes. For a whole bunch of reasons. The growth team discovers, you were talking about analytics and data and really understanding what's happening.

03:07:18 Speaker_01
The key thing that they discover for new users joining Facebook, about whether they become an engaged, active, evangelizing user or not, is how many friends they get in the first, I think it's 24 hours or 48 hours or short period that they're joining the network.

03:07:35 Speaker_01
And there's a certain number of active friends that you need.

03:07:40 Speaker_05
Oh, this is funny, by the way. I watched two different talks by people on the early growth team, and one of them cited 10 friends in 14 days. The other cited seven friends in 10 days of, you know, how do you create the magic moment?

03:07:53 Speaker_05
Alex Schultz, who's now the CMO, gives this great talk, gosh, a decade ago at startup school with Sam Altman, and he makes the point, look, it's kind of a linear thing. Yes, you want as many friends as possible in the least amount of time.

03:08:04 Speaker_05
It's not like, oh, magically at 10 friends in 14 days, it's like super different than nine friends in 14 days.

03:08:10 Speaker_05
But you just set a threshold somewhere, and you set the threshold, and then you're like, OK, if we can deliver this delightful experience where now people have a rich news feed and the people they care the most about in the world to interact with, they're going to retain.

03:08:22 Speaker_01
Yep, totally.

03:08:24 Speaker_01
The other thing is, it marries perfectly with all of the investment that is going into the algorithmization of News Feed, because choosing who to show you in that carousel of people you may know is like all the difference in the world, you know?

03:08:42 Speaker_01
Show you seven randos and like you're gonna churn. Show you your seven best friends and you're gonna friend them all and become an engaged user.

03:08:51 Speaker_05
I'm so excited for, I guarantee you at least one of the people that I just friended is going to be listening to this podcast and realize what just happened because I haven't friended anyone on Facebook in years.

03:09:02 Speaker_05
And I just sent out like three or four friend requests.

03:09:05 Speaker_01
They just reengaged you as a user. I love it.

03:09:07 Speaker_05
Yes. They just have to, new growth tactic, have people do podcasts about the company and then.

03:09:14 Speaker_01
I think people caught on to that one a while ago. Yes. But yeah, like that's a super hard data problem of like cold new user coming into the network. How are you going to accurately predict who their best friends are who are already on Facebook?

03:09:29 Speaker_05
Well, if you're on the web, and this is the late 2000s, you ask them to authenticate their web-based mail service of choice, and then find out who they've been emailing, and then use that to figure out who their friends are. Magic. Magic.

03:09:45 Speaker_05
There's other less nefarious ways. See who has sent them links in the past, who are also logged in Facebook users. There's all sorts of stuff you can do, but yes.

03:09:55 Speaker_01
So by the end of 2008, thanks to the growth team, growth is like really going again. They go from like just barely getting to 100 million users in August of 2008 to almost 150 million by the end of the year.

03:10:09 Speaker_01
So 50% growth in the last four months of the year. And then 2009 is just like Lights out. They grew 250% in 2009 to 350 million users globally. Internationalization is like really firing on all cylinders here.

03:10:29 Speaker_05
That's right, they went from 150 million users to 350 million. No, in like one year. Isn't that wild? Crazy. The other core piece of the stat whenever you're looking at growth is to look at engagement. Engagement in 2008 was also in the doldrums.

03:10:45 Speaker_05
50% of monthly actives were daily actives. From what I can tell, that basically was just an artifact of, as the company got bigger, every marginal user they added was sort of less engaged than the early core users.

03:10:58 Speaker_05
You know, when they went from colleges to high schools to open registration, it just was going to have slightly less product market fit. But growth team is focused not just on growing new users.

03:11:10 Speaker_05
Actually, an even better lever, every long-term goal, is retaining your existing users. And the best lever for retention is engagement. And so that was where a huge amount of their energy went. So this is really interesting.

03:11:20 Speaker_05
50% of monthly actives were daily actives in 08. Since then, they have basically improved that metric every year. There's been a little bit of variance, but it is now almost 70% today.

03:11:33 Speaker_05
been a maniacal focus on how do we make as many monthly actives daily actives as possible year over year over year over year.

03:11:42 Speaker_01
That's wild. And that figure is just in the blue app in Facebook.

03:11:46 Speaker_05
That is just in the blue app. Yep, exactly.

03:11:48 Speaker_01
Wow. Well, on the engagement front in 2009, the big thing that happens there is like button, you know where I'm going with this like button. Yeah. And I know you know who invented the like button. Because it wasn't Facebook. I don't know. FriendFeed.

03:12:09 Speaker_05
Oh, no way!

03:12:11 Speaker_01
Brett Taylor and Paul Buchheit invented the like button.

03:12:15 Speaker_05
How did that work? Because FriendFeed would just federate stories from other social networks into one aggregated feed.

03:12:21 Speaker_01
Yep. I don't recall exactly.

03:12:24 Speaker_05
Did it only store that information on FriendFeed and not propagate it back?

03:12:28 Speaker_01
I suspect that's probably it. Like, they probably felt like they needed some sort of, like, hey, native mechanic on FriendFeed.

03:12:35 Speaker_05
Man, FriendFeed was so awesome. It's funny in this era where I'm now checking multiple feeds every day, Twitter, threads, Instagram, all the messaging services to catch up on my messages, occasionally the Blue app. I kind of need FriendFeed again.

03:12:51 Speaker_05
That was like the most amazing product.

03:12:53 Speaker_01
I know, I know. The world is so balkanized. It'll never happen.

03:12:57 Speaker_05
But yeah, I mean, talk about another amazing part of the Facebook diaspora. Facebook would later acquire FriendFeed.

03:13:04 Speaker_01
Brett Taylor would become CTO when Adam D'Angelo left to go start Quora. And then when Facebook acquired FriendFeed, Brett became CTO.

03:13:13 Speaker_05
And then famously, Brett becomes the co-president of Salesforce by way of acquisition and then eventually board chair at Twitter when the whole X thing was going on. And now he's on the board at OpenAI.

03:13:27 Speaker_01
Yep, board chair, I think, at OpenAI.

03:13:29 Speaker_05
Crazy. And he's got a new startup of his own. So I'm telling you, the talent that moved through that place.

03:13:34 Speaker_01
Totally. Well, and Paul Buchheit, the other FriendFeed founder.

03:13:38 Speaker_05
Invented Gmail.

03:13:39 Speaker_01
Created Gmail within Google. Yeah.

03:13:41 Speaker_05
So he ended up at Facebook for a while then after. I forgot about Paul, too. That's unbelievable.

03:13:45 Speaker_01
Yeah, he must not have stayed very long, if at all. Yeah. Because he went to YC, I think, after that.

03:13:50 Speaker_05
OK, so friend feed invents the like button. Facebook, I believe, was going to call it the awesome button. And then at some point right before launching, I think Mark personally made the call. It's just too weird. Let's go with like.

03:14:07 Speaker_01
Yes, the story as I understand it is that Facebook had been considering something like this for a long time. I mean, the benefits are obvious, right? Like if you have a lightweight way to engage and feed more data about

03:14:24 Speaker_01
positive votes on posts into the newsfeed algorithm. Like, that's gonna really turbocharge things.

03:14:30 Speaker_05
On the flip side, the concern was that it would actually decrease meaningful engagement. There'd be less comments.

03:14:36 Speaker_01
Exactly. And so, ultimately, they started running some tests with, like, small user groups in specific geographies, and they found that it actually often boosted engagement of comments. Fascinating.

03:14:46 Speaker_05
That's why you test things. You never know.

03:14:48 Speaker_01
Exactly. So, yes.

03:14:51 Speaker_01
They launched the like button and that becomes huge for overall engagement, but also more importantly for just improving the algorithm, which is now starting to kick in and newsfeed and making sure you're seeing stories that you really care about.

03:15:04 Speaker_05
And the like button then also got used for pages. It became this sort of form of capital among brands of how many Facebook likes does your company have? which for a while actually meant you could organically get messages out to them.

03:15:22 Speaker_05
Every time you posted, it was as if a company was a person and you just show up in the feed before Facebook ultimately was like, those are advertisements. You're going to pay us for those.

03:15:30 Speaker_01
Yes, you're exactly on the right track. Let's flip back now to Cheryl and building the advertising business. Right around this same time, we've decided like, okay, yes, we're gonna be in the advertising business.

03:15:43 Speaker_01
And to do that right, to do that natively, to do that in a way that generates defensible, sustainable value for Facebook, that means targeting and the like button is the perfect gift.

03:15:56 Speaker_01
to this because all of a sudden there's this really lightweight way to engage with things to signal your preferences about what you like.

03:16:05 Speaker_05
Yep. And the like button ended up being the perfect Trojan horse to move Facebook platform off of Facebook. So there was a reason for third party websites to embed Facebook's JavaScript in their pages.

03:16:22 Speaker_05
because of course you'd want to be able to like an article or like a brand all up on their website. You know, how many Facebook likes do you have? If that's what matters, we want people clicking like on our website too, not just over on Facebook.

03:16:35 Speaker_05
And so suddenly now every company on earth has some Facebook and has a

03:16:40 Speaker_05
reason to embed some Facebook JavaScript right there on their page, which my goodness, that's going to serve as a great signal back to the advertising algorithm where we can drop cookies and we can see who is moving around the web in what ways.

03:16:54 Speaker_05
So it's perfect for platform, but it's also perfect for feeding data into their advertising system now that they have something that brands and third party websites are incentivized to drop right on their page.

03:17:07 Speaker_01
Yes, abso-freaking-lutely. So we talked about growth reigniting at the end of 2008 into 2009. The business is also on fire in 2009 in a good way. So platform, still rocking and rolling.

03:17:23 Speaker_01
Microsoft Display Ad Partnership, still growing strong as growth is happening. Now under Sheryl, you finally got real native, highly targeted ads coming online in Facebook.

03:17:37 Speaker_01
In 2008, the company had done $280 million in revenue, up from $153 the year before in 2007. 2009, they do almost $800 million in revenue. He's crushing it. 2010, and even $2 billion in revenue. They're now very, very cash flow positive. Yes.

03:18:01 Speaker_01
reaching the scale that Google was at their IPO. 2010, they hit 600 million users. 2011, 850 million users. 2011, revenue grows almost another 100%, 3.7 billion. It's like, all right, time to start thinking about taking this company public.

03:18:21 Speaker_05
It's also time to start thinking about what is our biggest existential threat? It's so funny that we're talking about, and the existential threats are over. We've won. We have platform going well. We have this advertising business going well.

03:18:35 Speaker_05
We're getting data from the open web because we have like buttons everywhere. Everything is going our way. We finally have it dialed. And none of that matters in a mobile world.

03:18:47 Speaker_05
As people shift from spending time on the web to other apps, that open web data used as signal goes away. All of your ability to take payments. By the way, Facebook had launched payments.

03:19:01 Speaker_05
At some point, they started requiring apps to use their virtual currency.

03:19:06 Speaker_01
Facebook credits.

03:19:07 Speaker_05
Facebook credits, that's right. All of these amazing pillars that they've built were for the open web and created the most incredible business known to man, and mobile is a completely different thing.

03:19:18 Speaker_01
Yep, that seed from five years ago that has been growing of mobile is finally gonna turn into a big, big, big problem for the company. All right, so let's just get into it. I thought it would be fun.

03:19:32 Speaker_01
I listed out all of the ways that I could think of that mobile was a big problem for Facebook. One, and I think this is kind of like the Uber problem that everything else is downstream of,

03:19:45 Speaker_01
iOS and Android are closed, proprietary ecosystems not controlled by Facebook. Yeah, you can argue Android is open source and all that, but for all intents and purposes, Google controls it and they control the Play Store.

03:19:59 Speaker_05
Put another way, the web is the only open platform in history.

03:20:04 Speaker_00
Yes.

03:20:05 Speaker_05
And Facebook was born on the web. I mean, how crazy is it that they could build Facebook on entirely free technologies at the beginning and then get distribution just by people sharing URLs around. Browsers are interchangeable.

03:20:19 Speaker_05
Operating systems are interchangeable. It works on any device that anyone wants. Yeah, if you live on the web, you have infinite degrees of freedom and flexibility to control your own destiny.

03:20:29 Speaker_01
Yeah. And Facebook had kind of built this, you know, walled garden on the web and it was pretty nice.

03:20:35 Speaker_05
Yep. And walled gardens are great as long as the foundation under you can't shift.

03:20:39 Speaker_01
Yes.

03:20:40 Speaker_05
Build your walled garden directly on the earth, not on someone else's foundation.

03:20:45 Speaker_01
But, okay, specifically, why is iOS and Android being closed proprietary ecosystems such a problem? That means my number two reason.

03:20:54 Speaker_01
Platform, which is, you know, 50% or more of the value of Facebook in their minds at this point in time, no longer works at all. Like, full stop, flip a switch, does not work, will never work at all ever again on these platforms. And why is that?

03:21:13 Speaker_01
The whole premise of platform is you can run apps inside of Facebook. On mobile, you will never be able to run an app inside another app. Just not going to happen. Apple's never going to let it happen, and Google's never going to let it happen.

03:21:27 Speaker_05
And that's primarily because of that thing around you can't launch an alternative app store?

03:21:32 Speaker_01
Right, yeah. I mean, it's the core part of their business model are the app stores.

03:21:36 Speaker_05
Not to mention, if you are paying for things on their phone, you have to use their payment system. So Facebook credits ain't going to work because you can't charge 30% on top of 30%.

03:21:46 Speaker_01
Yeah. And there's technical aspects to this too, right? Like code runs in native code on these devices as opposed to open HTML on the web.

03:21:56 Speaker_05
Right. You get told what your development environment is. This is the language. These are the frameworks. These are the APIs you're allowed to call.

03:22:02 Speaker_01
Yep. So, OK, greater than 50 percent of, you know, the revenue and the sort of like theoretical future value, inherent theoretical value and strategy of the business kneecapped. It gets worse.

03:22:15 Speaker_01
Facebook and Mark and Cheryl have been hard at work building the other core pillar of the business, this new super sexy targeted ads business. Well, guess what?

03:22:29 Speaker_01
All of the ads that are running on Facebook at this point in time are running on the right-hand column on the website. There is no right-hand column on a mobile app.

03:22:39 Speaker_01
There's only room for a feed, which to this point in time has never had advertising in it.

03:22:45 Speaker_05
And in fact, there's like a cultural allergy to the idea of polluting the beautiful, pristine, organic newsfeed with an ad. We don't require a big cultural change.

03:22:55 Speaker_01
This is why you can't make up this stuff in these stories that we tell. Facebook has, I kid you not, no way to make money at all on mobile. Here is an actual honest-to-God statement that is in Facebook's S-1 that they filed before the IPO in 2012.

03:23:14 Speaker_01
I am reading as a quote. We had more than 425 million monthly active users who used Facebook mobile products in December 2011.

03:23:24 Speaker_01
We anticipate that the rate of growth in mobile users will continue to exceed the growth rate of our overall MAUs for the foreseeable future, and our users could decide to increasingly access our products primarily through mobile devices.

03:23:37 Speaker_05
Which, let's be clear, comparing those growth rates, another way to simplify that and say it is, are user bases shifting to mobile from desktop?

03:23:45 Speaker_01
Another way to simplify that is our desktop business is going to zero. Yes. Now, the kicker. This is a statement in the S1.

03:23:53 Speaker_01
We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. Accordingly... Buy our stock. Yeah.

03:24:06 Speaker_01
Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, our revenue and financial results may be negatively impacted.

03:24:24 Speaker_01
Yeah. No kidding. Oh my God. I'm still not done. That's only reason number three. Okay. Reason number four. Another benefit of the open web is that you can push code whenever you want. You can make changes rapidly. You can move fast.

03:24:44 Speaker_01
You can break things and then you can fix them rapidly. This is how Facebook has always operated. On mobile apps, you can push code when Apple and Google tell you that you can push code.

03:24:57 Speaker_05
And at this point in time, there was approximately a two-week delay between pushing an update and it being reviewed and accepted.

03:25:04 Speaker_01
Not only was there a two-week delay, during that two weeks, Apple and Google are reviewing it. And if they see anything that they don't like for whatever reason, they are telling you, no, you cannot push that code.

03:25:14 Speaker_05
or your company could be in a fight with that company and they could decide, eh, I don't think you should push any updates for a while until we resolve our fight.

03:25:21 Speaker_01
Yep. Okay. So that's number four. And then that brings me to number five reason that I could think of, of why this is really bad for Facebook. the competitive field is about to get a total reset. On the web, Facebook is dominant.

03:25:37 Speaker_01
Network effects are super real. Everything we talked about in this whole first part of the episode, if they can suck up all of the new social functionality that they or anyone else invents, they can put it into the main Facebook app.

03:25:50 Speaker_01
Photos, chat, platform, newsfeed, et cetera. On mobile, though, Facebook is just one icon of many on the home screen.

03:25:59 Speaker_05
Exactly. And the wisdom at the time was that mobile apps should be narrow in their functionality, and you did not expect a single app to bundle in a ton of different use cases.

03:26:08 Speaker_01
It's super easy for users to be like, hmm, okay, I get this utility from Facebook, but like, Well, I don't know, here's this Instagram thing. Like, that's kind of cool.

03:26:17 Speaker_01
I get great photo utility from that, which also lives on my home screen right there. And I'll still use Facebook for seeing when my friends get married, but like, photo's cool. And messaging, you know, this WhatsApp thing is super cool.

03:26:29 Speaker_01
Like, maybe I'll just use the app for messaging. It's super easy to use one app for one thing and other apps for others.

03:26:35 Speaker_05
And you can see why Facebook adopted that sort of early 2010s constellation of apps strategy. For a while, they had Slingshot, Poke, Messenger, Paper, Rooms, Riff, Camera. The belief by a lot of companies for the direction mobile was going was,

03:26:53 Speaker_05
there's going to be specialized apps each for their own tiny little purpose.

03:26:57 Speaker_05
And that's not great if a lot of your value is we bundle a lot of stuff in to create the most user engagement to all feed into each other for people to use all these different components of our application.

03:27:07 Speaker_01
Yep, totally. Okay. Those are my short list of five reasons of why the shift to mobile is dangerous to Facebook. Anything else you would add?

03:27:16 Speaker_05
No. So they're going public right into this. For the first time since our business is founded, we face a real existential threat completely out of our control that is going to make the next few years look really bad. Let's go public.

03:27:31 Speaker_01
Yeah. Well, let's talk about that IPO.

03:27:33 Speaker_05
Yes, but first, it is time to talk about one of our favorite companies, Statsig. A phrase that many of you will know from Facebook's early days is move fast and break things.

03:27:44 Speaker_05
But despite instilling this in Facebook's engineering culture, Facebook didn't actually break very often. And it essentially never goes down now. How?

03:27:53 Speaker_01
Well, Facebook invested hundreds of thousands of engineering hours in a set of internal tools. These tools let any engineer set up new metrics, ship new features, and measure performance in real time.

03:28:05 Speaker_01
This meant that anyone could just ship a new feature. But they always had metrics to use as guardrails, and they could always roll back the feature if anything broke.

03:28:13 Speaker_01
They took this so far that they have every new engineer ship a feature on their first day at the company.

03:28:18 Speaker_05
Wild. You might wish your team could build products like Facebook, right? Ship fast, make data-informed decisions, iterate rapidly. But you don't work at Facebook, and you don't have those tools. So you're stuck, right?

03:28:31 Speaker_01
Well, not anymore, thanks to Statsig. Statsig was founded by an ex-meta team three years ago with a mission to make these same tools that Facebook has available to any company. Could there be a better sponsor for this episode, David? This is insane.

03:28:44 Speaker_01
I know. It's perfect. It's perfect. Today, they've done it, combining tools like feature flags, product analytics, experimentation, and observability into one connected platform that runs off one set of data and infrastructure.

03:28:57 Speaker_01
No more stringing together expensive point solutions and internal builds. And no more using technology vendors built 5 or 10 years ago when the needs of modern product teams have grown by leaps and bounds.

03:29:08 Speaker_05
And they've also gotten some crazy traction over there at StatSig. Many of the world's leading tech companies rely on them, including OpenAI, Microsoft, Notion, Anthropic, Figma, plus thousands of early-stage startups.

03:29:21 Speaker_05
In fact, their scale has gotten so crazy that they process over a trillion events per day. For any engineers listening, they have a great blog post about how they do this.

03:29:31 Speaker_01
And best of all, Statsig is pretty affordable. They have an insanely generous free tier for small companies, a startup program with 1 billion free events, which is $50,000 in value and significant discounts for enterprise customers.

03:29:45 Speaker_01
To get started, just go to Statsig.com slash acquired and remember to tell them that Ben and David sent you.

03:29:51 Speaker_05
Thanks Statsig. All right, so David, here we are. We're going public, despite everything you just listed that is wrong with the future of mobile and this company.

03:30:02 Speaker_01
Oh, man, which seems like a not very smart idea, right? And, you know, look, one thing about Mark Zuckerberg, you could say lots of things about him, but one thing I don't think anybody could say is that he's not smart. So what gives?

03:30:16 Speaker_01
Why are they doing this? Well, back then, once a company crossed 500 shareholders, the SEC actually mandated by law that you had to start reporting quarterly like a public company.

03:30:30 Speaker_05
Whether or not you were traded on an exchange.

03:30:32 Speaker_01
Whether or not you were traded on an exchange. And at the end of 2011, Facebook crossed 500 shareholders. So for Facebook, this means that they were going to have to report like a public company anyway.

03:30:45 Speaker_01
And in practice, the common wisdom was you have to go public as part of this anyway, because otherwise you're going to report and then, you know, you're going to lose all the momentum and excitement about having an IPO and doing an S-1 and having a big roadshow, et cetera, et cetera.

03:31:01 Speaker_01
So you might as well just do the IPO as long as you're going to have to do this. And I think Mark and Cheryl and the team like really debated like, Well, should we skip the IPO?

03:31:12 Speaker_01
But like, well, shoot, then we're going to be reporting as a public company and heading into all of these headwinds without having actually gone public and raised the money that we might need to be able to make these investments.

03:31:23 Speaker_01
So they're like, Nope, we got to just do it and go public.

03:31:27 Speaker_05
Yes, it is a odd time to go public, given everything with mobile. And of course, they're being forced into it. There actually are a couple of kind of tailwinds that they have that are probably worth touching on here.

03:31:40 Speaker_05
The first of which is they had just beat Google+. That's right. Facebook treated this like a total existential threat. We laugh about Google+, now. It's a butt of jokes. But that's because Facebook was so effective in competing against it.

03:31:56 Speaker_05
I'm not saying the product itself was amazing and it would have been fine without Facebook, but Google did not end up executing that well on that product.

03:32:02 Speaker_01
That actually is a really good point, though. Google Plus may or may not have been a good product and may or may not have succeeded, but the Facebook competitive response was unbelievable. Unbelievable.

03:32:12 Speaker_05
I mean, this is like the growth team plus Facebook's engineering culture at its finest in defeating this.

03:32:18 Speaker_05
Whether or not they executed the product well, Google was the big web tech company at the time, and they put a ton of resources and a lot of their best people on it. And they had Gmail. And they had Gmail, right.

03:32:31 Speaker_05
So it's interesting to look at this because Google basically is Facebook's biggest business model comp. They show ads on the web and they monetize that really well. This theoretically could have been in their wheelhouse.

03:32:46 Speaker_05
This is just more real estate to show ads on the web. And they've already got all these people with user accounts. You can see why Facebook took this really seriously. We've talked a lot about Facebook's technical prowess.

03:32:57 Speaker_05
Well, here is an example of where it really kicks in when you need it to, to be a key competitive advantage. So they structured themselves in a way that encouraged flexibility of engineers.

03:33:09 Speaker_05
And they really broke from the tide of microservices in this era. They had one monolithic code base that everyone worked out of. And you might say, well, that's stupid. Why would they? That's not the way the world was going. But

03:33:21 Speaker_05
What they basically did was they wanted to encourage portability of teams. If you're an engineer, you get hired into the company, not onto a team.

03:33:28 Speaker_05
You learn the company's code base, you learn the company's conventions, and you can easily sort of move around after that.

03:33:34 Speaker_05
You do have to deal with the trade-off then of you have this big monolithic code base with gigabytes of PHP code for thousands of engineers. What do you do about that? Well, then they just had their cake and eat it too. They would go and have the

03:33:45 Speaker_05
infrastructure team figure out how to deal with that problem rather than saying, oh, everyone can just work in their little silos. And so that meant that engineers could kind of be quickly reorg'd.

03:33:56 Speaker_05
They could have this company-wide lockdown to fight Google+. And they did all sorts of things. They launched video calls to compete with Hangouts. They launched something to compete with Google Circles.

03:34:05 Speaker_05
But either way, they could really quickly reallocate resources and people who sort of knew how to work together to defeat what could have really been an existential threat from their biggest similar company.

03:34:18 Speaker_01
Oh, man. Mark famously in an internal speech around this, you know, referenced what was I think Cato the Elder? Yes. From ancient Rome of Carthage must be destroyed.

03:34:29 Speaker_05
Yep, there is a second way in which things had settled down and now was a good time to go public, and that's around privacy.

03:34:37 Speaker_05
Facebook had just been, I mean, playing way too fast and loose with user privacy for years and it had finally caught up with them by 2011. And just to jog your memories, I'm sure people may remember a lot of these.

03:34:48 Speaker_05
Some of these included even though users could restrict the audience of their posts with a setting, this apparently didn't apply to apps, which could access these posts regardless of how you restricted the audience.

03:35:01 Speaker_05
And for a time, this even included when your friends installed an app too. You didn't even have to grant the permission yourselves. Similarly, they made friend lists public without user consent at one point.

03:35:13 Speaker_05
Facebook could decide without user consent to change private fields of your profile to be public, and this wasn't always messaged as clearly as it could have been to users.

03:35:22 Speaker_05
So to remedy this, they had just signed what is called a consent decree with the FTC, the U.S. Federal Trade Commission, in 2011, and they promised to make a bunch of changes regarding user privacy issues going forward.

03:35:36 Speaker_05
And so all this was behind them now. And interestingly, David, an FTC consent decree is the same thing that Microsoft signed.

03:35:44 Speaker_01
Yeah, Hark, back to the Microsoft episode.

03:35:46 Speaker_05
Yes, the FTC consent decree with Microsoft was the predecessor to the big DOJ suit. In this case, the FTC consent decree is the predecessors to what eventually would become the Cambridge Analytica settlement.

03:35:57 Speaker_05
So here in 2011, the way that they settled this is there's a bunch of provisions that, with Facebook promising they'll be tighter on making sure user data is treated in a very particular way, they're subject to audit every year for two years, for the next 20 years.

03:36:11 Speaker_05
There's all these things that they sort of agree to. But, you know, once you sign a consent decree, it's like, OK, we're through it. We don't have this thing hanging over our heads. We can go public and say, oh, yeah, that's in the past.

03:36:21 Speaker_05
We've taken care of it. That's another reason to go public right now.

03:36:24 Speaker_01
Yep, it's such a good point. There actually was this little window here at the beginning of 2012 where desktop revenue hadn't yet been impaired so badly that they could still show growth.

03:36:41 Speaker_01
They had these couple little wins they could point to and say like, all right, not great, but like, if we're gonna do it, we gotta do it now.

03:36:49 Speaker_05
Yep. You could almost look at it like a little bit of a win of everyone knows us as the company that is a little bit dodgy on privacy practices.

03:37:00 Speaker_05
At least the public perception is this, that they're constantly... Changing the terms of the game, shall we say. Yes, to the company's advantage when it was confusing or misleading to users.

03:37:10 Speaker_05
And now you can say, look, not only do we sign that, we have these five product initiatives in place where we're just buttoned up now. I actually think that's pretty true. I think they became a company that had rigorous privacy practices.

03:37:23 Speaker_05
because of some government regulation when they otherwise may not have. I mean, if you look at the early days of what you could do as a developer on platform, it was pretty wild west.

03:37:33 Speaker_05
And so I'm not saying it's fully because of the consent decree, but they could definitely tell a story around, look, we made some mistakes, we got some things wrong in privacy, and going forward, we're in good shape.

03:37:43 Speaker_01
We're all good. Yeah. Well, we'll come back to that in a little bit. But for the moment, the IPO. February 1st, 2012, they filed the S-1. They entered the traditional quiet period before the IPO where legally, according to the SEC,

03:37:59 Speaker_01
Once you have filed for an IPO, all material information about the company needs to be included in the S-1 registration statement.

03:38:06 Speaker_01
You can't go give interviews, you can't go talk to the press, you can't say anything meaningful about the company besides what is fully publicly disclosed to any potential investor in the S-1 statement. And then

03:38:19 Speaker_01
A week later, on April 9th, 2012, during the quiet period, Facebook acquires Instagram for a billion dollars.

03:38:32 Speaker_05
Times now, baby. Time is now.

03:38:34 Speaker_01
And they can't say anything about it besides what they file in the amended S-1 because they're in the quiet period. Amazing. The company's previous largest acquisition was $70 million. Obviously, this is a way different thing.

03:38:47 Speaker_01
Now, sitting here today, you might be really tempted to say, oh, well, there's the fix for mobile. They just bought Instagram. That solved all the problems. Except Not because Instagram didn't have any revenue on mobile either.

03:39:03 Speaker_01
It's like, you know, you're tying one anchor to another here.

03:39:06 Speaker_05
Well, not to mention Instagram had 27 million users. Facebook had 900 million users. This was potentially a problem for future Facebook, but this was not currently a problem.

03:39:19 Speaker_01
Totally. I was just about to say that too. Like, yeah. Also, not currently a fix to Facebook's major problem of the shift to mobile. And I mean, my God, talk about the chutzpah of Mark to do this.

03:39:33 Speaker_01
You're already in a really challenging period for the company. A really challenging IPO process.

03:39:39 Speaker_01
You just entered the quiet period and you decide to spend a billion dollars on something with 27 million users and no revenue, and you're not going to be able to talk about it except what you file with the SEC. Wow.

03:39:51 Speaker_01
You got a really, really, really freaking believe in the future potential of your company and the combined companies of Facebook and Instagram here to make this move.

03:40:02 Speaker_05
Not to mention, on top of it all, we're not going to go into it here because we had a whole episode on Facebook and Instagram, but this was done over two days, over the course of a weekend.

03:40:10 Speaker_05
Mark didn't do a whole lot of socializing this before pulling the trigger. He just knew it was the right thing to do and did it.

03:40:17 Speaker_01
Yep. and that ended up working out pretty well in the long run. In the short run, yet another question mark to add to the already very large pile around this company.

03:40:27 Speaker_01
Finally, long roadshow process, by the week of May 14th, they're ready to price the IPO. Pricing is set for Thursday night, May 17th, 2012. On Tuesday, May 15th,

03:40:43 Speaker_01
General Motors, GM, who by the way was not a particularly large Facebook advertiser, announces publicly to the world that they are pulling all their spend off of the Facebook platform because it's not effective.

03:40:56 Speaker_01
Not really what you want to have happen two nights before you price your IPO.

03:41:00 Speaker_05
Was that motivated by someone that feels like a hit?

03:41:03 Speaker_01
Feels like it must have been. I've never heard one way or the other, but like, A, why would you announce that publicly? B, why would you announce it publicly right then? Like, there's for sure more to that story. Nonetheless, Facebook goes ahead.

03:41:16 Speaker_01
Thursday night, they priced the IPO at $38 a share at the very top end of the range after the roadshow. Again, the chutzpah here.

03:41:25 Speaker_01
They raise $16 billion at a $104 billion market cap, making it, I think, the third largest IPO of all time at that point behind Visa and, ironically, General Motors coming out of the bankruptcy during 2008.

03:41:42 Speaker_05
Which both of those are mature companies that are going public under weird circumstances. Those are not comps. Totally, yes.

03:41:48 Speaker_01
By far, the largest IPO of a new startup company in history. On Friday morning, trading starts.

03:41:57 Speaker_01
The NASDAQ is overloaded with so many orders for buying and selling Facebook that trading in Facebook stock doesn't actually open until 1130 AM, which is, you know, two plus hours after the open of the markets.

03:42:11 Speaker_05
Gotta be terrifying if you're a big Facebook shareholder.

03:42:13 Speaker_01
Yeah, that's pretty terrifying. Initially, it looks like, oh, that delay might've been good because the price shoots up to $45 a share from 38, but then it crashes back down. It is...

03:42:26 Speaker_01
One of the most volatile trading days in any stock, I think in history on any exchange.

03:42:32 Speaker_01
Facebook shares end the day at $38.23, up 23 cents from the IPO price, but only because all of the underwriting banks in the IPO stepped in to buy shares and support the price, which was totally crashing throughout the day.

03:42:49 Speaker_01
Thank God they did it on a Friday so everybody had the weekend to breathe. Once trading starts again the following week, the price falls on 9 of the next 13 trading days and ends up by the end of May down 25% from the initial IPO price of $38.

03:43:08 Speaker_01
Kind of in free fall at this point, the stock continues going lower and lower and lower, ultimately bottoms out on September 4th, 2012 at $17.68, down 53.5% from the IPO price. So market cap cut in, you know, over half in what's that?

03:43:31 Speaker_01
five months since the IPO. It wouldn't end up reaching IPO price again until August 2013. Anyone who bought at the IPO was underwater for 16 months. Underwater for 16 months and five months later had lost half their money on Facebook.

03:43:46 Speaker_05
So you have to have nerds of steel to even just keep holding. I'm sure anybody who got back to even at 16 months was delighted.

03:43:52 Speaker_01
Totally. You've also got the employee lockup coming up around November. So like now you're staring down the gun of, shoot, I've already lost half of my value as a public company.

03:44:03 Speaker_01
And pretty soon all the employees in the company are going to be able to sell it. That's going to put more selling pressure on the stock. Holy crap. This is pretty darn bad.

03:44:14 Speaker_05
Yes, that is horrible.

03:44:15 Speaker_01
I mean, losing 50% of your value as any company, public or private, but especially a public company, is a disaster of epic proportions. Having that happen immediately following your IPO, for most companies, there's no way to come back from that.

03:44:32 Speaker_01
You're entering a death spiral. You're going to end up being acquired. You know, you're just going to get driven to zero basically. Yep.

03:44:39 Speaker_01
And just to be super clear, desktop revenue wasn't going to go to zero immediately, but Wall Street investors are really worried that like, Hey, the world is transitioning to mobile.

03:44:50 Speaker_01
Eventually growth will start slowing and it will start declining, which it does fairly quickly here. And so like, if you can't show me that you're going to replace that with mobile revenue, why should I value your stock at anything?

03:45:03 Speaker_05
Yep. And so here is where founder control matters. David, it's interesting you're explaining the mechanics of a death spiral.

03:45:11 Speaker_05
That would presume there's a board of directors who feels a strong desire to do whatever is best in the interest of the shareholder, and they might think that it's these short-term things.

03:45:21 Speaker_05
If you have a CEO who has a 20-year view and believes deep, deep in his heart that the best is yet to come, and that this is just a temporary problem, and that person controls the company and owns the majority of voting shares, you can withstand things like this.

03:45:38 Speaker_05
You just better be right.

03:45:40 Speaker_00
Yes.

03:45:42 Speaker_05
So, a little fun anecdote for everyone. David and I, among the 20 other people we talked to to prep for this episode, one of them was Sheryl Sandberg. And we were asking Sheryl, in particular, how did you start the monetization effort on mobile?

03:45:56 Speaker_05
They were in the third column. There's no third column on mobile. What did you do? And her comment to us was, oh, we just stopped caring about the right side ads on desktop.

03:46:05 Speaker_05
And we took every engineering resource we could off of that, and we put it on mobile. And we knew we were going to miss the current quarter. I think they missed a lot of quarters right after their IPO. But this was us trading the present for the future.

03:46:18 Speaker_05
And all we cared about was our future. And she said this great quote.

03:46:22 Speaker_01
This is up there with one of the best quotes on Acquired of all time.

03:46:25 Speaker_05
She was sitting there with Mark late at night.

03:46:28 Speaker_05
And when they sort of arrived at this plan of, we are going to forego a lot of desktop revenue to basically bet it all on figuring out mobile revenue, she said, well, Mark, nobody can fire you, and only you can fire me. So if you're in, I'm in.

03:46:44 Speaker_05
And we buckled our seat belt, and we said, here we go. And it's amazing. I mean, that can only happen in a founder controlled company. And it really did force them to figure out mobile advertising.

03:46:55 Speaker_05
If they really are saying, like, this is the new first class product, this is where we're going to point all advertisers toward. If they're wrong on that, they're wrong across the whole board.

03:47:05 Speaker_05
Because if ads suck on mobile, since it's the only thing and it's filling up your whole screen, user engagement is also going to nosedive. And so it's basically a bet-it-all moment where the ads are front and center, so they must be good.

03:47:20 Speaker_05
It is essential for the mobile product, and thus your company, for them to be good. Users' attention will be pointed at these ads like no other ads you have ever run before.

03:47:31 Speaker_05
And actually the flip side of this is it ended up being the best thing ever for the company. Because the ads are front and center, the value per ad is actually higher.

03:47:42 Speaker_05
So they ended up creating a much, much more valuable ad unit than they ever had on desktop purely because of this incredible attention on them when you're scrolling in feed on mobile. Necessity is the absolute mother of invention.

03:47:54 Speaker_01
Yes, totally. You have no choice but to do your best work. And boy, did it work out fabulously.

03:48:00 Speaker_05
Yeah.

03:48:01 Speaker_01
Ben, nobody can fire you. Well, I guess you can't fire me either, but either way, if you're in, I'm in.

03:48:08 Speaker_05
The corporate structure required is still a little, it's unclear.

03:48:12 Speaker_01
But yes, totally. So when we say taking your best, most trusted engineers, taking them off whatever they're doing and putting them on ads, there's actually an amazing story around this.

03:48:22 Speaker_01
So Mark goes to someone within the company who he knows can just ship and get stuff done. And that. is Boz, Andrew Bosworth, his old TA from Harvard. Boz, at this point, is running the core profile and timeline within Facebook.

03:48:42 Speaker_01
And Mark goes and talks to him and says, Boz, I think you should come work on ads, to which Boz replies,

03:48:51 Speaker_01
okay i mean like i get we're in this situation but you know mark like i can't do this for too long because remember i'm getting married this fall and i've got this six month sabbatical planned for my honeymoon and my wife and i we're gonna travel the world it's all like booked and paid for we're gonna be out of the country and mark is like

03:49:12 Speaker_01
Yes. Well, we've got a few months until then. I think you should come over and work on ads. I was like, OK, OK. I will do that. I will come up with something here before the wedding.

03:49:22 Speaker_01
So he teams up with Will Cathcart from the News Feed team, from Chris Cox's team. And they go get to work. By the way, Will is the head of WhatsApp today. And Boz, of course, is the CTO of Meta and head of Reality Labs.

03:49:34 Speaker_01
and the first thing they do during these couple months is like all right we just need like a band-aid to stop the bleeding and at least produce some mobile revenue and what they decide to do is like hey we do have on mobile the carousel of people you may like what if we just slot some brands into that carousel and say hey in addition to people you may like here here are some brand pages you may like huh

03:49:59 Speaker_01
a reasonable first step. And look, they knew that this wasn't going to be the long-term solution and solve all the problems, but it did start to produce some mobile revenue that they could report.

03:50:10 Speaker_01
And this was super important because, as I alluded to, the lockup on employees and insiders selling their shares expired in November.

03:50:18 Speaker_01
They had to get something out that was going to prop the stock price up a little bit before, naturally, employees are going to start selling here, and that's going to put downward pressure on the stock price.

03:50:28 Speaker_05
Yep. Also, bummer if you are an employee selling six months after that IPO. Hopefully as many people held as they could to get through it.

03:50:35 Speaker_01
Yes, hopefully. And I think most people who were at Facebook at this time really did believe in the future of the company. At the same time, you have life circumstances. You might need to buy a house. You might need to do things for your family, etc.

03:50:52 Speaker_01
It's a tough spot.

03:50:53 Speaker_01
So, fall rolls around, they've launched, sponsored pages you may like, Boz gets married, they're still grinding on the big project, which is called Project Whale Shark, and that is getting real, honest-to-God native ads in the newsfeed, which, frankly, they should have done years ago on desktop, but now the gun is to their head, there is nothing in the mobile app except newsfeed, we gotta put ads in newsfeed.

03:51:21 Speaker_01
So finally, at the end of the year, they launch it. Boz is like, whew, okay, mission accomplished. I can now leave on my sabbatical. We can go on our honeymoon, but there's just one problem. Shipping this thing is only like 20% of the battle.

03:51:37 Speaker_01
Now you have to go sell it to advertisers, which this is a whole new ad paradigm.

03:51:43 Speaker_01
You got to like educate brands on why this is going to work for them, especially when your overall brand as a company and effectiveness of your advertising is kind of in the dumps right now.

03:51:54 Speaker_05
And it's an iterative process where you're gonna hear a bunch of feedback from brands and you're gonna say, ooh, we gotta modify the ad products, which still continues to this day. They roll out and modify ad products.

03:52:05 Speaker_05
It's not like a, all right, we now have ads in the newsfeed, we're good.

03:52:08 Speaker_01
The job is never done here. So of course, quarterbacking all this is going to fall to Cheryl and her team. But again, as you said, Ben, this is an iterative process. You can't divorce product from the feedback from advertisers.

03:52:23 Speaker_01
And the big advertisers are sure as hell going to expect someone from product who is leading this thing to show up and tell them about it. Yep. So Boz kind of needs to come along to these meetings.

03:52:33 Speaker_01
So on December 18th, Boz remembers the exact day, Mark calls him up and is like, Boz, great job working on ads. Hey, I really still need you to come back and work on ads. And Boz is like, no way, man. I did the past six months for you.

03:52:49 Speaker_01
I just got married. I'm going on my honeymoon. I'm out. Mario's like, okay, okay, okay. The next day, calls him back, December 19th, and he's like, Boz, I just wanna say really, really great job again.

03:53:02 Speaker_01
And you know, the company's in a really tough spot, and like, I really think that you should come keep running ads here. And Boz is like, okay, all right. I will reduce my sabbatical from six months to six weeks.

03:53:19 Speaker_01
I'll take the holidays, the beginning of the year, I'm gonna cancel the last four months of my trip. I will do six weeks with my wife and then we'll fly her friends out to the last two weeks with her.

03:53:29 Speaker_01
And then I'm gonna go fly around the world with Cheryl on a very different kind of trip here. So that's what they do. And for most of 2013, Baz and Cheryl are out on the road. They're pitching advertisers.

03:53:43 Speaker_01
They're explaining sponsored stories in the newsfeed, on mobile, why this is so important. Not only do advertisers need education about this new Facebook ad unit, they also need education about mobile advertising in general.

03:53:59 Speaker_01
They'd only just gotten used to digital advertising on desktop.

03:54:02 Speaker_05
Totally. Do you remember those Mary Meeker decks that used to go around where they would show the mobile advertising, basically the shortcoming. Look at all this attention that has shifted to mobile and yet the monetization just isn't there.

03:54:12 Speaker_05
And that was a story every year for like a decade.

03:54:15 Speaker_01
Yep, totally. And it was the same story with desktop on the web for a decade before that.

03:54:20 Speaker_05
Yep.

03:54:21 Speaker_01
So what's interesting is like as they're getting going here, of course, advertisers don't come in right away. But also the ones that do come in early are kind of as you would imagine, not the best advertisers. And so

03:54:36 Speaker_01
the whole effort starts to have this real problem where the ads that are now showing up in newsfeed are like pretty freaking crappy ads and mark keeps getting more and more pissed because like obviously this is really important but he's like boss cheryl like why the hell is all this crap showing up in my feed like if this keeps happening i get that we have to save the business but like

03:54:57 Speaker_01
I care more about the user experience and like, I'm going to dial this back.

03:55:01 Speaker_05
This is the most interesting thing. At this point in history, Mark is putting pressure on Boz and Sheryl to show fewer ads. Yes. And Boz is the one with the contrarian view who comes to Mark and says, we're thinking about this all wrong.

03:55:15 Speaker_05
We actually need way more ads. not just a little more ads, huge amounts more ads, because a great ad is on par with content. And if you have tons and tons of ads, then we can do way better targeting.

03:55:32 Speaker_05
Like you have this beautiful liquid marketplace of hundreds of thousands of advertisers, billions of users.

03:55:39 Speaker_05
And at any given time, somebody can see the optimal ad for them and get recommended an amazing product that perfectly fits their needs in that moment. with messaging that's perfectly tailored for them.

03:55:50 Speaker_05
Great advertising can be great, but you need a really, really liquid marketplace, and you need fantastic algorithms, which you can only have if you train them on tons and tons of data.

03:56:02 Speaker_05
So, like, we actually need 10,000 times more ads than we have right now, not less. It's almost like the only way out is through. We're going down this path. We must be extremely successful in order to be successful at all.

03:56:16 Speaker_01
This was such a contrarian view and also right. And I think only could have come from someone like Boz being focused on this problem because as a product person and an engineer,

03:56:35 Speaker_01
It's the only way that you're gonna have that insight that like, oh, this is the same problem we had when we launched News Feed. The way to fix News Feed and to make it really, really awesome is more News Feed, is more data, right?

03:56:50 Speaker_01
The only way out is through. Yeah. If somebody had purely come, I think, from the advertising world, they would have been like, well, you know, that's just the nature of advertising, right?

03:57:00 Speaker_01
It's a tax on the users, and that's the way monetization of media works. But like Bas was like, no, no, no, actually, this is a relevance problem, and we can make this awesome. And in order to make it awesome, we need a lot more of it. Yep.

03:57:13 Speaker_05
And basically, like, that's what happened. I mean, flash forward 10 years, I opened Instagram to get great product recommendations.

03:57:19 Speaker_01
Totally. It's actually kind of wild. I believe this is true. There are markets in the world today where I think meta has run this test, where if you turn off ads in the meta family of apps products, engagement in those products actually goes down.

03:57:37 Speaker_01
Which is just like freaking wild. You would think like, oh, wow, now I get to use Metaproducts without advertising. No tax on me. Like, I'm going to engage more. Like, no, it goes down.

03:57:45 Speaker_05
That's the definition of ads as content, if that's actually the case.

03:57:48 Speaker_01
Totally wild. So by the fourth quarter of 2013, which honestly in the scheme of things is pretty freaking fast, the whole thing finally flips.

03:58:00 Speaker_01
Facebook announces that mobile advertising is now 53% of revenue and total ad revenue for the company grew 76% year over year in the fourth quarter, which of course is the most important quarter of the year, which means, I did all the math on that, that means that all of desktop revenue,

03:58:18 Speaker_01
All of it, so the old platform business, the old ad business, the Microsoft third-party ad serving, all of that actually shrank in the fourth quarter of 2013. So that's the counterfactual here.

03:58:33 Speaker_01
If Facebook had not gotten mobile monetization right, that's what would have happened is Q4 2013, all of the growth momentum that it had would have flipped and it would have started the downward spiral.

03:58:46 Speaker_05
And probably not that early if... I guess that's right, because all the resources got pulled off of it.

03:58:52 Speaker_01
Exactly.

03:58:52 Speaker_05
But that's what would have happened eventually to it.

03:58:54 Speaker_01
Eventually. Yep. Yep. So, man, it's like this wild 18-month journey, but it totally saved the company because now here they are, they've built this unique, pioneering, and totally defensible native mobile ad unit in the feed.

03:59:15 Speaker_01
They defined the whole generation of, you know, monetization here.

03:59:18 Speaker_05
It's the best ad unit in history. It's an ad that completely fills the screen on your device and that users are okay with. So this is the most insanely captivating, engaging ad unit that you could possibly ask for. And it came out of necessity.

03:59:35 Speaker_05
It's wild. The fact that they thought their backs were against the wall. They were totally screwed. And instead, actually, it's the thing that monetizes better and is better for advertisers than any other advertising product they've ever had.

03:59:45 Speaker_01
And, you know, I know we keep saying this and it sounds maybe sort of silly, but like really better for users to before this paradigm that they invent here of, you know, algorithmically driven ads in the feed.

04:00:00 Speaker_01
the biggest monetizing thing on mobile was an interstitial like pop up frickin display ad that took over your screen, right? Like what an awful frickin experience for a user, right?

04:00:14 Speaker_05
Right around this time to the other thing that's happening is kind of glossed over this for time. But Facebook's initial attempt at a mobile app was to try to work around all the constraints of the mobile app ecosystem. And they thought, well,

04:00:29 Speaker_05
That's nice that the app stores are going to try and box us in. But we'll just ship our mobile web views inside of a thin little app wrapper. And that way, we can deploy multiple times a day. We're Facebook. This is what we do. It's part of our culture.

04:00:41 Speaker_05
HTML5, woo. Provided a horrible user experience. I mean, the engagement on the app was low. Time spent was low. It was a risk to start selling these ads.

04:00:52 Speaker_05
because people don't want to spend any time in the app, even without ads, let alone when you start layering these in. And so they're finally starting to sort of pull out of this tailspin.

04:01:01 Speaker_05
They basically spent a year completely rewriting all their mobile clients to be these rich, beautiful native experiences. This is a thing that Facebook has always been good at.

04:01:11 Speaker_05
Whenever they decide to do something, they go and recruit like the actual best talent in the world to do it. And this group of people that they pulled together from Joe Hewitt forward to write their original iOS app, just like

04:01:22 Speaker_05
some of the best iOS developers and designers in the world. They hired Mike Mattis and the Pushpop Press team when they acquired them. That's right. That's right. That became, I think it was Creative Labs. Is that right? Facebook Creative Labs.

04:01:35 Speaker_05
But, you know, a huge amount of that talent worked on their mobile apps. And so while they had the wrong strategy at first, once they got religion around native, they really created something, probably one of the best apps ever on mobile.

04:01:49 Speaker_01
Totally. It's funny. I'm laughing. You know, the version of history that we just told is maybe slightly too charitable to Facebook and to Mark because yes, it's absolutely true. They did the really hard thing. They took the pain.

04:02:06 Speaker_01
They invested in the future. They built, you know, everything that would become Facebook and Meta Today out of it. But the first reaction was to bet on hope as a strategy and bury your head in the sand and say, HTML5 is going to save us.

04:02:20 Speaker_05
I don't know that it was hope as a strategy. I think it was more like, if this can work, it's going to solve a lot of our problems. And I don't think they correctly estimated how wide the user experience chasm is between web apps and native apps.

04:02:36 Speaker_05
And I think they had to like have an app in market where users were actually using it to realize, oh man, the state of the art in native that the platform vendors have developed, iOS and Android, is really, really good.

04:02:49 Speaker_05
And they have brought very little of that to the web experiences, partially because of standards bodies, but also partially because it's not really in their interests to make web apps great when they can force everything through an app store that they have more control over.

04:03:04 Speaker_01
So, okay, after the Q4 2013 earnings announcement, the stock pops way, way, way up to like $175 billion-ish market cap, so up 75% from IPO, you know, what is that, a year and a half earlier.

04:03:20 Speaker_01
And from there, it's basically, if you look at the market cap chart, kind of a straight line journey from 175 up to half a trillion over the next couple of years.

04:03:31 Speaker_01
They eventually bring this whole native feed monetization engine over to Instagram and that works obviously incredibly well there, probably better than even on the blue app.

04:03:43 Speaker_05
And that in particular, I mean, everyone's going to laugh when we say this word, the legitimate synergy between going to an advertiser and saying, you can use this dashboard to get placements on Facebook and on Instagram is massive.

04:03:59 Speaker_05
Both of those products monetize better than they ever could without that single channel that the advertiser only has to go through and use one dashboard to place on both products.

04:04:09 Speaker_05
If you flash all the way forward to today, the lion's share of Meta's revenue comes from the ads that run on Facebook and Instagram. Their whole business today can just be summarized as that.

04:04:20 Speaker_01
Totally. There's another element for a couple of years that's a big part of the native mobile revenue story, and that is app install ads.

04:04:28 Speaker_01
It actually is worth calling out because it plants the seeds of this much larger struggle that's going to come in a little bit.

04:04:35 Speaker_01
But a very large percentage of the inventory that they were selling and especially the revenue of these native mobile ads in the beginning was actually for app install ads that game developers and other folks were buying on Facebook.

04:04:50 Speaker_01
So it was kind of like our old platform business all over again. Facebook is actually the best place to discover apps on mobile.

04:04:57 Speaker_05
Yeah, it's pretty interesting realization where

04:05:01 Speaker_05
The big brand advertisers may not move to this new type of ad format right away, but the people that are going to be really hungry to move to that ad format are a game developer who makes a mobile app and wants to market their mobile app to people who are A, on that platform, and B, in a leanback experience where they're open for some entertainment.

04:05:20 Speaker_05
And when you are scrolling through a feed of your friends and brands and you are open to, oh, Hey, look at this! A game where I could click one button and then, boom, install a game and play it.

04:05:33 Speaker_05
Is there a better moment and channel to reach someone for an app? No. I mean, even if you're Apple, Apple doesn't have a better way to do this.

04:05:43 Speaker_05
People don't search the app store for apps that often, so you'd have to show them like a pop-up ad or something.

04:05:49 Speaker_05
Facebook just has this opportunity where you're in an experience where you're open to some new form of entertainment and they have the ability to place a button there with rigorous targeting and an incredible ad sales force.

04:06:01 Speaker_05
Facebook was almost built to be the monetizable front end to the app store.

04:06:08 Speaker_01
Oh boy. All right. Put a pin in that.

04:06:10 Speaker_05
Am I leading the witness too much, David?

04:06:13 Speaker_01
Put a pin in that. We are going to talk about Apple and Facebook in just a little bit here. Now, I said a minute ago that the journey to $500 billion in market cap from here is a straight line. If you look at the market cap chart, that's true.

04:06:30 Speaker_01
Internally within the company, you know, I think almost certainly not. There are a couple of big challenges that come up along the way. During this period, you've got Snap and you've got WhatsApp, both of which are like pretty big deals. Yep.

04:06:46 Speaker_01
We've covered both of those pretty fully on separate episodes that you can go listen to.

04:06:51 Speaker_01
But I think ultimately what they represent, and obviously Snap was more a competitor and WhatsApp turned into an acquisition and is now a big part of Meta and part of the company.

04:07:00 Speaker_01
But I think together what they represent was this next fundamental shift in the consumer social landscape.

04:07:08 Speaker_01
which Mark totally picked up on and ultimately announced as the core of the company's product strategy in 2019, which was the default social behavior was moving from town square, which was the old Facebook paradigm of like, hey, we're all in this together.

04:07:27 Speaker_01
This is our college network. This is our friends.

04:07:29 Speaker_05
Hey, network or public. Here's what I think.

04:07:32 Speaker_01
Yep. And in many ways, Instagram was also town square.

04:07:35 Speaker_05
Totally.

04:07:36 Speaker_05
The Instagram team noticed over time that even before Snap started eating their lunch, that engagement would decrease the longer you stayed an Instagram user because you over time being done with these permanent posts and you sort of saved it for the big announcements in your life that there wasn't a natural way to just effortlessly share.

04:07:55 Speaker_05
Because when these platforms all started, everyone was in debt sharing with the town square the whole time and everyone was getting a little bit more. clammy about that as time went on.

04:08:04 Speaker_01
Yeah, as the stage got bigger in the town square, it's like, well, I'm not going to take the stage unless I, like, really have a great performance that I'm going to give.

04:08:13 Speaker_05
And so every piece of data and metric that they had, you're right, they sort of realized, oh, the world is shifting from town square to... To living room, is the way that Mark put it.

04:08:22 Speaker_01
That social was shifting from town square to living room.

04:08:26 Speaker_05
Right. And by living room, he means small private groups of super close relationships.

04:08:30 Speaker_01
Yep. And Snap and WhatsApp were both really interesting data points about this. WhatsApp, obviously, with private messaging. Snap also, in its own way, there was the original Snapchat use case of disappearing one-to-one photo messaging.

04:08:46 Speaker_01
But Stories really is where it became clear, hey, this is widespread and this is a big problem that is going to threaten Instagram, Facebook, the whole default motion of like sharing beyond just a one-to-one messaging platform.

04:09:01 Speaker_01
I want that to be much more private and locked down too.

04:09:04 Speaker_05
If you own an engagement platform and someone figures out a new mechanic to make them much more willing to freeform share, and your platform seems to encourage them to stay back, be quiet, only post once in a while, maybe lurk, It's not good.

04:09:20 Speaker_05
Content creation on the platform going down is really, really bad if you are an engagement company.

04:09:25 Speaker_05
You know, Snap represents the idea that people are sharing way more if it's ephemeral, and WhatsApp represented the idea that people are shifting the places they communicate from more public to more private and from larger groups to smaller groups, both of which are concerning if you are a Facebook Blue app.

04:09:45 Speaker_01
Okay, so now here's an interesting question, though. How would Facebook know that attention is really shifting to these apps?

04:09:54 Speaker_01
Because remember, we're now in the mobile paradigm, not on the open web, where services like Comscore and Alexa and whatnot exist, and you can see traffic and engagement competitively on other apps.

04:10:06 Speaker_01
In the mobile ecosystem, it's all siloed and locked down.

04:10:09 Speaker_05
No, just Apple and Google really have that information.

04:10:13 Speaker_01
Yeah, but somehow Facebook was able to get pretty good insights on what was happening in the landscape.

04:10:19 Speaker_05
Well, to have that, you would either need to have some kind of SDK that gets bundled into apps like an analytics provider, or you would need like a VPN where like the traffic was going through it so you could see the traffic.

04:10:31 Speaker_01
Well, in 2013, Facebook acquired a small Israeli company called Onavo. And Onavo was exactly what you just said, Ben. A VPN. Actually, I think it initially started as like a data compression tool.

04:10:45 Speaker_01
So if you were worried about your data plan, which was really important in many parts of the world, you could install Onavo on your device and it would compress the data and then serve it to your apps. Eventually, that morphed into a VPN tool.

04:10:59 Speaker_01
The net of that is that they could actually see traffic and usage data going into specific apps on mobile phones in their network.

04:11:07 Speaker_05
Yeah, I think they looked at it as we need some way to level the playing field if we're competing against Apple and Google in different ways and they have this data because they own the platforms. We kind of need to be able to see those same trends.

04:11:18 Speaker_05
On the other hand, there is another way to view this. If you're looking for examples where Facebook

04:11:24 Speaker_05
you know, may have considered their own interests over being forthright with users over how their data is used, well, this could be another big example.

04:11:32 Speaker_05
Users who were using Onavo didn't download it with the intent of sharing, you know, their app usage data with Facebook.

04:11:40 Speaker_01
Right. They were just looking to compress their data or for a VPN service. Either way, Onavo ended up being like a hugely important acquisition for Facebook because it really tipped them off to WhatsApp and Snap too.

04:11:53 Speaker_05
Yeah. So obviously they fought those two companies in very different ways. One thing they learned from fighting Twitter over the years is that there are these social mechanics. or perhaps an interaction paradigm might be the right way to talk about it.

04:12:10 Speaker_05
A post, or a like, or a retweet, or a disappearing photo message. And the thing that kind of matters is owning a valuable network.

04:12:22 Speaker_05
The idea that people are going to come and give you their attention, and you own the place that they connect with other people that they authentically, verifiably know. That's the scarce commodity in order to kind of win the engagement game.

04:12:36 Speaker_05
And the mechanics are actually kind of fungible. And they're totally a means to an end.

04:12:42 Speaker_05
So if you discover some mechanic and you build this whole multi-hundred million user network platform, ad platform based on it, that's great as long as no one comes up with a better mechanic than you and then goes and rebuilds the network somewhere else.

04:12:57 Speaker_05
So one thing they learned with Twitter was, hmm, They seem to be growing really fast with this status update thing. We need to look a lot more like status updates. And that worked pretty well.

04:13:09 Speaker_05
There were a lot of people that basically never switched to Twitter because they thought, oh, I can just use Facebook for this.

04:13:15 Speaker_01
Yep. And I already have my network in here. I already have my friends. I already have my connections. Totally.

04:13:20 Speaker_05
And it also has photos. So like Twitter is this weird esoteric text sharing thing. I'm not really all about that. I'm just going to keep using Facebook.

04:13:27 Speaker_01
Oh, then Twitter did have photos for a while. It was called Instagram.

04:13:32 Speaker_05
Well, yeah, that API got turned off fast.

04:13:34 Speaker_01
Yep.

04:13:35 Speaker_05
So as they're looking around at Snap, hey, someone has discovered this new stories mechanic. My goodness. That is suddenly obvious that that is what the future is. It now feels old to do anything else.

04:13:49 Speaker_05
It's kind of like when you got a Retina iPhone for the first time, and you're holding your non-Retina iPhone, and you're like, this is instantly a piece of crap. I'm not ever going to touch this disgusting thing again.

04:14:00 Speaker_05
I think when someone invents a new interaction paradigm, it's one of these things where you have to adopt it, because otherwise people are just going to flee.

04:14:08 Speaker_05
And of course your business depends on you adopting it, because you can't let someone use this new discovered mechanic that's perfectly timed for this moment in history with these set of cultural acceptances and this new set of technologies to go rebuild the network somewhere else.

04:14:25 Speaker_05
And so I think the thing that they sort of discover is,

04:14:28 Speaker_05
Either through buying or through copying a mechanic, we need to protect our network by bringing these interactions into our family of apps, either by, as Ben Thompson would put it, the audacity of copying well or, of course, by buying them.

04:14:45 Speaker_00
Yes.

04:14:45 Speaker_05
Copying well or buying well? Yes. So listeners, of course, we don't actually ever know what anybody's intent is or what they're thinking when they decide to buy a company or something like that.

04:14:56 Speaker_05
This is just sort of David and I guessing at strategy from the outside. We do have, thanks to a court case, an actual email from Mark Zuckerberg on February 28th.

04:15:07 Speaker_01
Oh, yeah. This is so good.

04:15:08 Speaker_05
2012 to their then CFO talking about at the time they're sort of discussing the Instagram acquisition, but laying out the idea behind an acquisition strategy.

04:15:21 Speaker_05
The basic plan would be to buy these companies and leave their products running while over time incorporating the social dynamics they've invented into our core products.

04:15:30 Speaker_05
One thing that may make neutralizing a potential competitor more reasonable here is that there are network effects around social products and a finite number of different social mechanics to invent.

04:15:41 Speaker_05
Once someone wins at a specific mechanic, it's difficult for others to supplant them without doing something different.

04:15:47 Speaker_05
It's possible someone beats Instagram by building something that is better to the point where they get network migration, but this is harder as long as Instagram keeps running as a product. Pause. Which is pretty interesting.

04:15:59 Speaker_05
That is the argument of why to keep Instagram separate and running as its own product, is because Instagram's already discovered this fascinating new mechanic around publishing one image at a time with these beautiful filters.

04:16:12 Speaker_05
If anybody else tries to come after them, they're already ahead. So actually the best thing to do is own Instagram and let it keep doing its thing. Anyway. Resuming.

04:16:21 Speaker_05
Integrating their products with ours to improve the service is also a factor, but in reality, we already know these companies' social mechanics and we will integrate them over the next 12 to 24 months anyway.

04:16:32 Speaker_05
The integration plan involves building their mechanics into our products rather than directly integrating their products, if that makes sense.

04:16:39 Speaker_05
By a combination of these two things—neutralizing a potential competitor, integrating their products with ours to improve the service—one way of looking at this is that what we're really buying is time.

04:16:50 Speaker_05
Even if some new competitor springs up, buying Instagram, Path, Foursquare, etc. now will give us a year or more to integrate their dynamics before anyone can get close to their scale again.

04:17:02 Speaker_05
Within that time, if we incorporate the social mechanics they are using, those new products won't get much traction because we will already have their mechanics deployed at scale. It is goddamn brilliant, David. Here's my commentary based on all this.

04:17:18 Speaker_05
It is so smart to basically say, well, if we buy them, we basically get two strategies that we get to execute at the same time. One, we just leave them alone and let it keep succeeding. It's actually not a current potential threat.

04:17:34 Speaker_05
We don't know if it will turn into a potential threat. Hell, Instagram wasn't making any money yet. WhatsApp didn't have a feed. It was just a way people connected. It's not like just because they had a network, they were going to turn it into a feed.

04:17:47 Speaker_05
So there's this idea that it's not a competitor now. By buying it, we basically get this option on if it becomes a competitor, if we completely leave them alone and let them decide what to do.

04:17:58 Speaker_05
But then there's also, look, we will integrate those mechanics into our core product, Facebook, the blue app that already has well-built out network effects.

04:18:06 Speaker_05
And by owning this thing that could become a competitor, there isn't white space in the middle. Anyone just like us is also going to take time And they're not going to do it as good as the original and they don't have our network.

04:18:19 Speaker_05
Therefore, whether the winner turns out to be the original product or us incorporating the mechanic into the blue app, we've won either way. And probably what's going to happen is both. Yes. So brilliant. And that is what happened with Instagram.

04:18:33 Speaker_05
WhatsApp is actually kind of different. It never really turned into a competitor. It just serves a completely different use case and is also owned by Meta. And then with Snap, they tried to buy Snap over and over again, and it didn't work.

04:18:47 Speaker_05
And so they basically figured out how to bring those mechanics into Facebook's core products with Stories in a way that Snap kept doing their thing, but there was really no reason to leave being an Instagram user because you already had that functionality with your own network anyway.

04:19:05 Speaker_01
And here's what's really interesting about the stories quote unquote story in Instagram and then ultimately coming to the blue app.

04:19:13 Speaker_01
Stories as initially launched by snap in the Snapchat app was a separate tab with a list of your friends who had published stories. It was literally like a table, like a list.

04:19:28 Speaker_05
Oh, I don't remember that, really.

04:19:29 Speaker_01
Yeah, yeah, yeah. No, it wasn't, you know, the paradigm we all think of today as like the heads in the row at the top of your app. Instagram did that.

04:19:37 Speaker_01
So when Instagram copied quote-unquote stories and launched stories, they launched it as the algorithmically ordered row of heads at the top of your app.

04:19:50 Speaker_01
And here's where the internal advantages that Facebook, the family of apps had, they already had this world-class ranking algorithmic expertise within the company that was being applied to newsfeed, that was being applied to ads, that was already starting to incorporate early ML and early AI.

04:20:12 Speaker_01
Start at the beginning of FAIR, Facebook AI Research Lab had already happened here. This was coming into the product. Well, now when you're launching a new feature like this, in this case, stories, you can say, oh, great.

04:20:22 Speaker_01
Is this going to be made better by our algorithmic and AI expertise? Of course it is. Let's do that.

04:20:28 Speaker_05
Right. That's interesting. Basically, even if you copy the feature wholesale, it's actually even better, not just because you have the network, but because your algorithm tech is very advanced.

04:20:38 Speaker_05
You can make sure it's the most possible engaging version of that particular interaction design.

04:20:43 Speaker_01
Yes, so when Instagram, in those early days when it was launching stories, they were optimizing the ranking of heads at the top of the app by how likely you are to tap on that person's head.

04:20:55 Speaker_05
Of course. Of course they're doing that. I do want to jump forward to TikTok.

04:21:00 Speaker_01
Yes, let's do it. Because it's a continuation of this story in a very different way.

04:21:04 Speaker_05
In the mid-20-teens here, there's a bunch of other stuff that we got to get to, but TikTok is particularly interesting because it kind of blindsided Facebook. Yes.

04:21:14 Speaker_05
If you believe that the asset that matters is the authenticated, real-name network of people you actually know or people you care about following, you kind of think, oh, I always have a lead as long as I can incorporate someone's mechanic.

04:21:31 Speaker_05
What if engagement is possible on an app that has nothing to do with your social network?

04:21:37 Speaker_05
That's terrifying, because this big asset that you've built, this durable competitive advantage of we already have all the people, so why would you want to go anywhere where your friends aren't?

04:21:47 Speaker_05
The magic of TikTok was AI suddenly in the late 20 teens became sufficiently advanced that it could show you the optimal thing created by anyone in the world. Most of the time you don't actually know that person.

04:22:01 Speaker_05
So suddenly the only competitive advantage that Facebook, the company has is people have a habit of tapping on their apps when they're bored, but that's a pretty thin competitive advantage. That's really easy to break.

04:22:14 Speaker_01
Habits are changeable. especially on a mobile phone where another app is just an icon away.

04:22:20 Speaker_05
Totally.

04:22:21 Speaker_05
And so if someone is a great competitor like TikTok, who is incredibly well-funded, very good at strategically buying ads, has created their own growth function, that is, they're just a very different animal and they're a very well-executing machine.

04:22:36 Speaker_05
And, you know, they obey a completely different set of laws, rules, regulation, norms, being a Chinese company. that created a competitor for Facebook that is more significant than anything they've ever faced.

04:22:49 Speaker_05
This wasn't like, oh, there might be an existential threat from this in the future.

04:22:52 Speaker_05
This was like, oh crap, as soon as people form a habit around, oh, I just opened this black app with the white little music note on it, we have no more competitive advantages to throw at that problem.

04:23:06 Speaker_05
So we must as fast as possible make something like Reels just to stem the bleeding, and then we can figure out what to do from there and hopefully get to a market stalemate with them.

04:23:16 Speaker_01
Yeah, which is basically what has happened. But interestingly, TikTok and ByteDance, its parent company, as you point out, Ben, was so completely orthogonal to everything that Facebook had learned over the past 15 years.

04:23:35 Speaker_01
Because, yes, number one, most importantly, it's not social media, it's media. There's no social. And your graph doesn't matter anymore.

04:23:44 Speaker_05
That's a great point. Right, it's digital media, it's user-created media, it's mobile media, but it's really not social media.

04:23:51 Speaker_01
Yep, doesn't matter who your friends are on TikTok.

04:23:54 Speaker_05
What matters is in the first 10 videos you look at, is their AI pretty good at picking up the stuff that you care about and the stuff that you don't? It's not, can you find a whole bunch of other people you know?

04:24:04 Speaker_01
Yep. And I really want to keep hitting on this insight again that Mark correctly identified of social shifting from the town square to the living room. This is a second order effect of that shift. that the company didn't see coming.

04:24:19 Speaker_01
Because once you shift social from the town square to the living room, it now becomes possible to divorce media from social. You're already getting your social now in private, in your digital living room.

04:24:32 Speaker_01
The town square can become something that is completely not social.

04:24:36 Speaker_05
Right. It's turned into this pretty interesting dual-pronged approach that they now have, which is you open Instagram and you have reels. So the job to be done by TikTok is now done by a thing that you already have habit around.

04:24:48 Speaker_05
It's bundled into the place where you actually consume your social media. Great. That's step one. Step two is this is where it's nice to have WhatsApp. This is where it's nice to have Messenger.

04:25:00 Speaker_05
For these living room style conversations with just a few of your friends,

04:25:04 Speaker_05
The new user behavior is, I see a thing that got millions of views, I can think of one or five people to share that with, and then I have a private conversation about this public object in private.

04:25:16 Speaker_01
I will share that on WhatsApp, or I will share that on iMessage, or I will share that on, you know, whatever my actual friend living room network of choice is.

04:25:25 Speaker_05
And from where social networking started back in 2004 and ending up now in this reasonably complex interaction paradigm of I get AI served videos from people I don't know tailored to me.

04:25:40 Speaker_05
And then I privately share those in multiple groups with those who I love and care about.

04:25:45 Speaker_01
That is a huge evolution.

04:25:47 Speaker_05
It's crazy that we use the term social network or social media for these two things that are like light years apart.

04:25:54 Speaker_01
Totally. The social and the media is now completely divorced. And that is because of the shift from town square to living room.

04:26:02 Speaker_05
Yeah, we really need to evolve our language around all this stuff.

04:26:05 Speaker_01
Okay, so that, I think, is dimension one, that TikTok is completely orthogonal to Facebook. Dimension two is actually organizationally. So TikTok, as we chronicled on our episode about it a couple years ago, came out of ByteDance.

04:26:22 Speaker_01
Well, it was an acquisition of Musical.ly by ByteDance and then ByteDance turned it into TikTok. ByteDance had Toutiao before having TikTok. ByteDance is an AI company. ByteDance is not a product company. And the core product that ByteDance makes

04:26:38 Speaker_01
is its AI, along with all sorts of other stuff. TikTok is like the product vector, one of many and the biggest, by which they deploy their actual product, which is AI.

04:26:52 Speaker_01
This is very, very different from Facebook, which has always been a product company.

04:26:56 Speaker_01
And so like organizationally, the way ByteDance is set up is there are these centers of excellence within the company where the algorithms, the AI, that is controlled by a centralized team within the company.

04:27:09 Speaker_01
At least that's my perception of how they're different organizationally from how Facebook used to be. Facebook and Facebook leadership was obviously watching this very, very closely.

04:27:22 Speaker_01
And if you look at how Meta is organized now, it looks a hell of a lot more like that. So Meta today is organized, there are centers of excellence across the company, same way that I was just talking about ByteDance.

04:27:36 Speaker_01
There's FAIR, that's the Fundamental AI Research Team. There's infrastructure shared across the whole company, deployed to all the products and apps.

04:27:44 Speaker_01
There's revenue and monetization shared across the whole company deployed to all the products and apps. There's growth shared across the whole company deployed across the various products and apps.

04:27:54 Speaker_01
There's integrity and safety, which is a like big, big, big advantage that Facebook has. They've reorganized how the whole company looks. There's still all the individual products in the family of apps.

04:28:08 Speaker_01
Those all have their own heads, and they all roll up to Chris Cox, who is head of product for the whole company, and AI, too, actually, reports to him.

04:28:16 Speaker_01
But all the infrastructure, all the revenue, all the growth, all the integrity and safety are decoupled from those actual products now and live in these centers of excellence across the company.

04:28:27 Speaker_05
Fascinating.

04:28:27 Speaker_01
And I think there's a lot of ByteDance influence in that.

04:28:30 Speaker_05
Makes sense. It's the most formidable competitor they've ever faced. And they really have no way to neutralize it.

04:28:36 Speaker_02
Yep.

04:28:36 Speaker_05
All right. So all this talk of TikTok, them being an AI-first company, clearly MetaToday is an AI-obsessed company. How did that start?

04:28:48 Speaker_01
Well, that is a great question, Ben. But first, we've got a brand new partner to announce that we are very excited to share with you all, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today.

04:29:02 Speaker_01
It's purpose-built for small to mid-sized businesses and provides enterprise-grade security with the technology, services, and expertise needed to protect them.

04:29:11 Speaker_05
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04:29:21 Speaker_01
So how does it work? Well, you probably already know this, but it has become pretty trivial for an entry-level hacker to buy access and data about compromised businesses.

04:29:31 Speaker_01
This means cybercriminal activity towards small and medium businesses is at an all-time high.

04:29:36 Speaker_05
So, listeners, Huntress created a full managed security platform for their customers to guard from these threats.

04:29:43 Speaker_05
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04:29:54 Speaker_05
Essentially, it is the full suite of great software that you need to secure your business, plus 24-7 monitoring by an elite team of human threat hunters in a security operations center to stop attacks that software-only solutions can sometimes miss.

04:30:10 Speaker_05
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04:30:24 Speaker_01
In fact, there are over 125,000 businesses now using Huntress, and they rave about it from the hilltops. They were voted the industry leader in endpoint detection and response eight

04:30:36 Speaker_01
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04:30:46 Speaker_05
So if you want cutting-edge cybersecurity solutions backed by 24-7 expert humans who monitor, investigate, and respond to threats with unmatched precision, head on over to huntress.com slash acquired, or click the link in the show notes, and just make sure to tell them that Ben and David sent you.

04:31:04 Speaker_05
Okay, so David, Meta Today, clearly an AI-obsessed company. How did that start?

04:31:11 Speaker_01
Yeah, so I mentioned this organization FAIR a couple times. I think it's fair to go back and tell the actual origin of that, because it's really interesting. Ayo, it's Fundamental AI Research?

04:31:23 Speaker_01
Originally it was Facebook AI Research, and now it's Fundamental AI Research, given the company is now. Meta.

04:31:31 Speaker_01
So back in like 2013 timeline, when the company was finally fixing mobile, coming out of the hellscape of 2012 of going through that transition during the IPO and the shift to mobile, Mark and the company's VP of engineering, Mike Shrepfer, or Shrep as he's known, were trying to figure out like, okay, we've finally got a little moment to breathe here.

04:31:54 Speaker_01
The tiger isn't chasing us at the moment. Can we take a step back and try and figure out, like, when is the tiger going to jump out next and try and get us?

04:32:03 Speaker_05
Yeah, or all these crazy things are happening because we've been having to play defense as user attention shifts with this new paradigm of mobile. How do we not let that happen next time?

04:32:14 Speaker_05
Like, how do we play a more active role in whatever the future of technology is so we're not getting whiplashed around and we can kind of control our own destiny a little more?

04:32:23 Speaker_01
Yeah. Basically, not actually owning the platform sucks. We've realized this now. How do we make sure this never happens again? Yes. And that spawns some of the early work on AR and VR. Come back to that in a sec. And even this early in 2013 on AI.

04:32:41 Speaker_01
And AlexNet had just happened right at this time. And for a whole history of AlexNet, go check out our NVIDIA series where we talk all about that and the importance to AI and ML. And Facebook actually had a small ML team already at this point.

04:32:58 Speaker_05
They were mostly doing computer vision.

04:33:01 Speaker_05
The early machine learning folks at Facebook were mostly looking at, can we do automatic image tagging to reduce the, you remember how cumbersome it used to be when you'd upload a big batch of photos, then you had to go tag every single one.

04:33:13 Speaker_05
And then somehow magically, I don't remember the exact year, it was like all pre-suggested. And you were like, whoa, This is pretty cool. That was what the original ML folks at Facebook were doing.

04:33:24 Speaker_01
Yep. And AlexNet and those big AI ML breakthroughs in that era were all around image recognition. And so Facebook was kind of already attuned to this and like, oh, OK, there's like some pretty big technological stuff happening.

04:33:38 Speaker_01
Maybe this is going to be like. the next platform vector of the future, we should get serious about this AI stuff.

04:33:45 Speaker_02
Yep.

04:33:46 Speaker_01
So summer 2013, Mark and Shrepp go out to recruit Jan LeCun and convince him to come start an AI research lab at Facebook. And Jan was then and is now one of the top AI luminaries in the field, top academics out there.

04:34:02 Speaker_01
And Jan says, like, well, I'm flattered that you would want me to come work here. That's interesting. But like, I live in New York. I teach at NYU. I don't want to leave. I don't want to quit teaching at NYU.

04:34:13 Speaker_01
And I'm pretty darn committed to open source and publishing all the work that we do. And Mark and Shrepp are like, one, sounds good. You can stay in New York. Two, okay, you can stay at NYU too. Three, yeah, we love open source.

04:34:28 Speaker_01
We were built on the LAMP stack. Great, publish everything.

04:34:31 Speaker_05
We haven't talked about this at all at this very long episode so far, but Facebook had been doing a ton of open source publishing in basically everything they were doing. They were open sourcing things like Cassandra in their back end.

04:34:44 Speaker_05
They were open sourcing front end frameworks, both on mobile and on web.

04:34:49 Speaker_01
React, React Native, yep.

04:34:51 Speaker_05
Exactly. They've been open sourcing a lot of the language modifications they were making. I don't think Open Compute had started yet, but that was right around this time where they were starting to open source their data center designs.

04:35:03 Speaker_05
Data center architecture. Yep. Facebook definitely has a very particular open source strategy that we're going to talk about in analysis. But needless to say, they have been advocates of open source since the very beginning.

04:35:17 Speaker_01
Yep. So Jana's like, wow, well, okay, when you put it that way, sure. And what's really important about how they do this is this is not Microsoft research. This is not blue sky. Yeah, let's go focus on anything.

04:35:31 Speaker_01
This is a highly focused AI research group. We are going to research AI. And I think that has kind of made all the difference is super clear exactly how that is going to translate into helping Facebook and Facebook's products.

04:35:47 Speaker_05
This was pretty, I don't want to say contrarian, that would have been wrong, but it's one of a dozen specializations of computing that you could have sort of glimpsed into for the future. Yep.

04:35:58 Speaker_01
And it was one of those earned secrets that Facebook had and Google had at this time, you know, 2013, 14, 15 of like, oh, we can very, very profitably apply this work to our current products. in social media feed recommenders?

04:36:16 Speaker_05
Yes. So it's very funny that the rest of the world is having their AI moment now, because Meta had theirs in 2013, 14.

04:36:24 Speaker_05
Before language models, like long before LLMs, Facebook realized they could profitably spend billions of dollars on AI systems to recommend, A, what post you should see next in your feed, and B, what ad out of the entire inventory of ads we could show you, what is the best one for you at this moment in time?

04:36:44 Speaker_05
for that advertiser's spend. And today, there's a lot of companies who are spending on AI in hopes that the use case materializes in the future. Facebook's is like wildly proven and has been for a decade and is incredibly profitable for them.

04:36:59 Speaker_05
So that's just like something to keep in mind whenever you're looking at Facebook talking about AI today.

04:37:04 Speaker_05
Yeah, there's a lot of future looking stuff they're talking about, but it is already super at scale and a great business and has been for a long time. And they've just been, you know, it's like they've been quiet about it, but no one cared until now.

04:37:17 Speaker_01
It's one of the fundamental advantages that Facebook has today relative to all other AI companies is that they are guaranteed profitable ROI on all of their AI spend, all of their research, all their infrastructure, all their GPUs.

04:37:35 Speaker_01
They have highly, highly profitable ways to put it to work today.

04:37:39 Speaker_05
Right. It is a nice to have for meta if the next form factor of computing is an AI assistant like MetaAI. But it's not essential. That's, you know, one of many things that they could do profitably with AI technology. Yep.

04:37:54 Speaker_05
The other thing you kind of got to remember is 2012, Facebook, their engineering brand still wasn't top notch. Like everyone knew that they were a up and coming great startup that went public.

04:38:09 Speaker_05
But they weren't necessarily reputable in the computer science community as these people are Microsoft-level researchers to advance the state of the art.

04:38:19 Speaker_01
Or Google-level in the way that Google always was from the beginning.

04:38:23 Speaker_05
Yes. And I think Mark and Schrepp had to make this point to Jan, and then when Jan joined, it kind of made the point to the rest of the industry. that this is not something that's going to like wax and wane with our financial results.

04:38:35 Speaker_05
We're in for a decade on this particular area of research. It's kind of amazing. It really only took like two years to bear fruit for them before they had profitably deployed AI systems in production.

04:38:46 Speaker_05
Because most of the time, these research projects take much, much longer.

04:38:49 Speaker_01
It's funny, actually, thinking through this now, I think there are three dimensions to the payoffs from this investment in AI and FAIR back in 2013.

04:39:00 Speaker_01
One is the near term and immediately an ongoing profitable paybacks to incorporating AI in existing Facebook products and social media feed recommenders. Highly, highly, highly profitable.

04:39:12 Speaker_05
It just makes every ad that's displayed more likely to make money and it makes every feed post that is displayed more likely to get engagement.

04:39:20 Speaker_01
Yes, 100%. Okay, then there's two, which is this like, hey, AI might be the next computing platform. There's a lot of interesting stuff going on.

04:39:30 Speaker_01
This allows us to have a piece on the chessboard and be a player in the next platform transition, should it be to AI.

04:39:37 Speaker_05
And this is just like what Meta did with threads with WhatsApp. You know, with threads, they've said, we're not monetizing it right now. We're going to see if it becomes a big, close to billion user platform. And if it does, then great.

04:39:48 Speaker_05
We'll figure out the right monetization strategy, just like we did with WhatsApp. It may or may not be ad specifically, but We build things that get engagement, and then we later figure out how to make money on them.

04:39:58 Speaker_01
Yep. And then three, they had no way of seeing this at the time. But FAIR and AI actually becomes the way that they can catch up and re-architect to compete with TikTok via Reels. Yeah. You know, no AI, no Reels. That's such a good point.

04:40:14 Speaker_05
If not for FAIR, TikTok could have disrupted Facebook. Totally. I mean, Reels would not have come out as fast as it did. Right. Facebook would not have had that near-term weapon to go

04:40:27 Speaker_05
Huh, we need something that kind of stops our users from leaking out and jumping over to this other app, you know, for a use case that we basically can't match.

04:40:40 Speaker_05
I mean, it is magic how the Reels and TikTok algorithms work, and now YouTube with shorts, that very quickly they do figure out how to put things in front of you that are incredibly engaging just for you. I mean, they call it the For You page.

04:40:53 Speaker_01
And that have no social connection to you.

04:40:55 Speaker_05
Yes, exactly. You're right. The decision looks more prescient than ever, given that.

04:41:00 Speaker_01
Totally. OK, so that's FAIR and AI. Let's jump forward now to 2016, 2017, 2018. And I think for our purposes here today,

04:41:11 Speaker_01
It's interesting to view the 2016 election, Cambridge Analytica, all the fallout that comes out of that, which much, much, much ink has been spilled through this lens of the consumer social transition from town square to living room.

04:41:27 Speaker_01
Because I think it actually explains a lot.

04:41:30 Speaker_05
Ooh. All right. I'm curious to hear what you're thinking here. But to catch us up, here's kind of what happened.

04:41:36 Speaker_05
Until 2015-ish, Facebook could kind of do no wrong, other than all the data privacy issues that they had sort of worked through with the FTC in 2011.

04:41:46 Speaker_05
But they are now increasingly finding themselves in very controversial situations that they are ill-prepared for, as sort of all of humanity is now joining the network. First of all, content moderation is becoming an issue.

04:42:02 Speaker_01
Oh, yeah, for sure.

04:42:03 Speaker_05
Facebook is trying to figure out their role in this. Are they a neutral platform? Do they need to kind of police what is said on their platform?

04:42:11 Speaker_05
On top of that, actually defining what is allowable speech on their platform is becoming trickier than ever. And it is hard to create one set of rules and abide by them globally.

04:42:22 Speaker_05
And Facebook was just caught flat-footed in a big way by the fire hose of questionable content that people would post.

04:42:29 Speaker_05
Ultimately, they end up throwing huge amounts of people at this, hiring tens of thousands of contractors to deal with content moderation, building out really sophisticated kind of policies and programs and escalation and review processes.

04:42:43 Speaker_05
They have an ever escalating set of posts, videos and live streams shared around the platform. That's right, because it's not just text anymore.

04:42:50 Speaker_01
It's obviously photos, but like videos now, too.

04:42:53 Speaker_05
reviewing real-time video, absolutely. And as you would imagine, they are not perfect at this, so they are creating headlines left and right about objectionable things being shared on the network.

04:43:03 Speaker_05
In building technology that enables everyone around the world to communicate with each other and organize, they also have the flip side of Anyone can share anything, and if it's engaging enough, there's a ton of eyeballs that see it.

04:43:17 Speaker_05
So misinformation is starting to become a big deal too. Ultimately, this comes to a head in the 2016 to 2018 period, after they have whittled away a lot of the public's goodwill. And we're just going to zoom in on this moment for the company.

04:43:31 Speaker_05
The 2016 election happens. And a lot of people are looking around for an answer to, wait a minute. Yeah, this isn't the outcome that I expected. What happened? Exactly. There's a lot of people who feel this couldn't have happened on its own legitimately.

04:43:47 Speaker_05
You know, somebody did something. And one thing that absolutely did happen is there was a firm called Cambridge Analytica that sold their services to the Trump campaign and

04:44:01 Speaker_05
had a methodology to create psychographic profiles that they believed would work that were derived from a Facebook quiz application.

04:44:09 Speaker_05
This ends up being an absolute honeypot of a story for anyone who is fired up about a big change to the country that they are not excited about.

04:44:17 Speaker_02
Yep.

04:44:18 Speaker_05
And so there were basically four stories concurrently happening of how Facebook was involved in the election. One, there was Russian interference.

04:44:31 Speaker_05
Two, people are spinning up fake news sites, not necessarily for politics, but actually for the ad dollars generated on them. Three, Cambridge Analytica. Four, the Trump campaign may have been really good at using Facebook's digital marketing tools.

04:44:50 Speaker_05
Yes.

04:44:50 Speaker_01
I think that is undeniably true.

04:44:52 Speaker_05
Yeah. So there's been years of investigation into each. It seems like that last one is actually the biggest lever. Yes, Russians did spin up fake pages and accounts with pretty modest spend.

04:45:02 Speaker_05
And people absolutely spun up fake news sites and generated fake viral stories for politics and also profit.

04:45:09 Speaker_05
Cambridge Analytica, yes, it was a thing, but they ended up with actually pretty crappy derivative data from a quiz, not the treasure trove of raw Facebook data on you and your friends that everyone feared.

04:45:24 Speaker_05
But, David, to your point, really what happened is the Trump 2016 campaign just actually took meta-platforms seriously and got really, really good at using the tools.

04:45:32 Speaker_01
Yeah, quite ironic in that Obama totally doubled down on Facebook as a strategy and used it to great effect to win the 2008 and 2012 elections. Yes.

04:45:42 Speaker_05
So as you can imagine, I'm preparing for this episode, and I'm like, OK, I just heard Mark Zuckerberg say on another podcast, by the way, great interview with Alex Heath at The Verge after MetaConnect about this, he dropped this line, people thought that all this data had been taken and it had been used in this campaign.

04:46:01 Speaker_05
And it turned out the data wasn't. And the data wasn't even accessible to the developer. So David, I'm listening to that. And I stop because I'm thinking, well, that's not what anybody thinks.

04:46:11 Speaker_05
Because there was a ton of reporting on the fact that they did. So what actually happened here? So here are the chain of events.

04:46:18 Speaker_05
Back in the 2010s, Facebook built the platform that we talked about that was incredibly permissive in the early days when you authed your profile against an app. You gave it all of your profile data.

04:46:27 Speaker_05
And in those earliest days, it could actually see your whole friend list too. Facebook eventually made their API much more closed off, but it took a couple years to do that.

04:46:35 Speaker_05
Now, there was a Terms of Service that required app developers to delete any data they had after a period of time and only use it for very specific purposes.

04:46:43 Speaker_05
But of course, Facebook couldn't actually guarantee that people were complying with the Terms of Service. It was just, you know, you were breaching contract. So at some point, a developer made an app that was a quiz.

04:46:53 Speaker_05
Users could opt into taking that quiz.

04:46:56 Speaker_05
The quiz asked you questions, and by combining the answers to those questions with the profile data you authenticated from Facebook, that app developer then tried to label you with a pretty basic psychographic profile.

04:47:08 Speaker_05
And then ultimately, that derivative data, the labels of personality characteristics that were derived from Facebook data in your quiz answers, is what Cambridge Analytica had, as best I could tell.

04:47:20 Speaker_05
So I read a good amount of the report that the UK government put out about this. The conclusion was that the quiz was taken by 320,000 people.

04:47:28 Speaker_05
Since those people had access to friends, the total surface area was the public profile data of 87 million Facebook users. They also found that Facebook had requested that Cambridge Analytica delete all the data.

04:47:39 Speaker_05
both the actual Facebook data and anything derived from the Facebook data back in 2015 before the election even started. So it was, yes, true, an application got access to Facebook data on a lot of users.

04:47:51 Speaker_05
It is also true that it violated terms of service to use that data for other purposes, and they did not comply with a delete request, or they may not have complied. It's kind of difficult to reconstruct.

04:48:02 Speaker_05
On top of all this, it supposes that Cambridge Analytica's method of taking these quiz answers and translating them into something that could impact voting worked. Like, it was effective. And that's pretty thin. Right.

04:48:15 Speaker_05
That's kind of the most thin thing of all of it. Right. So here's what the UK report concluded. And this is in government speak, so it's all very hedged.

04:48:22 Speaker_05
While the models showed some success in correctly predicting attributes on individuals whose data was used in the training of the model, the real-world accuracy of these predictions

04:48:31 Speaker_05
when used on individuals whose data had not been used in the generating of the models, was likely much lower.

04:48:38 Speaker_05
Through our analysis of internal company communications, the investigation identified there was a degree of skepticism within Cambridge Analytica as to the accuracy or the reliability of the processing being undertaken.

04:48:51 Speaker_05
There appeared to be concern internally about the external messaging when set against the reality of their processing. So at the end of the day, the Cambridge Analytica thing in particular was kind of a nothing burger.

04:49:03 Speaker_05
But that is not the story that gets told. The UK regulator was given full access to this and ended up being quite skeptical that the methodology even worked in the first place.

04:49:13 Speaker_05
So they've got this kind of crappy derivative data not complying with terms of service requests to delete it. And the method may not actually work. Now, this doesn't exonerate Facebook in any way from what could have happened.

04:49:27 Speaker_05
They had an incredible treasure trove of data that apps could slurp up in the early 2010s. But the actual narrative of Facebook data that Cambridge Analytica had impacted election results is, like, wildly oversold.

04:49:41 Speaker_01
Yep. All that aside, as we were wading through all of this and trying to make sense of it and think about how we're going to talk about this on Acquired,

04:49:48 Speaker_01
There is such a enormous, enormous disconnect between reading what actually happened and then how people felt and what they'll like. lived reality of the brand impact on Facebook was, which that was huge.

04:50:06 Speaker_05
Yeah. Nothing could have been huger. To me, the story here is there sure was a lot of ill will and discontent with the Facebook brand that people were willing to dive in headfirst on.

04:50:20 Speaker_05
It's almost like Facebook isn't guilty of whatever the heck people think happened with Cambridge Analytica all these years later.

04:50:27 Speaker_01
But something is very, very wrong that like hundreds of millions of people believe that.

04:50:32 Speaker_05
Yeah. And it's not just wrong with the system. They definitely, in behaviors along the way, managed to earn people's distrust. I think that's the issue.

04:50:42 Speaker_01
So let's bring it back to my supposition here. which is that I actually think this paradigm shift that Mark identified from town square to living room was like way more right and way more powerful than even he realized.

04:50:58 Speaker_01
And this is one of the second order effects of it. The quiz that was the app on Facebook, that happened way back in the early platform days, totally solidly in the town square days.

04:51:09 Speaker_01
And then the election happened in 2016, when things are already starting to transition. WhatsApp exists. Snap exists. Snap has launched Stories. Instagram has now copied Snap and launched Stories in that very same year. Two more years go by.

04:51:25 Speaker_01
The Cambridge Analytica news doesn't actually hit until 2018. By 2018, we are solidly in the living room era. So all of the supposed real or imagined impacts of this Cambridge Analytica thing had their roots back in the town square era.

04:51:45 Speaker_01
We're now here in the living room era, and that is what people's expectations are of Facebook, of social media, of everything that they are sharing in their lives. And I think this is, to my mind at least, where the disconnect is.

04:52:00 Speaker_01
people's expectations shifted. But now all of a sudden, all this stuff from the past becomes really, really relevant to the present.

04:52:08 Speaker_01
And when you look back at the past through this lens of what the present is, you're like, well, this is really effed up. Like, how the hell did the company do this?

04:52:16 Speaker_05
Right. And, you know, the answer was they were trying desperately to grow. They were trying to will a platform into existence.

04:52:22 Speaker_05
Of course, the cultural norms were a little bit more permissive, but like the cultural norms were really never permissive to the point to say, sure, you should download and store a big JSON dump of my whole profile information and any pages that I like and

04:52:37 Speaker_05
anybody whose names I'm connected with like that always was probably a little bit of an overstep.

04:52:42 Speaker_05
But then once developers were able to do that, and then violate terms of service and store it forever, then it just kind of becomes this like ticking time bomb that's out there. Exactly.

04:52:51 Speaker_01
It's like this weird temporal and cultural like mismatch of it all landing in 2018 when the world is a very, very different place.

04:53:11 Speaker_05
we just deliver the ads, you never get to know anything about who the users are on our platform. We don't sell data. That is a true fact whenever they stand up there and say, we don't sell data. They don't. They sell the opportunity to target users.

04:53:25 Speaker_05
But in fact, if they did sell data, it would be a bad thing because someone could then build a competitor. The asset that they have is actually their data that they choose not to sell for business reasons.

04:53:36 Speaker_01
Yep, totally. Then there's this whole other layer too here of like, well, why did they do this in the first place? Why did developers have access to so much data? They were building platform.

04:53:46 Speaker_01
They were building an entirely different business with a different strategy. Now they are an advertising and media based business. We're almost talking about two totally different companies here, as I think we've told in the story.

04:53:58 Speaker_05
Yeah, I do think when I search my heart of hearts, though, when I was developing apps in the 2010 period and would let people use Facebook Connect or whatever the current branding of accessing Facebook accounts was at the time, I was always like, whoa, this is a lot of data that comes with someone clicking that button.

04:54:17 Speaker_01
Well, I think you made the point, right, of like, Facebook had to kind of sell the platform to developers. Totally did. They didn't have the underlying hardware and technology and operating system to offer, so there had to be a really big sweetener.

04:54:31 Speaker_05
Yep. I just can't believe it, though. After all these years and all this writing and all these headlines, if Cambridge Analytica were more competent,

04:54:41 Speaker_05
They probably could have had more impact, but as it stands, I just can't believe there's not a big story on the front page of major newspapers with big headlines saying, actually, Cambridge Analytica didn't really have that much in the first place.

04:54:55 Speaker_05
Their methodology appears to have not worked, and mea culpa. Sorry for getting y'all all riled up. If you don't want to like Facebook, sure, but go pick a different reason. OK, so what happened with all this?

04:55:06 Speaker_05
It is worth knowing, to finish the story earlier from the consent decree in 2011 that said Facebook is going to be carefully monitored for privacy concerns, as you can imagine, the Cambridge Analytica news coming out put a gigantic bullseye on Facebook.

04:55:21 Speaker_05
And the FTC said, aha, you guys signed a consent decree a mere seven years ago. What the hell? This is exactly what we're talking about. And Facebook just decides, you know what, what's the big dollar sign check that we can write here?

04:55:37 Speaker_05
Because it seems like we just want this to be done. We want this to be buried. We're a different company now. We kind of want to put that to bed. The whole settlement here was not specifically about Cambridge Analytica.

04:55:47 Speaker_05
There were a bunch of other things that are privacy-related. But the number is $5 billion. And, David, there is one thing that it comes with, and that is a 20-year window that they are monitoring Facebook.

04:56:03 Speaker_05
And that is exactly matching to the words that Mark gave us on stage, that Cambridge Analytica, the way they handled it was a 20-year mistake.

04:56:14 Speaker_01
I think by the 20 year mistake, he meant much more of like the damage to Facebook's brand. Yes. That came out of this. Yes. And specifically the FTC settlement.

04:56:24 Speaker_05
Yep. It is funny. I was thinking, this is a very Facebook appropriate comment. If we had subtitles for this episode, this one would be, it's complicated. I guess. So great.

04:56:36 Speaker_00
It really is.

04:56:37 Speaker_05
It really is. It really is. And what it comes down to is, I think there is an ethos at Facebook that at many steps along the way, there was an opportunity to grow, to win, to compete. And what mattered was winning.

04:56:56 Speaker_05
And then when the dust settles, you can kind of look around and say, OK, what was the impact of that? That is one way to run a company. The other way is to be really careful and ask permission.

04:57:06 Speaker_05
Facebook fell into the first camp and they probably wouldn't be here today, or certainly at least wouldn't be a global player with 4 billion users today if they hadn't fallen into the first camp.

04:57:16 Speaker_05
But by falling into that first camp, you have stuff that comes up where you're like, ah, crap, I wish we hadn't done that. And this is one of them. Right. The time bombs. Totally. OK, so what actually happens?

04:57:29 Speaker_05
Facebook becomes a lot less valuable after all of this comes out. The company announces in their July 2018 earnings call that they're going to be more focused on user privacy and that revenue may slow as they make this intense focus.

04:57:43 Speaker_05
They drop 19% in one day. They wiped out $119 billion in market value, which was the largest single day loss for any company in history at that time.

04:57:55 Speaker_01
At that time.

04:57:57 Speaker_05
Save at that time. Yeah.

04:57:59 Speaker_01
To be exceeded in the future.

04:58:01 Speaker_05
So, this whole privacy issue, the $5 billion settlement, all this stuff that just happens with meta, it has big ripples for the whole tech industry.

04:58:12 Speaker_05
There's a phrase that is known on the lips of every American somewhere in the neighborhood of Cambridge Analytica, election interference, fake news, I hate social media, Facebook did this, YouTube did that, blah, blah.

04:58:27 Speaker_05
And this is a persistent drumbeat that is underneath the whole national discourse.

04:58:33 Speaker_05
There is an opportunity to be the anti-Facebook here, if you want to be, to be the company that says, we are so unbelievably, incredibly about privacy, even more than we ever have been before. David, who does that?

04:58:46 Speaker_01
That is Tim Cook's Apple.

04:58:48 Speaker_05
Yes. So Apple, a company that I love and adore and was actually wearing an Apple t-shirt earlier today and had to take it off before recording because I felt like it was weird to be wearing my Apple t-shirt when recording the Facebook episode.

04:59:03 Speaker_05
Apple is a company that has always been incredibly privacy conscious.

04:59:06 Speaker_05
They both use that as something they believe deeply in their soul and design into their products and is amazing for all of us who use their products to get that privacy and have that trust.

04:59:18 Speaker_05
They also, to use Ben Thompson's parlance, use it as a strategy credit.

04:59:22 Speaker_05
There are areas in which it really behooves them because they don't need to do server-side stuff, they don't need to do advertising, because they make a lot of advertising indirectly from Google, and they don't need to do a lot of other things so they can tout, hey, we're unbelievably secure with your data, we take privacy incredibly seriously, no one takes it more seriously than us.

04:59:42 Speaker_05
They start really beating this drum, and by 2021, they decide, you know what? In iOS 14.6, we are going to launch a new policy called App Tracking Transparency. Yep, ATT.

04:59:55 Speaker_05
And what that means is a few years ago, we mandated that anybody who is tracking you across apps start using something called the IDFA. the identifier for advertisers.

05:00:12 Speaker_05
Now, in the past, Apple had let you just actually reach in and grab the device's unique identifier, which was pretty cool because it, as a developer, it was unrelated to advertising. Think of it almost like a serial number of this device.

05:00:24 Speaker_05
And you could use that for things like, hey, is this the same user across multiple applications? I've got my SDK and my code running in multiple developers' applications.

05:00:33 Speaker_05
So I can do interesting things like say, hey, this person both takes runs with Strava, and they also use Google Maps. And you can just kind of gather data across apps.

05:00:42 Speaker_05
Kind of similar to how Facebook was gathering across the web with like buttons everywhere or with Facebook Connect everywhere. So they could build this holistic profile of things you do off of Facebook.

05:00:52 Speaker_02
Yep.

05:00:53 Speaker_05
So Apple stops letting you use the device identifier. They force you into using this IDFA.

05:00:58 Speaker_05
And then with iOS 14.6 in 2021, they say, hey, if you're using IDFA, part of that API is that now whenever someone launches an app for the first time, it's going to ask them in this really aggressive language, Are you okay with getting tracked?

05:01:16 Speaker_05
Or do you want to ask this app not to track? What do you think people are going to click?

05:01:21 Speaker_01
Yeah. There's a default answer to that question.

05:01:25 Speaker_05
Yes. So what actually ends up happening? Most people click ask app not to track a whole lot of Facebook's targeting basically falls apart. They no longer have a picture of you outside of apps that they actually own.

05:01:41 Speaker_05
And a lot of the reason why advertisers can get so good at targeting is because of this holistic picture that is built for you across your phone.

05:01:49 Speaker_05
David, this is the example kind of manifest in practice of the thing you were talking about all the way at the launch of mobile of what's one of the reasons why Facebook's beautifully constructed business model doesn't work in the mobile walled garden ecosystem.

05:02:02 Speaker_05
It's because the operating system maker can make a change like this that just kind of affects core functionality that you were relying on. And now you don't have access to that data, so you can't run as effective of an advertising service.

05:02:13 Speaker_01
Totally. And a minute ago, when you asked the question of who is banging the privacy drum, and I said, it's Tim Cook's Apple. One of the reasons I said that is that actually, I didn't know this till doing the research,

05:02:27 Speaker_01
Mark and Steve Jobs had a great relationship, which makes this story all that much more interesting. Mark is very Steve-like. Very, very Steve-like. And they actually met for the first time in 2007, right as all of this is coming together.

05:02:44 Speaker_01
And the first meeting was that Steve actually reached out to Mark and wanted to meet him and build a relationship, which I don't think Steve did that with too many people. And then so on the back of that,

05:02:54 Speaker_01
the next year in 2008, when the iPhone SDK was launching and people were building apps, Mark and Facebook actually go to Apple and meet with Steve, and they pitch Steve on exactly what you were just talking about, Ben.

05:03:09 Speaker_01
Like, hey, how about you let us bring our platform that we've just built that has all these developers into iOS, into your platform?

05:03:19 Speaker_05
Really? Oh, to make Facebook platform part of the iOS developer? Whoa.

05:03:24 Speaker_01
Yes, which, you know, from Facebook's part is kind of like a Hail Mary. Like, yeah, they're probably not going to say yes here, but this is really big risk to us. We might as well try.

05:03:32 Speaker_05
But they did have enough of a relationship where Facebook and Twitter both were privileged citizens on an early version of the iPhone OS.

05:03:40 Speaker_05
Like in the settings screen, even before you installed any apps, there was like a Facebook and a Twitter settings for, I guess, like native integration between the operating system and those networks.

05:03:51 Speaker_01
And social networks. Yes, totally. So Steve, supposedly the legend goes, you know, kind of Mark and the Facebook team make this whole pitch. And at the end of it, Steve just looks at Mark and is almost a little sheepish. And it's just like, thank you.

05:04:07 Speaker_01
We're just not going to let somebody else build a platform on top of our platform." And then he sort of pushes back in his chair and it's like, clear, that's the end.

05:04:13 Speaker_01
And he's like, hey, so by the way, what do you guys think about Microsoft and working with them?

05:04:18 Speaker_01
And then they just like have a really nice conversation supposedly for the next couple hours and shoot the shit and talk about Microsoft and computing history. It's this very cordial relationship.

05:04:29 Speaker_01
The sense I get is that Steve really liked Mark and respected him.

05:04:31 Speaker_05
Well, they're both, like, pretty product visionaries, and they're both, like, very stubborn about their views of the future, and they both were very right about their views of the future. I can see it.

05:04:42 Speaker_01
Totally. And, clearly, that is not the feeling today between the two companies. And I think what happened since, okay, if it had just ended at Apple isn't going to let Facebook build a platform on top of their platform, that might have been it.

05:04:57 Speaker_05
But then when mobile app installs happened and Facebook, all of a sudden Facebook was making billions of dollars off of deciding what apps in the app store get downloaded. Apple had to have felt like, Hey, this is actually, this is our turf. Ours.

05:05:13 Speaker_05
Yeah.

05:05:13 Speaker_01
Yeah. And so then after everything that happened in 2016, 2018 Cambridge Analytica privacy,

05:05:20 Speaker_01
To your point, Ben, part of this is that Apple has always cared about privacy and it's always worked well for them and it's part of their main product strategy.

05:05:27 Speaker_01
Part of it too is like, oh great, here is kind of the ultimate competitive vector that we can have against somebody we really don't like who we feel has profited off of our platform unfairly.

05:05:39 Speaker_05
Yeah, you end up with Apple feeling like, Everything that happens on our platforms is ours, and these are our users to protect, and no one's going to do wrong by our users in any way.

05:05:50 Speaker_05
So you have Apple, who is protective as all hell, and then you have Facebook, where Mark Zuckerberg, more than anything in the world, wants as much freedom to operate as possible.

05:06:01 Speaker_05
And you have Apple trying to constrain, and you have Mark, who hates feeling held captive. Yep.

05:06:07 Speaker_01
So now here we are in 2021 and Apple's like, we're making our move. Yeah. Facebook's been reeling. We've been beating the privacy jump for the last couple of years since 2018 in Cambridge Analytica. Now it's time to make the move.

05:06:21 Speaker_05
So what ends up happening? Actually, the first couple of quarters, not much. Facebook's talking about our earnings calls. Hey, we think this is going to have impact. It's not huge.

05:06:30 Speaker_05
But then February 2022, which is technically the end of year 2021 earnings call for Meta. they drop the bomb.

05:06:39 Speaker_05
Interestingly, in question and answer, I listened to the whole earnings call and the CFO kind of casually says in a response to someone, oh, we think that the impact from ATT to our ad business will end up costing us on the order of $10 billion for 2022.

05:06:55 Speaker_05
What? That is eye-popping. Like, uh, okay. So what ends up happening is there's a 26% drawdown in a single day.

05:07:07 Speaker_01
Remember we said to put a pin in the single-day drawdown records?

05:07:11 Speaker_05
The market cap went from $900 billion to $700 billion. The actual number is they lost $232 billion in market cap, the new largest in history, surpassing their previous record.

05:07:23 Speaker_05
On this call, they announced their first ever quarter-over-quarter user decline. Keep in mind, what's happening is on top of meta basically saturating most of the internet-connected world by this point, TikTok is also really, really peaking.

05:07:39 Speaker_05
So it has some marginal users kind of using the app less because they're moving to TikTok.

05:07:44 Speaker_05
And Facebook is reacting to TikTok and trying to put reels in, so they're cannibalizing their own revenue by encouraging people to watch these short-form AI-recommended videos that actually don't yet monetize as well as the newsfeed.

05:07:57 Speaker_05
There's kind of three fronts that are destroying them here. There's ATT, there's TikTok competition, and they're making revenue cannibalizing changes in their own app. So the hit continues. It traded all the way down 46% by April 27th.

05:08:14 Speaker_05
And then ultimately it bottomed on Halloween that year. So this is what, eight months later with a 72% drawdown. Ooh, they lost 72% of their value between February and Halloween.

05:08:31 Speaker_01
Ooh, all in the year 2022. It's crazy. And that is like NVIDIA levels of drawdown back in the crazy NVIDIA journey that we talked about.

05:08:41 Speaker_05
It's totally insane. The interesting thing is, at this time, the real threat wasn't actually ATT. The biggest of those three threats was TikTok stealing users. Yes.

05:08:55 Speaker_05
The whole ATT thing is about how much money can we make off of an ad because it is so well targeted. That's an optimization that is useless if you do not have users to advertise to in the first place. Yes.

05:09:09 Speaker_05
So the actual real existential threat is TikTok. And Ben Thompson makes this really great point. And I know I've quoted Ben over and over this episode, but I think he's just been so astute on Facebook at many points throughout history.

05:09:22 Speaker_05
This decision to make these product changes, to respond to the TikTok threat in the face of ATT, to do these at the same time, is a founder-led decision.

05:09:31 Speaker_05
If you had a professional CEO, the correct thing to do to preserve your job and shareholder value is to wait 6-12 months before you start reacting to TikTok to let the whole ATT thing blow over. Mark's like, I can't get fired.

05:09:46 Speaker_05
I think the right thing to do is react to TikTok now because Every day, this problem compounds and gets absolutely worse.

05:09:54 Speaker_05
I don't care that there's this horrible narrative going on right now with ATT that is going to cause us apparently to lose $10 billion of revenue we otherwise would have gotten this year.

05:10:02 Speaker_05
We must cannibalize revenue in addition to that to make these product changes. What it ends up with is a 72% drawdown. And what it also ends up with is the chance for it to 5x from there, which is what has happened.

05:10:16 Speaker_05
The company saved itself by acting correctly in this And they had to go through this wild, tumultuous two-year journey in the process.

05:10:26 Speaker_01
It's just another episode of Mark making these sets of decisions because he's Mark, because he controls the company, and because he has the stomach to withstand it.

05:10:38 Speaker_05
Yep. And what ended up actually happening from ATT, it's been value destructive overall, because I don't think the amount of money that has shifted away from Facebook has been captured by Apple.

05:10:50 Speaker_05
I get the sense that the app install business for the app store, those search ads is going great, but it's not like equivalent to what the monetization over at Meta is on app install ads or was on app install ads.

05:11:03 Speaker_01
I think Apple was sort of hoping in its heart of hearts that this would shift a lot of those dollars into ads in the App Store. And the reality is, people just don't go to the App Store searching for apps anymore.

05:11:17 Speaker_05
Not to mention, this kneecapped meta on a lot of ads that are not app install ads.

05:11:22 Speaker_05
This kneecapped a lot of the, like, we have a friend that's in the retail business who was saying that their ads doubled in price in 2022 when this happened, and they were sort of scratching their head, and they have nothing to do with the app store.

05:11:35 Speaker_05
So All that happened is that entrepreneur said, I guess I'm going to keep advertising on Facebook as a platform. I hope it gets better. I'll pick some other platforms. But I can't advertise with Apple. There's nothing for me to do. It's a retail good.

05:11:48 Speaker_05
It's a physical item. So I guess I'll just pay more money to acquire customers now.

05:11:53 Speaker_05
It ends up actually hurting the business when go-to-market channels get less efficient, unless you can shift that spend to a place where your customer is also hanging out. In practice, meta's fine.

05:12:07 Speaker_05
When a shift like this happens, the most scale player with the most engineers and the most data, turns out they're still the winner.

05:12:15 Speaker_05
Meta launched this thing called Advantage Plus, and now if you're an advertiser, they use a whole bunch of other data signals, and you still have a customer acquisition budget, you're gonna spend it, you're probably gonna go spend it on meta the same way where you were before, and it's just not quite as efficient as it was.

05:12:29 Speaker_05
Oh, and by the way, anyone else that got hurt from the changes with ATT just doesn't have the ability to react and build around it the way that Meta had because they don't have the resources Meta does.

05:12:40 Speaker_01
Yep. So all of this finally brings us to the last piece of the story here that I'm sure listeners at this point you're probably saying like,

05:12:51 Speaker_01
What the heck, we're however many hours in, you guys haven't said the words reality labs, or Oculus, or AR, or VR once.

05:13:01 Speaker_05
Oh, is Facebook in that industry? Yeah.

05:13:04 Speaker_01
Yeah, you know, I guess they are.

05:13:06 Speaker_05
All right, so what happened here? Way back in, call it 2012, Facebook starts getting interested around the same time that they're starting FAIR for AI in what is the platform of the future. They start doing some hardware prototyping on their own.

05:13:22 Speaker_05
They're not really set up for that yet, but they do want to do the same sort of approach that they did with AI, which is focused research, not general research.

05:13:29 Speaker_05
Pick a particular thing where we have an opinion about something we think is going to be the future, and then invest deeply in it.

05:13:36 Speaker_02
Yep.

05:13:37 Speaker_05
So, a crazy thing happened. In February of 2014, they opened up the purse strings and paid $19 billion for WhatsApp. They had so much conviction that the future was AR and VR that 34 days later, they paid another $2 billion for Oculus.

05:13:56 Speaker_05
I had no recollection that these things were a month apart.

05:13:59 Speaker_01
No, I didn't. I knew they were both in 2014, but I didn't realize they were a month apart.

05:14:03 Speaker_05
It's wild. I think Mark got the demo of Oculus and was just like, oh, this has the most credible potential to be the future out of anything that I've ever tried. So yes.

05:14:15 Speaker_01
But I think actually the right way to think about this is through the same lens as FAIR. It's a research lab in the same way that FAIR is a research lab. And it was like, oh great, two billion dollars to kickstart the research lab. Fantastic. All right.

05:14:29 Speaker_05
So, you and I have both tried Orion. It is unbelievable, fantastic. very clearly a path to the next generation of computing device. I don't know if this is going to be the winning company. I don't know if that's going to be the exact winning device.

05:14:44 Speaker_05
But, like, never have I been so sure that a mainframe very far away from me to converting to a PC, which lives three feet from me, converting to a phone that lives an arm's length from me, the next logical step is glasses that live on my face.

05:15:01 Speaker_05
And that used to sound ridiculous. And then you and I tried Orion. And now I'm like, oh, yep. That is going to replace or augment my phone in whenever these things are commercially available and consumer grade.

05:15:13 Speaker_05
I'm glad we waited to do this episode because I think I would have had a pretty different take having only tried VR headsets and Vision Pro and big goggly things over the years.

05:15:23 Speaker_05
I think I would have been unconvinced, frankly because I didn't think it was possible to put something in that small of a form factor. So that is the current product experience that you and I have recently had.

05:15:36 Speaker_05
Now let's look at the business strategy and the financials of how we have gotten here and why. So there are two ways to look at Reality Labs.

05:15:44 Speaker_05
The first way is to answer the question, what would have to be true about the business to be great on its own and justify all this investment?

05:15:54 Speaker_01
And let's level set on how much investment has gone into it.

05:15:58 Speaker_05
Yes. So based on their spend already, since they started reporting Reality Labs as a separate segment in 2019, they've spent right around $60 billion. That is in operating losses for the segment.

05:16:11 Speaker_01
And does that include the $2 billion for Oculus? I mean, either way, it's a rounding error. Who cares?

05:16:16 Speaker_05
I don't think it does. With that level of investment, it already needs to be essentially the most successful and profitable consumer product in history to pay itself back. That is the only possible outcome here where we even get our money back.

05:16:31 Speaker_05
I know this sounds wild, but like, that is the bet. No other outcomes are acceptable. Fortunately, if we want to model this out, we know the financials of a product like that, the most successful and profitable consumer product in history, the iPhone.

05:16:47 Speaker_05
So as a thought experiment, what if Meta managed to launch such a product, say the Orion glasses, tomorrow? And say that such a product grew at the exact same rate and with the exact same profit stream as the iPhone?

05:17:01 Speaker_05
Well, I did that napkin math, and if 2024, this year, was Apple's 2007, so you just take all the iPhone's cash flows and you start the clock right now, Meta's cumulative cash flows from reality labs would be net negative until at least 2035. Okay.

05:17:20 Speaker_05
Okay.

05:17:20 Speaker_01
So we're talking 11 years.

05:17:24 Speaker_05
you would get back to break even on your investment 11 years from now if starting tomorrow they managed to create the most profitable and widely adopted product in human history. Which obviously is not happening tomorrow.

05:17:36 Speaker_05
That also assumes generously that Meta could build a services business attached to it the size of Apple's services business, which probably generates right around an equal amount of profit. So basically, take all the profits from iPhone and double it.

05:17:51 Speaker_05
that's actually what you would need. It's actually fair to attach a similar size services business.

05:17:55 Speaker_01
I think that's very fair, knowing Meta and all of its capabilities and everything that we just talked about. Yes.

05:18:01 Speaker_05
That is the bet. Let's just be super clear. Anything else is a complete incineration of cash.

05:18:08 Speaker_01
Well, OK, that is the bet looking at through the lens that you posited of a purely financial investment perspective.

05:18:16 Speaker_05
The second way is actually kind of financial, too. I think there's probably a third more emotional way. The second way, though, is if you're Mark and you constantly live under the thumb of platform control, you'd do almost anything to get out of it.

05:18:30 Speaker_05
And that's not irrational. I mean, Apple made a $10 billion dent in their revenue just two years ago with ATT.

05:18:36 Speaker_05
And I mean, they could, I don't think they would, but they could at any given moment just pull you out of the app store and you'd have little recourse. That is a existential business risk. And it's an unlikely one, but every day you could wake up.

05:18:50 Speaker_05
and all of your access to all Apple customers could be over. Which, by the way, we haven't talked about it, but Google could do the same thing. Google could totally do the same thing.

05:19:01 Speaker_05
They have the right to distribute or not distribute anyone's app in their store at any given time. Look at Apple and Epic with Fortnite. Totally.

05:19:09 Speaker_05
So there is actually an expected value calculation you can run, which is my entire company's market cap times the likelihood that it could happen, which, you know, it's extremely low likelihood, but because the market cap is $1.5 trillion, the expected value is still a very big number.

05:19:26 Speaker_05
So then If you're thinking this way, what is a reasonable percent of your market cap to invest every year in a hedge that might, might get you out from under the thumb of big tech platforms?

05:19:39 Speaker_05
And at meta being worth 1.5 trillion, if they're spending 15, 20 billion a year on reality labs losses, that's a little over 1%. Is that worth it? If you truly believe that this is

05:19:52 Speaker_05
the most effective way to offset your most existential risk in the next two decades? Hell yeah it is!

05:20:00 Speaker_00
Hell yeah it is.

05:20:01 Speaker_05
Now, am I certain that this is the best way to hedge that risk? No, I don't know. And like, is there a huge amount of execution risk along the way?

05:20:08 Speaker_01
Well, they're running many hedges on this, of course. I mean, this is part of what FAIR is, this is what LAMA is, et cetera, et cetera.

05:20:13 Speaker_05
But it's a 1% tax on your, I mean, it's generous to frame it off of market cap. You probably should frame it off of revenue, but still a 1% tax off of your entire enterprise value every year. Meh.

05:20:25 Speaker_01
I think there is also potentially a third way to frame it. And it's funny, I think you put it in the emotional lens.

05:20:31 Speaker_01
I actually think less emotional, but more upside oriented of Facebook did have the taste of being a platform for those couple of years there from 2007 to call it 2010, 2011. And if they own the next platform,

05:20:51 Speaker_01
Not only will they do everything that you're just talking about of like, Oh, they'll have an iPhone size business because if it turns into be glasses and reality labs, they're going to be selling the hardware and maybe they can make that profitable.

05:21:04 Speaker_01
Like the iPhone is profitable, et cetera, et cetera. Then there's also your point number two, which is like, this is a defensive play. Our core business right now is at risk because it's built on somebody else's platform.

05:21:15 Speaker_01
And Mark made the comment on stage with us that they've run the analysis. They think they could be twice as profitable in their core media products if they were on their own platform. Sure, great.

05:21:25 Speaker_01
But then there's like the big, big play is the third part of like, well, what if we actually built a platform again where we have millions of developers who are developing on us and we are participating in their business in the way that we used to participate when they were developing on us in the past?

05:21:42 Speaker_01
That's an even bigger point.

05:21:43 Speaker_05
And to underscore your point, David, just a few weeks before we recorded this episode, Meta held a multi-hour keynote at Connect in September 2024. And of those multiple hours, zero minutes were dedicated to their core products of social media apps.

05:22:01 Speaker_05
their hundred billion dollar business of selling advertisements on these social media products. So at least with developers, it's not about any of that at all. Literally the entire keynote. Yeah, I did. It was great. It's meta AI.

05:22:16 Speaker_05
It's the llama models underneath it. It's the open source strategy. It's developers building for the quest. It's announcing new products like the next iteration of the Ray-Ban Metaglasses. It's revealing Orion. Zero minutes.

05:22:30 Speaker_05
to their current products or business. And they're one of the biggest businesses in the world. Yeah, wild, right? They are all about this platform future. So here we are trying to make the case of like they did it.

05:22:43 Speaker_05
They decided they were an ads business and they built one of the two greatest advertising systems ever known to man and one of the most amazing business models ever.

05:22:53 Speaker_05
And at their annual developer keynote, they're talking about how they're going to one day become a platform company.

05:23:01 Speaker_01
There we have it. That is the story of Meta. I should probably say for a minute here too, my experience using Orion, you were talking about yours a minute ago. I thought it was unbelievably compelling.

05:23:16 Speaker_01
And before trying it, I never would have believed that any type of AR or VR would really have been the platform of the future. And then after trying Orion, I was like, Oh, yeah, I could wear these on my face all day.

05:23:33 Speaker_01
And like, I could replace a lot of what I do on the phone with just these lenses being in front of me all the time. And it would be way more efficient, way more enjoyable.

05:23:43 Speaker_05
I would never have guessed that in this year you could fit that into glasses, glasses and a wireless puck. Totally. Yeah, listeners, we've never shared our impressions on this. It is wildly compelling.

05:23:54 Speaker_05
And if you asked Mark, he probably would frame this whole thing differently than we have. It's not about this hedge. And he would say some things about platform control.

05:24:03 Speaker_05
But I think for him, it is just this general belief that we want to make awesome products. And I believe there's an awesome product to be made here. And I'm going to assemble the best people I can to go work on it.

05:24:14 Speaker_05
And I think that's the most interesting duality of this company, is It's both.

05:24:20 Speaker_05
It's what is the best strategic move to make to marshal my resources and a much more touchy feely like I want to make products that are great and bring people closer together because that's the mission of the company.

05:24:32 Speaker_01
Yep. Well, well put. Should we wrap the story there?

05:24:36 Speaker_05
We should. All right, so we will catch you up on the business today, just to put some numbers to all of this, and then we will move into analysis.

05:24:44 Speaker_05
So, as of the end of reporting last quarter, there are 3.3 billion daily active people across the whole family of apps. OK, astonishing. That's up 7% year over year. The family of apps revenue per person is about $12.

05:25:05 Speaker_05
The end of year stats from last year when you just look at the Facebook app, not the whole family of apps, the daily active users are 2.1 billion. So of those 3.3 billion daily active people across all the apps, 2.1 billion are on Facebook.

05:25:22 Speaker_05
And the monthly number of Facebook is 3.1 billion monthly active users. So 2.1 daily, 3.1 monthly. Wow. WhatsApp and Instagram are in the neighborhood of 2 billion monthly active users.

05:25:38 Speaker_05
WhatsApp has 100 million now in the US, which this is sort of a big narrative violation that WhatsApp will never catch on in the US, and iMessage is dominant, and even after that, it's, you know, text message. This is crazy.

05:25:53 Speaker_05
100 million people a month in the US use WhatsApp now. I mean, it's been a slow burn over time, growing and growing and growing. But to me, that kind of came out of nowhere.

05:26:01 Speaker_05
The other narrative violation here, there actually is a lot of growth among young adults using the Facebook app itself in the US. I think a lot of people think that's a sort of boomer thing.

05:26:12 Speaker_01
It's funny. One thing that may be contributing to that, which we didn't put in the story, is marketplace. I mean, for me personally, I have totally boomeranged all the way back around on the Facebook Blue app. And I am now a loyal DAU

05:26:25 Speaker_01
because of marketplace. It's awesome.

05:26:27 Speaker_05
Which is crazy because you don't use any other form of social media besides like posting on Twitter for acquired, right? Correct. They've announced that Meta AI is on track to be the most used AI assistant by the end of the year.

05:26:42 Speaker_05
It's worth disambiguating Meta AI from Lama. Lama is the name of their family of open source models. Those models do power Meta AI, but Meta AI itself is a branded consumer experience that lives both standalone and in a bunch of Metas apps.

05:26:57 Speaker_05
Their revenue in 2023 at the end of the year was $135 billion, operating income of $47 billion, so that's a 35% operating margin. Worth knowing, just like all tech companies, they have become CapEx heavy the last few years.

05:27:15 Speaker_05
They now, last year, spent $28 billion in CapEx, which you should mostly read as data centers. They operate a hyperscaler-sized data center footprint, give or take. You think AWS, Azure, Microsoft, and Google Cloud. Meta is the fourth one.

05:27:35 Speaker_05
They just don't sell it to anyone else. It's only consumed by internal teams. So huge amounts of investment in AI hardware and just other data center expansion. The balance sheet is Fortress.

05:27:48 Speaker_05
They have $50 billion in cash and $58 billion including cash equivalents and marketable securities. They have 71,000 employees and their market cap is $1.5 trillion, up from $230 billion in just October of 22. Wow. Incredible. Totally incredible.

05:28:08 Speaker_05
So two really insane observations about the state of the company today. All of their products seem to increase user engagement over time. And all of these products have different use cases. And it happens across geographies.

05:28:25 Speaker_05
There is something in the water at this company. Why is it that WhatsApp and Instagram are both increasing in user engagement over time? It's the growth function.

05:28:35 Speaker_05
I mean, it's this like purpose-built, heat-seeking missile of attention and metrics that the company pays attention to, where across a whole broad product suite, engagement increases. It's not like they have one thing that happens to do really well.

05:28:50 Speaker_05
It's a process.

05:28:51 Speaker_01
I would say it's a whole set of things, as the company calls them centers of excellence internally. It's the growth function, it's AI, it's the ads and the revenue team. All of this contributes to it. Yep. Fair.

05:29:06 Speaker_05
The second insane thing, at IPO, the US and Canada market had an average revenue per user of $11. That number is now $227. Wow. Yeah.

05:29:20 Speaker_05
And globally, that average revenue per user, when you include all the emerging markets and less valuable markets for them, is $44. So they really, really monetize now. So how much of the world does meta really have left?

05:29:34 Speaker_05
to kind of put a bookend on this.

05:29:36 Speaker_01
I almost asked you this question all the way in the beginning when you were teeing up the episode, but I'm glad we'll save it for here.

05:29:42 Speaker_05
So according to the UN, last year there were 5.4 billion people online. This includes China. Right. So they're basically saying two-thirds of humans are online.

05:29:52 Speaker_01
And meta does not include China.

05:29:54 Speaker_05
Yes. Meta has 4 billion monthly active people across the family of apps. China alone is 1.4 billion.

05:30:01 Speaker_05
And while this isn't like totally exact, I think you just apply the same multiple to China and say, well, two-thirds of humans are online, two-thirds of China is online. So that means that there's 940 million people online in China.

05:30:13 Speaker_01
I mean, that's probably being conservative. I think you could probably argue a much higher percentage of China is online.

05:30:19 Speaker_05
Yeah. But let's be conservative. That leaves about 450 million people, or 6% of the human population, who have access to the internet but are not yet meta monthly actives.

05:30:33 Speaker_05
That doesn't mean they're not meta users, that just means they weren't monthly active users as of the end of the last reporting period. So, meta's addressable users who aren't yet users is less than 6% of humans.

05:30:47 Speaker_01
Just wild, just wild. And then, still, I think the craziest thing about the company is that If you look at the daily active user figure, it's not that much lower.

05:30:57 Speaker_05
Right. And across all products. And so once you frame it this way and you're like, huh, there's only 6% of the population left either through reactivation or signing up that they could get, you sort of understand why they put so much effort.

05:31:10 Speaker_05
behind emerging markets, behind doing things like zero rating, doing custom deals with telcos, rolling out fiber, bringing countries online for the first time, even when they have no near-term monetization potential.

05:31:22 Speaker_05
Internet.org was the name of their initiator for a long time around this to basically say, look, we are saturating humans. We got to figure out how to get more humans on the internet.

05:31:31 Speaker_01
Yep. Move on to analysis.

05:31:34 Speaker_05
Yep. OK, so in the analysis, the first thing we're going to do is power and then playbook.

05:31:39 Speaker_05
So we are going to do a seven powers analysis of what enables Meta to achieve persistent differential returns or, you know, to put it another way, to be more profitable than their closest competitor and do so sustainably. This is interesting.

05:31:56 Speaker_05
Who is their closest competitor? I think that's probably worth defining first and foremost. Ultimately, they are in the business of selling advertising. So I think their closest competitor is Google.

05:32:07 Speaker_01
Yeah. They are certainly the most similar looking businesses in their current forms.

05:32:14 Speaker_05
But like, who do they compete against for the same profits or the same potential profits?

05:32:18 Speaker_01
Right. I'm not sure that it's actually Google. I mean, it almost certainly is YouTube within Google, but I actually think it is other social platforms.

05:32:30 Speaker_05
Yeah, you're right. I suppose it's other places people spend time. Yeah, it's where people spend their time.

05:32:35 Speaker_01
Right. Online and offline.

05:32:36 Speaker_05
Right. And I think really what has to happen here is an analysis of each set of stakeholders individually. Like you almost kind of want to do a seven powers analysis on the user side also of why would someone pick a meta product over a snap product.

05:32:50 Speaker_05
And even though they're not voting with dollars, it's almost like their attention is a proxy for dollars because you just assume that those companies should do a comparable job monetizing the attention.

05:33:00 Speaker_05
But what makes sense, I think, is to just walk through each of them. So counter-positioning, they probably don't have much counter-positioning in the current state of meta, and hold on AI for the moment. In their startup days...

05:33:13 Speaker_05
They did a lot of counter-positioning against other global social networks.

05:33:17 Speaker_05
By being a college-only authenticated social network, they were accepting lower growth, they were accepting a capped ceiling of number of users, and they were doing that because they wanted to make the trade that they felt, you know, a closed community is more important.

05:33:35 Speaker_01
Yep. With higher engagement, scale economies, scale economies, a hundred percent.

05:33:40 Speaker_05
Absolutely. This company is in the business of scale economies.

05:33:44 Speaker_01
Yes.

05:33:44 Speaker_01
And I think that scale economies on the infrastructure side, on the GPU investment side, I think that scale economies on the advertiser side and on the ad experience side, like just by having so much more scale, they are the default standard way to spend money for advertisers.

05:34:01 Speaker_05
Think about on the tooling side. Think about the experience of being an engineer at Meta and the thousand engineer years of work that comes out of that company every year on making the developer experience of working there better.

05:34:14 Speaker_05
I mean, it's crazy with the revenue scale that they have, how much they can amortize these fixed costs. Totally. Everything at this company is scale economies.

05:34:26 Speaker_01
Yes, okay, scale economies for sure.

05:34:29 Speaker_05
Switching costs as a user, you're pretty locked in once you have followers.

05:34:36 Speaker_01
Oh, I hadn't thought about that. Yeah, that really speaks to, again, you know, another shift we didn't really talk about in the evolution of what we call social media is the creator aspect of all of this.

05:34:49 Speaker_01
The whole idea of like a creator and influencer didn't exist in the early days of social media and Facebook, but now, You and me, our platform on the podcasting platform, like we have incredible switching costs.

05:35:00 Speaker_01
Somebody who has a ton of Instagram followers has incredible switching costs.

05:35:04 Speaker_05
Yep. Now, fortunately, in the land of creators, you don't actually need to switch. It's just an and, you know, it's not like you're ripping out one vendor and putting another vendor in.

05:35:14 Speaker_05
I do have a sunk cost in building a following on a given platform, but that doesn't actually prevent me from also launching on another platform. If you have the time to kind of do that. Yep. I think there might actually be process power.

05:35:28 Speaker_05
Normally there's not, but I keep kind of going back to this like there's something in the water. Their products grow in engagement over time.

05:35:34 Speaker_05
Their growth team does 10,000 little things to open up every step of the funnel as wide as it can be and make the most frictionless fluid experience for users. Interesting. Yeah.

05:35:45 Speaker_01
I was actually having this discussion with Hamilton recently about the difference between process power and cornered resource.

05:35:52 Speaker_01
And a good test for this is when you bring somebody brand new into the organization and plug them in, does the power transfer to them as well? If no, then it's a cornered resource. If yes, then it's process power.

05:36:07 Speaker_01
And in this case, I think that's potentially true. Yeah, you can bring in new engineers, you can bring in new product people and transfer the advantage to them.

05:36:16 Speaker_05
You know, for a while, they had legitimate process power in how they shipped. I mean, StatSig is started on the premise of this.

05:36:24 Speaker_05
It blew my mind when someone from Facebook came and gave a talk at Microsoft in 2014 on how they ship product and how it rolls out.

05:36:34 Speaker_05
And not only the feature flagging elements of it, but they can sort of like watch performance, auto roll things back if they're causing negative performance metrics, how like

05:36:45 Speaker_05
there's just deployed code all the time with a whole bunch of experiments turned off, how there's these experiments that are running in different ways in different markets and they can statistically significantly disentangle which results are from which experiment when they have multiple experiments that are concurrently running with the same user base.

05:37:04 Speaker_05
I mean that was like real voodoo that only Facebook did for feels like a decade.

05:37:09 Speaker_01
Yep. And I suppose Google probably does similar type things in different ways, but nobody else really does.

05:37:18 Speaker_05
I think OpenAI kind of does. I think OpenAI has so much former Facebook DNA and kind of thinks the same way that I think they do a lot of this sort of thing too.

05:37:28 Speaker_01
Yep. Okay. I can buy that there's some process power here.

05:37:31 Speaker_05
Yeah. Branding. Branding is such an interesting one. I mean, can they have negative brand power?

05:37:37 Speaker_01
Yeah, right. Antipower branding weakness.

05:37:40 Speaker_05
There's no love for the brand meta. There's no love for the brand Facebook. There is love for the brand Instagram.

05:37:47 Speaker_01
Yeah, but diminishing as it gets larger. Certainly not like it once was.

05:37:51 Speaker_05
Yeah. There's like reliability with it all. Like, I feel pretty. I mean, there's branding that comes with being any big company that you're sort of like large and trusted and institutional.

05:38:02 Speaker_01
Yep. But no, I think this is a clear example of how strong the other powers in this company are that like, despite the brand taking a 20 year hit in Mark's parlance, they're still today, you know, one and a half trillion dollar company.

05:38:20 Speaker_05
Yeah. And then cornered resource, unless you're gonna call Mark one, which always feels a little bit too cute to name the founder.

05:38:29 Speaker_01
I actually think there are some cornered resources here within Meta. And ironically, I think one of the biggest ones is the integrity and safety team and all of the privacy controls and work and security that they have done.

05:38:47 Speaker_05
That they've had to harden over the years, yeah.

05:38:50 Speaker_01
Yeah, even though this is also the source of so many criticisms about the company. It's now pretty robust.

05:38:56 Speaker_01
If you think about anybody that would start up to try and compete with them, somebody I was talking to put this to me like, imagine a startup trying to build a hate speech classifier in Farsi. Meta's got that.

05:39:10 Speaker_05
And trying to have the relationships with the public policy people in 200 countries to understand what is acceptable speech in each of those countries.

05:39:20 Speaker_01
Yep. So while probably, you know, YouTube to a certain extent, TikTok perhaps also have similar strengths here. I doubt there is any other company in the world capable of actually operating privacy, integrity, and security.

05:39:41 Speaker_01
And within that is also anti-spam stuff too, which is super, super, super huge at the level that Facebook is.

05:39:48 Speaker_05
Hmm. It's interesting. Okay, so in looking at this, why does Meta do $47 billion a year in operating income and why do we all believe that's going to continue for a while? What actually is the defensibility here?

05:40:00 Speaker_05
Is it the network economies because they're so tautological?

05:40:04 Speaker_05
I would argue it's not that because what we've seen is TikTok showed us there's a way without initial strong network effects to go capture people's attention and thus eventually the ad dollars.

05:40:17 Speaker_01
Yep. And they competed very successfully with meta in doing so.

05:40:21 Speaker_05
Yeah. If this were five years ago, I would have been like, why even talk about the rest network economies? Once you have the network, then, you know, it doesn't, the rest doesn't matter. That's just not true anymore.

05:40:30 Speaker_01
Yeah. Well, I think the network economies are still true relative to anybody who would compete in a social product. Yes. Which still exists. Totally. Social is just now divorced from media.

05:40:41 Speaker_05
Right. And most people do use both. And sometimes they even use different apps for it. But it's two different modes of let me.

05:40:48 Speaker_05
It may be the same session on the couch, but you do need both use cases of show me who the people that I intentionally follow what they're doing and then show me entertaining things.

05:41:01 Speaker_02
Yeah, totally.

05:41:02 Speaker_05
So part of their business is defensible from the network economies. But the other part, honestly, it kind of feels like habit.

05:41:10 Speaker_01
Well, habit, but I think scale economies are really big for that, too, especially in AI. I think the only way that this new paradigm exists is because of AI and because of GPUs specifically. And I'm not even talking about generative AI.

05:41:22 Speaker_01
I'm talking about like feed recommender systems and personalization systems. And so like there is a very, very large minimum barrier to entry there that keeps going higher as ByteDance and Meta keep investing in it.

05:41:36 Speaker_05
Yep, that's a great point. OK, playbook? Playbook.

05:41:41 Speaker_01
Let's do it.

05:41:42 Speaker_05
OK, so let's talk about what Meta is doing with AI.

05:41:48 Speaker_05
And that will lead us into our first playbook theme, because we've talked about so far the beginning of FAIR, them starting all this AI research, the early 2014 on use of feed recommenders and the AI for the ad matching system.

05:42:05 Speaker_05
There's a lot going on with Facebook and AI right now that we really haven't talked about. So there are two words for you to know. One is Llama, and this is the family of foundational models that Meta has developed.

05:42:20 Speaker_05
And these are competitive with OpenAI and Anthropics Cloud and Google Gemini, etc. Yeah. And then there's Meta AI.

05:42:29 Speaker_05
And Meta AI is a consumer brand that is the way that you interact with Meta's self-hosted version of Llama, or maybe give it a little bit more credence than that.

05:42:41 Speaker_05
It is an application that Meta has that uses Llama in the background but provides Meta-specific AI experiences, some of them bundled into apps like in WhatsApp chat or in Instagram.

05:42:54 Speaker_01
The Blue app or whatever. Yep.

05:42:56 Speaker_05
Yeah, but also there's a MetaAI website that you can go to and interact with it directly. But Llama is the models themselves, MetaAI is the consumer product.

05:43:04 Speaker_05
And Llama, they have spent billions and billions of dollars, huge amounts of R&D, huge GPU clusters to train, big data centers. Interestingly, it is all open source. So... Mark makes a big deal about this. Yes.

05:43:20 Speaker_05
It's interesting to sort of think about why. It's not open source in the same way, really, that, oh, Linux is open source and this is the free standard that everybody uses and there's just sort of a foundation behind it all.

05:43:33 Speaker_05
Meta is putting huge amounts of capex and opex, like huge amount of dollars, into willing llama into existence. It's very different than these sort of cheap grassroots open source projects of the past.

05:43:48 Speaker_01
Yeah, it's open source like Android is open source.

05:43:50 Speaker_05
Yes. And so why are they doing this?

05:43:53 Speaker_05
Well, if you ask Mark why they have an AI model at all, and I'm quoting from a great blog post that he put out about this, we must ensure that we always have access to the best technology and that we're not locking into a competitor's closed ecosystem where they restrict what we build.

05:44:13 Speaker_05
Okay, I understand that. You believe that the most important thing is to control the key technologies that make your products possible. Okay, that last bit is important.

05:44:23 Speaker_05
Basically, what Mark is saying here is, we're gonna spend a lot of money training these foundational models, but unlike all of the competitors in the AI space, we actually don't have a business model around making money on this.

05:44:36 Speaker_05
So we're gonna spend all the money, we're gonna give it away free, why does that make sense?

05:44:39 Speaker_01
It's OpenCompute Project all over again.

05:44:42 Speaker_05
Yes. So for anybody who's not familiar, Facebook made this move in the early 2010s where they realized they were spending tons and tons of money on their data center infrastructure.

05:44:52 Speaker_05
And the vendors who they were paying, these integration partners and the server companies and the networking companies, were making fat margins. And they were thinking, this is dumb. We're a really big customer.

05:45:02 Speaker_05
Why is everybody else making so much money on us? And they looked around and they saw all these other big data center companies. And they're like, geez, all those people are paying big margins, too.

05:45:10 Speaker_05
What if we just publish the specs for the billions of dollars of work that we have done to

05:45:18 Speaker_05
make our data centers, and then we start this thing called the Open Compute Project, and we just get a bunch of other people to adopt it too, well suddenly then, the Open Compute Project is this standard by which all of the hardware manufacturers and integrators actually have to snap to, because all the customers are saying, this is what we want.

05:45:39 Speaker_05
And it's a pretty genius way to drive margins down for these suppliers.

05:45:44 Speaker_01
and also a way to guard against somebody in your supply chain kind of building platform power.

05:45:51 Speaker_05
Yes. So what they basically learn from this is, oh, we open sourced this thing. A lot of our costs went down because the whole ecosystem started using the thing that we open sourced.

05:46:01 Speaker_05
So even though we're not making money, you know, they're not a cloud company, they're not selling access to their data centers to anyone. Right.

05:46:07 Speaker_01
They're not a hyperscaler.

05:46:09 Speaker_05
It pays back in the form of saving them money. It can do the same thing in AI. They publish a really expensive open source foundational model that is in the conversation to be as good as these other closed source ones.

05:46:23 Speaker_05
Well now, there's a lot of developers out there who are just going to build on the open source free one. It kind of becomes something that the community can build on and improve and make better.

05:46:33 Speaker_05
As Mark said in our conversation with us on stage, there's a lot more smart people outside your company than inside it.

05:46:38 Speaker_05
But effectively, what it does is it puts pricing pressure on the AI model companies to the extent that Mark views it as a super important key ingredient to the product experiences he wants to build in the future.

05:46:50 Speaker_05
It's super bad if there's a few closed source providers who can provide that experience and they A, lock him into controlling. So here's what you can build. Here's what you can't build. But B, take his margin.

05:47:02 Speaker_05
Basically say it's really expensive every time you want to make a call to one of our proprietary services.

05:47:07 Speaker_05
When you think about it, it's actually a form of operating leverage, where he's basically saying, there's a big fixed cost I am willing to bear in order to bootstrap this ecosystem and commoditize all of these complements, commoditize all of these other closed source AI models.

05:47:24 Speaker_05
And in exchange, what I'm going to get for that is just pricing pressure on all of them, so that in the future, my variable costs are lower.

05:47:31 Speaker_05
I just get to keep more of the dollars that we bring in rather than having to pay them out to proprietary model providers in the future. It's a pretty novel business strategy. Yeah, totally. So I said commoditize your compliments.

05:47:45 Speaker_05
This notion was dreamed up and named by Joel Spolsky in 2002. There's a great blog post about it. And he makes this analogy. Think about cars and gasoline. These are compliments. When sales increase in one, sales increases in the other.

05:48:01 Speaker_05
You have a car, you need gasoline. Well, AI models end up being a complement to Metas products. In order for them to build better AI or even the feed recommendation stuff we talked about, they need best-in-class AI models.

05:48:12 Speaker_05
And just because cars increase the sales of gasoline, that doesn't tell you about how profitable an automaker gets to be versus a gasoline maker. So imagine the automaker decided that

05:48:24 Speaker_05
They want to get into the gas business so that their customers could have access to low-cost gasoline. Or even further, let's say the automaker decided to make low-cost gasoline just to drive all the other gasoline prices down.

05:48:35 Speaker_05
Well, if gas is cheaper and you're the automaker, you can actually charge more for cars since consumer willingness to pay is around the total cost of ownership, not about a car or gasoline specifically.

05:48:46 Speaker_01
Right. As a consumer, you're always buying a solution. You're buying transportation or you're buying a technology product doing a job for you.

05:48:55 Speaker_01
And if AI is a required input to that solution, then like, yeah, you're thinking about that as a total purchase decision. Yes.

05:49:04 Speaker_05
Or an advertiser is not going to pay you more or less depending on how much you have to pay the AI model provider. They're going to pay you an amount.

05:49:12 Speaker_05
And if you want to maximize the amount of that you get to keep, it behooves you for you to not have to pay as much money to AI model providers. Yes.

05:49:20 Speaker_02
Better put.

05:49:23 Speaker_05
Okay, so how does this apply to Playbook? Well, Meta seems to like taking all the risk in situations like this, putting lots of dollars in, so they can take more of the reward.

05:49:34 Speaker_05
You could imagine a more moderate company saying, oh, well, there's going to be lots of AI vendors out there, and we could just let them take care of that as their core competency, and we'll just buy off the shelf from them.

05:49:45 Speaker_05
But that's not how Meta works. Especially with everything they've been through with Apple, they have gotten true religion, and I think always kind of wanted to be in this position, and they just have the capital to do it now.

05:49:56 Speaker_05
They will control the key technologies that matter to them, both for getting to own and dictate product roadmaps and products decisions, but also for the financial upside of making sure that they control their own destiny and no one in the ecosystem has extreme leverage over them.

05:50:13 Speaker_01
only a company of the scale of Meta can kind of run this playbook, playbook in quotes, because no startup is going to be like, oh, OK, what is my strategy to make sure that OpenAI and Anthropic don't get leverage over me? Good luck with that.

05:50:28 Speaker_05
Yep, totally. So my first big playbook theme is Meta discovers, commoditize your compliment and is now looking for ways to use it everywhere.

05:50:37 Speaker_01
I love it. Well put. OK, great. I think my first one is almost a different way of putting that, which is really like Mark and specifically his superpower of placing multiple bets on multiple chess boards, never wanting to be backed into a corner.

05:50:55 Speaker_01
And I think he has done incredibly well. And I think the story of Meta shows all throughout, even in the very, very beginning as a tiny project, not even a startup where degrees of freedom were limited.

05:51:08 Speaker_01
He was always making choices and playing the game such that there were multiple options of how things could go right.

05:51:16 Speaker_05
Totally. Mark is a master at maximizing his degrees of freedom and setting up the board such that in an uncertain future, there are multiple paths to victory no matter how the world unfolds.

05:51:29 Speaker_02
Yep.

05:51:30 Speaker_05
which is unbelievably Gatesian. I feel like we said the exact same line about Bill Gates in our Microsoft episodes. The real comp for this company is Microsoft. I think that's right. That was actually my next one. They do iterative product development.

05:51:46 Speaker_05
They put the first version out just to kind of get feedback and see how they need to rev it and get better for the future.

05:51:51 Speaker_05
The early days are characterized by hiring all the smartest people and prioritizing IQ over everything else, commoditizing your compliment, obsession with building a platform that other developers build on top of, this whole thing about multiple bets in an uncertain future.

05:52:05 Speaker_05
I mean, it's funny that just look at, they were building Messenger internally. They bought WhatsApp. I bet they're glad that they had that dual-pronged strategy. They were developing an app called Photos at the same time that they bought Instagram.

05:52:17 Speaker_05
That's what they do. It's Gatesian.

05:52:19 Speaker_05
And the most interesting thing that I think is like, hit me in the face like a ton of bricks, Zuck after all the 2016 election fallout and the shift in public perception and having to do all this testifying is like watching an alternate future for Microsoft where Bill Gates had decided to stay at the helm instead of leaving after the DOJ case.

05:52:41 Speaker_01
That is the biggest difference, is they both went through this hellish period. Yep. And Mark came out of it and said, I'm more bought in than ever. Yep. And Bill came out of it and said, Steve, you're the CEO now.

05:52:53 Speaker_05
Yep. That's exactly it.

05:52:55 Speaker_01
Yep. Are you going to talk about Mark's amazing line from the Harvard CS50 lecture in like 2005?

05:53:01 Speaker_05
I'm not, but lay it on me.

05:53:03 Speaker_01
Oh, it's so great. Mark's, what, 20 years old at this point, maybe? He spent the summer out in Palo Alto. He gets invited back to do a guest lecture as like a practitioner in the field at Harvard CS50 class.

05:53:17 Speaker_01
And he's talking about product strategy and he talks about how he really admires Microsoft's product strategy.

05:53:24 Speaker_01
And he thinks it makes a lot of sense of the first version is getting something out there and it's usually not very good, but by the third or fourth version, it's pretty darn good. And that makes a lot of sense to me as a good product strategy.

05:53:34 Speaker_05
It is amazing. He lays it out right there. We don't have to speculate on it. It is explicitly stated. In this same vein, it is painfully obvious when you look at this company that companies are just founders extended.

05:53:47 Speaker_05
The culture of this company is just mark, and it's a huge lever for mark to act. This has been true over and over again, Microsoft, NVIDIA, Nike. It's just how great companies are in the world.

05:54:02 Speaker_05
It's very hard for me to point to a truly great company where the DNA isn't like a lever on the founder's personality.

05:54:12 Speaker_01
I think that is right. And I think it is doubly so with Meta because of Sean Parker and because it was set up from the very, very beginning that nobody could ever get rid of Mark. that it was always going to be his decision.

05:54:26 Speaker_05
And there's gotta be a lot of companies out there that, like, we're looking at the success case.

05:54:30 Speaker_01
Yeah, this works if the founder is really, really, really smart and right almost all of the time.

05:54:35 Speaker_05
Right. As we talk to people, here are the traits that we heard over and over again. Mark is a genius, a really good listener, a fast learner. He goes from knowing zero to mastery in months or years. He has low ego about being right.

05:54:48 Speaker_05
That's not to say that he has a low ego, but he has a low ego about being right. He is obsessed with finding truth and open to being wrong. He's intensely competitive. He's relentless.

05:54:57 Speaker_05
He's actually a very good product designer and understanding the computer architecture that will be required to accomplish such a product experience at scale. I mean, all of these things, like if you have these characteristics,

05:55:10 Speaker_05
and you're then empowered to singularly control the company at massive scale, yeah, it's gonna go well. But the first thing is actually much harder than the second thing.

05:55:20 Speaker_01
Yes, yes. There's not a causal relationship here that having founder control will lead to the right decisions.

05:55:28 Speaker_05
Right. This is my regular reminder that in studying these episodes with extreme survivorship bias, we are looking at the most extreme outliers who, in every dimension you can multiply by, they're at the edge of the distribution.

05:55:43 Speaker_05
Mark is, I don't know, six or seven standard deviations from the mean human across the important traits that mattered to making Facebook. Oh, and by the way, with the right timing and the right luck and the right circumstance and the right know-how,

05:55:57 Speaker_05
My biggest lesson from doing an acquired is these things are unrecreatable.

05:56:02 Speaker_01
Yeah, I agree. All right. What's the next one?

05:56:07 Speaker_05
Durable executive team. It's kind of shocking how many of the people that are Mark's direct reports and their directs have just been there for a really long time. This team knows how to work together.

05:56:18 Speaker_01
Oh, yes. I was actually talking about this with one of the execs at Meta the other day, and he brought this up and was saying that, like, this really feels like something very, very unique to Meta.

05:56:30 Speaker_01
And I thought about it for a minute and I was like, actually, No, I think this is something that is unique to all great companies. If you look across the landscape out there.

05:56:41 Speaker_05
Apple's certainly like this.

05:56:42 Speaker_01
If you look at Nvidia, if you look at Apple, if you look at Microsoft in recent years, if you look at the original Microsoft. Costco. If you look at Costco, this is almost always true, really is true in every great company that I can think of.

05:56:57 Speaker_01
The core senior most executive team are all people who came up in the company or have been there for a very, very long time. It's not a whole bunch of mercenaries there at the top.

05:57:08 Speaker_05
Yeah, that's interesting. Okay, that brings me to this next one, which is something we talked a little bit about with Mark on stage. And I'm curious to hear your answer to this now that we've had all this time and space to think about it.

05:57:21 Speaker_05
Here are all the battles where Meta has either won by buying the company, won by beating the company, won by copying, or gotten to some kind of sustainable stalemate. MySpace and Friendster, Google+, Twitter, Instagram, WhatsApp.

05:57:40 Speaker_05
We didn't talk about this one, but Meerkat and Periscope. Oh, yeah. They launched Facebook Live when that was supposed to be the next big thing. Yep. Snapchat and TikTok. That's like seven, eight. Why do they keep winning?

05:57:55 Speaker_01
I have some thoughts. It's funny, as we were preparing to interview Mark at Chase Center last month, this was the question that we kept asking people. In some ways, I think it's a little bit of a Rorschach test.

05:58:09 Speaker_01
Everybody's answer was different, and it was always what they think is the most important thing. I think my answer for this is going to be a version of Mark as the answer.

05:58:25 Speaker_01
And it kind of goes back to Adam D'Angelo's Friendster testimonial about him being way too lucky and then realizing it's not luck at all. And I think it is that...

05:58:40 Speaker_01
You know, as Adam was telling me as he's reflected on this, it's a very specific way of carrying yourself through the world where you don't hold too tightly to the path you're on.

05:58:53 Speaker_01
Obviously, Mark is incredibly driven to the goal of connecting all the people in the world and doing that through meta. But he's very, very open and flexible to the exact path that it's going to take to get there. Yes.

05:59:08 Speaker_01
And that combination, I think, has led over and over and over again to these threats emerging. And Mark and the whole team there at Meta saying, like, okay, what is the way that we can neutralize this threat or defeat it?

05:59:25 Speaker_01
And we are open to anything on that front.

05:59:28 Speaker_05
And I think they are open to being whatever they need to be to make that happen.

05:59:33 Speaker_05
I think Meta might look extremely different 20 years from now than it is today, almost like unrecognizably, because this company moves like water in response to whatever the new shape of the world is.

05:59:48 Speaker_01
I mean, hell, after trying Orion, I think there's a very plausible reality five years from now where this company looks very, very different than it does today.

05:59:57 Speaker_05
Yeah. I mean, it really is this idea of meta is a technology company through and through, and then they leverage that technology to be whatever the hell they need to be to adapt to the new world.

06:00:07 Speaker_01
Which is so different from all of the other big technology companies out there. They are all wedded to a particular vision of what they are.

06:00:13 Speaker_05
Totally, because these are all different strengths. Like, they aren't afraid of copying. Okay, that is a strength.

06:00:18 Speaker_05
But that's also a completely different thing than, I'm going to place bets on what I think is going to be the big technology wave of the future and spend tens of billions of dollars on that. That's a different way of winning.

06:00:30 Speaker_05
Or, in some cases, I'm going to try to leverage my existing network effect to make sure I adopt someone else's social mechanic. Okay, that worked in a handful of these scenarios, but that's not at all what works in others.

06:00:46 Speaker_01
They don't just have one singular playbook that they run over and over again.

06:00:49 Speaker_05
Right, right. This company moves like water and product is an act of discovery there. I'm convinced it's not pure invention. You asked Mark that on stage. And there's some stuff they have to invent. Like Orion, you have to invent.

06:01:05 Speaker_05
But software, where you can ship and quickly respond to user feedback and iterate, it's like they're chiseling away at the marble to find David. I don't think they have David in mind when they're starting. Most of the time.

06:01:17 Speaker_05
There are a few moments where they did. Newsfeed is completely one of them. Inventing the social feed is a completely distinct and brand new thing that Meta created. It's actually one of the few. Yeah.

06:01:31 Speaker_05
When I was a little bit more bearish on the future of reality labs, I was trying to come up with, has meta ever successfully created something new that has become a profit center for them that is like not adopted from someone else?

06:01:44 Speaker_01
Well, I think the tagging of photos was pretty novel. Yes.

06:01:49 Speaker_05
And newsfeed. Yep. But it's like kind of funny that we're naming those things as platform as short lived as it was. No. That was a, we wish we had an operating system, but we don't.

06:02:01 Speaker_05
So let's see if we can convince people that this is a sufficient platform.

06:02:05 Speaker_01
Well, I think building a real honest-to-God platform with hundreds of thousands, if not millions of developers making money on it on the open web.

06:02:15 Speaker_05
Okay, fair pushback.

06:02:16 Speaker_01
It was totally novel, like nobody had done it without an operating system before and like.

06:02:21 Speaker_05
Maybe there was going to be a social platform in this new era.

06:02:24 Speaker_01
Yeah.

06:02:25 Speaker_05
Maybe that was an operating system of sorts or on par with operating systems to be able to create a platform on top of.

06:02:31 Speaker_01
But I take your point. It's certainly not every turn of the game where they're inventing. They're doing a lot of discovery here. Right.

06:02:39 Speaker_05
And maybe all companies do. And, you know, there's not something distinct to meta here, and everybody learns from each other. And that's fine, too. But that was something that I was racking my head on, thinking through.

06:02:49 Speaker_05
In fact, there's even a testimony, this is kind of funny, in the Mark Zuckerberg versus the Winklevoss case from way, way, way back when.

06:02:57 Speaker_05
Mark even makes some comment about, well, actually the idea for Facebook wasn't even new because MySpace and Friendster existed.

06:03:03 Speaker_05
So it's like this interesting positioning of the whole thing itself is actually a borrowed idea, which of course served him well in that particular case.

06:03:11 Speaker_05
But the point sort of stands is like so much of this is borrowed and we just live in a world, especially in social, where you do kind of have to just, maybe this is media as a whole, observe what the new format is and adopt it as quickly as possible.

06:03:25 Speaker_02
Yep.

06:03:26 Speaker_05
So speaking of trying things, I just wanted to take a moment to honor all the failures. I kept a running list as I was- Pour one out for the failures. As I was doing my research on products that either died or just didn't live up to the hype.

06:03:42 Speaker_05
Facebook Live, Facebook Watch, the drone, the solar powered drone that they developed to provide internet access. Oh yeah, that's right. That was like a whole big thing for a while that- Yeah, that's right.

06:03:56 Speaker_05
Mark was actually two for three on, he was forecasting like in 2015, what are we going to be focused on 10 years from now? That was one of them. Or the other two were augmented reality and AI. It was kind of an impressive call.

06:04:10 Speaker_05
Portal, Portal TV, Workplace, which as far as I can tell, Facebook is the only company in the world that actually uses Workplace. No other enterprise has ever adopted it. I'm sure that's not like exactly true, but that feels approximately true.

06:04:24 Speaker_05
Beacon Facebook deals, which was their Groupon clone. Oh, that's right. Think about how nimble Facebook is that they're like, oh, oh, this social deals thing seems to be gaining traction.

06:04:34 Speaker_05
Maybe that's a core part of the platform that needs to be a piece of this in the future. I mean, they just had zillions of these Facebook gifts. Do you ever gifting and you could use Facebook credits to pay for them? Facebook credits.

06:04:46 Speaker_05
I mean, on top of Facebook credits, Libra.

06:04:50 Speaker_01
Oh, boy. Yeah. Wow. We didn't even talk about that.

06:04:55 Speaker_05
They invented a whole new cryptocurrency and a big consortium around it and a huge set of investors and other Fortune 500s. Originally, Facebook Messages was going to be a Gmail killer.

06:05:07 Speaker_05
You could email people into Facebook Messages and use that as an email suite. Facebook Places, when, I mean, Foursquare was almost on par for a period of time with Instagram and Twitter as plausibly the next social mechanic checking in places.

06:05:25 Speaker_05
And Facebook Places was a real effort, hey, now it just turns into tagging locations on posts, but like, a first class post in Newsfeed for a while was a check-in on Facebook Places.

06:05:36 Speaker_02
Yep.

06:05:37 Speaker_05
And then there's all the independent apps, Lasso, Poke, Slingshot, Photos, Hello, Facebook Gaming, LifeStage, Moments, Notify, Facebook Watch, Moves, all the things they acquired, TBH, Beluga, they launched IGTV. This company tries everything. Yep.

06:05:54 Speaker_05
They move like water to discover what they need to be through an ever-changing environment.

06:06:01 Speaker_01
So true.

06:06:01 Speaker_05
All right. That's it on the failures. What else you got?

06:06:06 Speaker_01
Well, almost sort of the opposite of the failures. It's quite ironic that Facebook became the prototypical startup, given that the goal was never to be a startup. Yes.

06:06:19 Speaker_01
The goal was first to be a project, and then to build like... A very profitable business. The largest empire in the world. Yes. There was no in-between of like, we are building a startup here. It was like, college project?

06:06:35 Speaker_01
Oh, let's connect all the people in the world and let's get big really, really, really fast and skip this whole small company thing.

06:06:42 Speaker_05
Right. That's such a good point.

06:06:44 Speaker_01
And all this whole generation, multiple generations now of startup founders that have really embraced and romanticized this whole startup thing. On the one hand, it's great.

06:06:53 Speaker_01
Silicon Valley is so much bigger and there's so much more investment and there's so many more VCs and all that. But it's also just all kind of ironic that it's glorifying this startup phase when that is not the point. Deeply.

06:07:05 Speaker_05
Okay, so then we've touched on this one a bunch, but I kind of want to put a pin in it. Why has Facebook always been in a precarious position? Why do they need to keep fighting these existential battles?

06:07:15 Speaker_05
Why are they so obsessed with building a platform? I think the answer is they want to be as durable as a company that makes hardware with an operating system that all the users use and all the developers have to target because all the users are there.

06:07:29 Speaker_05
I think that's like what they really want. But because they've never had quite that much defensibility, you know, like, oh, a network effect is good, but it's not as good as that incredible platform durability.

06:07:40 Speaker_05
They're always trying to expand and be more. Every time they bump up against someone else, it kind of creates a problem for them.

06:07:50 Speaker_05
And so I'm using a bunch of weird metaphors here, but it just seems like the place that they occupy in the technology stack is just not quite privileged enough to do the things that they want to do.

06:08:03 Speaker_05
And so they're always at the whim of someone else knocking them around.

06:08:06 Speaker_01
Yeah, I think that's right. And it will be very interesting to revisit this again in five years or 10 years.

06:08:13 Speaker_05
Yeah. Part two in 10 years. Yeah, right. And then as we as we drift to a close here, the engineering culture and being a technology company at their core has been essential. Early on, they really did manage to hire only A+, and then stay A+, after that.

06:08:33 Speaker_05
Forever and ever and ever, it was just this badge of honor, if you were an engineer at Facebook, for product design, too. I mean, they just had such a great talent density.

06:08:44 Speaker_05
The set of things that they did on the technical side were over and over again a way to have their cake and eat it too. If you can move faster, you can learn more through your multiple iterations. And so speed of

06:09:00 Speaker_05
development comes from having great tools. One very great, shiny example of this is something called Hip Hop for PHP.

06:09:07 Speaker_05
I know this is very esoteric, but in the late 2000s, they had this crazy idea that what we should do instead of switching to C or C++ or Java, we want our engineers to keep writing PHP.

06:09:23 Speaker_05
So they wrote a compiler to C. So they didn't have to take the performance hit from running PHP, which was an interpreted language, but it also solved this scalability problem because then they didn't need to go hire all these systems-level programmers.

06:09:37 Speaker_05
They could hire web developers who wanted to move with that pace and flexibility while also having the infrastructure to run these massive systems and scale really efficiently. And then that solved the scaling and performance problem.

06:09:50 Speaker_05
But again, in 2014, they realized, oh, crap, we're big enough and we have enough sensitive data that we really should switch to a statically typed language like Java or C sharp. But again, they didn't want to force their engineers to learn that.

06:10:03 Speaker_05
They didn't want to. People who code in those languages have a different culture than existed at Facebook, too. They couldn't really recruit people. So they invented a new language called Hack that was very similar to PHP, but had static typing.

06:10:15 Speaker_05
Over and over again, I mean, Tau was another example, this NoSQL database.

06:10:19 Speaker_05
They just keep finding ways where they, like, invent new technology to solve a problem that probably only exists for them, and then they create this, like, whole boutique system that allows A, having world-class talent, B, to have a ton of them, C, everyone gets to move fast, but then D, it's all unbelievably performant and efficient, and they just don't have to make trade-offs.

06:10:42 Speaker_05
It is wild.

06:10:43 Speaker_02
Yep.

06:10:44 Speaker_05
Okay, then my second technical one in addition to this is they are their own customer.

06:10:50 Speaker_05
We've talked about this, they're a AWS scale technology company, but they don't take outside customers, so they only have to build for their own internal use cases. Now, this sounds great, but it actually does have these big trade-offs.

06:11:04 Speaker_05
You can't dramatically change what your infrastructure is used for. It is purpose-built.

06:11:09 Speaker_05
But it does let you be incredibly efficient and have high performance if you have good communication between the customers or the app team or the back-end service and the designers of that data center. This is completely the opposite of Amazon.

06:11:23 Speaker_05
Amazon uses interface so teams don't have to talk to each other. At Meta, they require incredibly tight communication.

06:11:30 Speaker_05
It's a very different organizational philosophy where they're like, no, no, no, not only do we not have external customers, we want this insane tight coupling between our infrastructure and our internal customers.

06:11:43 Speaker_05
Anyway, my last one, this is a company that grows intentionally. It would be easy to look at this company and say, wow, what a viral product. What a universally applicable product. That is not the case.

06:11:59 Speaker_05
It is unnatural to have connected four billion humans. This is a freak of nature. This is not just something that people adopted. And so while I think it is totally fair to say, wow, it just blew up at Harvard.

06:12:15 Speaker_05
Facebook is the story of 50 different growth tactics in different eras, all carefully constructed and iterated upon.

06:12:22 Speaker_05
Waitlists at colleges, strategically launching at every single college, picking each one for a reason, translation, internationalization, zero rating with carriers to bring new people online,

06:12:32 Speaker_05
figuring out when they need to do acquire versus build, carefully split testing every change, aligning the whole company on specific networks, on specific metrics.

06:12:41 Speaker_05
I mean, building relationships with governments in all these different countries and at the very least complying with local laws on where should we have certain speech laws versus not.

06:12:50 Speaker_05
I mean, it is completely unnatural for them to have done what they've done. And it's all been very, very intentional to connect the world. Yep. Okay, last playbook theme I've got, there's always another battle for meta.

06:13:08 Speaker_01
Yeah, it's funny, I think you could be listening and think like, oh yes, there's always another platform battle ahead for meta, and that's probably true, but I think you actually mean like another societal battle ahead for meta, right? Totally.

06:13:21 Speaker_05
Yeah.

06:13:22 Speaker_05
Now that they're through the user privacy issues and the many years of the whole 2016 election conversation we talked about, and I'm not going to list them all here, the many, many societal conflicts that they've had over and over again, the current issue for them is around the impact of social media on mental health and in particular, teen mental health.

06:13:41 Speaker_02
Yep. Totally.

06:13:43 Speaker_05
And it feels fitting to put this near the conclusion of the episode, because while going deep on this wasn't a part of our understanding of how and why meta as a business works so well, it is a really important topic.

06:13:57 Speaker_05
There's a lot of people making arguments that social media is bad for our brains, and the consequences if that ends up being globally true is catastrophic for meta. probably a bigger challenge than they've ever faced at any other point in history.

06:14:09 Speaker_05
So if you're asking yourself, what are the things to keep an eye on going forward for them? It is, of course, all the product innovation and the growth of the existing business and trying to invent the next platform and everything we've talked about.

06:14:20 Speaker_01
Orion and everything. Yep.

06:14:22 Speaker_05
Yeah. But it's also how the mental health issue, understanding all that unfolds and how they handle it.

06:14:30 Speaker_01
Yep. Totally.

06:14:31 Speaker_05
All right. Time to land the plane.

06:14:33 Speaker_01
Let's land the plane.

06:14:35 Speaker_05
How are you liking this, by the way, this land the plane way of finishing episodes?

06:14:41 Speaker_01
Well, I actually have a proposal for you, Ben. I don't think we have landed, pun intended, on the right nomenclature here, or the right construct. So, I actually, we've been calling this land the plane, take away the splinter in our minds.

06:14:58 Speaker_01
Like, what's the one thing that's not gonna round for you? Yeah. What is the essence of this company? So, I propose that we change the name of this final segment to quintessence. What is the quintessence? Yes, this is my inner French literature major.

06:15:15 Speaker_01
Coming to bear here on Acquired. Listeners, what is the essence of this company? We've just spent all this time, all these months studying this company. What is the very essence of this company that makes it different from any other out there?

06:15:29 Speaker_05
All right. I like it. The quintessence. Ultimately, my big takeaway is the company moves like water. is the company that has connected the world that will always gear up for the next battle and be whatever they need to be in the next era.

06:15:47 Speaker_05
And whether it's them defining the next generation of computing or creating all these AI experiences or fending off the next TikTok or the current TikTok, like they just move like water.

06:15:58 Speaker_01
Yep. I totally agree. I can't think of a better characterization of this company and how they got to be so darn important in the world. Perfect place to end it.

06:16:09 Speaker_05
And ultimately, it is still very much a Mark Zuckerberg production.

06:16:14 Speaker_01
Yes, that too. All right, quick carve-outs? Quick carve-outs. My quick carve-out is a Google product, actually, Notebook LM. This is freaking wild.

06:16:25 Speaker_01
Our friend Ben Cohen over at The Wall Street Journal, who wrote the great piece on Acquired a few months back, texted us, what was this, two weeks ago, maybe? Yeah. A week ago? And I was like, have you guys tried this thing, Notebook LM?

06:16:37 Speaker_01
And I think you had and me being me, I hadn't. I was like, no, let me check it out. I uploaded just the links to the sources that I used for my side of the research for the Microsoft part one episode, just links.

06:16:52 Speaker_01
And when it spat back out at me, I was like, holy crap.

06:16:56 Speaker_05
Yeah. At this point, I think we're well past the Turing test, but it is sort of the most convinced that something is actually a person I've ever been.

06:17:03 Speaker_05
And if I didn't upload all the sources and know that it was like unbelievably tailored content to the thing that I just uploaded, I'm not sure I would know that it was AI. It's pretty amazing. I have two.

06:17:13 Speaker_05
One is a documentary on Netflix called Mr. McMahon. I was not a pro wrestling person growing up. I kind of want to go be a pro wrestling person now. This documentary is incredible. It is some of the best storytelling I've ever seen.

06:17:27 Speaker_05
And interestingly, it's a documentary that is told with no narrator. So there is story arc all throughout the episode exclusively with interview answers. Hmm. And you almost don't notice at some point you finish an episode and you're like.

06:17:43 Speaker_05
Wait, there was no narration in that. There was no cheesiness. It was all first party accounts and then cuts to like old footage of things that aired on TV. And then you, the credits come up and of course it's a ringer production.

06:17:57 Speaker_05
Bill Simmons is the executive producer. It is remarkable. And uh, Mr. McMahon is a singular figure in the world. Certainly not to be glorified, but one to try and understand. Oh man.

06:18:09 Speaker_01
Be fun to do a WWE episode someday. Yes.

06:18:13 Speaker_05
Yes. My second quick one is the Dworkesh podcast. I love the Dworkesh podcast. I also love Dworkesh, and I think that if you like this show, you'll love listening to the interviews he does.

06:18:24 Speaker_05
Most recent one, or maybe it was a couple ago, is with Daniel Yergin, who is the author of The Prize.

06:18:30 Speaker_05
which is a book, David, you and I almost read a whole bunch of it for Standard Oil, and then we realized Standard Oil is sort of over, at least the chapter of Standard Oil that we were covering within like the first two chapters of his book.

06:18:42 Speaker_05
And so it's basically everything from the end of our Standard Oil episode forward on the geopolitics of oil that ended up shaping and informing our world today. And Dwarkesh is just an amazing interviewer and conversationalist.

06:18:55 Speaker_05
Alright, well with that, listeners, a huge thank you to our partners JPMorgan Payments, Crusoe, Statsig, and Huntress. You can click the link in the show notes to learn more.

06:19:05 Speaker_05
We talked to a ton of people for research on this one, and while we can't mention everyone, in part because the list would just be too long, in other part because some folks

06:19:14 Speaker_05
asked not to be thanked, we do have some specific ones that we want to give a shout out to. So Alex Schultz, the CMO, Head of Growth Analytics Internationalization, great to talk with. Boz, Andrew Bosworth, the CTO.

06:19:28 Speaker_05
Steven Levy, who wrote the book Facebook, The Inside Story, was generous with his time. Jim Breyer, who led Excel's Series A investment in Facebook. Jan LeCun, met as Chief AI Scientist. Alex Heath at The Verge for spending his time with me.

06:19:43 Speaker_05
To friend of the show, Aravind Navarathnam from Worldly Partners, who wrote an excellent research report kind of chronicling everything. Well, it's almost like a written version of this podcast.

06:19:53 Speaker_05
It's like a hundred page PDF that was awesome to consume, kind of to help me remember all the big beats of the story and that his research report is linked in the show notes.

06:20:02 Speaker_05
To Arielle Zuckerberg, Mark's sister, Sheryl Sandberg, obviously longtime COO. Mike Shrepfer, the former CTO and now senior fellow. To Pete Hunt, early engineer who transferred from Facebook to Instagram post acquisition.

06:20:16 Speaker_05
Naomi Gleit, who we talked about founding member of the growth team and the longest employee? Longest tenured Meta employee at this point besides Mark. Yep.

06:20:25 Speaker_05
To Mike Vernal, former Meta VP of Product and Engineering and former Sequoia partner, Vijay Raji, former engineer and VP, now of course, CEO of StatSig, Aparna Ramani, a VP in AI, data, and developer infrastructure at Meta, to Owen Vannata, Facebook's early COO, and David, I know you have a few as well.

06:20:44 Speaker_01
Yeah, a few from me to Adam D'Angelo, obviously Facebook's first CTO, Dan Rose, early partnerships at Facebook, and big, big final thank you that we owe to Chris Cox, Meta's chief product officer and leader of the entire family of apps over there.

06:21:02 Speaker_01
Really, this whole past couple months at Acquired would not have happened without Chris Kold emailing us, what, about a year ago, maybe? And saying, hey guys, I love the Nintendo episodes.

06:21:14 Speaker_01
And because of that, we met Chris, and because of Chris, Mark joined us on stage at Chase Center, and now here we are doing this episode. So, thank you, Chris, for making it all happen.

06:21:23 Speaker_05
Yes. Essentially, this episode came about because we had done too much research for the Mark interview, and we were like, we probably should do the actual meta episode too.

06:21:32 Speaker_05
Listeners, it is time for our Acquired Annual Survey, so if you have three to five minutes, please click the link in the show notes or go to acquired.fm slash survey. You might win Meta Ray Bans, you might win some ACQ dad hats.

06:21:44 Speaker_05
This is our one big ask of the year, and it really, really helps make the show better to hear your suggestions, feedback, and to help show sponsors just how impactful the Acquired audience is. That is acquired.fm slash survey.

06:21:58 Speaker_05
Check out ACQ2 in any podcast player. If you liked this episode, listen to our NVIDIA series, listen to our Microsoft series. I don't know, maybe go listen to our Standard Oil series. A lot of great acquired in the back catalog.

06:22:12 Speaker_05
And discuss it with us in the Slack, acquired.fm slash Slack. With that, listeners, we'll see you next time. We'll see you next time.

06:22:24 Speaker_03
Is it you, is it you, is it you who got the truth now?

View full AI transcripts and summaries of all podcast episodes on the blog: Acquired​

Episode: Meta​

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View full AI transcripts and summaries of all podcast episodes on the blog: Acquired

Episode: Meta

Episode Shownotes

Summary

Full Transcript