Meta
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right? So I was up late last night. Late for me as a dad is like eleven P.

M. But i'm sitting here at my computer in my dark basement polling notes together. David, what music did I have on you? Have one guess. Oh, oh.

I don't. Exactly what you had on you had trent resonate and social network .

sound track IT makes anything you're doing feel, you know, twice as important and twice as revolutionary. And h IT just felt very apt for this episode.

Well, so I have been listening in the last twenty four hours to fifty cent in the club because that came out my freshman year of college same year as the facebook 点 com。 And like man, fifty cent facebook, that com can't get any Better than that perfect .

match made in heaven. Well, i'll check out our wall, the wall from the old days and see if they're ready. Post about that. Hi.

let's do IT. Let's do IT.

we.

Welcome to twenty four season of acquired, the podcast about great companies and the stories and playbooks behind them. I am an gellert David resistance, and we are your hosts today. We are studying a company whose products are used by more humans than any other company in history.

Meta, of course, formally known as facebook. So I figured I would contextual hide these numbers a little bit. Metta has four billion monthly active users.

and daily active users are over three billion.

Yeah, nuts. There are only eight billion humans on earth. 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 empire or governments from the past where there is some .

larger percentage.

Yeah, makes sense. nope. The roman empire at its peak was only forty percent of humans tops, you know, the data, all that had actually fine from that period time.

But the british empire, which have a little bit Better handle on at its peek, was only twenty three percent of the global human population. So no government tech company utility acta has ever addressed so much of the world. It's just wild.

There's no other way to put IT.

In the over twenty years since founding, meta truly has connected humanity through its apps, facebook, instagram, WhatsApp, messenger and now threads. So today we're gone to study how they did IT. There has been a lot of things build writing about facebook over the years.

And for its first ten years, most of that writing focused on the many benefits to society with breath less exuberance over milestone after milestone. And for the past ten years, it's kind of seemed like medica could do nothing, right? Reporting focused on its many stumbles, the massive mistakes, the incredible controversies surrounding the company.

And well, we will, of course, discuss these events as part of our story and analysis. Our goal today on this podcast episode is really to understand how IT is that matter became the dominant fabric that connects the human race and why they've been so successful at continuing to win over and over again 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. 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.

Then thought about this till no bit, almost sort of total. Logically, this is like the most important episode will ever do to try and understand like it's the biggest company that is ever existed. It's the biggest thing that ever existed .

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 still like you're saying, David.

They speed ran their start up phase. They swarm through multiple disruptive technology waves. They battled fierce competitors. They invented or maybe discovered one of the greatest business models ever.

And they're now trying to pull forward the next technology generation through sheer force of will with A V R N A I. So finally, listeners, we tackle one of the greatest corporate stories ever, facebook, the mark zuck burg production. 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 acquire dt FM flash survey to take IT will will be raffling off a pair of shiny new metal ray bans and giving a bunch of A C. Q. Dad hats as well. 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 impacting the acquired audience is.

So go to acquired data FM slash survey, David air, both eternally grateful after the episode discussed in the slack, and check out A C Q two, our second show where we just had climbed along the CEO of hugging face on to talk about his view on how the open source A I ecosystem will play out. And before we dive in, we wanted briefly think our presenting partner, J P. Morgan payments.

just like how we say every company has a story. Every company's story is powered by payments. And jp morg payments is part of so many companies journeys from seed to IPO and beyond.

So with that, this show is not investment advice even, and I may have investments in the companies we discuss in the show is for informational and entertainment purposes only. David, roman empire, like what's are starting place here?

We gotta start in one thousand eighty four. We're never going to finish this. And really, I mean, where else can you start? I can make up set of roman empire classics, escalus, whatever t shirt saying, market as this day, the week. But facebook has always started and ended with mark zuker berg. So we start in may of thousand and eighty four, when mark ellison aker berg is born as the second of four children to Karen and ed sucker berg in jobs fairy, new york, small, little suburban town suburb of new york city.

You and his mom is a psychologist and his dad is a dentist. Is that right?

Ed, study dentistry at n. yu. He was always like really into math computers though, but growing up the sun of jewish merger and ork city, the expectation was you're gonna be a doctor or a lawyer.

So he goes to the school, becomes a dentist, he meets care, and they get married after add finishes, dental school, they move up to jobs. Ferry and west chester county y and mark in his three sisters grow up as prototypical middle class suburban american kids in the nine. Life is good.

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.

And 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.

And for mark c, those passions become three, four, one turn, waste strategy, video games, most particularly submiss civilization two programme, computers and three, as you mention in everybody who watched our chase center show, knows ancient greek and lattin history classics, big classics, and pretty much in that order of importance, both to him personally and the future course of facebook and meta. So let's start with civilization. September in one thousand nine .

hundred and one, David, I toyed with the intro to this show being, and we are your host, civilization is a video game upon wish. But I decided not to.

right? Every is kind of laughter, but like, no, this is really important here. So september one thousand hundred and one, when mark is seven years old, civilization, or sive, as its fans call IT, comes out for pcs and Young mark gets hooked.

And for those of you who who haven't played sive, IT is a very particular type of turn base strategy game and is probably the foremost example of what is known as the four x gena. That's the number four letter x. And four x stands for, explore, expand, exploit, exterminate.

Despite that sort of inferior sounding nature to the last one there, especially seven, four x games, we're kind of this radical branch of video games at the time where the action of playing in the way to win wasn't just about like killing all the enemies on screen. 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 Martin, your resources effectively. And most importantly, there are multiple ways to win the game. Most of the 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 peek of technology, which is in the game, launching a spaceships to go colonize a new planet.

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 U. N. You can also win by dominating all the other players on either culture or religious dimensions, too. So it's kind of like this amazing simulation of what it's like to run one of the top ten market cap like a capitalization companies .

in the world today. But to your point, this idea that it's turn based, you try to a mass resources figure out how to deploy your resources, have multiple concurrent strategies, so that you, as the role of the dice of the universe happens and things unfold before you and you're .

and other players make their moves up.

right, to be able to effectively react to at all and use your resources to win in whatever way winning means to you.

It's kind of funny. This is way too simply list c analogy. And you not fair to on any dimension, but the whole construct here, solar reminds me of the book enders game.

He always like, it's these kids growing up playing this game and didn't realize all long IT was actually the real game ah. So playing save and other video games. So in his Young PC games leads Young mark to want to learn how to program himself.

So when he's ten, he has his parents take him to the local barns and nobel one day and begs them to buy him c plus plus for dummies. And he dives into the book, where aren't everything in there? And just like guys, I need more.

I need more. So after that, his parents highe a local tuder to come in, tuder him for an hour a week in programing and learning how to right software. And mark is 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. And then friday afternoon would come along and there would be like, okay, wow. Now I have two whole days to sit in write software. This is amazing.

IT really is astonishing. As a ten year old to be learning c plus plus, this is not basic. This is a language where you are thinking very close to the medal.

You have to be very aware of the constraint of your system of manually managing memory. Its impressive for fourteen or sixteen year olds to be learning simplistic languages. This is a whole different bowl game.

as is always is what mark. So while he's a kid here, you know, debry, he codes up all sorts of little projects, including a family chat tool for all the networked computers in the house. And also his dad d's dentistry office is attached to the house.

So he builds this network called the zuck net, which is family chap for doing all the computers. Very president here. And then, speaking of family and friends, chat in one thousand nine hundred and ninety seven, when markets thirteen years old.

A L launches aim. A L instant passenger. Oh, I remember .

IT well, many, many, many hours lost to him and warning my friends and other dynamics of the aim system to game up on people and to have other people game up on me.

And oh, man, punting people of me. Yes.

having to create a new screen name and log off and log on and message someone and someone else. I mean, that whole, this was midday school.

This was middle for all of us. And this was middle school for mark tube. The crazy thing about A M to go out, just a quick little direction here.

I had no idea till doing the research. IT was actually like a rogue skunk k project within A O L. Did you know this? No, yes. So IT was a couple engineers that just went often, built this almost against the wishes of management. IT was not originally intended to really be for social use or for kids at all.

IT was more like the idea they had was IT was gonna be kind of slack, like check for workplaces, get up using internally at A O L 的 communicate。 And that's actually where a way messages come from. So they came up with a way messages because people would be in meetings. Or this is the days of this top, this cellphones, barely even laptops, people got to launch, they'd have to put up a message so that when their colleagues were trying to communicate with, that's the origin of a way messages.

that's fascinating. And IT is interesting how you ended up kind of using a way messages after a while, even while you .

were there just to indicate status. Ultimate ager, I I am expressing my whole do this one line away message.

one hundred percent.

So I mean, for people all of our age, mark, age at the time, I mean, that completely changed our social experience when that came out. So the other important thing about aim, when I came out that I had no real conception of at all as a kid, was that I was free. So my family was an A O L family, like we were A O L subscribers.

We had that you got mail sea, but you didn't have to be paying A O, L subscriber to download and use A M. Join the network. Aim goes on to become this total viral thing in north america.

I mean, kino concurrent with nap ster a little bit before nap ster. It's the first piece of consumer viral software. And so by two thousand, one, a couple years after launch, IT has thirty six million users, including, as we've been talking about, basically every middle in high school with the access to a computer. And know, thirty six million users doesn't sound like a lot today. But you gotta remember, the internet was way smaller back then, way, way, way smaller, not just in terms of number of people had access, but also number of people who were literate in how to use IT totally.

Is the early broadband era. Is that error 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 time.

yep. And basically all of them, and certainly all the Young people were on aim. So the other important thing about a and A L L here is IT was pretty easy to hack.

But like all man, there was just a few day that kids and teenagers had with, like, a boat punting software, wheres hacking programs. If you are someone like me, you are just download the 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 a by bombarding them with messages, you could do something like t age punk stuff.

But IT also let you extend the functionality of what A O, L and aim was. You could add graphics. You could is, you could draw .

pictures at lakes in your profile. Yeah, you ask profile .

message totally. And like this, become such an important part of teenage culture on the internet as we're going up. Is like all this personalization timely? Hey, I don't want just what A O L gives me.

I wanted control this. So for me, I was downloading and using this stuff. You might have been writing IT, although you might have been Young.

No, I didn't learn P, H. P. Until I was fifteen or sixteen. So call IT. Two thousand and five.

Okay, so yeah, a little later. But mark is one of the kids that's writing this stuff. And you know, I think that's where he got his starting was doing suck.

Now he's doing all these little projects. But like, you know, here's A O L, this sort of unintentionally, infinitely hackable, all at extensible canvas that he can play around on. So that's number two for marking passion.

Number two, computers and programing and impassion. Number three is classics. So mark, when he enters high school, he gone to public school, all the elementary and middle school in their own debts. Here in west chester, counting, he does two years at the local public high school, at arthly high school. And after two years at ardley, mark is like, well, you know, a couple things.

I'm not sure that this is the right high school for me, for the rest of my high school career, one I think I would enjoy just being in a sof like Better school, like a higher level of competition, higher level of learning. He's definitely at the top of the classes that are little too is you don't really into latin and classics and like i'm gonna tap out on that real fast here at ards. There's got to be a place I can go where I can really study this. And that takes us to phillip sexier academy .

in new hampshire, right?

Yes, in new hampshire. And so sexy dr is one of these private boarding high schools that have existed basically as long as ivy colleges have and they're just kind as feeder schools into iv ecologies. So much applies to exter gets in.

And the summer before he is about to go, the school hosts an event in new york city, in the city for incoming two years to meet each other, gets to know the school, get ready at a and there mark meats, another kid who is a lot like himself, who also is really into computers, really into aim and everything going on there, and Marks like game. And I really made the right choice, like everybody here is gonna, just like the two of us. And that person is adam danel, future C. T. O of facebook.

amazing.

They are met in high school. Now, the great irony of this story is that markin adam ended up being like the only two kids who are really into computer as IT was just the two of they just happened to meet in york city at the free school event, which is play one of .

the last few years. That that would be the case. I'm sure if you went to the school today would be eighty percent of the classes or one hundred percent of the classes really into computers.

Yes, I think in large part because of margin, adam, it's quite different these days.

Yeah the two of them.

when they get to texture, become fast friends. They work on all sorts of computer projects together, software projects. 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. This, so they do something in the community, is set at that mark anam, 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 wamp, which is how everybody listen to np, three, three that you ve got from nap ster, back in the day.

I think I listened on sound jam, but it's just because I had a mac.

oh yeah, future seeds of itunes yeah not .

try to got acquired by apple. And then eventually they, I think, built off the same code base and turned in itunes. But everyone used win up. That was the aim .

of music players later bring IT all into the fold. So legend has IT mark is listening to a play less in winning up one day during his senior year. And he gets to the end of the play list.

And he's like, why did the music stop? I listen to so much music all the time on winning. P IT should just know what I like and automatically pick the next song.

IT should just be A D. J. And then inspiration, hits, calls a battle and is like, i've got our senior project. We are going to build an A I D J plugging for windows, and they call this synapse. And like they did IT these two high school kids, they build in A I you really A I wasn't call the A I at the time, but like a, you know, a recommended system that looks at the data of what song's you've consumed on winners p and predicts what song you're going to like to consume next time he's basically spotify today.

What is this?

This would have been spring of two thousand.

Two, yeah, really early days.

So they build this thing and then they release IT to the internet and people start using IT. IT starts getting some adoption and um a couple of companies, including wamp itself, reach out to mark an hey, do you want to come work here?

Like can we buy this? Yeah and I think microsoft was one of them. Two IT was for like a million dollar question offer crazy.

But these are high school kids, thousand. But yet this is really important because they're about the graduate. Adam is getting go off to college, kl tech. Mark is gonna off to college at harvard in the fall, but mark is not just like any student coming into harvard is like, I can build these things and they have value, and big companies are going to be willing to pay me for them. I don't need to be that worried about getting a job right.

He sort of always knew he had a great fell back plan. So I kind of let him be risk on.

So mark graduates, he goes off to harvard. It's the natural choice on many fronts. Submit mark, of course.

aces. S, S, A, S. I think he gets a sixteen hundred on the S S. There's this great legend about you had to take S A T tools to get into college back then.

I don't know if you still do, but I think you had to have a minimum of three. Mark doesn't study. You prepare for them at all.

He walks in the day the test as i'm going to take all three that I am onna take on the same day, he gets eight hundreds on all of them. College admissions was not gonna a big deal. And his older sister, Randy, was already there at harvard.

So clearly good to go to harvard if he wants yes.

and I think he wants enough. Like I I don't know that is that important to somebody? Like guess, however, is the best time to go there?

In fact, there's a video of that that's right. Have you seen this his dad sort of filming his reaction and he's pretty measured about IT. It's very yet got in the harvard and then kind of goes back to doing something else on this computer.

Yep, and I think for most kids, for most people in the world, you would look at that and be like what arrogance and like, it's not like eighteen 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 that has value. He knows people will use IT. Whether he goes to harvard doesn't go to harvard, goes to college, doesn't go to college, it's just not that big deal to him. I don't think yeah reading .

in between the line that seems like the thing that he was most excited about as all good at chAllenging environment where I will encounter other really smart people like myself who are ambitious yes.

I got is totally right. So mark gets the harvard in fall of two thousand two. And you know, like he said, he goes class. He does well, but he wants to meet other people and be around other smart folks.

He ends up joining the a pieterson ity there, like my co host, my eem colleague then indeed also my father while he was in college. Ah I didn't know that. Yeah, that's right.

That's right. A pipe, adam. Meanwhile, of course, goes off to cal tech, you know, three thousand miles away in the opposite corner .

of the country. Also, can I just say how crazy is that that adam d. Angelo would become facebooks for C.

T. O. They don't go to college together, right? Well.

I was going to get into this and I said adam has a very different experience of caltech y and graduating from kal tech. I think um they probably do not have the same a generous leave policy there that harvard d is .

because harvard 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.

Oh, we're going to come back to that in one sec, put in in that. But for atomic c caltech, he still finds time while he's there to keep working on these projects. So during his freshman year, he builds something called buddies zo, who kind of building on snap in the success that they had in their senior project buddies.

You takes your buddy list from aim from a well and effectively turns IT into a social network. So you upload your entire buddy list to buddy zoo, and then you get your friends to do so, too, bodies. You 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 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.

And this is pretty advanced stuff for two thousand, two, two thousand, three.

very advanced stuff, especially for a side project for a very busy called text student. yes. So buddie zoo, pretty quickly in the months after after, or adam launches, IT gets a couple hundred thousand users.

There's gravity to this thing. It's becoming fairly big, especially given how small the internet was at the time. Yeah and adam is like, oh, okay, this is interesting.

So this is kind of what scale looks like. Synapse was cool. We had a bunch of people download IT. This feels like something more on the order of aim itself, like this is really interesting.

And the important thing with synapse was IT was a single user application, so I can analyze my songs and tell me what to listen to. This is the first time adam mark, particularly adam in this case, is discovering a very different type of application that gets Better as more people join IT.

Yes, now we say adam and adam 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. It's kind of serving its original use case like they're collaborating through IT across the country.

So that summer two thousand, three, after their freshman year, adam comes to boston and gets an internship at the MIT media lab. He discovers this thing called friendster, another social network out there. And anam is like, wow, this is a dedicated, standalone kind of version of what I is built with buddies you. This is, like.

really interesting, and it's all on the web.

Now, friendster r was based out here in silicon valley, had raised money from kiner.

perkins and benchmark. right?

Oh, bench by two. I didn't. yes.

Which is what tied their hands and why they could not pursue investment in facebook.

That's funny. Not that I think that was a .

real possibility anyway because things kind of moving so fast. But you never hear them in any of the discussion about who was pursuing facebook and who was I. Now they just they had a competitive investment.

That's right. It's funny. I never even think about that because obviously, mac caller would go on to become a person important partner at vance mark.

And of course, that wasn't really .

executive at facebook. Yes, exactly. interesting. So here's fend ster, this example of like a real standalone company, social network growing virally funded by venture capitalists based in the differences scope area, Adams lake, oh, maybe that sort of what we should be focusing on. And by the end of the summer, in two thousand and three friends, there had over three million users. So like really interested in growing really quickly.

Friendster had real scale and grew really fast. That is something that has kind of been lost to history. Friends sters like the bottle, a lot of jokes, but IT exploded out of the gates too.

So Adams playing around with friendster. Friendster had this feature called testimonials, which was kind of like a facebook call. But in the long run, one of the core problems with french ter was IT positioned itself as a social networking about friends. But really, IT was kind of intended to be a dating site underneath at all.

Absolutely, that was wink, wink, not a dating site. IT was the idea that, like, there's all these other things that are dedicated to dating. So there's this weird thing about IT, 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 up.

So specifically, when IT comes to testimonials, the purpose of testimonials was supposed to be like why you should date somebody, why they would be a great partner, which is body. So add of all, he's played him around with this and he tells mark about IT. He actually posts on mark french ter profile a testimonial and he says that, quote, mark gets way too lucky and he posted this in the summer of two thousand three and adam was telling me the story.

He was like, you know, I have thought about that post for twenty years since the because on the one hand, IT was like a stupid thrown away, you know, double on toner that I put on there because I was a, you know, a dating site. On the other hand, IT is both absolutely true about mark that he always gets way too lucky in facebook and matter always gets way too lucky. But it's not luck.

Yes, 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 is always that way, and it's always because of mark.

Mark is unbelievably good at positioning himself for a luck to do its thing.

And specifically, at this point time, what I am talking about is like, he was always looking around. He was looking at friends there. He was looking at what we do with syndics.

He was looking at what I did with buddies zoo. He was looking about the projects at harvard. He did that we're about to talk about. 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. So this brings us to false semester two thousand and three two thousand four, mark soft more year, and the famous cartland house sweet eight thirty three, with mark eaker, g. Christies, dustin mosque, its and Billy elson as the four roommates there.

Three of the four of those names are our names you may know as the founders of facebook.

yes. So markets focused heading and into a software harvard. And he's not focused on classes. He's focused on projects and .

he's done like ten. I mean, this is something that, again, is kind of loss to history. People talk about, oh, there is the one face match thing that he did, that the facebook he did, like ten side projects.

I mean, I remember being in this era of my life where you feel like you have superpowers as a programmer r and you looking around and you're like, all I can make a website for that I can make a website for that. I had the same thing where the world wasn't saturated with apps yet. And so you can just like make things that made your life Better, or other people's eyes Better, or a cold wave to connect people.

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 knew that mentality he was in. There were ten things that he had worked on even before, face mesh.

yep. So the first of which right is they are getting back to campus that fall is mark built a tool called course match?

Yeah right?

And this is, as students are shopping for classes for false semester, 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. 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, 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.

I was literally texting my friend yesterday who was at harvard at this time, and SHE said, yeah, people totally chose their classes based on who is in them.

of course, of course. So maris, this and he's camec, you know, again, it's one of these things, is that observation about the world is like, wow, people are spending a lot of time on this is literally just .

list of people you click on a class name and people would spend a lot of time just coming over that list of people totally.

There's nothing visually compelling here. So it's like, well, okay, that's time for my next project to people have registered for classes. What if there was something visually compelling for people .

to spend time on? What if I overstepped a little bit? And yeah.

and this is face match. Well, chronic in all the many books, stories.

The Steven levy book, the David corpas .

ric b movies, no movie movie mark coats this up in one evening in his dorm in current house. And it's basically the website hotter, not for harvard, with a couple of like actually interesting mechanics twice on IT. Now the two big problems with IT are one.

This is probably it's not a good idea, not like kind ds. Generally, IT is a head head voting mechanic on which picture is and code harder than the other picture. The other thing that is really not great is rather than having users upload their own pictures, mark hackers into the cargolux house servers and downloads the face book photos of all the students to populate the website.

Lower case face space, lower case book?

yes. So we should probably spend a minute and talk about what a facebook was before a facebook. My big question for you is, did ohio state have a facebook IT?

Did not.

Probably would have been like a telephone book says thing if they did.

I mean, I went to college in the fall of two thousand and seven. And so you could look at people's email addresses. If you had their first, last name, you might be able to get some other, maybe major. But there was a tex blog. B IT.

Wasn't a photo. Well, I think most of, not all I V league schools back in the day had these printed where I went, certainly had these when I .

showed up on campus. In fact, phillips exr. Had private high school.

Ls tend to that's right, that's right. So you had to give the university, or an excess case, the high school, a school photo of you when you are coming in before you. meticulous. 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. And I think if I remember read a prince in, at least they would republish the book every year, you know, for your class, because you have some people would leave some people join at at all.

right? So these are photo stored digitally that mark, then well plugged into the campus network from his storm room, is accessing, downloading and then putting up on his own website that he is hosting.

Yes, called face match. Now, couple interesting things about face match. One gas bark was blown away by the engagement of the harvard population with course match. Face match takes that to such a whole other level that is actually melts down. The servers in current lin house and the IT department at harvard has to shut off internet within hours of IT going live to all of carker and house less is like continue dispread virally within harvard and take down like all of the servers.

Oh, so maybe he didn't actually repost the images. Maybe he was just pointing at the .

that were hosted by I didn't think about how .

that worked either way. How to make something like get engagement?

yes. Yes, he does. So the other interesting thing from mark perspective about face mh is IT was the first time he was building a rich web APP as one of these projects fully built on the lab stack. And he had probably used the lab stack, linux, apache, my equal PHP, for course match.

And so to be clear, that's an Operating system, a web server with apache. Mysql, the free open source database. P, H, P, the free open source programing language, yes.

but this is the first time that these building, like a real rich consumer grade web APP on top of the .

laptop rich consumer grade. It's the technical requirements, of course, match, but with photos .

of photos in voting.

sure. yeah. You have like and probably an additional table of information in the database or something.

But the big takeover here is a, of course, the use cation IT. B while its engagement. See, this is training wheel of how to use these new open source web technologies.

If you go back to three, four years, you're going to have to go to oracle, you're going to have to go to microsoft. You're had have to buy like enterprise grade super proprietary systems to do this. And this is all just like free, and something you can couple together and upload under some lines, web hosting. And boom, there had to be a hundred times more, a thousand times more web applications created by the marker zuker berg everywhere in this period of time, doing whatever random little project that they thought would be fun or funny or useful.

Yep, 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. The internet.

totally, ten dollar domain, hundred dollar year web hosting that includes the data abase. No licenses required. P, H, P, is all free. Maybe the ban would would have been an issue, but this is on the order of one hundred dollars to do this.

Yeah, what? Clearly the ban with wasn't issue because they shut down internet corkle inhouse.

So David, this feels like a thing you should get kicked out of school for doing.

yeah. Harvard, as you imagine, is not pleased about this. They hole mark in front of the administrative board, which is a disciplinary committee for students. When things like this happen, he and his maternity brothers are pretty sure that he's actually gonna thrown out of school for this.

So the night before the ad board meets to make their final decision, A I the fatter ny throws a godby's mark party that night, and legend has IT that this is where mark and facilitate and me, for the first time in brazil of courses. Now, mark's wife, yeah. So dad.

B 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 and slap on the rest. Slap on the rest. 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? I mean, this is a big deal. Everyone on capus knew about face match. A lot of people already know about cse match anyway. So he's now the guy who can make websites and web applications here at harvard that people use. yep.

And IT also happens that there is a group of upper classmate harvard LED by two twins, the one of us twins who have an idea to digitize harvard facebook and build an online version of IT. They're thinking of calling the harvard connection, and they think maybe we could actually take that to other schools too. And all I connect you a sort of a broader version.

This was not at all a unique idea. Not all. Lots of people at lots of schools had this exact same idea.

In fact, harvard itself had this. The I. T. Department at harvard had been promising for use and talking about how they were gonna build a digital version of the harvard facebook.

And friends sters out there, and I looked up. Stanford had club nexus, columbia had C. U. Community yale had yell station. I'm sorry, there is a whole movie made about the drama of how novel this idea is. It's not totally not.

I'm pretty sure prince in had one, two and I was there prefaced book. Yes, totally not a novel idea. Lots of people have IT no, the wink of us twins though, you know, mark is now this celebrity on campus. They need somebody to be a programmer r to write the site. So they talk to mark and market agrees that he's gonna help them out and help code this site that there thinking about also.

again, the hotta a to say, we have this idea. You are a programmer. You will programme our idea clearly. Mark can come up with his own ideas that get people excited enough to use the stuff he builds.

Now so far it's been a little unsafe, but he doesn't have a problem coming up with ideas, with product market fit and executing them. In the end, the elen hasn't done so far. Is made money, made anything as a business? But one other pieces of the puzzle does he really need from some people with an idea?

None, it's funny, was going to save this for a little later. But let's talk about IT now. In addition to technically because of open source in the lab 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.

Also, this was the first time that a technical person, because of this, could just do everything like, marketing need anybody. Marketing need a non technical go founder. Marketing need a CEO. He was the CEO. I remember .

thinking the same thing when I should my first APP to the APP store cofounder and and I in two thousand and nine, I think, made something called seas. The day got over million downloads, two programmer upload to many APP store at a slightly different, eric, because that's mobile note web. But I remember looking around being like, wow, we like didn't need a business guy, right? That's the crazier thing. You can make stuff and you can put IT in .

the world totally. So this takes us to hardly Christmas break. Now at the time, harvard did final exams for the fall semester after Christmas break in january h.

So the ideas, all the students go home, of course, this break you come back in january. And then there's a week of reading period where you will familiarize yourself with all the material family classes. Then you take final exams, then there's a little break. There's a course shopping period for spring semester. And spring semester r starts in february.

So mark has a few weeks to program a new idea.

Exactly, do not study and program a new idea. And during Christian break, he had to actually come out to silicon valley, to the the area to hang out with some friends out here and seeing, you know, the physical embody man of all these great tech companies, yahoo, early google drove by them all. And so he comes back and he's like extra, extra motivated.

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.

And again, not a business, just like a project. He has this gut feeling that people will use this if he makes IT 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. I would be pretty boring ing if it's just a digital facebook click. I don't think people want that, but I made all this other stuff that people really, really like and engage with.

And when you say just a digital facebook, you mean like essentially the profile page will just be a photo in a name?

Right, just like the physical version of, like here is a list of all the students in the class. And here is there, you know, stock profile picture? yes.

So later, after the facebook to come blow up, mark told the harvard Christison in the a 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. That's the kind of stuff I do, small little projects, and eventually they all fit together.

And that's what the facebook 点 com and are being some markets back from reading period。 Instead of studying, he dives in. He, I am his friend Andrew, a column who he knows from C.

S. Classes, and asks Andrew to do the page design. Andrew says, yeah, they're saying, i'll help you out. Andrew goes and fires of photoshop. 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, the matrix.

it's gradients, no sort of White on the left.

blue on the right. And for I know a year to, however, along the facebook guy was at the head everybodys, who is the facebook guy? People think it's about china. People think is a student. Do you know who the facebook guy was?

I totally do. I looked this up. I felt like two trying to figure this out. really.

Yeah, amazing.

Because everyone always said at alpaca ino. I IT doesn't really IT though, how pacino must to look really different when he was Younger.

And it's not right. Tell me your answers.

I'll tell if that matters. Mine, right? So there was an eighty song that got really big called center fold.

Oh.

this is IT. And the images of Peter wolf, yep.

who is the lead singer of the J A. Guys band.

all linked to the image. This is a great cora post, which we should say Adams, Angela, founder and sea of cora after there's a great core post about this where there's unmistakably the photo of Peter wolf that facebook guy is based on. They just sort of pixellated IT and made IT duo tone instead of the original photograph.

So good. Yeah, so good. So on the evening of february fourth, two thousand, four, after final exams, right when students, sir, coming back, getting into the mode for the new semester, starting to shop for spring semester courses, mark zuck berg launches the facebook dot com, and right off the bat, from the moment somebody logs in, the functionality is like, awesome.

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, yes, look up your friends, friends buddies. You see a visualization of your entire social network, but is u plus graphics? And then at the bottom of every page is the famous copyright two thousand four, the facebook a mark like a bird production.

awesome. I feel just like one of the most infamous screen shots is the screen shot of the original home page.

So, so great.

So importantly, things that did not exist here yet, messages, all posts even. I don't think pokes were in the original very first version.

That's a good question. If they wear in the very first version, they pretty quickly after.

but no facebook events, no photos other than your profile photo. I mean, no, I don't think think data sub dates, we're in the very first one.

I don't think status updates were there yet. No, but all the lessons from all the other projects, all the elements of them coming together here. So once again, registration is limited to email addresses on the harvard di du domain.

That was part of the magic of what had made all the other projects so successful is like it's not rand's in here, it's other people at harvard. It's your classmates. It's the people you care most about. yep. And by the nature of that, it's their real identities.

And that's what makes IT different than all these other social networks. My space existed, fenster 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. 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, 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. Identity and authentic identity is a part of the company from its first moment.

Yeah, coupled with super important learning. Number two, from face mh, its all user submitted content, so no prepositions tion with anything from harvard, you know, no scraping from harvard servers at a and like on the one hand, that prevents mark from getting in to trouble. On the other hand though, IT sets the expectation and the requirement, and trains the behaviors of the users of you GTA enter all the content into this site yourself. You put in your am screen name, you put in your cell phone, you put in your interest, you put in your classes.

also isn't a crazy. They displayed cell phone numbers for the longest time.

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. On the other hand, other students and your friends at harvard, knowing your call phone number, or that's actually pretty useful for getting in touch, for going out, for going to parties, for planning things, it's these are all .

people you would give your email and phone number and maybe even birthday too. If they just asked totally.

you would probably also give them your relationship status. Who which is in there formalizing your relationship status for the first time? Here on the facebook 点 com， you can add a photo of your own choosing as your profile picture. 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 photos, shop IT as much as you want.

and you can update IT whatever you want.

and you can update IT whatever you want.

So IT is amazing how much of the next billion plus people's source of value comes from this founding moment. The facebook grows tremendously and 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. The whole thing is here in the first few weeks, coding that got done and then threw .

up the landing page. I would even go once and 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 wild fire within harvard. Of course, he's already a celebrity already known for launching these projects.

People are tuned in and waiting for the next mark aca berg production. Within the first twenty four hours, six hundred and fifty people join. There's only two thousand people in a class at harvard.

So I think there's about seven, eight thousand undergraduates total. Within two weeks, over half of the entire undergraduate population is active on facebook. So now here's what I mean, why the seating is so important.

This initial network is super dense, super engaged and super active that not only sets the norms for how you're gonna have on facebook going forward, IT also means that as the network grows virally IT radiates out from this leg nuclear reactor of a base contrast that with an approach of something like friendster that's defauts open to everybody backed by silicon valley venture dollars trying to grow. They're doing marketing. Okay, let's say somebody in ohio.

Here's about friends there. 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 when you join the facebook, even though it's limited to just harvard students, you sign up and you like blown away by how alive this site is.

right? Almost nobody can use the facebook, but for the people who can is an unbelievably great experience as they expanded that stayed true. IT was either you're not allowed to use IT or if you are, its blow away great instantly.

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, here's another thing that I think was really important about this seating of facebook was actually that IT happened at harvard. Harvard is the top global brand among universities. 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. This was really important as facebook expanded because I had this patta to IT. IT was like elite, especially as they grew. There were closed. There were lots of other facebook copies out there.

And even if they were as good as what market built, they didn't start IT.

Howard, it's kind of like civilization. No body else could ever invade facebook's turf, but they could invade other people's turf. So somebody put IT to me in the research, like there was a fairly big competitor in germany, I think, maybe called steady voice, or something like that.

Facebook could really easily go into germany. And people in germany would be like, oh, facebook, i've heard of that. This is interesting study. Voice could never go into bost and like ever interesting.

That's great point. okay. So like weeks go by and they've SATA in harvard.

And not only that, you start seeing this thing happen, which just to the levels out with flies, hens. This stayed true for several years. This is a crazy stat.

Seventy percent of people who ever signed up were active that day. There are not user engagement retention metrics Better than that in the world. The fact that as they grew IT didn't matter how many more people they added IT was still the case that seventy percent of users ever were daily active.

And so you have this crazy situation at harvard where it's just like tear point nuclear reactor levels engaging. In fact, this term wouldn't coin till later in the summer. But this is from the facebook effect, David kirk Patrick book.

They had coined a term for how students seem to use a site ZARA berg, mock vets and Parker shoon Parker, who will talk about who comes in called IT the trance once you start coming through the facebook IT was very easy to keep going. IT was hip note. You just kept clicking and clicking and clicking from profile 和 profile viewing the data。

And every single one of those clicks is a page view. So yeah, this hits harvard like an earthquake. It's face mass all over again, except a good problem, not a bad problem.

It's all the IT. The services are melting down. Even mark is blown away by how big this thing gets so quickly.

Yeah, right away. They add the wall. So there is a way to publicly post things like testimonials and your friends walls. Uh, you can view a world, the walls, so you can see the public post that you are making back in forth to each other. So they've got your profile information will post and that's IT yep.

but to your point, very quickly, markets, adding features, adding functionality, adding things to do to the site. The other thing that he does write off the bat is say, okay, we're taking this to other colleges too. So he recruits his remains.

Dust n mask of its comes on to help maintain the site. Distant was actually in e on major. He had no idea how to code.

He goes out and buys perl for dummies and Marks like that. Great that you read that the sight is written in PHP. So dustin goes and learn P, H, P. To and helps with coding the site and keeping up with everything you know.

peri can learn. PHP is much easier .

chryse joints to Andrea column joins. And then they need to keep buying servers to keep up with the traffic, or else everything is gonna elt down. So one of Marks ferny brothers in A I is guy named at wardo sin and a wardo was, I think, part of the business and investing club at harvard.

So they recruit wardo in and in wardi, invest a thousand dollars in infrastructure for the site. Mark, invest another thousand dollars. So together there's two thousand dollars of investment in the facebook 点 com。 And the deal strike is that mark gets two thirds of the company and in wardo gets one third of the company and in wardo, sets up a business entity to formalize all of this as a florida.

L. L. Evora was from florida right away, as we are saying, Marks like, great.

This is not just a harvard thing. We need to bring IT to other colleges. And he specifically chooses columbia because ben is. He said there was an existing competitor there. And his, like, I want to see how facebook compete s and like, I want to know right away, can we display IT? It's so interesting.

He doesn't go to the schools where there is nothing. He goes to the schools where there is something and wants to be Better than IT.

which is so counterintuitive to how most people would think this is like, oh, no, this is a race i'm going to go to the White space. I want to gobble everything up and then wait to take on competitors when i'm bigger and stronger, like Marks, like.

nope, right away. This is a early mindset of wear, can be globally dominant. If you're OK splitting the market, you go for the White space and then you say, let's see how much of the loading fruit we can easily get.

But if you're facebook, you're going to say, let's go to the hardest possible competitor, extinguish them. yeah. And then and then we will have a Better shot at owning the whole market. We can get to the loading fruit later. 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 up.

So there we have the initial crew, mark, dustin, Chris, Andrew, and awarded the five o founders of facebook. The other interesting thing about going to columbia, which they do three weeks after the launch of harvard, twenty two days IT, was the same month, all within february or two thousand four. They set up columbia as a completely different network than harvard. So if you join the columbia of facebook, you can then go access all the profiles of harvard students.

right? At first there was a zero concept vy between the two.

which is another sort of counter intuitive thing you think like, oh, great. I want to build this as big as possible. Mark clearly wants to conquer all these other schools. 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, he would have socially inhibited sharing within harvard.

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 centres, don't worry about overloading the database, don't worry about number of rights per second and reads per. It's great if every school gets its own server rack, you do end up not having some of these issues that the other social networks have. Friends sters out there trying to compute second degree friends or friends, which is this crazy, hard computer science problem, especially as the global number of people growing.

It's an n squared problem. And facebook is over here. Or the facebook at the time, in the land where they're keeping and small. So even anything that and square is contained within that school and their servers aren't falling over and taking twenty plus seconds to load pages the way that the french world.

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

What's interesting is that IT flips at some point, as facebook grows and eventually becomes open to everybody, their competitive advantage becomes, their tech is so good and their info is so good that they can do everything you are just talking about their friends that couldn't do and that my space couldn't do. But in these early days, their competitive advantage is actually like nowhere scale out, not scale up. And then mark was totally willing to just flip the bit later.

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.

There's a funny chicken of the egg thing here. And I think the answer, like many chicken of the egg, is both mark at the moment. He conceives of an idea, thinks through the technical requirements and the user experience and their sort of coaming LED in the product development process. And so I really do think even at age nineteen, he was sort of aware of the scaling benefits in addition to the user experience benefits of launching in this way.

Totally agree. Okay, fun bit of trivia about harvard to leave policy that we reference 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 was the night, the same night during which speech bill mentioned that he actually felt comfortable dropping out of harvard because he discovered that harvard had this really generous leave policy, 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.

unbelievable. He is crazy trying this back to our microsoft episode. This would have been, what? Early two thousand and four.

And so this would have been right after bill stopped being CEO handed the CEO rains to Steve. He was still the chief architect and still chairman of the board. But it's sort of this like post D O J. Time for microsoft are bill is just technically focused and can do things like to speak at harvard.

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 days after columbia launches facebook launches at stanford gale by the end of the semester there in over a hundred schools in like, you know what, three, four months like this speed they are moving with is crazy.

And they start building these weight lists. I mean, this is the other. There so many common start up things that facebook kind of invented, they built tremendous demand before they would light up the network.

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. We were like, oh yeah, facebook now works for me. So they wanted to wait until they had sufficient demand to bloom open that school and then wanted open everybody should have the best possible experience. And so you're seeing facebook basically say, okay, wherever there's really strong demand, that's where we will open next. And we're not onna open anywhere where we see like you know middle .

demand for our product. Yep, totally. Meanwhile, here we are at the end of the school year, the wick of us twins.

Take the whole connect your situation to harvard s president Larry summers to adjudicate this between them. In mark, Larry says, hey, harvard is not gonna get involved here. This is a business dispute between students, eventual the two twins sue market.

In facebook, they set off for sixty five million dollars, forty five million of which is paid in pri po facebook stock. Obviously, that grows a large portion of that. Then I think they sell in put into bitcoin in like twenty eleven and twenty twelve time frame.

So they end up pretty, pretty fine at all this. They do, they did. But here we are.

At the end of the school year, summer comes around and anger. A colum has some connections out in the bay area. He had turned the electronics arts.

Adam danelle is going to be spending the summer from caltech. So the crew all decides like, hey, great. Let's not get in turn ships.

Let's go renter house out. And palo alto moved to silicon valley and work on facebook there for the summer and see what happens. And yes, the house did indeed have a pool. Yes, they did indeed installed as applying of the child. That was not fiction in the movie that did actually happen.

And IT is important to know to this point. IT is a project mark and dusty and Chris and everyone who moves out, they're 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 start up having a network that is literally the mentality facebook is, live at how many schools given a hundred, one hundred schools. 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.

Yeah, now when we say crew who moves out, that crew did not include a wardo awardee had an internship in new york and decided that he was not going to move out for the summer.

Yeah, tough decision.

not a great decision. On the other hand, he ends up with two percent of facebook. So he's also fine.

yeah. So to make a long story short, yes, everything you saw on the social network around this, the result is effectively correct that Edward's everyone goes from owning a third of this florida S L L C to something like two percent of this score. That is a delaware sea corp.

Based in california that goes on to become or is facebook ink. And the justification that they effectively use in changing the structure is, hey, a bunch of us moved california. You to start a company together.

You stay 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. He was a cofounder of facebook and then ended up with two percent and lived on a different coast. Okay, so there in california, they get really serious about the facebook.

They actually are still working on something else called wire hog can currently within the same team. But they're starting to realize, okay, this the facebook thing really, really has legs. And as they sort of contemplating the next move, they literally run into someone on the street who will change everything. David.

who is this person? That person is the cofounder of napster, sean Parker, who would have a brief but very, very large impact on the company.

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Ultimately, every business benefits from built in fraud prevention, whether you're moving one hundred dollars or a billion dollars, and with the trust and innovation from g more in payments whole system, you can drive growth while protecting your business. Check out more payment solutions and stories at J P. Morgan 点 com。 Slash acquired okay, David, sean Parker enters the picture.

Here we go. So sean Parker, of course, started napster with Shawn fanning back in the nineteen nineties. And after the whole nater saga, Parker ended up starting the email contact list company called so, which was kind of its own photo social network and pioneer email address book exploiting and uh, exporting.

which is how every social company got its start facebook in a ton of this, linked in a ton of this.

Whats up to this exactly? IT, pieter, the first bootstrap viral social network mechanic. Hey.

let me see who all the people you know are. So that on this new thing that you want to be, all the people you know, you're connected, all the people you know, oh, by the way, we might also invite all people that um you've ever contacted.

Yeah so Shawn and his cofounder is a place. So raise money for plaxo from venture capitalists, not just any venture capitalist. The best venture capital alist from sqa capital and all is going well.

Plaxo is going fine, sir Michael Morris on the board of the company. Anyway, after a couple years, sean Parker ends up getting kicked out of the company by the board. Now shan wasn't exactly the most like reliable employee and definitely was um corky. But the result of this is shows ever lasting ammi first coa and paranoid distrust of all venture capitalists and company boards. This is going to become very, very, very important here in a sec.

So rewind slightly back to the spring of two thousand, four, when the team is still at harvard, sean is living in palo alto, and one of his housemates, girlfriends, whose I believe a student at stanford puls, up the facebook to com on her laptop. And it's kind of like the scene where this happens in the social and ork movie. John is like, holy crap.

This is IT. This is the winning social network. And john, I believe, had actually been an adviser of friendster as well. So he was, like, between plaxo and nap ster. Friendster really believe social networking was gna become .

a thing totally. And this is cut of crazy to think about, unless you had a student show you on their computer, this is what facebook is. There is no real way for you to know, other than the sign up pitch, right.

which you can get passed and see how alive the thing is. yes. So Shawn, being the enterprising person that he is, he called emails the companee business email address and asked to set up a meeting. And at what severan replies to shan is, I go cool in the cofounder of navesink, they set up a dinner in new york city. This is while the springing semester is still going on at harvard and mark in awards and Shawn, i'll get dinner together and mark and Shawn really bond. Mark is super pump ed to medium but that's about IT like there's no you know discussion about you know what's cool a billion dollars you know it's at at a has dramatized in the movie that doesn't happen. They kind of think that they're just gonna go their separate ways.

right? Nice to meet you. I don't think even mark knows yet that he's moving in the california this summer.

No, totally not. So here we are now. In june, the facebook crew has moved out to palo to they're walking down the street when the evening sean is also walking down the same street in palo alto. Seize them and is like, hey, it's the facebook guys.

At at this point, sean Parker was living in a different house, specifically the house of his girlfriend's parents, not a good situation, and he makes a split second decision right there on the street to insert himself in the facebook and is like, hey, i'm actually looking for a place to state. Do you think I can crash with you guys in the crash pad for the summer? And he joins the crew. This is how IT all .

starts at as wild.

Yeah, it's like a you ever play old school like super intendo road playing games like japanese R P G S, like final fancier what .

ah it's been a while.

I 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. It's going to join the party because they pixel spread is more highly detailed than the regular N P, C. Pix of this is exactly what IT is like here.

John Parker had a very detailed pixel spirit.

yes. So while he's there, you know, living in the house a crashing with the college students, he basically takes mark side and he's like, look, you've got something really special here. I have been in your shoes.

Let me tell you exactly what is gna happen this summer. You have created something magical. You're now out here in silicon valley.

You are going to be the belle of the ball. All the venture capitalist out here, all the big companies, they're gonna wine and dine you. They're gna court.

You they're gone to tell you you're great and they're gonna wanna invest in your company and then they're going to turn around and they are going to screw you. They're going to take control your board. They're gna force you to bring in.

And good professional management, they're gonna kill. All the magic growth is gonna slow. Then they are gonna blame you and then they are going to fire you and they are going to put the company up for sale.

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 a sixteen z yet. There wasn't like the notion of founder friendless ss.

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 get. And usually they would try to do IT with the sort of help and support of the entrepreneurs, build this like really great team together. But often times that backfired, and they just hot swap the C. E. O with a big grown up manager journal, nice suit you.

And 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.

Yeah, that's true. The open web kind of changed the hard requirement on yes.

And I think sean, as bitter as he was about his own experience, I think he probably also recognized that and recognize that the facebook and mark had the potential to start a new paradigm of how to do this differently. Sean says to mark, look, if you just go out on your own, that's what's gonna. en.

I am going to take you under my wing and make sure that that does not happen. And i'm gonna 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. And i'm going to help you go about funder raising, but i'm going to make sure we find the right people who are cool with that stipulation.

Number one, because if you go trying to up by yourself like you don't know enough, you don't know these people, you're not going to find the right folks. And it's kind of child. I mean, Shawn was also in a position to take the age of mark in the company, and he did.

There are what some nice self interest in all of this is not like this .

was like he ends up the president of.

and he ends up with a pretty decent chunk for a non founder, and he ends up with a board seat. Now, granted, its technically Marks board seat, but, you know, just the one sitting in IT totally.

But IT won't been really easy for him to do one, two things. You know, one, obviously take advantage of work in the company and get a lot more for himself too. I think he also could have been so gated by the plaxo experience to say we didn't raise venture capital at all.

But actually what he council's mark to do is the right thing. No, we should raise venture capital. We should professionalize and the whole silicon valley machinery really can help us.

But we're going to do IT in the right way on our terms. Yeah, I think he just really wanted to help mark win the game. I think, right. The other thing that shan does bio accounts is he make sure that everyone in the house that summer gets equity in the company.

okay. So what's wire hog? What's what's the second project that's going on here? yes.

I really would love to know what Shawn thought when mark and the crew told them about wiring g wire. Hugg was basically going to be a captive. Napster to facebook, everybody on facebook in these private networks, world gardens. What is something that college students really, really wanted to do and was happening internally on college services all the time, share files, share music, share movies. Why hog was going to be a product to make this happen? And actually, legend has IT, I think in Stephen levy's book, while they're talking about this on Parker actually comes up with a name for the product is like, oh, if you launched this, you should .

actually call IT dropbox.

No way. yeah. Like a year before drop back, the actual company .

gets founded at so funny. But they really are sort of thinking of themselves. This is almost like incubator lab. I don't really understand how this is true, but they really did convince themselves that their current front runner for the product they were most excited about was wire hague and facebook might be like a good distribution vehicle for IT. Or maybe at some point, they don't even focus on facebook name where and they go all in on wie hogg. They're actively talking about this insanity while speaking with investors about raising capital.

Yes, there are two. The investors that Shawn goes out and helps them find sean at this point knows basically everybody. And so I can really and he's leg, okay, I need the pretty tight window of people who, a have money, b know what they are doing and c are OK with our terms. That marker is gonna control the board and control the company.

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. One is read hofman, who read had made running linked in. And sean had been in this early social networking thing.

and he just started linked in. They actually knew each other because read was early investor in french ter.

So shang calls up breed and he also calls up mark pincus. Mark had been shan's boss at an internship that he had in high school. And then market gone on to invest in napster when they started in APP ster as a company.

And we should say who mark pincus is, for anyone who doesn't know, mark would eventually started singer.

yes, could become a very important person and company in the facebook ecosystem.

the maker of farm film.

So pink, us and read, meet up with, shown in mark, and there are just blown away by the facebook. And then as you say, mark starts talking about wire hook. And apparently read is like, no, stop talking about this wireless.

Og, i'm running. Like, then I can tell you this is special. Like, do the facebook thing.

not only do the facebook thing, but like, music is script night as a space right now because of what nap ster did to the music labels? How is shot? Not the one being, like, stay a thousand yards away from music. My god.

I mean, amazingly, a couple years later, you shan being so open my day and he is is the one of the ones he really helped spotify get going.

You and really broke the relationship with mark for Daniel and mark to hit off and obviously spotify to have a huge amount growth on facebook totally.

So okay, read really excited like no a the facebook focus on the facebook your .

user numbers are what your engagement is, what your attention is, what your demo ratio is, what oh my god.

so reads like, look, i'm running linked in pink us and I don't have that much money together. We will give you some, but we can't like fund a whole you know round for you.

And they're kind of conflicted both with fester and linton.

but is like, I think I know the perfect person who can put this together.

I worked with this guy of paypal.

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 tail? And Peter, yes, indeed, was just in the process of starting what would become founder fund. But you are eluded to this. But like, founders fund was such a radical idea when Peter started IT, the idea being baked into the name that they will always decide with founders and never push a founder out of a company.

I was shocked. I mean, it's just it's so easy to forget this. But I was just twenty years ago, the idea that a venture capitalist makes an investment in a company and they are not the controlling shareholder, was blast famous just twenty years ago.

Totally blast famous. Of course, paypal has its own crazy history. Or you can understand why Peter would arrive at this conclusion. But he really was like, maybe the only person in silicon valley that hit that van 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 paper alleges that had just happened and was going to be cool with mark controlling the company.

Yeah, it's a one of one introd make. I mean, that wou'd had to be someone else in the paypal mafia that kind of fits that yeah.

But I don't think at that time, you know, elan wasn't doing investing. I don't think there is anybody else you really could have done IT.

Yeah, that's a crazy counterfactual thinking about if elan had invested in facebook instead .

of Peter till right? What if elan hadn't started SpaceX?

He wasn't just as good a position totally had a love gone to sqa a .

yet if he had what had just started.

This is effectively the poll of financiers who could have done this deal.

but qua wasn't going to do this deal under those terms. So rule couldn't done IT. yeah.

IT was maybe one of two, with the other one potentially being elon. Well, that would be a really different world that we would be living in today. Yes, okay.

So they take the idea to Peter in the meeting. Read brings along a Young guy who's working for him and linked in the mat color, and come helped to talk to Peter, evaluate this from an investing standpoint. They strike a deal that Peter is going na lead around of five hundred thousand dollars.

Read and mark pincus are each gonna invest thirty seven thousand five hundred Peters gone to do the rest at a five million dollar prety money evaluation. So five point five million post, which you know all the way he had, just like laughing ble. Now 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 five million .

dollars out of five million doll valuation. The multiple sense then has been about two hundred and fifty thousand X.

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? So and why do never came out in the first place?

So he did his internship in new york. He goes back to harvard and starts his junior. Chris hues also goes back to harvard, starts his junior graduates in two thousand and six, and then rejoins facebook after graduation.

Andrew mccollum n stays in palo alto for a couple years and then goes back to harvard later in complete degree. He takes the bill gates road not travelled option. Dustin never goes back, stays with the company until two thousand eight when he leaves to start a sona. And mark, I think, probably never really even considered going back yeah at this point. The seventy percent .

that keeps being true despite the fact that they keep opening all these new schools. IT keeps being true that seventy percent of people who have ever signed up our daily active users. So I think mark realizes, oh, I have created one of the most engaging technology applications ever.

yes. And certainly at this point, the combination of sean, Peter read, mark pincus all advising in being part of the company, they know, and they have certainly helped him realized that, yes, adam, the angle does go back to caltech. And then drew aim I S remotely helps collaborate with the company until he graduates, and in two thousand six and become C.

T. O. Officially, Shawn, like we said, his impact on the company was huge. I really want to underscore this again, mark, having full control over the company as we are going to see time and time and time again as we go through the story here makes all the difference in the world. And that is one hundred percent because of Shawn Parker.

yeah. So how long is shown at the company?

Not very long. Because at some point in time, the next spring.

so it's like nine total ones of the company.

Yeah I think about nine total months. Shaan 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.

A charges do eventually get dropped, but in the meantime the decision is made. Hey, this is not the companies going to get sucked into.

He immediately joins where else found her, on which Peter, partially on the back of this facebook investment has now set up and raised officially. Like we said, Shawn goes on to find and fund and really help nurture spotify. There is role of founders fun.

Yeah, it's kind of amazing thinking about founders fund raising capital on the back of this investment. One pitches, we invested in facebook. The flip side of IT is we just invested in a company we're currently holding IT flat because there's been no mark up yet from any other investors and they're not generating any revenue.

Well, let's talk about the other investors by this point. Kind of towards the end of spring semester two thousand five, facebook had now dropped. The za become just facebook that was one of sham Parkers final impacts on the company is he actually negotiated the domain name purchase of facebook 点 com in the company yeah， I believe they bought IT for two hundred thousand dollars, which actually was a good chunk of that venture money being raised.

right? So IT was five hundred k that they .

raised before five hundred k yeah.

And they're actively spending that. The company has never consumed that much capital, but they are having to spend IT on servers as they stand up new colleges. They are having to go to 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 where they had in the fall of two thousand and four.

several hundred.

will. Sean Parker introduced mark to western technology investment? Wti.

the dead fund? Yeah.

yeah. And so they vivica invented venture debt, and so they make a three hundred thousand dollar loan. It's like, I think they get revolving credit line in the fall of two thousand and four.

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 three hundred thousand dollars. So they're in for six hundred thousand dollars. I H spoke with someone years ago who told me this ended up being phenomenally, phenomenally successful. And the Warren exercise on this, I think, is the greatest venture.

That deal of all time has to be nice. Spring two thousand five excel comes in, leads a series, a twelve point seven million dollars at a ninety eight million dollar post money valuation. That's Sally crazy and enough itself for the time.

And though still being OK with mark having board control, yes, which you know one thing for you, like OK at the Angel round, maybe like that still pretty crazy, but whatever, this is Angel around, but lag, no, like a real venture, apple, from real series of two thousand five, a hundred million dollar valuation. B being okay with that, that was why also see getting less than twenty percent of the company like rule of them. Venture investing back in the day was you need at least 20 percent of the company， ideally more like 20523。

yes. So Kevin, a fructose ran down the deal and did the diligence at excel and jamb ya 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. 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. The other thing that's worth noting is this is a company of getting a ninety eight million dollar valuation. Now the silly land that we live in hour like this happens all the time.

This didn't happen, and we were only just coming out of the dot comer. So I balls and clicks had just had four years of demonization from everyone, from the press to the public to limited partners. In fact, excel had limited partners drop out of this fund who were L.

P. S. Previously, including your beloved princeton, including harvard, and I mean, big and dying. Stanford was one of the only ones that really stuck with them for this four hundred million dollar fund.

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 calls for five years ago in the mania for doing. And no one is doing this type of deal in this environment, but it's facebook. So we're gonna IT. I think the level of risk and reputation risk that they took on this cannot be underscored enough totally.

I was trying to think of were there any other deals like this that you you could even kind of point to as a comparable from the past? And the only one I can think of was the google series a, which was twenty five million dollars at a one hundred million dollars post money valuation split between Michael morse from sqa, john door from kiner pertains. But I was in the dot com, run up exactly, exactly IT was a totally, totally different paradigm.

The legend has IT. I don't know. This is a pokphand not is that after making the investment more, it's told on valentine, it's a coa.

Never have we paid so much for so little. 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 dark com bubble that happened, but like that this would happen in two thousand. Five excel went way out on a limb for this.

yeah. So some other interesting deal points. One point one million dollars of this, twelve point seven million dollars around was done by jm bryer personally.

wow. yeah. The shares were required at four point five cents per share. Facebook just recently hit six hundred dollars a share. So excel and their limited partners, and jim, for anyone who still holding the shares after they distributed them, that is a thirteen thousand x return.

Another interesting thing on this, do you know the whole don gram dynamic with this deal? Yes, the original deal was that don gram from the washington post was gonna st. In IT. Wasn't gonna be A V, C deal that was at a sixty million 用 excell comes in over the top。 And in part of the negotiation to get IT up to this ninety eight million dollar deal, there was actually a secondary.

Oh, wow.

three million went to mark, dust on and shine as a secondary in this deal.

Wow, I had no idea. I add to the lines of things that we're not done back then.

This is facebook having all the leverage and full deal control in negotiating the series day. wow. And still, IT was one of the best venture capital investments of all time.

Absolutely, man, that is freaking wine.

yeah.

wow. okay. Well, that is a lot of hype to live up, which brings us now to the summer of two thousand five, where mark, motivated by this, perhaps I hadn't quite thought about that, announced to the company his product road map for the summer. And IT is a six point products play on number one, a redesign of the site, bye e facebook guy. Number two, a photo application.

which, by the way, photos got written by, like one guy in two weeks.

yes, move fast and break things.

yes.

Number three, a personalized newspaper based on all of your friend's activity. Number four, an events feature. Number five, a local business product and number six, a sort of vogue idea for a feature called i'm board, which would let users on the site who were bored consume media and play games.

That's a pretty big, big Mandate.

This is a freaking wald. So now okay of that. I think only the redesign and photos would actually ship in two thousand five.

Maybe events did two. I'm not entirely shape, but this is incredible photos news feed platform, which is really what this on board feature is. Summer two thousand five.

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, these are all like multiple along development processes .

or anyone is a zone company.

exactly.

Photos is flicker. There are independent game platform .

companies out there, mini clip, a flash games.

What were some of the other ones?

Events, event, you personalized newspaper? Well, that becomes a true, true innovation, a news feed. But I think at the time, there was a lot of buzz and talk about personalized portals. And like, yahoo was really big on this, and google was even kind of big on, go make this your home page.

Oh, I google. Do I?

Yes, I google exactly. 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.

Yp, each one of these under the old paradigm was its own company. And mark is 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. It's one thing to say, i'm gna add a lot of random features to my site, and i'm going to throw speaking ti against the wall. This was not a random grouping of features.

Everything reinforced one another and drove the engagement loop of the site. So just as one example, let's take from, you know, this road map that mark lays out events, let's start there, events and parties planned on facebook get tag with who's gonna attend the events. All of those tags get published out as activity to news feed that drives interest in foo 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 while those photos get posted back to the site afterwards. And they all get tag with the people who were there who are in the photos.

All of that becomes activity that they get publish to news feed that generates more desire for more people who see that on facebook in the new feed to either engage ed with the photos and like and comment on them or if they're hearing about IT from their friends and they are not yet on facebook, to now register for facebook and get involved in this loop. 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 build on itself over and over and over again.

Funny, as you're saying all this, that sounds like very old hat, boring. Of course, IT does all of that. At the time, I was so revolutionary.

everything I just described was there within the next eighty months.

So photos, I think, was like late summer of o five. Interestingly, photos did not originally include photo tagging. Photo tag ing was like a pretty new concept. I think flicker 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 the'd been tagged in, that wasn't brand new innovation. That is a mechanic that was not thought of in social networks before. If you think about what friendster in myspace were, you could upload a limited set of photos, which, by the way, you would have to delete one to add another.

Yes, so my space 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? That drives the whole viral loop.

And this is a through line, through the whole episode, what social media or social networks are. Definition ally changes every year. 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, he was facebook competitors that then they had to sort of adopt that functionality.

But the idea that a social network includes an infinite number of photos that you can tag and give X, Y 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 I meant to be a social network. And as you're saying with news feed, that wouldn't happen for another. What was that? Late summer of two thousand and .

six or something? pteor. Two thousand?

six? yes. So another year, year and half after this, that completely turned what social media, social networking was on its head again.

Yes, we're going to talk all about .

IT in the sec to this point. The 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 dot com slash instead of slash profile PHP, it's pretty useless. 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.

Yes, until this feed OK before we .

get to that two thousand and five.

Dear, 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, what IT happens.

But like again, the mental flexibility of mark in the company to be like, okay, i'm not gonna have pride about that anymore. I'm gona adapt. And still in is incredible.

Very microsoft an.

very microsoft an. Okay, so even this, even though IT takes two years to roll out the full road map, photos, events, but especially photos that two thousand and five, two thousand six school year is just off the charts for growth, sharing engagement among college students. Then you found you like incredible stat about facebook page views. break.

Yeah, this state is crazy. By november of two thousand and five, they were getting two hundred and thirty million page views daily, which means that they had passed google in page views. wow.

Google, the company started six years earlier. And the reason is because when you're on google, you do like one, 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.

right? Which was already the case when I was basically text only, but adding photos. I mean, oh my god, every photo is a page view. With such a smaller user base at that point time, I think, but probably certainly less than ten million users to have two hundred million plus page views every single day and be passing google in traffic is a wild I mean.

let's say it's standin. It's twenty three page views per day per person. That's assuming that every single person who is a user is accessed every day and loading a page twenty three times right in our mobile age.

Now that doesn't really sound like much. I bet the number of photos that someone score through on instagram way higher than that. But for the time, that interactivity was just nuts.

I mean, certainly flickr, my space friendster, couldn't hold a candle to that type of engagement.

yeah. So here's their user growth in june. Vo five, as you mentioned, they were three million.

By september of all five, they were at five million users. That was ten x their user base just a year ago in september of o four. And almost a third of all U.

S. College students were included in that five million. So by september of o five, they had a third of U. S. College students of their five million users that they had about eighteen months in, seventy percent were daily active, eighty five percent were weekly active, ninety three percent were monthly active. Wow.

those are just the insect numbers.

Yes, I could go on and on and on. But one interesting thing that also point out at this period of time, october of o five, they were up to eight point three million users. They were the tenth most visited site on the internet.

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. Eighteen months after founding, there are no longer burning capital.

yes. Well, when you say figured out the advertising business model, they just had such a high volume of page views, they didn't have to figure anything out, right? You just plug in some crappy add networks like print money fair.

Yeah, you right. Actually, I completely missed ke. I would say that they were nowhere near figuring out the advertising business model, but they had a traffic machine.

They were able to threw alchemy turn page views into revenue. yeah. But they had not by any means, figured out their .

business model. And in this world where startups glorify raising capital, burning huge amounts of money, delay monetization and then having these amazing screen returns when they finally do turn on the money for that, facebook was just the opposite. They want us money, and not that much money for like a year and a half. And then from that point on, they were just profitable.

yes. So the two thousand and five, two thousand and six academic school year, incredible for the company, everything we just talked about. But there were a couple yellow flags, shall we say, that pumped up 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 wanted just build a college site. I want this to be a lot bigger. And obviously, that was what excel was investing into at that valuation.

So they launched two sorted tests throughout the year. One was opening up facebook high school students and the other one was opening facebook up to workplace groups. And both of them kind of flopped .

and for different reasons, right? The workplace ones, they are like the workplace thing is gonna awesome because it's authenticate email addresses the same way that the colleges had authenticate email addresses. Most high schools don't have authenticate email addresses. So we expect these workplace networks to work Better up.

But the problem was going into workplace networks, people didn't want to share with their colleagues.

I don't want some low rest party photos of me from last night showing .

up on my workplace. And I think also just the density wasn't there. 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 going straight in to workplaces like you've got sixty year olds and they are like, this could be nothing compelling for them right now.

The extreme bare case on facebook at this moment in time is you started with the group of people who are the most social and the most open share in their entire lives. You've already saturated a third of them. Every single cohort that you add from here is probably gonna be worse.

Yep, and that 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.

Was just way more fragments in and see. He couldn't. Elegant set up these private networks in the same .

way you and in fact, what they ended up doing, because I was in high school hold this time IT was technically a different facebook. In fact, I will quote the home page when you went to sign up, if you went to facebook that come in two thousand and six. The title was facebook as 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. 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 school or you got the crappy one, you had to log into H S dot facebook dot com. And IT looks mostly the same. 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. 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 of facebook. That com.

Hey, man, I vegan. Remember this of my Younger friends who are still in high school asking for this.

And the subtle meeting thing was that lasted for a long time because the college facebooks were sub domain as a part of their like, tech infrastructure. You know, harvard, not facebook dot com, only went to the set of servers that they had set up for. That I made IT all really easy from an inflecting perspective. I was on hs that facebook that come for a long time as a college student.

right? Yeah, because there had to just be one, a just of facebook account for all the high schools.

yes. And IT meant that they need to do like manage scale and load baLance really differently because very quickly, the largest network or like certainly the largest sub domain was the high school one. And so i'd think like within a month or two of allowing high school sign ups, no 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 that doesn't behave like .

any of our college networks. You so the academic school year in the core college user segment went great. But once you hit summer two thousand six, all those kids go on break and college growth stops for the moment.

So some are two thousand and six was kind of a scary moment for the company. The incentives to expand outside colleagues were not going super well. College growth had stopped for the moment. And yeah and like you said, like very rational argument that like, okay, this thing is gonna a really interesting nitch site for college students.

And how valuable is that? Well, via com, which owned M T V, thought that that was worth seven hundred and fifty million dollars, which is what they offered to buy the company for in the summer of two thousand six. Well, there was another party that really, really wanted to own facebook at this point time, and that was yahoo.

And yahoo was willing to top via com 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 existent al question mark about the company. Growth is slowed a lot. You've got a billion dollars on the table, which is a lot of money, especially in those days.

I was shocking six years later when facebook bought instagram for a billion dollars. This would have made the careers of everybody involved. You and you know, mark, of course, controls the company, controls the board.

Thanks to Shawn Parker. He doesn't have to sell. But the whole management team is like, yeah, we should probably say 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. We should probably hit this bid. So mark actually agrees to the yahoo deal.

Billion dollars is going to be all in stock. Yahoo is going to buy the company in the interview between when they shake cans on the deal and while the dogs are being drafted. Yahoo announced their quarterly earnings and they have a bad quarter and the stock drops twenty percent.

And Terry sample, who is the C. E. O yahoo at the time, said, okay, the deal is no for the same amount stock.

So commensurately, the deal is now worth eight hundred million dollars, not a billion dollars. And that was history turning on knife point. And that was all mark needed to say, you know what? Thanks.

but no thanks. 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.

Mark actually accepted, or at least said, let me turn over another card and get one inch closer to the negotiation being final. No, IT wasn't an alright rejection at first. I was, yeah.

come back with the papers. Yep, totally. That is not the way IT gets talked about today, but I think actually makes the story like kindly even more powerful. IT almost really did slip away.

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 a show me your real okay, so analyzing, let's say he just did turn a down out, right? 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.

Mark has said publicly. I was like fifty, eighteen years ago. I didn't have any more ideas as good as facebook, but that's like way under selling get there aren't Better companies to start, right?

Yes, IT would have been nice to have certainty on a billion dollars or whatever percent of the billion mark into that point. And also a year before myspace had gotten bought for five hundred eighty million dollars. News group.

So it's like jez k, twice as much as my space. 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 sense. 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 that again.

I completely agree with you, and mark has said so much in so many words to you and me personally that he's not optimistic for financial outcome here. He's optimising for impact.

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

yes, totally also though to his skill as a strategist, even at this very Young age. Yes, but you and I just made a compelling argument about why you couldn't believe facebook was going to top out with the college market at this point time. Mark knew that, and he had planted the seeds.

Dep, both newsfeed and open registration. We're gonna be coming later that year. And he was definitely making that calculus here too.

Like, well, I don't know what the probability necessarily is that they're going to hit the market. They believe like a if they do, they are going to be really big. And B, I think the probability is higher than the people around.

I think IT is. Yes, that's totally fair. Even if you weren't going to bet on the growth, the user engagement was still currently great. And you had a lot of reason to believe that he was going to get even greater.

And you compare all the metrics with french ter in my space as time when on got worse, people turned their daily active to monthly active would just go down over time. The page loads times would take forever, especially with, well, actually with both. Friendster just was not architected properly, was a software engineering, computer science issue. My space was this weird thing that was sort of born out of this combined media can glamorous, and they just never really had excEllent tech architectural talent. And so as he sort of looked at not the high level metrics of how many users i've ever signed up because my space and friends there, I think we're still way ahead at this point if you looked at like HMM, but how is gonna play out if IT sort of keeps compounding and you looked at the deeper meat rics, you kind thought, oh, i'm running the Better company by a lot once especially, you know, we got to figure out the business. But I am running the Better product by .

a lot 也 so okay to figuring out the business coming out of this episode with yahoo。

They say, no, the whole managment team turns.

The whole management team basically turns over the next seven month, mark gets religion on a couple things.

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 we aren't getting one or are not .

pleased totally. So what are they going to do? The first thing is, I think market always Operated the company this way, but now he gets real religion vely.

We need to get more revenue and we need to focus on becoming truly cash ful positives so that we are never in a position again where we would even consider doing something like this. So in August of two thousand and six, they do the first partnership with microsoft. It's funny that you know the microsoft facebook relationship, in some ways the sort of a preter to the microsoft OpenAI relationship today and how that gets built.

Here's what IT is. Microsoft says we are going na take over selling all of the display ad inventory domestic within the us. For facebook. And we will give you a guaranteed C, P, M that we can sell.

And then we are going to 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, being making that into ultimately be a successful business, but even more importantly, for azure, that comes out of IT. Microsoft knows they need some scale to boot, strap up and get started with. But the ad business but also just like the online services division period yeah .

this is a ton of inventory like you just think about the amount page views that are happening here. Suddenly microsoft is not. How do we find enough inventory to sell is how do we go find enough advertisers actually fill all these slots on facebook?

yes. And microsoft have been trying to do this. They tried to do this with my space a little bit earlier, and they lost that deal to google. So they really need facebook.

And on the other hand, this is a great deal for facebook because facebook sucks at selling ads. And facebook has no targeting everything. So they really shouldn't justify high C P.

M. At this point. Yeah outside a good party network, right? right? So this is like basically all of facebook s revenue for the next couple years here.

So facebook had made nine million dollars in revenue in two thousand, five when they were selling themselves. This is then, as you are saying, like hey, they are starting to turn on ads in two thousand and five. It's starting to work like nine million dollars. That's amazing for year to as a company in two thousand and six with this microsoft partnership that jumps to forty eight million dollars in revenue. Oh.

that's whether money spec IT is now .

we're talking. And then the next year in two thousand seven, again, I think almost all of this is microsoft that goes to one hundred and fifty three million dollars in revenue. H, so like, okay, we are way out of any league where we we consider selling ourselves here if we can.

Controller on destiny isn't a wild thinking about. You thought I 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 six x revenue multiple and you're tripling your over a year.

Oh, and by the way, in the second iteration of the microsoft partnership, which we will talk about in just a minute, IT included an investment from microsoft at a fifteen billion dollar valuation. Holda horses.

let's finish this great two thousand and six, two thousand and seven ark, and they will get there.

yes. Point being though, mark made the right decision for all shareholders of facebook to walk away from the ahoo deal.

I mean, at all time high in walking away from every deal ever, he's made the right decision.

Within a year, he made the right decision.

yes. Oh yeah, that's true that this became obviously right, fast.

very fast, very fast. So how does this happen? Okay, adam d. Angelo finally graduates from caltech joints facebook full time as C. T.

O. I love that. Adams are like second protagonist here.

yeah. Well, he was right there. I be there at exit together.

Like, I don't think you can separate IT out. yeah. And I 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 his Young same age is mark when he now arrives full time as C. T. O, this is when facebook starts to be taking the steps to be building like real technology infrastructure. So before adam joints full time, the team was shipping new code to the website, like at a high velocity relative to everybody else out there. You know IT was weekly issue maybe every couple days, you know, maybe even up to you.

like they were a web company for the first time in history. You actually could all these companies with big climbing microsoft dp every three years with the service packs once a year. It's a whole new era where all you have to do is, you know, upload some new PHP co to the FTP server and then boom, the application behaves differently the next time someone pulls down the page. 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, yes.

And when adam becomes officially A C T O, so actually we should village a ship multiple times today. We should just be giving all the time. And also we should probably start recruiting like a real top teer engineering team because I remember it's still kind of nuclear winter for startups.

Great tech talent is available. So they start going in recruiting like really, really top tier engineering hires. And it's a pretty compelling offer like a we've got real revenue from this microsoft nerves where the best funded start up 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 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 start up to have an open office plan like just everything about how the an the company was different.

IT was the prototypical start up. I mean, to this day, early facebook is still what most start up culture is aspiring to be. I think often without knowing that, I mean, everything from the sort of posters on the walls with your mantra in your values to almost having like an employment brand that you really care about cultivating, to the idea like we're having just as much fun together socially as we are working together. I think the modern start up culture, especially when you factor in the shipping every day, open office, White comedy, are kind of trains companies to become like facebook .

was a hundred percent mean. There was google out there, which had a lot of this helmet. But he was a very different thing. He was very academic, very monkey. These guys were hackers and they shipped, you know, and they were all in IT together.

The other thing that was basically true as 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.

So one of those super intelligent, super talented Young engineers with a high slope who joined back and follow five was engineer in Chris cox, who joined from the stanford to A I lab. And Chris joins a team of other Young, smart engineers LED by root, song vey and Andrew boz. Boz, worth working on Marks personalized newspaper product idea.

Richie was one of facebooks very first engineers, and along with her husband, dt. Arg, while they've run south park comments now, boz was two years ahead of market harvard and had actually been marked T A. In the injured to artificial intelligence C S. Class that he took and then he later joined the company.

which is actually not have ended up getting a job. But they did happen across path is that way .

before both went to microsoft, I think before the yep.

just for a few years.

So the three of them start working on these feed. And so we've talked about things like photos and the fundamental architecture the site news feed required, like a whole new level of engineering process to get this thing to work like you're not just going to code this up in P. H, P. Like photos also required real engineering. But news feed was like pushing the state of the art of what was possible in technology and on the internet.

So the first question you have to ask yourself, if you are a good product designer, developer, capital alligator, someone in mark shoes saying, should we do this is, do people want this? If we build this will IT be valuable. The reason they knew that 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.

And they notice this behavior where people were browsing to other people's profiles just to look at them and see if anything changed. 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 say anything new here. So there was an engineer who did something really kind of a hacked because they didn't want to, at first, put all the engineering resources into building out something like news feed.

Well, when something changes for some period of time will just highlighted in yellow, yes. So it's easy for you as you're bouncing around the different profiles to just co, hey, this thing changed and that totally worked. They watched the lift in that there.

I got a good feature, people like that. 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. Technically, David, for people who aren't in the sort of technical system, 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, 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 home page at some sort of feed, that was not true at the time, that was not true in any product. I actually chAllenge you right now. I think back to two thousand five, what was a feed on the web? What was sort of an infinite scrolling?

They didn't exist. This was the first one. This was the invention of the feet.

Like maybe you've got read IT and dig and you could be sort of making argument that their fees there pagination rankings of stories so you could see, like I, what are the most important stories. But even that's a pretty different fundamental thing. I don't .

think great IT had launched yet. Dig may be exist but yes, as you said, okay, read IT was in the .

first Y C batch, which was so five. So I wasn't really IT was right around the same time. okay.

So how do you make a feed? Well, if you are an algorithm developer, the way you would sort of think of IT is okay. Well, first, I need to pick up point in time.

And and from that point in time, and let's call that maybe the last time someone looked at their feet, 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 cash, all of their recent updates since that time period.

So I need to like 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 pointings to that on every boy's profile. And I need that to happen for every user.

So now is unsquared. 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. And then that compute and storage all needs to happen fast enough such that by the time they want to go check the feet again, it's happened again. And obviously, like now that happens in real time. And I think IT was something like every three hours there was like a .

new batch yeah that was four times a day when I initially once there was like a four X A day refers.

okay. So every six hours.

yeah there was a cwn job because they didn't have enough memory to run IT in real time.

That's right. They needed to happen on separate boxes to run this process, cash the results. And then when you loaded your newsfeed, go fetch them. So this is like a whole new application using the same data that the company has to build in order to make. This feed happen.

And so what you just described is all the technical work just making a feed possible .

on the back end. This doesn't contemplate any of the front in design or engineering or incredible permutations of how to display the data, but IT does come back given a massive commendatory al problem of how might this data come back exactly?

Then you need to make the feet actually compelling. Like I don't really care about, you know, somebody who am ten gently connected to what they had for lunch today, but I really care about like a photo of ban at the acquired me up.

right? So now you're telling me you anna, rank order IT by something other than prony 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?

right? totally? Who are your close friends? Who do you care about the most to do? What general news do you care about the most? What types of stuff do you care about?

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 we rank that very often eventually.

Yeah yes. So the team spends the Better part of two thousand and six working on this by september, it's ready. And so by september fifth, two thousand and six, just in time for the new school year, they launch IT. And people noticed because they launch IT like to everybody right away. And this is a massive paradise shift.

Yeah, it's not opt in anything.

This is facebook changing the game of social. Not often everybody gets IT right away. They get thirty thousand angry emails to support on the first day from users who are really upset about this.

Ten percent of the entire global user base signs up for a group, a facebook group called students against facebook, a news feed. A pretty sure I was part of this cup. The irony here is they had only just launched open groups across school networks days or weeks before. So like, they enable the tool of their own vetu.

All here. And also, guess how people are finding out about this group .

through news feed?

Yes, this is the great irony. The whole situation, there is a literal panic in the streets. There are people protesting outside the office.

There is somebody trying to use a crane to get into the third story. Basically, A T, V truck is trying to cover what's happening, the pedestrian. And at the same time, despite everyone telling them I hate this thing is the worst thing ever.

If you look at the analytics, people love IT. People cannot get enough of scrolling through the new news fee. And the reason they are really upset is actually quite interesting there, saying, oh, it's sharing this with my whole network, okay, but you updated IT on your profile, which has always been public to your whole network. And I think facebook for the first time, kind of step in IT and realize even though technically this data has always, you know, we didn't change how public or private IT is. It's just as accessible 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 your .

profile and viewing IT went from .

paul to push. yes.

So it's the start of the new school year. We've just come off this sort of tomato. A summer growth had slowed, walked away from the yahoo deal. There's this revolt in the streets against news feed, which to Marks mind, along with open redge, which was supposed to come like two days later of opening up facebook to anybody. They delayed that because of the news feed reaction.

But to Marks mind, the two of these things are like the big growth levers to ignite growth for facebook, the board, the man has been team, everybody. He's like, we got a role. News feedback, people hate IT.

This is P, R. One or one. We apologize. We roll IT back. And to add a kicker, news feed actually significantly hurt facebooks revenue because where do you think all the page views were coming from? And all the refresh, es.

oh.

loading a new ad yp, loading all the profile views and around. So page views are actually GTA go down in this new paradise. Every reason is aligned to roll this back.

So riche increase in boys, they are looking at all the data and they're like, holy crap. Engagement is through the roof. Yeah, people can get enough of this. People say they hate IT, but yeah, looks like they can 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, breathe, we hear you. And he announced that they are going to launch a set of controls for you to control what of your activities get published to news feed and what don't.

Which the way sounds like something that mark would say today. I think this two thousand and six era is like the last time and then you would have had like a seventeen year break. And now we're sort of getting that mark again. Yes, you can imagine mark circa twenty eighteen saying, calm down, breathe, we hear you. yes.

So it's kind of a brilliant strategy of like, hey, I knowledge that this was surprising we didn't handle the roll out, right? I'm seeing that you all actually like this in the data. 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 facebook and social media Operates and engagement continues the crocket.

Yeah, but it's really I did just pull up. We've been getting a lot of feedback about news feed. We think they're great products. But you know many of you are not immediate fans and have found them overwhelming and clutter. I don't think clearer was what people were complaining .

about a little bit of redirection there. Yes.

it's funny. We didn't take away eighty privacy options. Your privacy options remain the same.

The privacy rules haven't changed. None of your information is visible to anyone who couldn't IT before. The change is BBA a it's like IT is interesting.

It's true and not relevant. That's not what people are mad about. People are pretty aware that this is the same information.

I think, to sort a 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 consumers mind. 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, 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? I glad you planted the seed because this will come back over over getting their history of people now feel differently. And the product needs to change with the societal expectations in order for people not be upset about IT.

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. IT just happened to be that that was true with news food, but that would know is be true.

So originally, the two big initial news feed and open registration, we're supposed to basically launched together and they chose to do news feed first because IT was gna 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 school. So they lost that first.

And then yeah, the original plan was open registration. Facebook is now opened. Anybody in the world was going to come two days later on september s.

They obviously put that on the shelf for a long time, 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 silo, you had to be part of a verified email address network to join facebook. Now anyone can sign up.

This is the beginning of, uh, h my mamma's on facebook.

Exactly, exactly, exactly. Which ultimately would be a problem because that's what created room for instagram for Snapchat t but that would actually be down the line in a weird sort of perverse way, I think because of all the controversy around news feed, when open redge launched, there wasn't the same kind of controversy. People were already desensitized or they had just been to news for, yeah whatever. Nobody even really like noticed that much, especially because the product experience didn't change for the already engaged users.

And to the extent that you did feel that privacy had changed, you're now kind of use to anything I put on facebook gets broadcasts. So who cares if more random come in? It's already getting broadcasting.

Yep, yep. And now with news feed, there is this mechanism that makes surely hey, even as random from your perspective, join facebook, you're still seeing the updates of people you care about well.

I don't think at first when I was this like pure cho logy .

yeah I guess that's a good point as make more but this was still .

appeared in time where your friends were your friends. I've mean, facebook was only two years old. 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 if their public, because the group of friends is aged. But in that period of time, you could trust if something was getting publish to your friends that like just going to your friends.

right? The age of the network itself was only two years, so your friendships hadn't shifted them much. Well, open redge, despite high schools and workplaces not working well, open read works really well.

yeah. I mean, facebook brand at this point, it's the best social network, is the fastest growing social network. It's the one that all the college kids will always be the cool people in any society at at any time at the age group of transection.

And they have conquered that market. High school kids want to be like college students. And people not in college want want to be like college students.

yeah. So over the summer, facebook was adding like five to ten thousand users a day. By late fall, after a launching open registration, they're now adding seventy thousand .

users a day. Wow.

by fall of those six girl really picks up. So this brings us now the spring of us seven and the final piece of Marks. Original product road map on board A K platform and platform. Is this kind of forgotten thing right now? I mean, like it's farm bill, it's zinger, it's apps on facebook.

it's quiz.

it's crisis. Yes.

I will come back up later.

It'll come back for a period of about four years from two thousand and seven to twenty eleven. 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.

This is the goal of a technology company, become a platform. Be like microsoft. This is now facebook is like microsoft. We are developer platform.

And there is 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? Because they're super different business models with very different incentives and users.

Can I need to know how to think about IT? And IT was kind of at the same time h. Sherill had just joined the company or was about to join the company the next year.

two thousand eight? yes. Yeah, yes.

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 and figure out and commit to being an ads company 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 .

one hundred percent. So may tony fourth two thousand seven, facebook called its first developer conference to launch their developer platform, F A, which it'll take a step back. This whole idea is kind of, well, a developer platform on the web. The web is a developer platform. Facebook is now becoming a platform on top of an open development platform.

but they have two important things that as an application developer, you are interested in one user attention no the same way that microsoft had user attention with pcs because they had the install base of windows, and to a whole crap ton of data about each person, that you can then build in your application to make IT really rich and feel personalized.

And IT turned out that that was really attractive to developers. So at F, A, they announced that the facebook user base is now over twenty million and IT is growing by over one hundred thousand users a day. So growth is accelerating.

Wait, it's twenty million total and growing by one hundred thousand a day.

Yes, i've been open red had just launched a couple months before. So like this thing is really taking off.

Oh my god, every ten days they're adding another twenty eighth of their user base and growing by five per. Is that like seven percent every two weeks? It's like three and half percent of week?

Yeah, pretty good. wow. At a scale of over twenty million already, wow. IT is the sixth highest traffic site in the world, and they're announcing to all the developers in attendance. The facebook A P, I, facebook graph is now open to you.

You can build apps and publishing, run them natively on facebook for users. And part of mark original product road map from two thousand. five.

This is huge. Until this point in time, facebook was about digitizing. Everything that happened in your offline life, 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. Now all of a sudden, you can play games on facebook, you can take quiz as on facebook, you can use apps on facebook, and you can do them with your friends.

It's pretty compelling. I remember playing with its grab lous. Yeah, I think I was playing with my sister, with my grandma. I mean, is a great way to like do things digitally with the people that mattered you.

yep. And I think it's also an early for shadow of the job that mobile and the smartphone would really do in people's lives, which is he is actually like a lot of White space where you're just bored during your day. I mean, mark's original title of the feature of i'm board was perfect. This is the care for boredom IT just so happen that IT was on a desk top. And so when you were bored at your desk or board at your home mobile, then open that up till, like, hey, on board anywhere.

right? And he gave facebook from a business perspective, that 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.

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. They're hoping for sort of that microsoft playback of platforms get really epic locking.

Yeah oh, by the way, developers on the platform will probably have their own business models where they'll make revenue. And especially if we ultimately introduced our own virtual currency, we can probably make revenue from their revenue to yes. So the internal goal of the company was to get five thousand developers in the first year who would be making social apps on the platform.

I may they get.

They got five thousand. And two days developers went freaking nuts. IT was a great keynote. IT was a great keynote. Yes, you know they went not because yet, ben, as you say, like oh, distribution to a lot of people and then like bringing along your friends and data on them, like that's very powerful incentive as a developer to gun go make an upper game for the platform.

You're building a web APP that has an unbelievably rich set of data that you can hog into. 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 .

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 a web APP and I have profile and i've always a rich information, but it's not like running on my device.

Well, then turns out you would have been right if .

only I had the 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.

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 .

yeah listener is right. And if you can think of one, a successful scale, durable platform where the platform is able to make money and they are able to make a lot of money for developers, for people on the platform, that is not an Operating system that runs on hardware.

hardware, either actively controlled hardware like apple or open hardware like android, microsoft. And this gets .

the question of what is a platform because, let's say, I make a web APP that I run on my own website, I do marketing, I do my own monitise ation, but I let users authenticate facebook so I can pull some information out of their profile. It's not really built on the facebook platform. It's not like the core apps that enabled my application to run are using facebook A P.

I am using facebook A P, I to grab some data. The core A P, I said that allows you to run is the browser? yes. IT is 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 the reason why we aren't tall, using rich facebook apps all the time today and thinking IT as the default platform, IT was just too many layers of abstraction away from the hardware to win.

I think that is totally right. But for the moment, thousands and thousands of both deaths and venture back companies like flock to the platform.

But what this does tease out is facebook. And now we can talk about this fifteen plus years later has kind of a weak and for launching a platform since they don't control the O S. Or the hardware.

And so they have to make a little bit more of an appealing sale to our developer. And that includes big distribution for you. But I also includes a ton of access to data.

And I remember being an early facebook developer and after user authenticates looking at that, jon, and being like, okay, with their whole profile of its their whole friendless wow, I get a lot of stuff here. And facebook was incentivised to do that because they almost had to sell harder than other platforms who controlled hardware historically. What i've had to .

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. If a user starts using your facebook APP and then the activity that they're doing on gap is getting published to the news feed of all their friends.

yeah, you build a whole singer on interaction paradise.

Oh yes, you get. There's this great quote from josh Ellen in the Stephen levy book just says if you're developer and you can get someone to bother ten friends to get one more user to join, you're very happy because you just got one more use of facebook though has nine other people who've just gotten bothered and he doesn't say that and are quite unhappy about that.

That's the tradeoff. Ff, they have to wait that sort of there in the type of platform they are trying to build. They have set up that and set of set, and they need to .

figure out what to do with IT. Yep, so for a year to that is the state of play. Facebook, brilliantly for them, eventually pulled back on organic news feed distribution for apps.

So like, we ve got to stop this. We got to take care. The problem.

you don't need to know every time there's a new mafia war move by so and so showing up in your .

news feed and that does effectively kill a large percentage of developers and apps on the platform.

Yes, but it's the right long term move that was the right thing to do for facebook .

with a twenty year view. absolutely. And IT doesn't kill the platform though. IT actually makes me even more valuable to facebook because for the developers and apps who have gotten to scale, they kind of a look at this and they say, okay, my organic distribution just got nee capped. But facebook is still this pretty powerful platform.

What if I just buy ads? How well with that work can I generate positive R I, if I buy ads to effectively accomplish the same thing natively on the platform and drive usage back to my APP? Turns out that there was a very profitable arbiters there still for many years to come.

And for facebook, they're gl. okay. We're monodist ing the platform through user engagement and heads that we're showing on the right rail.

While people are using facebook, we are also monetizing through currency and commerce that is happening in the apps where we're taking a cut of that through payments. Now we're gna monodist 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.

I mean, you can see why for a couple years here, facebook is like, well, this is IT. We've one. We are a platform.

This is IT. yep. And then mobile comes along.

Oh, mobile. That is a 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 A I infrastructure company. Crucial.

yes, crucial is a vertically integrated cloud platform built specifically for A I workloads that was recently named the gold standard of A I cloud providers by Dylan patel over at semi analysis and something that's new and really cool. Since we started working with crucial last year, they've opened up the raw metal in their data centres to customers. So let's say you're a large enterprise who wants to run your own infrastructure and not use a cloud layer. You can actually now do that with crucial directly as a data center customer, which several of the largest companies in the .

world are now doing. Yep, they've totally reimagine traditional data center architecture to support the huge power cooling and compute density needs of ai.

Yep, that's important because power demand in gp use is increasing dramatically, which means the traditional data center design and engineering of the hyper scale is no longer optimal. So cruise as infrastructure built from the ground up for GPU with elements like high density rax direct liquid, the chip cooling that enables them to support the most demanding A I workloads that traditional data centres just can handle.

And at the same time, as GPU cluster sizes continue to increase, there's an every increasing demand for energy. Crucial has fifteen gigawatts in its development pipeline, which is an astronomical amount of power. Their ability texas facility alone has over one point two gigawatts planned, which will make IT one of the largest clusters in the world.

yep. And it's also not just about the amount of capacity in the pipeline, it's about how fast I can come online. Crucial team has decades of experience constructing and Operating data sectors, which enables them to bring these new data centres online super fast.

As many of you already know, crucial sources, the energy for these data centres in the most efficient and climate aligned way in the entire industry through clean, low cost and abundant energy that otherwise goes to waste. 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 crazy hard thing. Crucial energy first approach means they can build data centres in some of the most chAllenging locations on earth, bringing computing to the energy rather than the other way around.

Yep, the net of all of this is that cruel can provide nuclear levels of power for far less cost than other providers and with low, or in some cases actually negative emissions. And that's super important because the biggest bottle next to A I progress is actually energy. It's not compute.

yeah. So anyway, there is a great company. We're super proud to work with them and to be investors.

So to learn more about crucial, you can go to crucial da, I slash acquired, that C, R U S, O, E, D, A I slash acquired, or click the link in the show notes and just tell them that have been in. David sent you. Thank you.

Are you so David, here in the era of mobile, right? This is january two thousand seven. Steve jobs just announced the iphone. The whole world change, right?

Well, actually, ironically, no, or at least not for quite a while. yes. Generate two thousand and seven. Steve jobs and answers the iphone.

People forget, though, IT took five years for mobile and smart phone adoption to really rap up and like actually changed the world. There was no S D K. In that first iphone and IOS that didn't come to two thousand eight.

He was seven hundred dollars. Android was a blackberry clone at the time, not an iphone clone. The droid doz campaign wouldn't be another year too.

Yes, I think two years in two thousand nine, if I remember, right? Yeah so yeah. I mean, help.

Facebook platform didn't even launch until may two thousand and seven. So after the iphone announcement, yep. So for the moment, platform is rocking and roll.

And like we were just talking about, facebook is becoming the next microsoft, which brings us to the second microsoft partnership in october of two thousand seven. So just five months after F, A. 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 spend time with end and you propping for this.

Yep, I check with the end about this. This is great. So microsoft, perhaps, obviously, in retrospect, everybody really just wants to buy the company, but Marks, of course not gonna do that after the whole yahoo experienced at a 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 until they know they made a huge error in missing search and letting google get big and social share seems like it's gonna the next search size platform. So they're happy to just be in bed with facebook in a way that they never will be with google .

as long as they can keep IT going. I mean, for them, I think the thing that shocked out about google is, oh my god, the business model of the web is advertising. Search and browsers and everything are monitise by advertising.

And that's completely out to our license space business model. Social sure looks like where all the page views are going and is gonna otis exactly the same way as search. So actually, the thing that's important to them is locking in those page views. So the extent that they can participate in this market, IT kind of has to be. Either we all knew or we are the long term add provider, which they didn't end up being or were a big equity holder.

yeah. So enter this second partnership negotiation, october two thousand and seven. Microsoft comes down to palo alto. Facebook tells them that, hey, google is actually really interested in taking this partnership over.

Larry 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 ads serving partnership artigue. And this has been great. You know, we love working with all we want.

You are preference our preferred partner. We want to keep IT going with you, but we need to get the deal done tonite. So they locked themselves all of the conference room.

They started negotiating. It's getting late. Ten o'clock goes by seven o'clock.

The microsoft team, you by facebook standards, is all old guys like they're getting tired. And then, you know, all guys like, you know, forty cool. It's so old. And then at midnight, this is amazing.

You can make this up, facebook probably playing this, all of the sun really loud, like house music starts blaring, like with like heavy base in the office in the office is hopping like everybody's there, the whole companies there, it's midnight, the microsoft c what's going on and the facebook you know seems like, oh yeah ah we ever hack on schedule tonight and actually hoyer olive on had just started at facebook who is now C O O, who is now the C O O of meta had just started that facebook is an engineer and uh, he had organized this gathon to begin work on internationalized the site. So tony is the beginning of internationalized, 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 the difference.

And didn't this microsoft deal end up being about international?

Yes, yes, IT is. So they keep going. At one point during the night, one of the microsoft guys go in the end, lxi haven says, wow, this is aw, this is just like the old days of microsoft.

So they finish the negotiation at six A M. 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. Now it's international to and domestic everywhere around the world. Facebook, of course, can still also sell their own in mentorian themselves.

But anything that they don't want to sell themselves, or that is excess inventory. Microsoft gets exclusive access to be the only add network where you can access IT. And the big kicker, microsoft is going to invest two hundred and forty million dollars in facebook at a fifteen billion dollar valuation. This is like thirteen or fourteen months after the failed yahoo for one billion dollars.

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, was a complicated set of yield, ms.

That basically netted out to a twenty four billion dollar offer. And that was less than two years after the one billion dollar offer that everyone talks about with yahoo. All remember the time where maroc berg turned down a billion dollars lesson. Two years later, he turned down twenty four billion. And then they were really good for the money.

It's microsoft, but turned IT around into an investment at fifty billion. Yeah.

crazy.

So the great thing is like all great partnerships, everyone makes out wonderfully here. So except maybe the venture capitalists in silicon valley, is this just like breaks everyone's brain?

IT was the high water mark for facebook valuation for a while because the the great financial crisis would happen after these valuations would also said and then facebooks next deal would get done, I think with mile at ten billion.

ten billion of evaluation with year, year. And here I would actually also buy common stock through a secondary tender offer in that. So his dollar cost average would get down, the more like sick. So he screen deal.

But you know, for the moment, like there are no comes to this ever 点 com bubble you name IT like never has been a complete this for A N investment in a private technology started up the closest comp that I can even sort of think of was google's market cap at IPO was twenty three billion， so like higher, but not that my tire. And google at IPO was a two billion dollar revenue running, spitting off hundreds of millions of dollars in free cash flow annually. Facebook at this point in time is basically break given and doing one hundred and fifty million in revenue, most of which is microsoft itself. All that said, microsoft, this is a home freaking run like been saying along, helps them spend up being doing all the ad, serving for this, getting in like real online services and then be, you know, microsoft is not a hedge fund as we talked about on that episode, that two hundred and forty million dollar investment, by the time they start selling IT down years after facebook is public, ends up being worth eight billion dollars.

wow.

And then maybe the most important benefit to microsoft out of all this is like microsoft and facebook have always had a good relationship, unlike microsoft haz with google and apple.

I remember facebook events, like when you look at the page, IT was a big map, not a google map, that always like fell t emblematic of the partnership to me, every single place that could be a microsoft product that was yes. And IT wasn't a google product. yeah.

okay. So interestingly, here we are, two thousand and seven. 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 here are preferred partner to handle making the money.

yes. And I think you know there's two things here. Yes, I think that is true specifically at this moment in time.

But this is where you know, again, mark is just master strategist you calling IT all the way back to civilization in the four x strategy game. He's got multiple bet he's placing on the chess board. One, as he said, is like platform like hey, platform is rackon and roll in.

We think we're building the next grade technology company and the next great business model just on platform also yeah were a social media company that involves a lot of page views and engagement. And like the right way to monetize that is advertising. So yes, we've just continued this big microsoft partnership, but we have the right to sell out in mentorian. We should probably start building that muscle too.

The other thing is happening here is mark still kind of thought ads were gross at this point in history. So the things he cared about were product and engineering and design, and he kind of wanted that outsource everything else or at least have someone else at the company think about IT. 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 oh, we can do ads different and Better than anyone has ever done them before.

Well, i'm smiling as you're saying that because um 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 yeah beacon .

is one of the most epic failures in facebooks all history yeah okay.

So beacon well, first off, you were totally right and I think you were for shadowing shared sandberg there. Like mark wants somebody within the company to just to to run and managed the thing and build a great world class before sherill. Do you know which facebook executive LED?

I do not to math.

pali hopejr, no way. I, he always talks .

about the growth. You, I never do. He was in charge of bean first.

This was to math, big thing before growth. And actually, the epic failure here of began leads directly to growth, as we shall see in a sec. Now, what was beaten? So like he said, mark is kind of allergic to traditional advertising. But he's like, well, we have this incredible social activity happening on facebook, and we know through news feed that people engage with and and they love IT.

What if they 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 give brands away to essentially boost how people are already engaging with them, 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 news feed.

Now to be fair to mark cheatham, the company, we didn't know yet what the right advertising you did on facebook was gona be. 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 news feed. There's kind of no evidence really that people would want to do anything else but that. And so you're trying to kind of think of like how do we shoe horn advertising and brands into this? I actually .

I don't buy IT at all. The obvious thing is shown an image that people can click on and take them to a website. It's display ads. And like, I don't understand why they needed to try a way over think IT and say our ad format has to be something that no one's ever thought of before. I just offer advertisers to do the thing that they know how to buy.

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 that. But you, I have next, in my note, tear. To be clear, this was a truly, truly terrible, head up your rand idea.

These are actually two different things. I think there was beacon, which was java script that an advertiser could embed on their website, on A E commerce providers website that would do exactly what we are talking about, publish into the news feed purchases that people are making. And like 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. Like people still keep their verma 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 that brands could take interactions that happen on pages and boost them, but they couldn't just take out a regular old ad. yeah. So IT was this weird thing.

We're like you could only advertise as a brand two people where someone in their network had interacted with your brand page. Pretty convoluted. I get that it's like this super natively social thing. But again, I did feel like they started in this place like, let's get way too clever for our own good first and then work backward to the most basic adit.

Yep, totally great. That said, like as soon as its live would becomes clear, like one, nobody wants this, either of these things. Yeah.

users don't want that. Users are confused why they're seeing I mean, certainly that there's instant blow back against. They're publishing my purchase IT is someone I think had a engagement spoiled by a diamond ring getting broadcast.

yes. Oh yeah. I was going to say I think 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. Like you can imagine the non wholesome publishing stuff that you're buying versions of this. yeah.

And then of course, advertisers are confused and people don't really understand what's an ad, what's not an add. They just bird credibility everywhere by launching both of these things .

totally and market, the company is coming off the news feed experience where they're like, yes, we just given enough time users, i'll get you used to IT. So they let IT run for a couple of weeks. They run the news feed playbook of like, yeah ah we hear you, you know but you'll get used to IT here some more controls oh.

the social ads was years and years, but the purchase is you right? That was just, I think.

a couple weeks now for began ultimately, after a few weeks, they do actually yes. And they say like, okay, we will turn beacon off, will make IT up in as opposed to opt out. And you can have a way till I completely turn of all began tracking permanently from your profile. A lot of people do that began activity basically dropped to zero. And then yet two years later, it's like completely killed off.

And this sets the stage for shale joining the company because I think, you know, mark, take away from this is like, okay, maybe I don't understand, do to 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. And like, actually, let's bring in somebody who like, really, really does understand this. And Sherry was the perfect person coming from google, should join google in two thousand, one right as they we're figuring .

out Edwards, I mean.

three years after the company didn't gure s for a couple years. And then shell 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.

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? And I wouldn't be great if that person was also a good like manager and leader who could teach me how to manage and lead.

Yes, yes. And I think that really is the core and code deal. They make an they say share agrees to. 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.

SHE always reported to him like the whole company was his company, but mark is really focused on product engineering and importantly, platform shee takes ads, shale takes Operations and set up up. And when he comes on board, like you reference this earlier, then there's basically no ad targeting that happening natively on face. The problem is targeting that's happening through the third party microsoft advertising network.

But none of that is like technology that facebooks building a value that a crewing to facebook. And so the first thing mark and Cherry did when he joined was like, okay, began with 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?

Yeah SHE definitely famously kind of LED the exploration of what business are we actually in here?

Yeah 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 that right? And we should make a work.

And like ultimately, that is gonna 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 two thousand eight, two, you know, seemingly unrelated, but about to get very related things are going on. One after the beacon fia cco, when shell joined to math.

Kino needs a new job at the company, you know, like total credit to mark to share all to facebook as a company. I think at most places like to math would have been fired immediately for what happened with bacon. But the culture of facebook is like, no, we move fast, we break things and like we're always on offence and this didn't work in let's find the right thing for you to do. And thank goodness because that brings us to number two right around this time, once again, use a growth slows in facebook yeah .

so it's funny that I don't feel like in the public eye we really knew these things. But as you can na dig in to the company history, you're like, oh, there are these moments in time where growth really did stalled out. And a chamar has said on stage since then, oh, I totally thought that growth was done.

And there are a few things to note about the growth team. One is IT was effectively the first growth team. Yes.

I think IT was the first growth team.

Yeah everyone who wants to get into growth now, I don't think really fully grasp that is a brand new discipline invented in two thousand and eight. And the way they sort of defined at facebook was there is 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.

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 other speaking to each other. 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 a reason for being that your product is the best lever to grow.

No amount of marketing you can ever throw at something that is not integrated in the your product will be as effective as your product. Doing a good job with features, 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 chmagh, you've got alex shutt, you've got miami gate and holier oof on. And so you've got this core early team. It's four people that IT expands to cut up, six or seven folks that are formed really on this agreement between to maths and mark of we are going to have this dedicated growth team, and our mission is going to be to grow facebook using facebook itself, not through extrinsic measures.

job. And this was like an incredible insight and was so perfect for a 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.

Yes, there is this interesting things that make IT tick, the first of which is this has to be the most data obsess team in the company. Every team should be data. 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. Here are the obvious opportunities to reduce friction. Analytics is the answer for that.

And I think that there is a lot of really interesting stories, especially around internationalized 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 other ways, 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.

What if we just when we're launching in the spain surface, different words to spend speakers and say, okay, is this the right word for spansion? Not, hey, can you translate this and crowd source and double check IT with everyone? And that way you can not just translate five or ten of the top language 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. And so translation itself, internationalized is a growth lever and we have product ways to do the translation with our users.

Yep, and that's what actually started even before the official growth team with with hoby in that first take on yes, but that was the seed of this idea like oh, actually the way to get past this growth wall as people refer to IT in retrospect that we're hitting is used the product itself and internationalized, there's even more to IT than what you said.

One, when you have the users themselves who are translating a product as you're seeing IT in these new markets, there are so much more boat in and like feel a sense of ownership over IT versus like, oh, i'm just air dropping this you know translated american product onto your country here. So it's not just that it's a Better translation. It's that like you're actually seeing those first power users who are going to be deeply engaged and feel ownership over the product.

Yeah and then to the nuance in like the local markets that might even be in the same language. I mean, spanish is the perfect example. Spanish is spoken in so many places around the world, but like the local nuances that needs in spain are like super different than mexico or argentina. That america.

Is that a that's exactly right. And I think my point with all this is a growth is a pretty new discipline in our industry to growth is not marketing. It's very tempting, you see is especially with inconvenience like big four to five hundred companies who have someone whose title is growth and then you asking what they do and you're like, oh, that's not growth, that's marketing.

You don't actually modify the product at all. So that's a different thing. And it's important to realize like not only facebook kind of invent the discipline, they are perhaps still the best at IT. They really eat, sleep and breathe idea that growth comes from product.

Yeah IT was that core initial team, all of them of which harvey harvey is now the C. O. O.

alex. Alex is now the c. Mo of meta. naomi. Naomi is now met as longest tenure employee besides mark, and runs a tononi stuff at the company. Animos, who deserves so much credit for starting the team, pulling IT together, protecting IT, advocating for IT within the rest of products to in the way that don't need to motha .

man IT really is crazy. The facebook diasporic are 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. Many of the names that have come up so far yeah, the diaster is prety talented.

yep. So there are a million things that growth did over the years within you know, the blue APP and then ultimately within all the absent facebook. Growth today is a core center of excEllence discipline that spreads across all the products at the company had met up. But the other big thing in the early days, besides internalization, is people you may know, which crazy like the care sell of people you may know on facebook, is still a core part of the blue APP to this day.

Dude, I just got lost in IT. Did you know that that's what I was looking out right now?

No.

I was saying checking. I was like, I was that person part of the original growth team. And I open facebook.

The news feed distracted me. I scrolled down the stories at the top. I scrolled down one post below. That first post was an add 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 god, I know our friends with them. We're doing a podcast together alive. And I just had that .

experience tally. People you may know become such an important level. and. 我们 我 okay。

So people, you may now become such an important level.

Yes, for a whole venture reasons, the growth team discovers you are talking about analytics and data and really understanding what's happening. The key thing that they discover for new year's is joining facebook about whether they become an engaged, active evandale zing user or not is how many friends they get in the first lake. I think it's twenty four hours or forty eight hours like short period that there joining the network. And there's like a certain number of active friends that you need.

This is funny, by the way, I watched two different talks by people on the early growth team, and one of them cited ten friends in fourteen days. The other cited seven friends in ten days of, you know, how do you create the magic moment, alexa, who is now the C. M.

O, gives this great talk. Got H A decade ago I started up school, sam altman, and he makes the point, look, it's kind of a clear thing. Yes, you want as many friends as possible in the least one of time.

It's not like, oh magically ten friends and fourteen days. It's like super different than nine friends in fourteen days. But you just set a threshold ld somewhere and you set the threshold, 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 the world's interact with, they're going to tain.

Yep, totally. The other thing is IT marries perfectly with all of the investment that is going into algorithm zone of news feed, because choosing who to show you in their care sel of people you may know is like all the difference in the world, you know, show you seven Randy's and like you're onna turn, show you your seven best friends and you're gonna friend them all and become .

an engaged desert. I've so excited for, I guarantee you, at least one of the people that I just friended is going to a be listening to this podcast and realized what just happened because I haven't friended anyone in facebook .

in years and I just sent out like three or four love.

just have new growth tactic, have people do podcast about the company.

And then I think people cut on to that one a while ago. Yes, but yeah, that's a super hard data problem of like code new user coming into the network. How are you going to accurately predict who their best friends are who are already on facebook?

Well, if you're on the web, and this is the late two thousands, you ask them to authenticate their website mill service of choice and then find out who we've been emAiling and then use that to figure .

out who their friends are. Magic, magic.

You know there's other less than ferrous ways, you know 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.

so by the end of two thousand and eight, thanks to the growth team, growth is like really going again. They go from like just barely getting to one hundred million users in August of two thousand eight, almost one hundred and fifty million by the end of the year. So fifty percent growth in the last four months of the year.

And then two thousand nine is just like lights out. They grow two hundred and fifty percent in two thousand nine to three hundred and fifty million users globally. International zone is like really firing on all ceLinda here.

That's right. They went from one hundred and fifty million users to three hundred and fifty million.

No, like one year is a wild crazy.

The other core piece of the start, whenever you are looking at growth, this solicit engagement. Engagement in two thousand eight was also in the doldrums. Fifty percent of monthly actives were daily actives.

And from what I can tell, that basically was just an art effect of as the company got bigger, every marginal user they added was sort of less engaged than the early core users know when they went from college to high schools to open registration. IT just was gonna have slightly less product market fit, but growth team is focused not just on growing new users. Actually, an even Better lever every long term goal is retaining your existing and the best level for attention is engagement.

And so that was where a huge amt of their energy went. So this is really interesting. Fifty percent of monthly actives where daily actives in a wait.

Since then, they have basically improved that metric every year. There's been a little bit of variance, but IT is now almost seventy percent. Today been a monaco focus on how do we make as many monthly actives daily actives as possible year over year over year over year.

That's wild. And that figure is just in blue APP. In facebook.

that is just in the blue APP. Yep.

exactly. wow. Well, on the engagement front in two thousand nine, the big thing that happens there is like button. You know, i'm going with this like button .

yeah and I know .

you know who invented the like button because he wasn't facebook. I don't know, friend feed, oh, no way. Bret Taylor and pol bu kate invented the like button.

How did that work as friend feed would just federate stories from other social networks into one aggregated feed?

Yeah, I don't recall exactly. Didn't only store that .

information on front feet, did not propagate back. I suspect .

that's probably IT like they probably felt like they needed some sort of like a native gun friend feed.

man friend feed was so awesome. It's funny in this era where I am now checking multiple fees every day, twitter threads, instagram, all the messaging services to catch up on my messages. Occasionally the blue APP. I couldn't need friend feet again. And I was like.

the most amazing product. I know, I know, uh, the world is so organized, it'll never happen.

But yeah, i've been talking about another amazing part of the facebook diaspora. Facebook, with later acquire friend feed, bret Taylor would become C.

T. O when adam danger left to go start cora. And then when facebook acquired friend fee.

bread became C, T, O. And then famously, bread becomes the co president of sales force by way of acquisition, and then eventually board her twitter when the whole x thing was going on. And now on the board.

a crazy.

you start above zone. So i'm telling you the talent that move through that place.

And paul book at the other friend we found invented within google.

So he ended up at facebook a while after I forgot, believable. Yeah.

he must not a stayed very long, if at all. Yeah, because he went to Y C.

I think after that OK. So friend feed invents the like button. Facebook, I believe, was going to call IT the awesome button and then at some point, brick before launching. I think mark personally made the call is just too weird. Let's go with like.

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 light way, way to engage and feed more data about the positive votes on posts into the news feed algorithm, that's gonna really turbo charge things.

On the flip side, the concern was that he would actually decrease meaningful engagement. There be less .

comments exactly. And so ultimately, they started running some tests with, like, small user groups and specific geography, and they found that is actually often boosted engagement of comments. fascinating.

That's why you test things you never know exactly.

So yes, 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 the news feed and making sure you're seeing stories that you really care about.

And the like button also got used for pages, and 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 that 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. Yes, you're exactly on the right track. Let's flip back now to share all in building the advertising business right around the same time, we've decided like, okay, yes, we're gonna in the advertising business.

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 light button is the perfect gift to this because all of the sun, there's this really light weight to engage with things, to signal your preferences about .

what you like you 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 is java scrip pt in their pages. Because, of course, you would 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 click like on our website to not just over on facebook. And so suddenly now every company on earth has some facebook and has a reason to embed some facebook java script to write their on their page, which, my goodness, that's gna serve as a great signal back to the advertising and algorithm where we can drop cookies and we can see who is moving around the web in what ways. So it's perfect for platform, but it's also perfect for feeding data into their advertising sym now that they have something that brands and third party websites are incentivize to drop right .

on their page. Yes, ABS are freaking. So we talked about growth reigniting at the end of two thousand eight to two thousand and nine. The business is also on fire in two thousand and any good way.

So platform still record rolling, microsoft display ad partnership still growing strong as growth is happening now under sharing, you finally got real native, highly targeted ads coming online in facebook. In two thousand eight, the company had done two hundred and eighty million in revenue, up from one fifty three the year before. In two thousand and seven, two thousand and nine, they do. Almost eight hundred million in revenue is crushing. Ed IT, two thousand and ten and even two billion in revenue.

They're now very, very cash flow positive.

Yes, reaching the scale that google was at their IPO twenty ten, they hit six hundred million users. Twenty eleven, eight hundred and fifty million users. Twenty eleven, revenue grows almost another hundred percent, three point seven billion. Like right time to start thinking about taking this company public .

is 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 where we have platform going.

Well, we have this advertising business going well. We're getting data from the open web because we have like buttons s everywhere. Everything is going our way. We finally have a dial.

And none of that matters in a mobile world 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 at some point. They started requiring apps to use their virtual currency face 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 demand. And what was a completely different thing.

Yep, that seed from five years ago that has been growing of mobile is finally going to a 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.

I listed out all of the ways that I could think of that mobile was a big problem for a facebook one. And I think this is kind of like the uber problem that everything else is down stream of. I, O, S and android are closed, proprietary ecosystems, not controlled by facebook. Yeah, you can argue android as open source and all that. Before all intensive m purposes, google controls IT and they .

control the place store. Put another way, the web is the only open platform in history. Yes, and facebook was born on the web.

I mean, how crazy is that? That they could build facebook on entirely free technologies at the beginning and then get distribution just by people sharing. You are else around.

Browsers are inter changeable. Operating systems are inter changeable. 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 story.

yeah. And facebook and kind of built this, you know, world garden on the web. And IT was pretty nice. Yeah.

and world gardens are great, as long as the foundation under you can shift. Yes, build a world garden directly on the earth. Not as some.

but okay. Specifically, why is I O S and android being closed? Proprietary ecosystems such a problem? That means my number two reason platform, which is you know fifty percent or more of the value of facebook in their mind at this point time no longer works at all, like full up flip switch does not work, will never work at all ever again on these platforms.

And why is that? The whole premise of platform is you can run apps inside a facebook on mobile. You will never be able to run an APP inside another ad. Just not onna happen. Apples never gonna let that happen, and google is never gonna let that happen.

And that's primarily because of that thing around you can launch an alternative APP store.

right? Yeah, I think it's the court part of their business model are the best.

Not to mention if you are paying for things on their phone, you have to use their payment system. So facebook credits in work because you can't charge thirty percent on top of thirty percent.

yeah. And there's technical aspects to this two, right? Like code runs in native code on this devices as opposed to open H, T, M, L, T.

On the web. You get told what your development environment is. This is the language. These are the fred works.

These are the A, P. S. You are allowed to. Yeah so okay. Greater than fifty percent of you know the revenue and the sort of lake .

theoretical future value.

inherent theoretical value and strategy of the business 你 capped IT gets worse。 Facebook and mark and Sherry have been hard at work building the other core pillar of the business, this new super sexy targeted ads business. Well, guess what? All of the ads that are running on facebook at this point time are running on the rake hand column on the website. There is no right hand column on a mobile APP. There's only room for a feed which to this point time has never had advertising in IT.

And in fact, there is like a cultural allergy to the idea of polluting the beautiful, pristine organic news feed with an ad. We would require big cultural change .

this way you can make up the stuff in the stories that we tell. Facebook has, I kid you not, no way to make money at all on mobile. Here's an actual honesty guard statement that is in facebooks s one that they filed before the IPO in two thousand twelve.

I am reading as a quote. We had more than four hundred and twenty five million monthly active users who used facebook mobile products in december twenty eleven. We anticipate that the rate of growth in mobile users will continue to exceed the growth rate of our overall M A use for the foreseeable future, and our users could decide to increasingly access our products, primarily through mobile devices.

which lets be cleared comparing those growth rates. Another way to simplify that and say that is our user basis shifting to mobile from deathtrap.

Another way to simplify that is our desktop business is going to zero. yes. Now the kicker, this is a statement in the s one. We do not currently directly generate any meaningful revenue from the use of facebook mobile products in our ability to do so successfully is unproven .

accordingly by our stock.

Yeah accordingly, if users continue to increasingly access facebook mobile products as a substitute for access to 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. Yeah no kidding. Oh, my god, I i'm still not done that, 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, you can break things, and then you can fix them rapidly. This is how facebook is always Operated on mobile apps. You can push code when apple and google tell you that you can push code.

And at this point in time, there was approximately in a two week delay between pushing an update and is being reviewed and accepted.

Not only is there are two week delay during that two weeks, apple and google are reviewing and if they see anything that they don't like, for whatever reason, they are telling, you know, you cannot push that code .

or your company could be in a fight with that company and they could decide, ah I don't think you should push any updates for a while until we resolve .

our fight yeah okay, that's number four. And then that brings me to number five reasons 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. Network affects a super real everything we talked about in this whole first part of the episode. They can suck up all of the new social functionality that they are anyone else invents. They can put IT into the main facebook APP photos chat platform. News feed is set up on mobile, though facebook is just one icon of many on the home screen.

exactly. And the wisdom at the time was that mobile APP should be narrow in their functionality, and you did not expect a single APP to bundle in a tone of different use cases.

Get super easy for users to be like, okay, I get this utility from facebook but like, well, I don't know he's this instagram thing like that kind of cool. I get great photo utility from that, which also lives on my home screen right there. And I still use facebook for seeing when my friends get married.

But like photos, cool messaging, you know this, what's that thing is super cool. Like use APP r messaging. It's super easy to use one APP for one thing and other apps for others.

And you can see why facebook adopted that, a sort of early twenty ten 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 there is going to be specialized apps, each for their own tiny little purpose. 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.

yep. So okay. Those are my short list of five reasons of why the shift to mobile is dangerous to facebook. Anything else you would had?

no. So they're going on public right into this for the first time sense our businesses founded, we face a real existence, al threat, completely out of our control that is going to make the next few years look really bad.

Let's go public. yes. Well, let's talk about that IPO.

yes. But first, IT is time to talk one of our favorite companies, stat sig, a phrase that many of you will know from facebook s early days is move fast and break things. But despite installing this in facebook s engineering culture, facebook didn't actually break very often, and IT essentially never goes down. Now, how 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. This meant that anyone could just have a new feature, but they always had metrics to uses guard rails, and they could always roll back the future of anything broke. They took this so far that they have every new engineer ship a feature on their first day at the company.

Wild, you might wish your team could build products like facebook, right? Should fast to make data, informed decisions, iterate rapidly. But a, you don't work at facebook and you don't have those tools. So you're stuck, right?

Well, not anymore. Thanks to static. Static was founded by an x 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 vid in saying.

I know it's perfect today, they've done IT combining tools like feature flags, product analytics, experimental and observably into one connected platform that runs off one set of data and infrastructure, no more stringing together expensive point solutions and internal bills, and no more using technology vendors. Build five or ten years ago when the needs of modern product teams have grown by leaves and bounds.

And we've also gotten some crazy traction over their its static. Many of the world's leading tech companies rely on them, including OpenAI, microsoft notion and throw pic I, gma, plus thousands of early stage startups. 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.

And best of all, data is pretty affordable. They have an insanely generous free tier for small companies, a start a program with one billion three events, which is fifty thousand dollars in value and significant discounts for enterprise customers. To get started, just go to stat sig that comes slash required and remember to tell them that ben .

and David said you thanks that. Sig, right? The David, here we are. We're going public despite the everything you just listed that is wrong with sure of mobile and this company .

and which seems like a not very smart idea, right? And you know, look, one thing about mark's aca berg, 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 why are they doing this? Well, back then, once a company crossed five hundred shareholders, the ssc actually Mandates by law that you had to start reporting cordery like a public company.

whether or not you are traded on an exchange.

whether or not you are traded on an exchange. And at the end of twenty eleven, facebook crossed five hundred shareholders. So for facebook, this means that they were gonna have to report like a public company anyway.

And in practice, the common wisdom was you have to go public as part of this anyway, because otherwise you're gonna report. And then, you know, you're gonna lose all the momentum and excitement about having an IPO in doing an s one and having big road show at at seta. So you might as well just do the IPO as long as you're gonna have to do this.

And I think mark and Sherry in the team like really debated, like, well, should we skip the IPO? But like, well, shoot, then we're gonna reporting as a public company in heading into all of these headwinds without having actually gone public and raise the money that we might need to be able to make these investments. So they're no we got to just do IT .

and go public. 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 tail wins that they have that are probably worth touching on here. The first of which is they had just beat google plus facebook treated this like a total existent al thread. We laugh about google plus now it's a butt of jokes, but that's because facebook was so effective in competing against IT. I not saying the product itself was amazing. I would have been fine without facebook, but GLE did not end up executing that well on that product.

That actually is a really good point though. Google plus mary may not have been a good product and mary out of succeeded. But the facebook .

competitive response was on the growth team plus facebooks engineering culture at its fine est in defeating this, whether or not they executed the product well IT. 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? So it's interesting to look at this because google basically is facebooks biggest business model cup. They show ads on the web, and they monitise ed that really well.

This theoretically ally could have bit in their warehouse. This is just more real estate to show ads on the web. And theyve already got all these people with user accounts.

You can see why facebook took this really seriously. We talked a lot about facebook s technical progress. 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 encourage flexibility of engineers. And they really broke from the tide of microphone in this era. They had one monolithic code base that everyone worked out of.

And you might say, well, let's stupid. Why would they? That's not the way the world was going. But what they basically did was they wanted to encourage portal ability of teams. If you're an engineer, you get hired into the company, not onto a team.

You learn the companies is code base, you learn the company's conventions and you can easily sort of move around. After that, you do have to deal with the trade off. Then if you have this big model of the code base with gigabits of P H P code for thousands of engineers, what do you do about that? Well, then they just had their cake needed to.

They would go and have the infrastructure team figure out how to deal with that problem, rather than saying so everyone can just work in their little silos. And so that meant that engineers could kind of be quickly rewards. They could have this company wide lock down to fight google plus.

And they did all sorts of things. They launched video calls to compete with hangouts. They launched something to compete with google circles. But either way, like they could really quickly relocate 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.

Oh, man, mark famously in an internal speech around this ah you know references what was, I think, k to the elder yes, from interm of a must be destroyed.

Yeah 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. Facebook had just been, I mean, playing way too fast and loose with user privacy for years, and I had finally caught up with them by twenty eleven.

And just to jog your memories, i'm sure people may remember a lot of these. 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.

And for a time, this even included when your friends installed an APP two, you didn't even have to grant the permission yourselves. Similarly, they made friendless public without user consent. At one point, facebook could decide without user consent to change private fields of your profiles to be public.

And this wasn't always message as clearly as I could have been to users. So to remedy this, they had just signed what is called a consent decree with the ftc, the U. S.

Federal trade commission, in twenty eleven. And they promise to make a bunch of changes regarding user privacy issues going forward. And so all this was behind them now. And interestingly, David and ftc concentration is the same thing that microsoft signed .

a back to the microsoft depo de.

Yes, the ftc concentric with microsoft was the predecessor to the big D O J. suit. In this case, the ftc. Concentred is the predecessors to what eventually would become the canberra atis.

So here in twenty eleven, the way that they settle this is there is a bunch of of provisions that with facebook promising we'll be tighter on making sure user data is treated in a very particular way. There are subject to audit every years for two years, for the next twenty years. You know there's there's all these things that they sort of agree to, but you know once you sign a consent decree, it's like, okay, we're through IT.

We don't have this thing hang over our heads. We can go public and say, oh yeah, that's in the past. We've taken care of IT. That's another reason to go public right now.

Yeah, it's such a good point. There actually was this little window here at the beginning of twenty twelve where dea's top revenue and yet been impaired so badly that they could still show growth. They had these couple little winds they could point to, yep, and say like, alright, not great. But like if we're going to do IT, we're going to do IT now yep.

you can almost look at IT like a little bit of a win of everyone knows us, says the company that is uh, a little bit dodging on privacy practices like at least the public perception is this that they're constantly .

changing the terms of the game.

Shall we say yes to the companies advantage when I was confusing or misleading to users and I you can say, look, not only do we sign that, we have these five product initiatives in place where we're just button up now I actually think it's pretty true. I think they became a company that had rigorous privacy practices because of some government regulation when the otherwise may not have.

I mean, if you look at the early days of what you can do as a developer on platform, IT was pretty wild west. And so i'm not saying it's fully because of the concentric ree, but they could definitely tell a story around, look, we made some mistakes. We ve got some things wrong in privacy and going forward, more good shape.

We're good. yeah. Well, we'll come back to that in a little bit. But for the moment, the IPO, february first twenty twelve, they file the s one.

They entered the traditional quiet period before the IPO where legally, according the S C, C, once you have filed for an IPO, all material information about the company needs to be included in the s. mon. Registration statement. You can go give interviews, can go talk to the press, you can say anything meaningful about the company besides what is fully publicly disclosed to any potential investor in the s one statement. And then a week later, on April month twenty twelve, during the quiet period, facebook acquires instagram for a billion dollars.

Times now, baby.

what time is now? And the kids say anything about IT besides what they file in the amended this one because they're in the great period. amazing.

The company's previous largest acquisition was seventy million dollars. Obviously, this is a way different thing. Now sitting here today, you might be really tempted to say, oh, well, there's the fix for mobile. They just thought instagram that solved all the problems except not because gram didn't have any revenue on mobile either. It's like, you know you're trying one anchor to another here.

Well, not to mention instagram had twenty seven million users, facebook had nine hundred million users. This was potentially a problem for a future facebook, but this was not currently the problem totally.

I was just about to say that too. Like yeah also not currently a fix to facebook to major problem of the shift to mother. And I mean, my god, talk about the hotbed of mark to do this.

You're R T. And a really chAllenging period for the company are really changing IPO process. You just entered the quite a period and you decide to spend a billion dollars on something with twenty seven million users in no revenue.

And you're not going to be able to talk about IT except what you file with the S. C. C. Wow, you got a really, really, really freaking believe in the future potential of your company and the combined companies of facebook integram here to make this move.

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 the weekend. Mark didn't do a whole lot of socializing this before pulling the trigger. He just knew I was the right thing .

to do and did IT. Yep, and that ended up working up pretty well in the long run. In the short run.

Yet another question mark to add to the R T. Very large pile around this company. Finally, long road show process. By the week of may fourteen th, they're ready to press the IPO. Pricing is set for thursday night, may seventeen and twenty twelve. On tuesday, may fifteen th, general motors G M, who by the way, was not a particularly large facebook advertiser, announced publicly to the world that they are calling all they spent off of the facebook platform. Because it's not effective, not really what you want to have happened two nights before you praise your.

Was that motivated by someone that feels like a hit that .

feels like IT must have been? I've never heard one where the other bit like, a why would you announce that publicly? B, why would you announce publicly right then? Like there's for sure more to that story.

none. There's facebook goes ahead thursday night. They Price the IPO at thirty eight dollars a share at the very top end of the range after the road show, again, the hubs. But here they raise sixteen billion dollars at a one hundred and four billion dollar 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 a the banker cy during two thousand name.

which both of those are mature companies that are going public under weird circumstances.

Those are not comes totally, yes, by far the largest I P O, A new start up company in history, on friday morning trading starts. The nasdaq is overloaded with so many orders for buying and selling facebook, that trading in facebook stock doesn't actually open until seven thirty A M, which is of two plus hours after the open of the markets.

Gotta be terrifying if you are big facebook, your holder.

Yeah, that's pretty terrifying. Initially, IT looks like all that delay might have been good because the Price shoots up to forty five dollars a share from thirty eight. But then he crashes back down. IT is one of the most voluable trading days in any stock.

I think history on any exchange, facebook shares end the day at thirty eight dollars and twenty three cents, up twenty three cents from the IPO of press, but only because all of the underrating banks in the IPO stepped in to buy shares and support the Price, which was totally crashing throughout the day. Think that they did IT on a friday. So everybody had the weekend to breed.

Once training starts again the following week, the Price falls on nine of the next thirteen trading days and ends up by the end of may, down twenty five percent from the initial IPO Price of thirty eight dollars, kind of in free fall. At this point, the stack continues going lower and lower and lower. Ultimately, botton out on september fourth twenty twelve at seventeen dollars and sixty eight cents, down fifty three and a half percent from the IPO Price. So market cap cut in, you know, over half in. What's that five months since the IPO IT wouldn't end up reaching IPO Price again until August twenty thirteen.

Anyone who bought at the IPO was under a water for sixteen months.

water for sixteen months and five months later had lost have their money on facebook.

So you have have nerves of stealing even just keep hold. I'm sure anybody who got back to even at sixteen months was delighted totally.

You've also got the employee lock up coming up around november. So like now, you're staring down the gun of she've already lost half of my value as a public company. And pretty soon, all the employees in the company are going to be able to selling. That's going to put more selling pressure on the stock. Holy crap business.

pretty darn bad. Yes, that is horrible.

I mean, losing fifty percent of your value as any company, public or private, but especially public company, is diseased or of epic proportions having that happen immediately following your IPO. For most companies, there's no way to come back from that. You're entering a death spiral.

You're gna end up being acquired door. You're just gonna driven to zero, basically. yep. And just to be super clear, this top revenue wasn't go to go to zero immediately.

But wall street investors are really worried that like, hey, the world is transitioning to mobile. Eventually growth will starts slowing and I will start declining, which is does fairly quickly here. And so like if you can't show me that you're gonna replace that with mobile revenue, why should I value your stock at anything? yes.

And so here is where founder control matters. This is David is interesting. You're explaining the mechanics of a death spiral that would presume there is 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 this these short term things. But if you have a CEO who has a twenty year of you 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. You just Better be right.

Yes.

so little fun anette for everyone. David and I, among the twenty other people we talked to prefer this epo de. One of them was Sherry sandberg.

And we were asking shell in particular, how did you start the monetization effort on mobile? They were in the third column. There's no third column about mobile. What did you do? And her comment to us.

Bos, oh, we just stopped caring about the right side ads on dust top, and we took every engineering resource we could off of that, and we put that on mobile, and we knew we are 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, and all we cared about was our future. And he said this great quote.

one sitting there .

with mark late night. And when they sort of arrived at this plan of we are going to forgo a lot of desktop revenue to basically bet at 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 and we bucked 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 if they really are saying, like this is the new first class product, this is where we're going to point.

Advertisers told if they're wrong on that, they're wrong across the whole board. Because if ad suck on mobile, since it's the only thing is filling up your whole screen, user engagement is also gonna know his dive. And so it's basically a bet at all moment where the ads are front and center, so they must be good.

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. Actually, the flip side of this is edited up being the best thing ever for the company because the ads are front and center, the value per ad is actually higher.

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 invention. Yes.

totally. You have no choice but to do your best work and put IT to work out families. Sly, yeah, then nobody can fire you. Well, I guess you can fire me either. Either way, if you're .

in structure, required is still it's unclear.

But yes, totally. So when we say taking your best, most trusted engineers, taking them off whatever they are doing them, putting them on ads, there's actually an an amazing story around this. So mark goes to someone within the company who he knows can just ship and get stuff done.

And that is boss Andrew bosworth, his old T. A. From harvin, as at this point, is running the core profile and types ine within facebook.

Mark goes and talk to women, says, boys, I think you should come work on ads to which boz replies, okay, I mean, like, I get where 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 months sabbatical plan for my honeymoon and my wife and I working to travel the world. It's all like booked and paid for where can be out of the country and Marks like, yes, well, we've got a few months. Until then, I think you should come over and work on the head like, okay, OK, I will do that.

I will come up with something here before the wedding. So he teams up with will cathcart from the news feed team, from Chris cox is team. And they go get to work.

By the way, will is the head of WhatsApp today, and box, of course, is the city of meta and head of reality labs. And the first thing they do during the couple months is like our we just need like abandoned to stop the bleeding and at least produced some mobile revenue. And what they decide to do is like, hey, we do have on mobile the care sale of people you may like. What if we just slot some brands into their care ell and say, hey, in addition to people you may like here, here are some brand pages.

You may like 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. And this was super important because, as I eluded to the lock up on employees and insiders, selling their shares expire in november. They had to get something out that was going to prove the stock Price up a little bit before, naturally, employees are going to start selling here. And that's going to put a doward pressure on the start Price.

Yep, also, bomber, if you are an employee selling six months after that IPO, hopefully as many people held us, they could get through IT.

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 buy a house. You might need to do things for your family. It's a it's a tough spot.

So vall rules around they've launched sponsored pages. You may like baas gets married. They're still branding on the big project, which is called project whale shark.

And that is getting real honest guard native ads in the news feed, which Frankly, they should have done years ago on desktop. But like now, now the gun is to their head. There is nothing in the mobile APP except news feed.

We gotta put ads in news feed. And so finally, at the end of the year, they launch IT buses like, cool. Okay, ms, accomplish.

I can now leave on my synthetical. We can go on our honeymoon. But there's this one problem, shipping this thing is only like twenty percent of the battle. Now you have to go sell IT to advertisers, which this is a whole new ad paradise. You gotta educate brands on why this is gonna work for them, especially when you're overall brand as a company and effectiveness of your advertising is kind in the dumps right now.

And it's an active process where you're going to hear a bunch of feedback from brands and you say who we have to modify add products, which still continues to this day. They roll out and modify add products. This is not like, uh, eric, we now have ads in the news feed. We're good.

The job has never done here. So of course, courter backing all this is onna fall to shero and hurt team. But again, as you said then, this is an iterative process.

You can't divorce product from the feedback from advertisers. And the big advertisers are sure is how gone to expect someone from product to is leading this thing to show up and tell them about IT. So baz kind of needs to come along to these meetings.

So on december eighteen, boz remembers the exact day mark calls him up and is like a great job working on ads. Hey, I really still need you to come back and work on ads buses. Like, no way.

And I did the past six months for you. I just got married. I go on my oneyman on.

And much like, okay, okay, okay, the next day calls him back december nineteen thousand and six. Boz, I just want a really, really great job again. And you know the companies are not really tough.

And like I really think think you should come keep running ads here. And, uh, that s like, okay, alright. I will reduce mysql tics from six months to six weeks.

I'll take the holidays the beginning of the year. I'm going to cancell the last four months of my trip. I will do six weeks with my wife and then will fly her friends out to the last two weeks with her.

Uh then i'm going to go fly around the world with shero on a very different kind of check here. So that's what they do. And for most of twenty thirteen boys on chair are out on the road.

They're pitching advertisers. They're explaining sponsored stories in the news feed 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. They're only just gotten used to digital advertising on desktop totally. Do remember .

those mary meeker deaths that used to go around where they would show the mobile advertising based the shortcoming. Look at all this attention that are shifted to mobile and yet the monitise ation just isn't there. And that was a story every year for like a decade.

Yep, total and IT was the same story with this top on the web for a decade before that. yeah. 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 the whole effort starts to have this real problem where the ads that are now showing up in news feed are like pretty freak, crappy ads. And mark keeps getting more and more pissed because like obviously this is really important, but he's like boss Cherry.

Like why the hell is all this crap showing up in my feet? Like if this keeps happening, I get that we have to save the business. But like, I care more about the user experience. And like i'm going to dial this back.

this the most interesting thing at this point in history, markets putting pressure on bozen shell to show fewer ads.

yes.

And boz is the one with the contrarian view who comes to america, says we're thinking about this all wrong. We actually need wave 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 tones and tons of ads, then we can do way Better targeting like you have this beautiful liquid marketplace of hundreds of thousands of advertisers, billions of users, 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 tailed for them. 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. So like we actually need ten thousand 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. This was such a contrarian view and also, right, and I think only could have come from someone like bars being focused on this problem because as a product person in an engineer, it's the only way that you're gonna a 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. You know, his more data, right?

Like 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. It's attacks on the users and that's the way monetization of media works. But like but 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.

And basically like that's what happened. I mean, flash forward ten years, I open instagram to get great product .

recommendations 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, which is just like freaking wild. You would think like, oh, wow, now I get to use metal products without advertising. No taxes on me .

like I can engage more like that goes the definition of ads content.

if actually the so by the fourth quarter of twenty thirteen, which honestly and scheme of things is pretty freaking fast, the whole thing finally flips. Facebook announced that mobile advertising is now fifty three percent of revenue, and total ad revenue for the company grew seventy six percent year over year in the fourth quarter. Which of courses the most important corner of the year? Which means I did all the map on that.

That means that all of desks, hopper revenue, all of IT. So the old platform business, the old ad business, the microsoft third party's ad serving all of that actually shrink in the fourth corner of twenty thirty. So that's the counter factual here. If facebook had not gotten mobile monodist ation, right, that's what would have happened is q four, twenty thirteen, all of the growth momentum that IT had would have flipped in IT would have started the downed by and .

probably not that early if I guess that's right because .

all the resources got pulled off of IT exactly.

But that's what would have happened .

eventually to IT. eventually. Yeah, some man is like this wild eighteen months journey. But IT totally saved the company, because now here they are. Y've built this unique, pioneering and totally defensible native mobile add unit in the feet. They define the whole generation of monetization.

Here is the best ad unit in history. It's an add that completely fills the screen on your device and that users are OK with. So this is the most insanely captivating, engaging add unit that you could possibly ask for.

And that came out of a necessity. It's wild, the fact that they thought their backs were against the all, they were totally screwed. And instead, actually, it's the thing that model zis Better and is Better for advertisers than any other advertising product theyve ever had.

And know, I know we keep saying this, and that sounds maybe sort of silly, but like really Better for users to before this paradigm that they invent here of no algorithmically ly driven ads in the the biggest monetising thing on mobile was an inter sitio like pop up fricken display that took over your screen, right? Like, what an awful fricking experience for the user.

right, right around this time to. The other thing that's happening is kind of gloss over this for time. But facebooks initial attempt at a mobile APP was to try to walk around all the constraints of the mobile epic system, and they thought, that's nice that the APP stars are going to try and box the same.

But we will just ship our mobile web views inside of a thin little APP rapper. And that way we can deploy multiple times a day. You know, we're facebook. This is what we do is is part of our culture.

H D M L five 5 provided .

a horrible user experience。 I mean, the engagement on the apple was low. Time spent was low. IT was a risk to start selling these ads because people don't want to spend any time in the APP even without ads, let alone when you start layer these in. And so they're finally starting to sort of to pull out of this tail spin.

They basically spent a year completely rewriting all their mobile clients to be these rich, beautiful native experiences. This is a thing that facebook always been good at. Whenever they decide to do something, they go and recruit like the actual best talent in the world to do IT. And the group of people that they pulled together from joe hewitt forward to write the original IOS APP, just like some of the best IOS developers and designers in the world that they hired, mike matters and the push pop press team when they acquire them.

That's right. That's right.

That became, I think was creative labs is right, facebook creative labs. But you know a huge amount of that talent worked on their their mobile apps. And so well, 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. It's funy. I'm laughing. You know, the version of history that we just told is maybe slightly, too chair of all to facebook into mark.

Because, yes, I definitely true. They did the really hard thing. They took the pain. They invested in the future. They built, you know, everything that would become facebook and matter today out of IT. But the first reaction was to bet on hope is a strategy and burn your head in the say and to say HTML five is gone to save us.

I don't know that I was hope as a strategy. I think IT was more like if this can work, it's gonna lay a lot of our problems. And I don't think they correctly estimated how wide the user experience casm is between web apps and native apps.

And I think they had like have an APP in market where users were actually using IT to realize, man, the state of the art in native that the platform vendors have developed IOS and android is really, really good. 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 interest. I make web apps great when they can force everything through way an absorb that they have more control over.

So okay, after the key thirteen earnings announcement, the stock pops like a hundred and seventy five billion ish market capture seventy five percent from IPO. You know what is that year in half earlier? And from there, it's basically if you look at the market capture kind of a straight line journey from one seventy five up to half a trillion over the next couple years. They eventually bring this whole native feed monetization engine over the instagram that works obviously incredibly well there, probably Better than even on the blue APP.

And that in particular, the I everyone's going to laugh me, 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. Both of those products monetize Better than they ever could without that single channel that the advertisers are only has to go through and use one dashboard to place on both products. If you flash all the way forward to today, the lion share of metta's revenue comes from the ads that run on facebook and instagram. Their whole business today can just be summer zed as that totally.

there is another element for a couple of years that's a big part of the native mobile revenue story, and that is up in stall ads and actually is worth calling out IT plants the seeds of. This much larger struggle that's gonna you in a little bit.

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 a install ads that game developers and other folks were buying on facebook. So is kind of like our old platform business all over again. Facebook is actually the best place to discover apps on mobile.

Yes, free, interesting realization where 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 lean back experience. Where're open for some entertainment.

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 and stall a game and play IT, 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.

People don't search the APP store for apps that often, so you'd have to show them like a pop up at or something. 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 ous targeting an incredible add sales force. Facebook was almost built to be the model zable front end to the APP store.

Oh boy.

alright for my leading the witness too much.

Put a pin in that we are going to talk about apple and facebook in just a little bit here. Now I seven minute ago that the journey to five hundred billion in market cap from here, is you a straight line? If you look at the market cap chart, that's true internally within the company, you know, I think almost certainly not there.

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. Yes, we've covered both of those pretty fully on separate episodes that you can go listen to.

But I think ultimately what they represent, obviously, snap was more a competitor and WhatsApp turned into an acquisition that is now big part of matter, part of the company. But I think together, what they represent was this next fundamental shift in the consumer social landscape, which mark totally picked up on and ultimately announced as the core of the company's product strategy. And two and nineteen, which was the default social behavior, was moving from town square, which was the old facebook paradigm, like, hey, we're all this together. This is our college network. This is our friend and network.

or public. Here's what I think.

yep. And in many ways, instagram was also towns .

are totally. The instagram team noticed over time that even before snaps started eating their lunch, that engagement would decrease the longer you state in instagram user because you over time being done with these permanent posting, you sort of saved IT for the big announcements in your life that there wasn't a natural way to just effortlessly share because when these platforms all started, everyone was in the sharing with the town's the whole and everyone's getting a little bit more claiming about that as time I went on.

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 gona give.

And so every piece of data in metric that they had, you're right, they sort of realized of the world is shifting from town square to to .

living room is the way the mark budget, that social was shifting from tower square.

the living room, right? And by a living room, he means small private groups of super close relationships and snap.

And what's up for both? Really interesting data points about this WhatsApp. Obviously, with private messaging snap, also in its own way, there is the original al Snapchat use case of disappearing one to one photo messaging.

But stories really is where IT became clear. Hey, this is widespread. This is a big problem. That is, gonna threaten instagram, facebook, the whole default motion of like sharing beyond just a one, a one messaging platform. I want that to be much more private and locked down too.

If you own an engagement platform and someone figures out a new mechanic to make them much more willing to free form share, and your platform seems to encourage them to stay back, be quiet, only post once in a while, maybe lurk is not good. Content creation on the platform going down is really, really bad. If you are an engagement company, you know, snap represents the idea that people are sharing way more if it's a femoral 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. okay.

So now here's s an interesting question though. How would facebook know that attention is really shifting to these apps? Because remember, we're now in the mobile paradise, not on the open web where services like comes or no x what not existing. You can see traffic and engagement competitively on other apps in the mobile ecosystem. It's all silos and locked down.

No, just apple and google really have that information.

yeah. But somehow facebook was able to get pretty good insights on what was happening in the landscape.

Well, to have that, you would either need to have some kind of S, D, K that could bundled into apps like an analytics provider, or you would need like A V, P, N, where like the traffic was going through IT, so you could see the traffic.

Well, in twenty teen, facebook acquired a small israeli company called o novo. And o novo was exactly what you just said. Then, A V P N. Actually, I think IT initially started as like a data compression to also, if you are worried about your data plane, which is really important, many parts of the world, you can install the novo on your device that would impress the data and then serve tear apps. Eventually, that morphed into a VPN tool. The net of that is that they could actually see traffic and usage data going into specific apps on mobile phones in their network.

Yeah, I think they looked at IT as we need some way to level the playing field competing against apple in google in different ways. And they have this data because they own the platforms, we cannot need to be able to see those same trends. On the other hand, there is another way to view this. If you're looking for examples where facebook, you may have considered their own interests over being for threatened with users over how their data is used, well, this could be another big example. Users who were using o novo didn't download IT with the intent of sharing, you know, their APP usage data with facebook.

right? They were just looking to compress their data or for A V, P, N. Service either way. Or novo ended up being like a hugely important acquisition for facebook because IT really tip them off to what happened.

Snap, 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. There are perhaps an interaction paradise might be the right way to talk about IT a post, or a like, or a retweet, or a disappear photo message. And the thing that kind of matters is owning a valuable network. 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 the scarce commodity in order to kind to win the engagement game.

and the mechanics are actually kind of fungible.

and they're totally a means to an end. 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 rebuild the network somewhere else. So one thing they learned with twitter was, hm, 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. There were a lot of people that basically never switched to twitter because they thought, oh, I can just use facebook for this.

and I already have my networking here. My friends are my connections totally and .

IT also as photos. So like twitter, this weird esoteric text sharing thing, i'm not really all about that. I'm just going to keep using facebook then.

Twitter did have photos for a while. I was called instant gram.

Well, yeah, that if I got turned off fast so as they're looking around that snap, hey, someone has discovered this new stories. Mechanic, my godness, that is suddenly obvious that that is what the future is. IT now feels old.

To do anything else is kind of like when you get a retinal iphone for the first time and you're like holding your non retina iphone and you're like this is instantly a piece of rap like i'm not ever gone to touch this discussing thing again. I think when someone invents a new interaction paradise, it's one of these things were like you have to adopt IT because otherwise people are just going to flea. 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. And so I think the thing that they sort of discovery is 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 benton son would put at the audacity of copying well, or, of course, by buying them.

yes, copying well or buying well, yes.

So listeners, of course, we don't actually ever know what anybody y's intent is or what they're thinking when they decided by a company yourself like that. This is just sort of David and I guessing that strategy from the outside. We do have thanks to a court case, an actual email from mark zuker g on february twenty eighth oh yeah.

this is so good. Twenty twelve to .

their then CFO talking about the time they are sort of discussing the instagram acquisition but laying out the idea behind the acquisition strategy. The basic plan would be to buy these companies and leave their products running well over time, incorporating the social dynamics they've invented into our core products.

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. Once someone wins at a specific mechanics, it's difficult for others to supplant them without doing something different. 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 prety interesting, that is the and of why to keep instagram separate and running as its own product, is because instagram already discovered this fascinating new mechanic around publishing one image of time with these beautiful filters. If anybody else tries to come after them, they're already ahead. So actually the best thing to do, his own instagram, and let IT keeps doing its thing anyway.

Resuming integrating their products with hours 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 twelve to twenty four months. Anyway, the integration plan involves building their mechanics into our products rather than directly integrating their products, if that makes sense, by a combination of these two things, neutralizing a potential competitor, integrating their products with us to improve the service.

One way of looking at this is that what we're really buying is time, even if some new competitor springs up buying instagram path four square, acta now will give us a year or more to integrate their dynamics before anyone can get close to their scale. Again, 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 mccane ics deployed at scale. IT is got dam brilliant, David.

Here's my commentary based on all this. 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 keeps succeeding.

It's actually not a current potential thread. We don't know if IT alterna do a potential thread. Hell, instagram wasn't making any money yet.

What's 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.

So there is this idea that it's not a competitor now by buying yet. We basically get this option on if IT becomes a competitor, if we've completely leave them alone and let them decide what to do. But then there's also look, we will integrate those mechanics into our core product, facebook, the blue APP that art has well built out network effects.

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. Therefore, whether the winner turns out to be the original product or us incorporating the mechanic into the blue APP, we've on either way and probably what's going to .

happen is both. Yes, so brilliant.

And that is what happened with instagram. 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 matter. And then was snap. They tried to buy snap over and over again and I didn't work. And so they basically figured out how to bring those mechanics into facebook 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.

And who's what's really interesting about the stories, quote, quote story in instagram and then ultimately be coming to the blue APP stories as initially launched by snap in the Snapchat, APP was a separate tab with a list of your friends who had publish stories. He was literally like a table, like a list.

I don't remember that really.

Yeah, yeah, yeah. No, I wasn't. You know, the paradise we all think of today as like the heads in the row at the top of your APP.

Instagram did that. So when instagram copied coding code stories and launch stories, they launched IT as the algorithmically ordered row of heads at the top of your APP. And here's where the internal advantages that facebook, the family of apps, had.

They already had this world class ranking alarmist expertise within the company that was being applied to news feed, that was being applied to ads, that was already starting to incorporate early M L. And early A. I start the beginning of fair facebook A, I research lab that 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. Is this gonna made Better by our algo? Make A I expertise. Of course, IT is.

Let's do 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 advances. You can make sure it's the most possible engaging version of that particular interaction design.

yes. So when instagram, in those early days when I 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.

Of course, of course you're doing that. I do won't jump forward to tiktok.

Yes, let's do IT because it's a continuation of this story in a very different way .

in the mid twenty teens. Here, there is a bunch of other stuff that we gotta get you. But tiktok is particularly interesting because IT kind of blind sided facebook.

Yes, 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 all I always have a lead, as long as I can incorporate someone's mechanic. What if engagement is possible on an APP that has nothing to do with your social network? 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 on to wear where your friends aren't? The magic of tiktok was A I, suddenly, in the late twenty 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 know that person. 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 I have that's a pretty thin competitive advantage is really easy to break.

Habits are changeable, specially on a mobile phone where another APP is just an icon away totally.

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, there are just a very different animal, and there are a very well execute machine, and 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 we've ever faced. This wasn't like, oh, there might be an existent al threat from this in the future. This was like, oh, crap.

As soon as people form a habit around, oh, I just opened this black APP the White little music note on IT. We have no more competitive advantages to throw out that problem. So we must as fast as possible, make something like real, just to stem the bleeding, and then we can figure out what to do from there and hopefully get to a market still mate with them.

Yeah, which is basically what has happened. But interestingly, tiktok and by dance, its parent company, as you point out, and was so completely orthogonal to everything the facebook had learned over the past fifteen years because yes, number one, most importantly, it's not social media. It's media. There is no social and your graph doesn't matter anymore.

That's a great point, right? It's digital media, its user created media, it's mobile media, but it's really not social media.

Yep, doesn't matter who your friends are on tiktok.

What matters is in the first videos you look at, is there A I pretty good at picking up the stuff that you care about and the stuff that you don't. It's not. Can you find the whole bunch of other people?

You and I really want to keep picking 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 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. The town square can become something that is completely not social, right?

It's turned into this pretty interesting dual pronged approach that they now have, which is you open instagram and you have reals. So the jo B2Be don e by tik tok is now don e by a t hi ng tha t you alr eady hav e hab it aro und. It's bungled 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 what's up.

This is where it's nice to have messenger for these living room style conversations were just a few of your friends. The new user behavior is, I see a thing that got millions of use. I can think of wonder five people to share that with. And then I have a private conversation about this public object in private.

I will share that on what's up. I will share that on my message. Share, you know, whatever, my my actual friend, living room network .

of choices and from where social networking started back in two thousand and four and ending up now in this reasonably complex interaction paradise of, I get A, I served videos from people I don't know tailored to me, and then I privately share those in multiple groups with those who I love and .

care about is a huge evolution.

It's crazy that we use the term social network or social media for these two things that are like light years apart.

Totally, the social and the media is now completely divorced. And that is because of the shift from town square to living room.

Yeah, we really need to evolve our language around .

all the stuff OK. So that, I think, is dimension one that tiktok is completely or thought in all the facebook. Dimension two is actually organisationally.

So tiktok, as we chronic, called on our episode about a couple years ago, came out a bite dance well with an acquisition of musically by byron and bypass turned IT into tiktok by dance, had toe before. Having tiktok by dance is an A I company. By dance is not a product company.

And the core product that bite dance makes is its A I, along with all sorts other stuff. Tiktok is like the product vector, one of many in the biggest by which they deploy their actual product, which is A I. This is very, very different from facebook, which has always been a product company.

And so like organisationally, the way bite dance is set up is there these centers of excEllence within the company where the algorithms, the A I that is controlled by a centralized team within the company, at least that's my perception of how they're different. Organisationally, from how facebook used to be facebook and facebook leadership was obviously watching this very, very closely. And if you look at how meter is organize now, IT looks a hell of a lot more like that.

So matter today is organized. There are centres of excEllence across the company, same way that I was just talking about my dance. There's fair.

That's the fundamental A I research team. There's infrastructure shared across the whole company, deployed to all the products and apps. There's revenue and monodist ation shared across the whole company, deployed to all the products and apps.

There's growth shared across the whole company, deploy across the various products and apps. There's integrity and safety, which is like big, big, big advantage that facebook. They've reorganized how the whole company looks.

They're still all the individual products in the family of apps. Those all have their own heads and they all rolled up to Chris cox, who has had a product for the whole company and A I to actually reports to him. But all the infrastructure, all the revenue, all the growth, all the integrity and safety R D, coupled from those actual products now and live in the centers of excEllence across the company fascine. And I think there's a lot of bibi's floyds in makes sense.

It's the most formidable competence we've ever faced, and they really have no way to neutralize IT, right? So all this talk of tiktok, them being an A I first company, clearly met da today is an A I obsessed company. How wit IT that start?

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yeah. So I mentioned this organza fair a couple times. I think it's fair to go back and tell the actual origin of the x is interesting.

A is fundamental A I research.

Originally IT was facebook A I research, and now it's fundamental A I research given the company is now met up setback in like twenty thirteen timing when the company was finally fixing mobile, coming out of the held cape of twenty twelve of going through that transition during the IPO in the shift to mobile mark and the company's VP of engineering, mike shreve re, or strap, as he's known.

We're trying to figure out like, okay, we've finally got a little moment to breathe here. 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 gott jump out next and try and get .

us yeah or all these crazy things are happening because we've been having to play defense as user attention shifts with this new paradise of mobile. How do we not let that happen next time? Like how do we play a more active role in whatever the future of technology is? So we're not getting whip ashes around and we can control our destiny a little more.

Yes, basically not actually owning the platform sucks. We've realized this. now.

How do we make sure this never happens again? yes. And response. Some of the early work on a and V, R, come back to that in a sec.

And even this early in two thousand and thirteen on A, I and alex net had just happened right at this time. And for whole history of alex net, go check out our in video, a series where we talk all about that and the importance to A I ml. And facebook actually had a small ml team already at this point.

They were mostly doing computer vision, the early machine learning folks at facebook. We're mostly looking at, can we do automatic image tagging to reduce the you are how converse m IT used to be when you'd upload a big batch of photos that you had to go tag every single one. And then somehow, magically, I remember the exact year IT was like all the suggested, and you really, wow, this is pretty ool. That was what the original M, L. Folks at facebook were doing job.

And alex net, in those big A, I M, L. Breakthrough in that era were all around image recognition. And so facebook was kind of already tuned to this.

And like, well, okay, there's like some pretty big technological stuff happening. Maybe this is gonna be like the next platform vector of the future. We should get serious about this. A I stuff you so summer twenty thirteen markin trip, go out to recruit Young lecon and convinced him to come, started in A I research lab at facebook and yang was then, and is now one of the top eliminated ies, the field top academics out there.

And yang 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 her and why you, I don't want to leave. I don't want to quit teaching IT and why you and i'm pretty done, committed to open source and publishing all the work that we do. And marking shaper one sounds good.

You can stay in new york too. okay? You can stay in where you two, three.

Yeah, we love open source. We were built on the lab stack. great. Publish everything.

We even talked about this at all, this very long episodes 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. They were open sourcing front end frameworks both on mobile and on web.

React, react native you exactly.

They've been open sourcing a lot of the language modifications they were making. Uh, I don't think open compute had started yet, but that was right around the where they were starting to open source. Their data center designs.

data center architecture.

A facebook definitely has a very particular open source strategy that we're going to talk about an analysis but need less to say. They have been advocates of open source since the very beginning.

So yeah is 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. This is a highly focused A I research group. We are going to research A I and I think that is kind of made. All the difference is super clear, exactly how that is going to translate into helping facebook and facebook products.

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. And IT was one of those earned secrets that facebook head and google had at this time at twenty thirteen, fourteen, fifty of like, oh, we can very, very profitably apply this work to our current products in social media feed recommendation.

yes. So it's very funny that the rest of the world is having their AI moment now because media there is in twenty thirteen, fourteen, before language models, like long before l ms. Facebook realized they could profitably spend billions of dollars on A I systems to recommend a what post you should see next in your feed and be what add out of the entire inventory of as we could show you what is the best one for you at this moment in time for that advertisers spend.

And today, there's a lot of companies who are spending on a in hopes that the use case materializes in the future, facebooks is like wildly proven and husband for a decade and is incredibly profitable for them. So that's just like something to keep in mind. Whenever you are looking at facebook talking about A I today, 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 y've just been like they're been quiet about IT, but no one cared until now.

Is one of the fundamental advantages that facebook has today relative to all other A I companies is that they are guaranteed profitable R O I on all of their A I spend, all of their research, all their infrastructure, all their GPU. They have highly, highly profitable ways to put a tork today.

right? IT is a nice to have for meta if the next form factor of computing is an AI assistant like meet a AI. But it's not essential, let's see, of one of many things that they could do profitably with A I technology.

yep. The other thing you kind of gotta remember is twenty twelve facebook. Their engineering brand still wasn't top notch like everyone knew that they were a up in coming great start up that went public. But they weren't necessarily repeatable in the computer science community, as these people are microsoft level researchers to advance the state of the art or google level .

in the way that google always was from the beginning.

yes. And I think mark and trip had to make this point too, yan. And then when yon joined, a 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 we're in for a decade on this particular area of research. It's kind of amazing. IT really, really took like two years to bear a fruit for them before they had profitably deployed AI systems in production because most the chinese research projects take much.

much longer. It's funny actually thinking through this. Now I think there are three dimensions to the payoff s from this investment in a ion fair back in twenty thirteen. One is the near term and immediately an ongoing profitable paybacks to incorporating A I in existing facebook products ah and social media feed recommends highly, highly.

highly profitable 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.

Yes, hundred percent. okay. Then there's two, which is this like, hey, A I might be the next computing platform. There's a lot of interesting stuff going on. This allows us to have a peace on the chester and be a player in the next platform.

Transition should IT be to A I. And this is just like what that did with threads, with WhatsApp, you know, with threats, theyve said. We're not monitise ing IT right now.

We're going to see if IT becomes a big close to billion user platform. And if IT does, then great, we'll figure out the right manutius ation strategy, just like we did with what's up. And mayor may not be add specifically, but we build things that get engagement and we later figure out how to make money .

on them yeah and then three, they had no way of seeing this at the time. But fair and A, I actually becomes the way that they can catch up in rearchitects to compete with tiktok. They are real. yeah. You know, no A I, no real.

That's such a good point. If not for fair, tiktok could have disrupted facebook totally.

I been reals would not have come out as fast as I did.

right? Facebook would not have had that near term weapon to go. hua. We need something that kona 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. I think IT is magic, how the real and tiktok algorithms work. And now youtube with shorts that is 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 for you page social connection to you?

Yes, exactly. You're right. The decision looks more president than never .

given that totally. okay. So that's fair. And A I let's jump forward now to twenty sixteen and twenty seventeen and twenty eighteen. And I think for our purposes here today, it's interesting to view the twenty sixteen election came from genetic, all the follow up that comes out of that which much, much, much in kids bands built through this lens of the consumer social transition from towns are to living room because I think IT actually explains a lot.

Oh, all right. I'm curious to hear what you're thinking here. But to catch us up, here's kind of what happened until twenty fifteen 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 twenty eleven. 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 a joining the network. First of all, content moderation is becoming an issue.

Oh yeah, for sir.

facebook is trying to figure out their role in this. Are they a neutral platform? Do they need to a please what is said on their platform? On top of that, actually defining what is a valuable speech on their platform is becoming trickier than ever.

IT is hard to create one set of rules and abide by them globally. And facebook was just caught flat footed in a big way by the firehose of questionable content that people would post. 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. They have an ever escalating set of posts, videos and live streams share IT around the platform.

That's right because it's not just text anymore. It's obviously photos, but like videos. Now to reviewing .

real time video, absolutely. And as you would imagine, they are not perfect at this. So they are creating headlines left, right about objective things being shared on the network 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. So this information is starting to become a big deal to ultimately, this comes to ahead in the twenty sixteen to twenty eighteen period after they have wheeled away. A lot of the public is good will, and we're just going to zoom in on this moment for the company. The twenty sixteen 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 because .

a lot of people who feel this couldn't happened on its own legitimately, you know, somebody did something. And one thing that absolutely did happen is there was a firm called cambridge alica that sold their services to the trump campaign and had a methodology to create psychographic profiles that they believed would work that were derived from a facebook quiz application.

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. yep. And so there are basically four stories can currently happening of how facebook was involved in the election.

One, there was russian interference. Two, people are spinning up fake new sites, not necessarily for politics, but actually for the ad dollars generated on them. Three, cable genetical. 4， the trump campaign may have been really good at using facebook digital marketing tools.

Yes, I think that is like undeniably yes.

So there's been years of investigation in to each IT. Seems like that last one is actually the biggest lever. Yes, russians did spend up fake pages and accounts with pretty modest spend, and people absolutely spend up fake new sites and generated fake viral stories for politics and also profit. Cambria, janala, tia, 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 feared. But David, your point really, what happened is the trump twenty sixteen campaign n just actually took me a platform seriously and got really, really good at using the tools.

Yep, quite ironic in that obama totally doubled down on facebook is a strategy and used the to great effect to within the two thousand and .

twelve actions. So as you can imagine, i'm preparing for this episode and i'm like, okay, I just heard mark docker g say on another podcast by a great interview with alex heats at the verge. After met a connect about this, he drop this line.

People thought that all of this data had been taken and IT had been used in this campaign, 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 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.

Back in the twenty tens, facebook built the platform that we talked about. That was incredibly promising in the early days when you offer your profile against an APP, you gave IT all of your profile data. And in those earliest days, IT could actually see your whole friddle too.

Facebook eventually made their API much more closed off, but I took a couple years to do that. Now there was a terms of service that required up developers to delete any data they had after a period of time until use IT for very specific purposes. But of course, facebook couldn't actually guarantee a that people were complying with the terms of service.

IT was just, you know, you are breaching contract so at some point to developer made an APP that was a quiz. Users could opt into taking that quiz, the quiz as you questions. And by combining the answers to those questions with profile data, you are the indicated from facebook that APP developer then tried to label you with a pretty basic psychographic profile.

And then ultimately that derivative data, the labels of personality characteristics that were derived from facebook data in your quiz answers, is what canberra oeics had as best I could tell. So I read a good amount of the report at the U. K.

Government put out about this. The conclusion was that the quiz was taken by three hundred and twenty thousand people since those people had access to friends. The total surface area was the public profile data of eighty seven million facebook users. They also found that facebook had requested that care gallic a delete all the data, both the actual facebook data and anything driver from the facebook data, back in twenty fifteen, before the election even started. So IT was, yes, true.

An application got access to facebook data on a lot of users is also true that IT violate in 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 is kind of difficult to reconstruct. On top of all this, IT supposes that cambridge analytics s method of taking these quiz answers and translating them into something that could impact voting worked the like. IT was effective. And that's pretty thin.

That's kind of the most thing of all of IT, right?

So here's what the U. K. Report concluded. And this is in government speaks. So it's all very hedged. While the models showed some success incorrectly predicting attributes on individuals whose data was used in the training of the model, the real world accuracy of these predictions when used on individuals whose data has not been used in the generating of the models was likely much lower. Through our analysis of internal company communications.

The investigation identified there was a degree of skepticism within cbr janala tia as to the accuracy or the reliability of the processing being undertaken. There appeared to be concerned internally about the external l messaging when set against the reality of their processing. So at the end of the day, the camera genetical thing in particular was kind of a nothing burger.

But that is not the story that gets told. The U. K. Regulator was given full access to this and ended up being quite skeptical that the methodology even worked in the first place.

So they've got this like kino crappy derivation data not complying with terms of service request to delete IT. And the method may not actually work. Now this doesn't exonerate facebook in any way from what could have happened. They had an incredible treasure trove of data that apps could slip up in the early twenty tens. But the actual narrative of facebook data that cambridge galea a had impacted election results is like wildly oversold.

Yeah all that decide as we were waiting through all of this and trying to make sense of think about how we're going to talk about this and acquired, there is such a enormous, enormous disconnect between reading what actually happened and then how people felt and what they are like live. The reality of the brand impact on facebook was which that was huge.

Yeah.

nothing could have been huge 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 and head first on. Its almost like facebook isn't guilty of whenever the hacked people think happened with cambria gene eliza all these years later.

But something is very, very wrong that like hundreds of millions of people believe 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.

So let's bring you back to my opposition here, which is that I actually think this paradise shift, that market identified from towns are to living room was like way more right and way more powerful than even he realized. 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 tower square days.

And then the election happened in twenty sixteen, when things they are already starting to transition. What APP exists, snap exists. Snap has lunch stories.

Instagram has now copy snap as lunch stories. In that very same year, two more years go by the camera. Galatia news doesn't actually hit until twenty eighteen. By twenty eighteen, we are solidly in the living room america. So all of the supposed real or imagined impacts of this canbra genetical thing had the roots back in the town square era.

We're now here in the living room america, and that is what people's expectations are, of facebook, of social, of everything that they are sharing in their lives. And I think this is, to my mind, at least, where the disconnect is. People's expectation shifted.

But now all of us, son, all this stuff in the past becomes really, really relevant to the present. And when you look back at the past through the lens of what the present is you like, well, this is really fed up. Like how the how did the company do this? right?

And you know, the answer was they were trying desperately to grow. They were trying to will a platform in the existence. Of course, the cultural norms were a little bit more permissive. But like the cultural norms were really never promised to the point to say, sure, you should download and store a big js on dump of my whole profile information. And any pages that I like and anybody whose names i've connected with like that always was probably a little bit of an overstep. 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. It's like this weird temporal and cultural like mismatch of IT all landing in twenty eighteen, when the world is a very, very different place.

In part. You know, you can see why facebook massively prefers the at base business model of we never even expose any information to you advertiser, you target and then we just deliver the ads. You never get to know anything about who the users are on our platform.

We don't sell data like 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. But in fact, if they did sell data, IT would be a bad thing because someone could then build a competitor like the asset that they have is actually their data that they choose not to sell for .

business reasons to. Then there's this whole other layer too here of like what why did they do this in the first place? Why did developers have access to so much data? They were building platform.

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. Yeah, I do think when I search my heart of hearts though, when I was developing apps in the twenty ten period and would let people use facebook connector, whatever the current branding of accessing facebook account was at the time, I was always like, wow, this is a lot of data that comes with someone clicking that button.

Well, I think you made the point right. 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 they had to be a really big sweeter yeah.

I just can't believe that though, after all these years and all this writing and all these headlines, if cambria genolio o were more competent, 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 headline saying actually cAmber galatia didn't really have that much in the first place. The methodology appears to have not worked and made a copa.

Sorry for get me all all riled up. If you don't want to like facebook shop, but go pick a different reason. Okay, so what happened with all this IT is worth knowing to finish the story earlier from the consent decree in twenty eleven.

That said, facebook is going to be carefully monitored for privacy concerns. As you can imagine, the cambridge genoese s news coming out put a gigantic bull eye on facebook, and the ftc said, aha, you guys signed a consent decree about me or 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 that check that we can write here? Because IT seems like we just want this to be done.

We want this to be buried. We are a different company now. We kind of want to put that to bed. The whole settlement here was not specifically about cabo genoese. A there were a bunch of other of things that are privacy related, but the number is five billion dollars. And David, there is one thing that IT comes with, and that is a twenty year window that they are monitoring facebook and that is exactly matching to the words that mark gave us on stage that came from generate ago. The way they handled that was a twenty year mistake yeah.

Now I think by the twenty year mistake, he met much more of like the damage to facebook s brand that came out of this s specifically the ftc settlement.

Yep, that is funny. I was thinking this is a very facebook appropriate comment. If we had subtitles for this episode, this one would be its complicated.

I guess. So great, so great. IT really is.

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. And then when the dust settles, you can look around and say, okay, 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. Facebook fell into the first camp, and they probably wouldn't be here today or certainly at least won't be a global player with four billion users today if they hadn't fAllen into the first camp. But by falling into that first camp, you have stuff that comes up where you're like a crap. I wish we hadn't done that.

and this is one of them, right? The time bombs.

okay. So what actually happens? Facebook becomes a lot less valuable after all of this comes out. The company announced in their july twenty eighteen earnings call that they're going to be more focused on user privacy and that revenue may slow as they make this intense focus. They drop nineteen percent in one day. They wiped out one hundred nineteen billion dollars in market value, which was the largest single day loss for any company in history. At that time .

at that time.

save at that yeah .

to be exceeded in the future. So this .

whole privacy issue, the five billion dollars settlement, all the stuff that just happens with matter IT has big ripples for the whole tech industry. There is a phrase that is known on the lips of every american somewhere in the neighborhood of CBA. Gentle election interference, fake news, I hate social media.

Facebook did this. Youtube did that blab. And this is a persistent grub. E, that is, underneath the whole national discourse, 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?

That is tim cook's apple. yes.

So apple, a company that I love in the door, and was actually wearing a apple t shirt earlier today and had to take IT off before recordings. S, I felt like he was weird to be wearing my apple t shirt when recording the facebook episode. Apple is a company that has always been incredibly privacy conscious.

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. They also to use ben Thompson's parlons, use IT as a strategy credit. There are areas in which IT really behoves them because they don't need to do server cide stuff.

They don't need to do advertising because they make a lot of advertising directly from google, and they don't need to do a lot of other things so they can touch, hey, we're unbelievably secure with your data. We take privacy incredibly seriously. No one takes him more seriously than us.

They start really beating this drum. And by twenty twenty one they decide, you know what? In I O S fourteen point six, we are going to launch a new policy called APP tracking .

transparency. Yep, A T, T.

And what that means is a few years ago, we Mandates that anybody who is tracking you across apps start using something called the I D F A, the identifier for advertisers. Now, in the past, apple had let you just actually reaching and grab the devices unique identifier, which is prety cool, because IT as a developer, IT was unrelated advertising. Think of IT almost like a serial number of this device.

And you could use that for things like he is. This is the same user across multiple applications. I've got my SDK and my code running in multiple developers s applications, so I can do interesting things like say, hey, this person both takes runs, travail and they also use google maps.

And you know, you can just to gather data across apps, kind of similar to how facebook was gathering across the web with like button everywhere or with facebook connect everywhere. So they could build this holistic profile of things you do off of facebook. You so apple steps letting you use the device identifier, they forced you into using this df a.

And then with IOS fourteen point six in twenty twenty one, they say, hey, if you're using I D F, A part of that API is that now whenever someone launches an act for the first time, it's gonna ask them, in this really aggressive language, are you O K with getting tracked? Or do you want to ask this APP not to track? What do you think people are?

Onna click, yeah. There is a default answer to .

that question. yes. So what actually ends up happening? Most people click ask APP not to track. A whole lot of facebooks targeting basically falls apart. They no longer have a picture of you outside of apps that they actually own. 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.

David, this is the example kind of manifest in practice of the thing you are talking about all the way at the launch of mobile of what's one of the reasons why facebook is beautifully constructed business model doesn't work in the mobile world garden ecosystem. 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. You can't run as effective of an advertising .

service totally and a minute go. When you asked the question of who is paying the privacy grumman, I said it's tim cooks apple. One of the reasons I said that is that actually, I didn't know this to doing the research. Mark n. 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 two thousand and seven, right, as all of this is coming together. 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, the next year in two thousand and eight, when the iphone S D K. Was launching and people were building apps, mark in facebook, actually go to apple and meet with Steve, and they pitch Steve on exactly what you were just talking about. And hey, how about you let us bring our platform that we've just built that has all these developers into IOS, into your platform really old to .

make facebook platform part of the I O S. developer? Wow.

yes, which you know from facebook's part is kind of like a hl. mary. Like, yeah, probably not. Onna say yes here, but this is really big, great to us.

We might try, but they did have enough of a relationship where facebook and twitter both were privileged citizens. An early version of the iphone O S, like in the settings screen, even before you installed LED that the apps there was like a facebook and a twitter settings for just like native integration between the Operating .

system and those networks and social networks. Yes, totally. So Steve, supposedly the letting mark, the facebook team make this whole pitch and at the end of its Steve just looks in mark is a little sheep passion, like thank you or just not going to let somebody else build a platform on top of our platform and that he sort to push his back in his chair.

It's like clear that the end and is like, hey, so by the way, what do you guys think about microsoft and working with them? And then they just like have a really nice conversation supposedly for the next couple hours and shoot the shit and talk about microsoft. Computing history adds, this is very cordial relationship. And I think the sense I get is that Steve really liked mark, respected him.

They're both like pretty product visionaries and they are both like very stubbing about their views of the future. And they both were very right about their views of the future. I can see IT .

totally and clearly that is not the feeling today between the two companies. And I think what happened since, okay, if I had just ended, uh, apple isn't gonna let facebook build a platform on top of their platform that might have been in. But then when mobile open stalls happen and facebook all of a sudden.

facebook was making billions of dollars off of deciding what apps in the APP store did downloaded, apple had to have felt like, hey, this is actually, this is our turf. Yeah, yeah.

And so then, after everything that happened in twenty six and twenty eight cm, gentle privacy tear point, and 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. Part of IT two is like, oh, grey 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. M fairly ah you .

end up with the apple feeling like everything that happens on our platforms is ours and these are our users to protect and no one's going na do wrong by our users in any way. See, you have apple who is protective as all hell. And then you have facebook where mark zuker berg, more than anything in the world, once as much freedom Operate as possible. And you have apple trying to constrain, and you have mark who hates feeling held captive yeah .

so now here we are in twenty twenty one. And apple is like we're making our move. Yeah facebook been reeling. We've been beating the privacy jump for the last couple years since twenty eighteen and chAmber genoese a now it's time to make the move.

So what ends up happening actually the first couple quarters, not much facebook talking about our in calls, hey, we think this is gna have impact. It's not huge.

But then february twenty twenty two, which is technically the end of year twenty twenty one earnings call for mea, they drop the bomb interestingly in question and answer, I listen to the whole earnings call in the C F O kind of casually says in a response to someone, oh, we think that the impact from A T, T to our ad business went up, costing us on the order of ten billion dollars for twenty twenty two. What that is eye popping. But like, uh, okay, so what ends up happening is there's a twenty six percent drawl down in a single day.

Remember, we said to put a IT in the single day he draw down records.

The market cap went from nine hundred billion to seven hundred billion. The actual number is they lost two hundred and thirty two billion in market cap. The new largest in histories are passing their previous record. Also on this call, they announced their first ever quarter over a 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.

So has some marginal users kind of using the apple less because they're we're going to tiktok and facebook is reacting to tiktok and trying to put reels in so they're canabal zing their own revenue by encouraging people to watch these short form A I recommended videos that actually don't yet monitise as well as the news feed. There's cut of three fronts that are destroyed them here. There's att, there's tiktok competition, and there they're making revenue canabal zing changes in their own APP.

So the hit continues. IT traded all the way, down forty six percent by April twenty seventh. And then ultimately, IT bottomed on halloween that year. So this is what, eight months later, with a seventy two percent drawed down, they lost seventy two percent of their value between february and halloween.

all in the twenty twenty two. It's crazy. And that is like in video levels of drawed down back in the crazy in video journey that we talk to about.

It's totally insane. The interesting thing is, at this time, the real threat wasn't actually A T T. The biggest of those three threats was tiktok stealing users.

Yes.

the whole A T T thing is about how much money can we make off of an because IT is so well targeted as an optimization that is useless if you do not have users to advertise to in the first place. yes. So the actual, real existential threat is tiktok.

And ben Thompson makes this really great point. And I know i've quoted ban over over this episode, but I think he's just been so a student on facebook at many points throughout history. This decision to make these product changes, to respond the tiktok threat in the face of A T T.

To do this at the same time is a founder LED decision. If you had a professional CEO, the correct thing to do to preserve your job and shareholder value is to wait six, twelve months before you start reacting to tiktok to let the whole A T T thing blow over Marks. Like, I can get fired.

I think the right thing to do is react to tiktok now, because everyday this problem compounding gets absolutely worse. I don't care that there's this horrible narrative of going on right now with A T T. That IT is going to cause us apparently to lose ten billion dollars of revenue we otherwise we've gotten this year.

We must can alias revenue in addition to that, to make these product changes. What IT ends up with is the seventy two percent drawed down. And what IT also ends up with is the chance for IT to five x from there, which is what has happened. The company saved itself by acting correctly in this, and they had to go through this wild to l to s two year journey in the process.

It's just another episode of mark making these sets of decisions because he's mark, because he controlled the company and because he has the stomach to withstand IT 呀。

And what ended up actually happening from A T. T. 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. I get the sense that the apple store business for the APP store, those search ads is going great, but it's not like equivalent to what the monitise ation over meta is on open style ads or was on apple store ads.

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 f store searching for apps anymore.

Not to mention this nee kept meter on a lot of ads that are not apps, still ads. This nee kept 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 twenty twenty two when this happened and they were sort of scratching their head and they have nothing to do with the APP store.

So all that kind of happened is that entrepreneur said. I guess i'm GTA keep advertising on facebook as a platform. I hope you get Better.

I'll pick some other platforms. But like I can advertise with apple, there's nothing for me to do. It's a retail good. It's a physical team. So I guess i'll just pay more money to acquire customers.

Now I can end up actually hurting the business when go to market channels, get less efficient unless you can sort of shift that spend to a place where your customer is also hanging out in practice matters fine when a shift like this happens. The most scale player with the most engineers and the most data, turns out there are still the winner met to 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 dc, you're gonna spend IT.

You're probably going to go spend IT on matter the same where you were before is just not quite as efficient as IT owned. By the way, anyone else that got hurt from the changes with A T, T, just doesn't have the ability to react and build around IT. The way that made ahead because of the resources meet IT does up.

So all of this finally brings us to the last piece, the story here, that i'm sure listers, at this point you're probably saying, like what the heck were however many hours in you guys haven't said the world's reality laves or oculus or A R or V R.

once I was facebook in .

that industry? Yeah you know I guess they are .

what happened here, uh, way back in called two thousand and twelve. 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.

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. 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. Yeah, so a crazy thing happened in february of twenty fourteen.

They opened up the post rings and paid nineteen billion dollars for whats up. They had so much conviction that the future was A, R and V, R. That thirty four days later, they paid another two billion for oculus. I had no recollection that these things were a month apart.

No, I didn't. I knew there were about in twenty fifteen, but I didn't realize they were a .

month apart as 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.

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 fear is a research lab. And I was like, oh, great. Two billion dollars to kick start the research lab. fantastic.

alright. So uni have both tried. Ryan IT is unbelievable, fantastic tic, 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 any device.

But like, never have I been so sure that a main frame very far away from me to converting to a PC which lives three feet from me, converting to a phone that lives in arms length from me. The next logical step is glasses that lives on my face. And I used to sound ridiculous.

And then you and I tried to ryan, and now I am like, oh yeah, that is going to replace or augment my phone in whenever these things are commercially available and consumer grade. I'm glad we wanted to do this episode because I think I would have had a pretty different take. Having only tried V R headsets and vision pro and big gog ly things over the years, I think I would have been unconvinced, Frankly, because I didn't think IT was possible to put something in that small of a foreign tor.

So that is the current product experience that you and I have recently had. Now lets 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. 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.

And let's level said on how much investment has gone into IT? yes.

So based on their spend already, since they started reporting reality labs as a separate segment in twenty fifty, they spent right around sixty billion dollars. That is an Operating losses for the segment.

And does that include the two billion for oculus? I'm in either way.

it's rounding air. Who cares? 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. I know this sounds wild, but like that is the bed. 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.

So as a thought experiment, what if meta managed to launch such a product, say, the iran glasses tomorrow, and say that such a product grew at the exact same rate and with the exact same stream as the iphone? Well, I did that nap in math. And if twenty twenty four this year was apple two thousand and seven, so you just take all the iphones s cash flows and you start the clock right now met as cumulative cash flows from reality labs would be net negative until at least twenty thirty five P.

P. So we're talking in seven years.

you would get back to break even on your investment eleven 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.

That also assumes generously that matter, could build a services business attached to IT, the size of apples services business, which probably generates right around an equal amount of profit. So basically, take all the profits from iphone double IT, that's actually what you would need. It's actually fair to attach a similar size services business.

I think that's very fair knowing matter and all of its capabilities and everything that we just about.

Yes, that is the bet. Let's just be super clear. Anything else is a complete encino of cash.

Well, okay, that is the bt looking at through the lens that he posited of a purely financial investment. Yes, perspective.

The second way is actually kind of financial to you. I think there's try 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.

And that's not irrational. I mean, apple made a ten billion dollar dent in their revenue just two years ago with att. 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 would have little recourse. That is a existential business risk, and it's an unlikely one. But every day, you could wake up 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. They have the right to distribute or not distribute anyone's APP in their store any given time. Look at apple and epic with fortnight.

totally.

So there is actually an expected value calculation you can run, which is my entire companies market cap times the likelihood that IT could happen, which you know it's extremely low likelihood. But because the market cap is one point five trillion dollars, the expected value is still a very big number.

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 and at me to being worth one point five trillion if they are spending fifteen twenty billion a year on reality labs losses, that's a little over one percent, right? Is that worth IT if you truly believe that this is the most effective way to offset your most existential risk in the next two decades? Hello, yet is tell you is 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? Alruna percent tax on your and is generous .

to frame IT off of market cap? You probably should frame IT off of revenue, but still a one percent attacks off of your entire enterprise value every year. I think there is .

also potentially a third way to frame IT. And is funny. I think you put IT in the emotional length. I I actually think less emotional but more upside oriented of facebook did have the taste of being a platform for those couple years there from two thousand seven to call twenty ten, twenty eleven.

And if they own the next platform, not only will they do everything that you're just talking about, if I go, we'll have an iphone size business because if IT turns to be in reality ABS, they going to be selling the hardware and maybe they can make that profitable like the iphone is profitable at at then there's also your point number two, which is like this is a defensive play. Our core business right now is at risk as it's built on somebody else's platform. And mark made to comment on stage with us that theyve run the analysis.

They think they could be twice as profitable in their court media products if they were on their own platform. Sure, great. But then there's like the big, big place is the third part of like what 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.

That's an even bigger point. 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 twenty twenty four. And of those multiple hours, zero minutes were dedicated to their core products of social apps.

There 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, yes, I did, is great. It's met A I. It's the lama models underneath IT. It's the open source strategy it's developers building for the quest is announcing new products like the next generation of the babyan meta glasses is revealing a ryan zero minutes to their current products or business, and they're one of the biggest businesses in the world.

Yeah, well, right.

they're all about this platform future. So here we are trying to make the case of like they did IT. They decided they were in ads business and they built one of the two greatest advertising systems ever known demand and one of the most amazing business models ever. And at their ideal developer keynote, they're talking about how they're going to one day become a platform company.

There we have IT.

That is the story of meet up.

I should probably save for a minute here too. My experience using iron, you were talking about years a minute ago, I thought I was unbelievably compelling. And before trying IT, I never would have believed that any type of A R or V R would really have been the platform of the future.

And then after trying a yan, I was like, oh yeah, I could wear this on my face all day. And like, I could replace a lot of what I do on the phone with just these lens is being in front of me all the time. And I would be way more efficient.

way more enjoyable. I would never have guessed that in this year you could fit that into glasses, glasses and a wireless book.

totally. Yeah.

good listeners. We never shared our impression on this. IT is wildly compelling.

And if you asked mark, he probably would frame this whole thing differently than we have. It's not about this hedge. He would say some things about platform control.

But I think for him is just this general belief that we want to make awesome products. And I believe there's an awesome products to be made here and i'm going to assemble the best people I can to go work on IT. And I think that's the like most interesting duality of this company is it's both. It's what is the best strategic move to make to martial I resources and a much more touchy feeling like I want to make products that are great and bring people closer together because that's the mission of the company.

Yeah well, well put. Should we wrap the story there?

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.

So as of the end of reporting last quarter, there are three point three billion daily active people across the whole family of apps. Okay, astonishing. That's up seven percent year over a year. The family of apps revenue per person is about twelve dollars. The end of your stats from last year, when you just look at the facebook APP, not the whole family of apps, the daily active users are two point one billion.

So of those three point three billion daily active people across all the apps, two point one billion are on facebook, and the monthly number of facebook is three point one 呢 billion monthly active users。 So two point one daily, three point one monthly. wow.

What's happened? Instagram mar in the neighborhood of two billion monthly active users. What's up? Has a hundred million now in the us.

Which this is sort of a big narrative violation that what's apple never catch all up in the us. And my message is dominant. And even after that, it's text message IT.

This is crazy. A one hundred million people a month in the U. S. Use WhatsApp. Now I mean, it's been a slow burn over time, growing and growing and growing. But me, I came out of nowhere. 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.

It's funny. One thing that may be contributing to that, which we didn't put in the stories marketplace, something for me personally. I have totally boobed all the way back around on the facebook blue up.

And I am now a loyal D A. U. Because of marketplace. It's awesome.

which is crazy because you don't use any other form of social media besides like posting on twitter for required, right? Because they've announced that meddling AI is on track to be the most used A I assistant by the end of the year. It's worth individuating meta I from lama.

Lama is the name of their family of open source models. Those models do power made A I, but made A I itself as a branded consumer experience that lives both stand alone and in a bunch of meters apps. Their revenue in twenty twenty three end of the year was one hundred and thirty five billion dollars, Operating income of forty seven billion dollars at a thirty five percent Operating margin worth knowing.

Just like all tech companies, they have become capex heavy the last few years. They now uh, last year spent twenty eight billion dollars in capex, which you should mostly read as data centers. They Operate a hyper scale sized data center footprint giver.

Take, you know you think A W S asure at microsoft and google cloud. Meta is the fourth one. They just don't sell IT to anyone else, only consumed by internal teams.

So huge amount of investment in A I hardware and just other data center expansion. The baLance sheet is fortress. They have fifty billion in cash and fifty eight billion including cash, eclipse and marketable security. They have seventy one thousand employees and their market cap is one point five trillion, up from two hundred and thirty billion in just october of twenty two.

Wow, incredible.

totally incredible. So too 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 geography. There is something in the water at this company. Why is that? That WhatsApp and instagram are both increasing in user engagement over time. It's the growth function.

I mean, it's this like purpose built heat seeking missile of attention and metrics s that the company pays attention to where across a whole broad products, weet engagement increases. It's not like they have of one thing that happens to do really well. It's a process.

I would a whole set of things. As these know, the company calls them centers of excEllence internally, it's the growth function. It's ai. You is dad in the revenue team. All of this contributes .

to IT you fair. The second insane thing at IPO, the U. S.

And canada market had an average revenue per user of eleven dollars. That number is now two hundred and twenty seven dollars. wow. yeah.

And globally, that average revenue per user, when you include all the emerging markets and less valuable markets for them, is forty four dollars. So they really, really modified now. So how much of the world does matter really have left .

to put a book end on this.

I almost asked you .

this question all the way in the beating. When you are a team up the episode, I believe, will save IT for here.

So according to the U. N. Last year there were five point four billion people online. This includes china, right? So they're basically saying two thirds of humans .

are online and meta does not include china.

Yes, meta has four billion monthly active people across the family of apps. China alone is one point for a billion. And well, this isn't like totally exact. I think you just apply the same multiple to china and say, well, two thirds of humans online, two thirds of china is online. So that means that there is nine hundred and forty million people online in china.

I mean, that's probably being conservative. I think you could you are you a much higher percentage of china is online?

Yeah but let's be conservative. That leaves about four hundred and fifty million people or six percent of the human population who have access to the internet but are not yet met a month fully actives. That doesn't mean they're not met a users. That just means they weren't monthly active users as of the end of the last reporting period. So meet das addressable users who aren't yet users is less than six .

percent of humans. And then still, I think the crazier thing about the company is that if you look at the daily active user figure, it's not that .

much lower right and across all products. And so once you frame at this way, you're like on there's only six percent of the population left either through reactivation or signing up that they could get.

You have to understand why they put so much effort behind emerging markets, behind doing things like zero rating, doing custom deals with telecom, rolling out fiber, bringing countries online for the first time, even when they have no new term motivation. Potential internet dot org was the name of the an issue for a long time around this to basically say, look, we are saturating humans. We gotten figure out how to get more humans on the internet.

yep. Move on to analysis.

yep. okay. So in the analysis, the first thing we're going to do is power and then playbook.

So we are going to do a seven powers analysis of what enables meta to achieve persistent differential return or you know, to put another way to be more profitable than their closest competitor and do so sustainably. This is interesting. Who is their closest competitor? I think that's pretty worth defining. First and foremost, ultimately, they're in the business of selling advertising. So I think their closest competitor is google.

Yeah they are certainly the most similar looking businesses in their current forms.

But I who do they compete against for the same profits for the same potential profits.

right? I'm not sure that it's actually google. I mean, IT almost certainly is youtube within google, but I actually think this is other social platforms.

Yeah, you're right. I supose other places people spend time.

Yeah, it's where people spend their time right, online and offline, 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 snapp product. And even though they're not voting with dollars so much like their attention is a proxy for dollars because you just assume that those company should do a comparable job monitise the attention.

yep. But what makes sense, I think, is to just walk to reach of them. So counter positioning, they probably don't have much counter positioning in the current state of meta. And hold on A I for the moment, in their start up days, they did a lot of counter positioning against other global social networks by being a college only authenticate 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 yeah.

with higher engagement .

scale economies.

Scale economy is hundred percent absolutely.

This company is in the business of scale economies.

yes. And I think that scale economies on the infrastructure side, on the GPU investment side, I think that scale economy is on the advertiser side and on the add experience side like. Just by having so much more scale, they are the default standard way to spend money for advertisers.

Think about on the tooling side. Think about the experience of being an engineer at matter and the thousand engineer years of work that comes out of that company every year on making the developer experience of working there Better. I mean, crazy with the revenue scale that they have, how much they can immerse.

ze. These fix costs totally. Everything at this company is scale economies.

yes. Okay, scale economies for sure.

Switching costs as a user you pretty locked in once you your followers 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, the whole idea of like a creator and influence, or didn't exist in the early days of social media in facebook. But now you and me, our platform on the podcasting platform, like we have a credible switching cost. Somebody has a ton of instagram followers, has incredible .

switching costs. Yeah, now fortunately, in the land of craters, you don't actually need to switch. It's just an end. You know it's not like you're ripping out one vender and putting another venture in. I do have a sunk cost in building a following on a given platform, but that does not actually prevent me from also launching another platform. If you have the time to kind of do that.

I think there might .

actually be process power. Um Normally there's not, but I keep kind of going back to this like there's something in the water. Their products grow and engagement over time. Their growth team does ten thousand little things to open up every step of the fund as well as IT can be and make the most frictionless, fluid, ID experience for users.

interesting. Yeah, I was actually having this discussion with hamilton recently about the difference between process power and cornet. A good test for this is when you bring somebody brand new into the organization and plugged them in, does the power transfer to them as well? If no, then it's a corporate resource.

If yes, then it's process power. And in this case, I think that's potentially true. Yeah, you can bring a new engineers, you can bring a new product people and transfer the advantage to them.

You know, for a while they had legitimate process power and how they shipped. I mean, that thing is started on the premise of this IT blew my mind when someone from facebook came give a talk at microsoft in fourteen on how they ship product and how IT rules out and IT not only the feature flag elements of IT, but they can sort of like watch performance auto rule things back if they're causing negative performance matrix.

How like there is just deployed code all the time with a whole bunch of experiments turned off. How there is 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 currently running with the same user base. I mean, that was like real voodoo that only facebook did for physically decade.

yep. And I suppose google probably does similar type things in different ways, but nobody else really does.

I think OpenAI kinder 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.

Yeah, okay, I can buy that. There's some process power here.

Yeah, branding. Branding is such an interesting one. Can they have negative brand power?

Yeah, anti power with branding weakness.

There's no love for the brand meta. There is no love for the brand facebook. There is love for the brand instagram.

Yeah, but IT diminishing as IT gets larger. Certainly not like a once was.

Yeah there's like reliability with IT all like I feel pretty. I mean, they're a branding that comes with being any big company that your sort like large and rested .

and institutional. 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 twenty, their hit in Marks parliament, they're still today want to have trillion .

dollar yeah and then corner resource, unless you're gona call mark one, which always feels a little bit too cute to name the founder.

I actually think there are some corner resources here within me up. 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 that theyve had .

to harden over the years. Yeah.

yeah. Even though this is also the source of so many criticisms .

about the company is now pretty robust .

if you think about anybody that would start up to try and compete with them. Somebody I was talking to, but this to me, like, imagine a started trying to build a hate speech classifier in far cy metas got that.

And trying to have the relationships with the public policy people in two hundred countries to understand what is acceptable speech .

in each of those countries yeah so well, probably you know youtube to a certain extent. Tiktok perhaps also have similar strength here. I doubt there is any other company in the world capable of actually Operating privacy, integrity and security. And within that is also in taxpaying stuff too, which is super, super, super huge. Yes, at the level that facebook is interesting.

okay.

So in looking at this, why does meet to do forty seven billion dollars a year and opting income? And why do we all believe that's gna continue for a while? Like what actually is the defensive ability here is that the network economies because they are so totally logical that I mean, 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 yeah and they .

competed very successfully with matter in doing, oh 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.

yeah. Well, I think the network on these are still true relative to anybody who would compete in a social product. Yes, which still exits totally. Social is just now divorced from media.

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 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 yeah totally. So part of their business is defensible from the network economies. But the other part, honestly, a kind of feels like habit.

well, habit. But I think scale economies are really big for that to especially in I think the only way that this new paradigm exist is because of A I and because of GPU specifically. And i'm not even talking about general AI. I'm talking about like feed recommended systems and personalization systems. And so like there is a very, very large minium barrier to entry there that keeps going higher as by dancing Better keep investing in IT.

Yeah, that's a great point. Okay, playbook, playbook.

let's do IT. okay. So let's .

talk about what meta is doing with A I. 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 air research, the early twenty fourteen on use of recommendation in the A I for the ad matching system. But there's a lot going on with facebook and A I right now that we really haven't talked about.

So there are two words for you to know. One is lama. And this is the family of foundational models that meta has developed in. These are competitive with OpenAI and anthropic s .

cloud and gina.

yeah. And then there's meet A I. And meet A I is a consumer brand that is the way that you interact with, met a self hosted version of lama, or maybe give you a little bit more Greens than that. IT is an application that meta has that uses lama in the background, but provides met a specific A I experiences, some of them bungled into apps like in WhatsApp chat or an instagram.

the blue apple, whatever you yeah.

But also there is a many AI website that you can go to an interact with. The but lama is the models themselves made A I is the consumer product. And lama, they have spent billions and billions of dollars, huge amounts of R N D, huge G, P, U clusters to train big data centres. Interestingly, IT is all open source.

So mark makes a big deal about this.

Yes, is interesting to sort of think about why it's not open source in the same way really that olympus is open source and this is the free standard that everybody uses and there's just of a foundation behind IT. All meta is putting huge amount of capex and OPEC like huge amount of dollars into willing lama into existence. It's very different than the sort of cheap grassroots open source projects of the path.

Yeah, it's an open source leg. android. This open source.

yes. And so why are they doing this? Well, if you ask mark why they have an A I 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 competitors closed ecosystem where they restrict what we build.

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, but is important. 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 A I space, we actually don't have a business model around making money on this. So we're going to spend all the money we're going to give IT away for you.

Why does that makes sense? It's open compete project all over again.

yes. So for anybody he's not familiar, facebook made this move in the early twenty tens where they realized they were spending tons and tons of money on their data center infrastructure. 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 really big customer.

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 were like, js, all those people are paying big margins to what if we just publish the speaks for the billions of dollars of work that we have done to 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 computer project is this standard, by which. All the hardware manufacturers and integrators actually have to snap to because all the customers are saying this is what we want. And it's a pretty genius way to drive margins down for these suppliers and also .

a way to guard against somebody in your supply chain kind of building platform power.

yes. So what they basically learn from this is, oh, we open source this thing. All of our costs went down because the whole ecosystem started using the thing that we open source. So even though we're not making money now, they are not a cloud company. They are not selling access to the data.

understand one, they're not a hyper schaller .

IT pays back in the form of saving the money. I can do the same thing in A I they publish really expensive open source foundation model that is in the conversation to be as good as as these other close source ones.

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, as mark said in our conversation with us on stage of a lot more smart people outside your company that in the side IT. But effectively, what IT does is IT puts pricing pressure on the AI model companies to the extent that mark use IT as a super important key ingredient to the product experiences he wants to build in the future. It's super bad if there's a few close source providers who can provide that experience and they a lock him in the controlling.

So here's what you can build. Here's what you can build. But we take his margin, basically say it's really expensive every time you want to make a call to one of our proprietary services.

When you think about IT, it's actually a form of Operating leverage, where is basically saying there's a big fix cost I am willing to bear in order to bootstrap this ecosystem and commoditize all of these compliments, commoditize all of these other close source AI models. 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 cost are lower. I just get to keep more of the dollars that we bring in rather than having to pay them out to propriety model providers in the future is a pretty novel business strategy.

Yeah, totally. So I said, commodities, your compliments. This notion was dreamed up and named by joel spooky in two thousand and two, whether 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, you have a car in a gasoline.

Will AI models end up being a compliment to metas products in order for them to build Better A I or even the feed recommendation stuff we talked about? They need best in class A I models. And just because cars increased the sales of gasoline, that doesn't tell you about how profitable and automobile ker gets to be versus a gasoline maker. So imagine the author maker decided that 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 automatic er decided to make low cost gasoline just to drive all the other gasoline Prices down while gas is cheaper. And you're the auto maker, 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.

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. And if A I is a required input to that solution, then like yeah, you're thinking about that as a total purchase decision.

yes. Or an advertiser is not going to pay you more or less depending on how much you have to pay the A I model provider. They're gonna pay you an amount. And if you want to maximized the amount of that you get to keep IT begs you for you do not have to pay as much money to A I model providers.

Yes, Better put. 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. You can imagine a more moderate company saying, oh, well, there's gonna be lots of A I vendors out there and we could just let them take care of that as they are core competency and they'll just buy off the shelf from them.

But that's not how that IT 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. But now they will control the key technologies that matter to them, both for getting to own, indicate product road maps and product 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.

right? Only a company of the scale of matter can kind of run this playbook playback in quotes, because no start up is going to be like, oh, okay, what is my strategy to make sure the OpenAI anthropic don't get leveraged of for me? good. Like with that.

Yeah, totally. So my first big playbook theme is metta discovers commoditize your compliment and is now looking for ways to use IT everywhere.

I love IT well, but okay, 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 ports, never wanting to be backed in to a corner yeah and I think he'd 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 to start up where degrees of freedom more limited. He was always making choices and playing the game such that there are multiple options of how things could go right totally.

Mark is a master at maxims ing his degrees of freedom and setting up the board such that in an uncertain future, there are multiple path to Victory no matter how the world unfolds. Job, which is unbelievably gates. And I feel like we said the exact same line about bill gates in our microsoft episodes.

The real comfort this company is microsoft. I think that's right. That was actually my next one. They do either of product development.

They put the first version out just to kind of get feedback and see how they need to read and get Better for the future. The early days are characterized by hiring all the smart st. People and prioritizing IQ over everything else.

Commoditized your compliment, obsession with building a platform that other developers build on top of this whole thing about multiple bets in an uncertain future. I mean, it's funny that just look at they were building messenger internally. They bought what's up, I bet there glad that they had the door prong strategy they were developing of an APP called photos at the same time they bought instagram.

That's what they do. It's gazing. And the most interesting thing that I think is like, I hit me in the face like a toner bricks suck.

After all, the twenty sixteen election fall out 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 film instead of leaving after the D. O. J.

case. That is the biggest references. They both went through this hellish period. And mark came out of IT and said, i'm more body than ever, yeah. And bill came out of IT and said, Steve, yet to see you now. Yeah.

it's exactly yet. Yep.

are you going to talk about mark's amazing line from the harvard? C. S. Fifty lectured .

like two thousand.

five. I'm not let on. H, it's so great, mark.

what? Twenty years old at this point? Maybe he spent the summer out in palo alto.

He gets invited back to do a guest lecture, as is like a practitioner in the field at harvard CS fifty class. And he's talking about product strategy. And he talks about how he really admires microsoft product strategy.

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 very good. That makes a lot of sense to me as a good product strategy.

IT is amazing. He lays IT out right there. We don't have to like speculate. IT is explicitly stated in the same vein.

IT is painfully obvious when you look at this company that companies are just founders extended. The culture of this company is just mark, and it's a huge level for mark to act. This has been true over and over again, microsoft and video nike. It's just how great companies are in the world. It's very hard for me to point to a truly great company where the DNA isn't like a lever on the founders personality.

I think that is right, and I think that 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 gonna his decision.

And there's gotta be a lot of companies out there that like we're looking at the success case.

yeah, this works if the founder is really, really, really smart and right almost all of the time, right?

As we talk to people here, the traits that we heard over 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 no ego about being right.

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. He's actually a very good product designer and understanding the computer architecture that i'll be required to accomplish such a product experience at scale. I mean, all these things like if you have these characteristics and you 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.

yes, yes, is not a causal relationship here that having founder control will lead to the right decisions.

right? This is my regular reminder that in studying these episodes with extreme survival bias, we are looking at the most extreme outliers, who, in every dimension you can multiple by there at the edge of the distribution markets, 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 lock and the right circumstance and the right know how my biggest lesson from doing acquired as these things are unreckonable.

agree. What's the next one .

durable executive team? It's kind of shocking how many of the people that are Marks, director reports and their directs have just been there for a really long time. This team knows how to work together.

Oh, yes, I was actually talking about this with one of the exact meet at the other day, and he brought this up and was saying, they're this really feels like something very, very unique to meda. I thought about IT for a minute. 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.

apple certainly like this.

If you look at the video and if you look at apple, if you look at, you know, microsoft in recent years, if you look at the original microcosm o you like a costco, like this is almost always true, really is true in every great company that I can think of. 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. And timerson is there at the top.

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. I'm curious to hear your answer to this now that we've had all this time in space to think about IT. Here are all the battles where meta has either one by buying the company, one by beating the company, one by copying or gotten to some kind of sustainable, stable mate, my space and friends ter, google plus, twitter, instagram, WhatsApp. We didn't talk about this one, but a mere cap and paris scope.

Oh yeah, they launched .

facebook live when that was supposed to be the next big thing. Yes, snapshot and tiktok, that's like seven, eight. Why do they keep winning? I have some thoughts.

It's funny. As we were preparing to interview mark a chase another last month, this was the question that we kept asking people. In some ways, I think it's a little bit of a rosh test.

Everybody's answer is different, and that is always like what they think is the most important thing. Yeah, I think my answer for this is going to be a version of mark as the answer. yeah. And that kind of goes back to adam, the Angels friends ter testimonial about him being way too lucky and then realizing it's not luck at all.

And I think IT is that, you know, as adam was telling to 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 year on. Obviously, mark is incredibly driven to the goal of your connecting old people world and doing that through metal. But he's very, very open and flexible tool.

The exact path that it's gonna take to get there. yes. And that combination, I think, has LED over and over and over again. These threats emerging. And mark in the whole team there, a meta saying, like, okay, what is the way that we can neutralize this thread or defeated and we are open to anything on that front.

And I think they're open to being whatever they need to be to make that happen. I think meta might look extremely different twenty 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.

I mean, hell, after trying a right, I think there's a very plausible reality five years from now where this company looks very, very different than IT does today.

Yeah, I mean, IT really is this idea. Meta is a technology company. Three went through, and then they leverage that technology to be whatever the help they need to be to adapt to the new world.

which is so different from all of the other big technology companies out there. They are all wait to a particular vision of what they are totally .

because these are all different strengths like they are not afraid of copying. Okay, that is a strength, but that's also a completely different thing. Then i'm going to place bet on what I think is going to be the big technology over the future and spend tens of billions of dollars on that.

That's a different way of winning. Or in some cases, i'm gna 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.

They don't just have one singular playbook that they run over and over, right.

right? This company moves like water and product is an active discovery there. I'm convinced it's not pure invention that's like .

that stage, and there's some stuff .

they have to invent like go ryan, you have to invent. But software where you can ship and quickly respond to user feedback in iterate is like they're chizen away at the marvel to find David. I don't think they have David in mind when they're starting.

Most of the time, there are a few moments where they did news feed is completely one of them. Inventing the social feed is a completely distinct and brand new thing that met a created. It's actually one of the few. When I was a little bit more barish 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?

Well, I think the tagging of photos was pretty novel.

yes. And news feed.

yep.

But it's like kind of funny that we're naming those things as platform.

as short live as IT was.

No, that was a we wish we had an Operating system, but we don't. So let's see if we can convince people that this .

is a sufficient platform. Well, I think building a real honesty guide platform with hundreds of thousands, if not millions, of developers making money on IT on the open web.

okay, a fair push back.

IT was totally novel, like nobody had done IT without an Operating system before.

And maybe there was going to be a social platform in this new era. Maybe that was an Operating system of sorts or on par with Operating systems to be able to create a platform on top of.

But I take your point, it's certainly not every turn of the game where they are inventing, they're doing a lot of discovery here, right?

And maybe all companies do. And you know, there is not something distinct to meet here and and everybody learns from each other. And that's fine too. But that was something that I was racking my head on thinking through.

In fact, there's even a testimony this kind of funny in the mark ocher versus the winkle of OSS case from way, way, way back, mark ever makes some comment about, well, actually the idea for facebook wasn't even new because my space and friends are consistent. 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. But the points of stands is, like so much of this is borrowed. And we just live in a world, especially in social air. You do kind of have to, just maybe this is media as a whole, observe what the new format is and adopt that as quickly as possible.

yeah.

So speaking of trying things, I just wanted to take a moment to on or all the failures I kept running list as I want out for .

the failures as I .

was doing my research on products that either died or just didn't live up to the hype. Facebook live, facebook watch the drone, the solar power 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 mark is actually two for three on he was forecasting, like in twenty fifteen, what are we going to be focused on ten years from now?

That was one of them, or the other two were augmented reality and A I, this kind of an impressive call port portal T, V, workplace, which as far I can tell facebook, because the only company in the world that actually uses workplace, no other enterprises ever adopted IT. I'm sure that's not like exactly true, but that feels approximately true. Began facebook deals, which was their group on clone.

That's right. Think about how nimble facebook is that they're like, uh, o, this social deals thing seems to beginning traction. 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 are gifting? And you could use facebook credits step to pay for them facebook credits, I mean, on time of facebook credits. A libra.

How a boy yeah wow, we didn't even talk about that whole day after on crapo. Yeah, they invented .

a whole new, new crypt o currency and a big concern around and a huge set of investors and other fortune five hundreds. Originally, facebook messages was going to be a gmail killer. You could email people into facebook messages and use that as an email sweet facebook places when, I mean, four square was almost on power for a period of time, with instagram and twitter as plausibly the next social mechanic.

Checking in places and facebook places was a real effort. Haid knowledge turns in attacking location on post. But like a first class post in news feed for a while, was a chicken on facebook places.

And then .

there's all the independent apps, lasso, poke, sling, shot, photos, hello, facebook, gaming, live stage moments, notify facebook, watch moves, all the things they acquire. T B H, beluga, they watched. I G T V. This company tries everything. They move, like water, to discover what they need to be through an ever changing environment.

So chip, alright.

that's IT on the failures is what else he got.

Well, what about 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. 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 start up here. IT was like college project. 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 .

right at such a good point.

And all this whole generation, multiple generations now I start up founders that have really embraced in romanticised this whole start up thing on the one I like. It's great so you can value so much bigger and there's so much more investment and there's so many more VS and all that. But it's also just all kind of ironic that is glorifying the start of phase when that is not the point deeply.

okay. So then we've touched on this one a bunch, but I can't want to put up in in why has facebook always been in a precarious position? Why do they need to keep fighting these existential battles? Why are they so obsessed 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. I think that's like what they really want, but because they've never had quite that much defensive ability, you know like, oh, network effect is good, but it's not as good as that incredible platform durability. They're always trying to expand and be more.

Every time they bump up against someone else, IT kind of create a problem for them. And so i'm using the bunch of weird metaphors here, but I 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. And so they're always at the wim of someone else knocking them around.

Yeah, I think that's sorry. And I will be very interesting to revisit this again in five years or ten years. Yes, part two in ten 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 managed to hire only a plus and then stay a plus after that, 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. 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 to. If you can move faster, you can learn more through your multiple iterations.

And so speed of development comes from having great tools. One very great shiny example of this is something called hip hop for P H P, I know is very esoteric. But in the late two thousands, they had this crazy idea that what we should do, instead of switching to C R C plus plus or java, we want our engineers to keep writing P H.

P. So they really a compiler to see. So they didn't have to take the performance IT from running P H. P, which was an interpreted language. But IT also solved this like scalability problem because then they didn't need to go higher.

All these systems level programmer, 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 solve the scaling and performance problem. But again, in twenty fourteen, they realized all crap were big enough, and we know of enough sensitive data that we really should switch to a statically typed language like java sea sharp. But again, they didn't want to force their engineers to learn that.

They didn't want people who code on those languages have a different culture that 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 over and over again.

win. How was another example is no single database. They just keep finding ways where they like, invent new technology to solve a problem that probably only exist for them.

And then they create this, like whole beautiful e system that allows a having grown class talent. B to have a ton of them. See, everyone gets to move fast, but then d it's all unbelievably performance and efficient, and they just don't have to make trade.

S IT is wild. You okay. Then my second technical one in addition to this is they are their own customer.

We've talked about this there, A A W S 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 tradeoffs. You can't dramatically change what your infrastructure is used for.

IT is purpose built, 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 and service and the designers of that data center. This is completely the opposite of amazon. Amazon uses interface, so teams don't have to talk to each other at meta.

They require incredibly tight communication. It's a very different organisational philosophy where they are like, no, no, no. Not only do we not have external customers, we want this insane typed coupling between our infrastructure in our internal customers.

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. IT is unnatural to have connected four billion humans.

This is a freak of nature, is not just something that people adopted. And so while I think IT is totally fair to say, well, I just like blew up at harvard. Facebook is the story of fifty different growth tactics in different areas, all carefully constructed and iterated upon weight less colleges, strategic ics launching at every single college, picking each one for a reason, translation, internalization.

You're rating with Carriers to bring new people online, figuring out when they need to do, acquire versus build, carefully split testing, every change, a lining. The whole company on specific networks, on specific metrics. 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? 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.

yes. okay. Last player theme i've got there's always another battle for mea.

Yeah as far I think you could be listening and I think I go yes, there's always another platform battle ahead for mata, that's probably true. But I think you actually mean like another societal battle ahead for matter totally .

yeah now that they are through the user privacy issues and the many years of the whole twenty sixteen election conversation we talked about, and i'm not going to a small here the many, many society 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.

Yeah totally.

And I feels fitting to put this near the conclusion of the episode because well, going deep on this wasn't a part of our understanding of how and why made a as a business work so well, that is a really important topic.

There's a lot of people making arguments that social media for our brains and the consequences, if that ends up being globally true, is catastrophic for matter probably a bigger chAllenge that they've ever faced at any other point in history. So if you're asking yourself what are the things to keep an eye going forward for them 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 ran and everything.

yeah yeah. But it's also how the mental health issue, understanding all that unfolds and how they .

handle IT. Yep.

totally. All right. time. Deal in the plane.

Plan the plane.

How are you liking this? By the way? This land the plane. Way of finishing episodes.

Well, I actually have a proposal for you, but no, I don't think we have landed unintended on the right nomen glatch here or the right construct. So I actually we've been calling this land the plane take away the splinter in our minds like what's the one thing that's not around .

for you yeah what .

is the essence of this company? So I propose that we change the name of this final segment quint tesse. What is a quin descent? Yes, this is my inner french literature major coming to bear here on acquired listeners.

What is the essence of this company? We've just spend all this time, all these months studying this company. What is the very essence of this company that makes you different from any other out there.

right? I like IT, the quinta ence. Ultimately, my big takeaway is the company moves like water. IT is the company that is connected, the world that will always gear up for the next battle and be whatever they need to be in the next era. 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.

Yep, I totally agree. I can think of a Better character zone of this company and how they got to be so very important in the world.

Perfect place to end IT. And ultimately, IT is still very much a xochi g production.

Yes, that too.

All right, quick carrots.

quick car outs. My quick car outs is a google product. Actually, no book.

L. M. This is breaking wild, our friend bengo.

And over at the wall street journal, who ruth Green piece on acquired a few months back texted us, what was this two weeks ago, maybe, yeah, a week ago, and was, like, have you guys tried this thing? No book. L.

M, and I think you had in me being me. I had. I like. Now let me check 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. And what it's bat back out of me.

I was like, holy crap. yeah. At this point.

I think we will pass turing test. But IT is sort of the most convinced that something is actually a person i've ever been. And if I didn't upload all the sources and know that I was, like, unbelievably tailored content to the thing that just uploaded, not sure I would know that this was A I, it's pretty mazing.

I have two. One is a documentary on netflix called mr. mic.

Man, I was not a protestant person growing up. I kind of want to go be a progressed ling person. Now, this documentary is incredible.

IT is some of the best story telling you ever seen and interesting. Ly, it's a documentary that is told with no narrator. So there is story arc all throughout the episode exclusively with interview answers.

And you always don't notice at some point you finish episode like, wait, there was no naro ration in that. There was no cheesiness. There was all first party accounts.

And then cuts to like old footage of things that air on T, V, and then the credits come up. And of course, it's a rare production. Bill sions is the executive producer.

IT is remarkable, and mr. Mic man is a singular figure in the world. Certainly not to be glorified, but want to try and understand. No.

be fun to do A.

W W E episode day. Yes, my second quick one is the dore cash podcast. I love the door cash podcast. I also loved more cash. And I think that if you like the show, you'll love listening to the interviews he does.

Uh most recent one or maybe a couple ago is with a Daniel Morgan who is the author of the prize. Which is a book, dave, you and I almost read a whole bunch of IT for standard oil. And then we realized a standard oil sort of over at least the chapter of tender oil that we were covering within, like the first two chapters of his book.

And so it's basically everything from at the end of our standard oil episode forward on the geopolitics of oil that end up shaping and informing our world today and workers is just an amazing interviewer and conversation. St, all right. Well, with that, listener's a huge thank you to our partner's jape more in payments, crucial stats and hunters.

You can click the link in the show notes to learn more. We talk 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 with some folks as not to be thanked, we do have some specific ones that are we want to give a shout out to.

So alex shouts the C. M. O. Head of growth antilles tics internationalized great to talk with boz ander bazar at the C.

T. O Stephen levy, who wrote the book facebook the inside story was generous with his time. Jim bryer, who LED excells series a investment in facebook yang lecon met as chief A I.

Scientist alex heath at the verge for spending his time with me. Two friend of the show, arvind nava roth nam, from worldly partners, who wrote an excEllent research report, kind of chronically everything. Well, I don't. Most like a written version of this podcast is like a hundred page P, D, F. 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 to arial zuker g Marks sister shero sandburg, obviously long time C O O mike prefer, the former co and now senior fellow, to pete hunt, early engineer who transferred from facebook to instagram post acquisition miami glade, who we talked about funding member of the growth team and the longest employee.

longest tenured meta employee at this point besides mark .

to make virtual former metal VP of product and engineering and former sqa partner vj oj, former engineering and VP now of course, CEO of a partner rem Y A V P in A I data and developer infrastructure at meta to O N van nota, facebook, really C O O and David, I know you have a few as well.

Yeah people for me to adam and lo I V, facebook first C T. O dan rose are early partnerships at facebook and big, big final. Thank you that we go to. Chis cox met as chief product officer and leader of the entire family of apps over there. Really this whole past couple months required would not have happened without Chris called emAiling us what about a year ago maybe and saying, hey guys, I love the intendo episodes and because that we met Chris and because Chris mark doing us on state to chase center and now here we are doing this episode so thank you, Chris, for making IT all happen.

Yes, sentiment this episode about because we had done too much research for the market interview and we were like, we probably should do the actual matter episode too. Listeners, IT is time for our acquired annual survey. So if you have three, five minutes, please click the link in the showed tes or go to acquired data m slash survey.

You might when matter ray bands, you might win some A C Q dad hats. 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 impact for the acquired audience is that is acquired dota m slash survey, check out A C Q two in any podcast player.

If you like this episode, listen to our invidia series. Listen to our microsoft series. I don't know, maybe go listen to our standard oil series, a lot, a great acquired in the back catalogue e, and discuss with us in the slack acquired dt F M, slash, slack. With that listeners.

we'll see next time, next time. Easy, you, lazy, you, busy, you. Who got the true.