My Rating: 6/10
Summary
Antonio Martinez’s journey through the Silicon Valley startup world, first through AdGrok then on the Facebook ads team. Interesting parts, well written but found myself losing interest as there was no transformative arc AND the Silicon Valley parts don’t apply to me right now. Would pick back up as a refresher into how deals get done.
Notes
woman who excelled in the role of gatekeeper and shepherd to difficult and powerful men, whether that role was chief of staff for the prickly US treasury secretary Larry Summers, or COO of and for Zuck. Between her ability to navigate and manage the mercurial and fractious political landscape of a complex organization like Facebook, and her ability to shape messages for Zuck, she was both de facto and de jure the person who ran Facebook Ads. As the debate about the future of Facebook monetization grew more polarized and heated, these meetings would resemble the Supreme Court of Sheryl, the one place where conflicting views could be aired with some hope of resolution.
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A colossal yearlong bet the company had made on a product called Open Graph, and its accompanying monetization spin-off, Sponsored Stories, had been an absolute failure in the market. The company’s senior leadership had called on the Ads team to dream up something fast to revive the lagging fortunes of the enterprise.
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My detailed technical schematics, with walk-throughs of data flows and outside integration points, were, as I suspected, completely ignored. Sheryl wouldn’t have cared about the technical detail, and Zuck wouldn’t have had the patience to go through it anyhow. As I observed more than once at Facebook, and as I imagine is the case in all organizations from business to government, high-level decisions that affected thousands of people and billions in revenue would be made on gut feel, the residue of whatever historical politics were in play, and the ability to cater persuasive messages to people either busy, impatient, or uninterested (or all three).
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Credit derivatives are just the explicit encapsulations of such beliefs, in financial and contractual form, for corporate entities. Unlike other financial securities, such as shares of IBM stock or oil futures, a credit derivative is not even some theoretical value of a tangible good. It’s the perceived value of a complete intangible, the perception of the probability of meeting some future obligation.
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To paraphrase the very quotable Silicon Valley venture capitalist Marc Andreessen, in the future there will be two types of jobs: people who tell computers what to do, and people who are told by computers what to do.
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The next place where this shift would be seen at whopping scale in terms of both money and technology (though I didn’t realize at the time) was in Internet advertising. And after that, it would hit transportation (Uber), hostelry (Airbnb), food delivery (Instacart), and so on.
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Goldman (briefly) considered taking the initiative and self-regulating into exchange-traded markets instead. It decided against doing so, with reasoning I’d see again at Facebook: an incumbent in a market dominated by a few, with total information asymmetry, and the ability to make prices on the market rather than just take them, has little incentive to increase transparency. The bid-ask spread—that is, Goldman’s difference in price when buying or selling the same thing—was huge on credit derivatives. Goldman made fortunes simply passing a piece of paper from its left hand to its right, from seller of risk to buyer of it.
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Goldman felt more comfortable owning a small market than merely participating in a larger one. Thus, many markets were and are inefficient, because that inefficiency is very profitable to those running the market, even if only in the short-term picture. As I would eventually see, Wall Street and Silicon Valley possess surprising parallels.
NOTE: really interesting
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“My parents ran a small family business, and I watched them go through all the stresses of that . . . the ups and the downs. The uncertainty of their lives was terrible on them. I could never imagine going through that myself. Goldman isn’t perfect, but it’ll be here a long time. I wouldn’t want to live with the insecurity.” Within a few months, Scott Weinstein’s two-decade-long career at Goldman would come to an abrupt end. His final gig had been at the bank loans desk, a business that had suffered considerable losses in the financial debacle. Things were tense in the bank loans group, and an argument between Scott and the head trader escalated into a vendetta. Scott was sacked—just like that. Scott quickly, as these things go, found a comparable role at another bank, but the irony of the security-seeking loyal employee getting the ax never left me.
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In all my experience in both startups and large companies, including and especially at Facebook, I would always prefer—a hundred times prefer—being subject to the rigors of the market, the fickleness of luck, and the whims of users than to navigate the popularity-contest politics of a large company, surrounded by the mediocre duffers who’ve succeeded in life through nothing more than guile and appearances. Scott Weinstein’s unfortunate example was the best advice he (or anyone else) has ever given me, and one that I ignored to my extreme peril.
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One week into my new Silicon Valley life, and the lesson was this: if you want to be a startup entrepreneur, get used to negotiating from positions of weakness. I’d soon have trickier situations to negotiate than convincing a cop to let me take a cab. And so will you if you play the startup game.
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In the same way, marketers refer to websites and mobile apps as “publishers,” a quaint reflection of the advertising world’s origins in that of ink and newsprint. The “publisher” is simply the entity that brings the eyeballs to the auction block, whether via Pulitzer Prize–winning writing or a game in which you launch irate birds against antagonistic pigs.
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In media, money is merely expendable ammunition; data is power. With this new programmatic technology that allowed each and every ad impression and user to be individually scrutinized and targeted, that power was shifting inexorably from the publisher, the owner of the eyeballs, to the advertiser, the person buying them. If my advertiser data about what you bought and browsed in the past was more important than publisher data like the fact that you were on Yahoo Autos right then, or that you were (supposedly) a thirty-five-year-old male in Ohio, then the power was mine as the advertiser to determine price and desirability of media, not the publisher’s. As it turned out (and as Facebook would painfully realize in 2011, forming the dramatic climax of this book), this “first-party” advertiser data—the data that companies like Amazon know about you—is more valuable than most any publisher data.
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Whether it be brand marketers trumpeting the new BMW X5, game developers getting players to spend real money on virtual goods, or someone selling an online nursing degree, the only difference is the time frame in which those different goals occur—in other words, the time between attention and action.
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time frame is very short, like browsing for and buying a shirt at nordstroms.com, it’s called “direct response,” or “DR” advertising. If the time frame is very long, such as making you believe life is unlivable outside the pricey mantle of a Burberry coat, it’s called “brand advertising.” Note that the goal is the same in both: to make you buy shit you likely don’t need with money you likely don’t have.
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By January 2010 it was abundantly clear that Adchemy was a complete failure, a hecatomb of human effort sacrificed at the false altar of Murthy’s ego. Real-life experience is instructive, but the tuition is high. The first sign of trouble was an externally visible one, a symptom that any suitably experienced startup practitioner could have detected: nobody from the early days of the company was still around other than Murthy.
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Third, Adchemy had no clients for the actual product. An absolutely clear sign of flailing failure is when a company’s quarterly report features a new set of corporate logos, each a breathlessly awaited beta customer who’s just going to blow the doors off usage or revenue in the future.* That’s fine for one quarterly report, but after a year’s worth of an ever-changing list of beta customers, with none morphing into full-on clients with contracts and recurring revenue, you’re chasing a mirage.
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Incidentally, the fastest way you can indicate your level of startup naïveté to a VC (or to anybody in tech), is either by claiming you’re in “stealth”—that is, with an idea so secretly valuable you can’t disclose it—or by forcing someone to sign a nondisclosure agreement before you even discuss it. You may as well tattoo LOSER on your forehead instead, to save everyone the trouble. To quote one Valley sage, if your idea is any good, it won’t get stolen, you’ll have to jam it down people’s throats instead.
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To be a startup, miracles need to happen. But a precise number of miracles. Most successful startups depend on one miracle only. For Airbnb, it was getting people to let strangers into their spare bedrooms and weekend cottages. This was a user-behavior miracle. For Google, it was creating an exponentially better search service than anything that had existed to date. This was a technical miracle. For Uber or Instacart, it was getting people to book and pay for real-world services via websites or phones. This was a consumer-workflow miracle. For Slack, it was getting people to work like they formerly chatted with their girlfriends. This is a business-workflow miracle. For the makers of most consumer apps (e.g., Instagram), the miracle was quite simple: getting users to use your app, and then to realize the financial value of your particular twist on a human brain interacting with keyboard or touchscreen. That was Facebook’s miracle, getting every college student in America to use its platform during its early years. While there was much technical know-how required in scaling it—and had they fucked that up it would have killed them—that’s not why it succeeded. The uniqueness and complete fickleness of such a miracle are what make investing in consumer-facing apps such a lottery. It really is a user-growth roulette wheel with razor-thin odds.
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Skilled immigrant tech workers in the United States have effectively one method of entry: the famous H-1B visa. Capped at a small yearly number, it’s the ticket to the American Dream for a few tens of thousands of foreigners per year. Lasting anywhere from three to six years, the H-1B allows foreigners to prove themselves and eventually apply for permanent residency, the colloquial “green card.” Like the masters of old buying servants off the ship, tech companies are required to spend nontrivial sums for foreign hires. Many companies, particularly smaller startups, don’t want the hassle, and hire only American citizens, an imposed nativism nobody talks about, and which is possibly illegal. Big companies, which know they’ll be around for the years it will take to recoup their investment, are the real beneficiaries of this peonage system. Large but unexciting tech outfits like Oracle, Intel, Qualcomm, and IBM that have trouble recruiting the best American talent hire foreign engineers by the boatload. Consultancy firms that bill inflated project costs by the man-hour, such as Accenture and Deloitte, shanghai their foreign laborers, who can’t quit without being eventually deported. By paying them relatively slim H-1B-stipulated salaries while eating the fat consultancy fees, such companies get rich off the artificial employment monopoly created by the visa barrier. It’s a shit deal for the immigrant visa holders, but they put up with the five or so years of stultifying, exploitive labor as an admissions ticket to the tech First World. After that, they’re free. Everyone abandons his or her place at the oar inside the Intel war galley immediately, but there’s always someone waiting to take over. Strictly speaking, H-1B visas are nonimmigrant and temporary, and so this hazing ritual of immigrant initiation is unlawful. Yet everyone’s on the take, including the government, which charges thousands in filing fees. The entire system is so riven with institutionalized lies, political intrigue, and illegal but overlooked manipulation, it’s a wonder the American tech industry exists at all. So into this bustling slave market, echoing with the clink of leg irons and the auctioneer’s cry, did we ignorantly wade. If Argyris was to join our as-yet-unnamed company, he’d need a work visa. In fact, forget working: he couldn’t even legally stay in the United States once Adchemy terminated him. Immigration law stipulates a former H-1 holder must leave the country within days. Thanks for building our tech industry, you dirty foreigner, now beat it. Was there a way out?
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The reality is, Silicon Valley capitalism is very simple: Investors are people with more money than time. Employees are people with more time than money. Entrepreneurs are simply the seductive go-betweens. Startups are business experiments performed with other people’s money. Marketing is like sex: only losers pay for it. Company culture is what goes without saying. There are no real rules, only laws. Success forgives all sins. People who leak to you, leak about you. Meritocracy is the propaganda we use to bless the charade. Greed and vanity are the twin engines of bourgeois society. Most managers are incompetent and maintain their jobs via inertia and politics. Lawsuits are merely expensive feints in a well-scripted conflict narrative between corporate entities. Capitalism is an amoral farce in which every player—investor, employee, entrepreneur, consumer—is complicit. But hey, look at these shiny iPhones. Right? At the time, we understood none of this. We’d figure it out soon enough.
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How does Google manage to generate yearly revenues of $70 billon, greater than the GDP of Luxembourg or Belarus? It invented this magical website called Google Search, where all of humanity goes and tells Google what it wants: “Nikon D300 camera.” “Online nursing degree.” “Divorce lawyer in Atlanta.” A world of three- and four-word desires and needs, all craving to be satisfied, all backed by wallets waiting to be opened. Injecting themselves in that last moment of purchase, at the apex of desire, Google invites you to click on an ad. Its cash register rings every time you click. It doesn’t even need to figure out what a search query is worth and price it accordingly. It simply holds an auction for every search query entered, at the moment the query occurs. The net result is that billions of times a day, Google runs an auction of keywords and accompanying bids. By looking at the bid, and estimating the likelihood of a click, Google takes the product of the two (which is how much it will make per query) and picks the highest. Then it displays the associated ad that the advertiser has created and uploaded to Google for that keyword. Actually printing physical money would be harder. So how many such search queries, or “keywords,” in Google-speak, are there?
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and selling high, our search engine marketer curates and trims a keyword list like a bonsai tree, buying more of well-performing keywords, and fewer of bad. If the revenue generated by postclick sales outpaces cost, up go the bid and the budget, and the reverse in the opposite case. The ratio of revenue to cost is known as “return on advertising spend” (ROAS) and is the basic metric all marketers in every medium use. As an example, ROAS is $1.10 ÷ $0.75 – 1 = 47% for “nevada cheap divorce” above. This means for every dollar I put into Google for that keyword, I get $1.47 back, at least as projected based on historical data. I’m happy to do that all day. Time to up the budget. Such is the essential busywork behind how a Google makes more than some European countries produce in a year. That’s it. You now know as much as the best search engine marketers in the world.
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“So what cap were you thinking of raising at, and how much are you raising?” Ah—the cap! Russ and I were finally talking turkey. This is the one number—the number—that matters to an early-stage company raising money for the first time. It’s worth a diversion. Startups are business experiments performed with other people’s money. Here’s how you fund the experiment: The first money in is known as the seed round, as if germinating a mighty redwood tree. Historically, this money came from the proverbial friends and family, or from angels like Russ, or from the pseudoangels (as we’ll soon see) like Chris Sacca. Companies from measly AdGrok to mighty General Motors are funded via a mix of debt and equity. In the startup world the first money in is usually in debt form, which is counterintuitive, and also deceptive, as it’s not really debt that is paid off.
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Despite the fancy name, it’s essentially debt with a nominal interest rate. Should the company be acquired or raise yet more money, this note converts into equity in the company, such that you became an actual owner rather than a creditor. Sounds more complicated than it is. What it boils down to is this: I “lend” you $100,000 to start a company. When you raise your next round of cash, I expect to get $100,000 in equity, at whatever the going price of equity is at that point. Here’s a simple example, with numbers chosen for ease of exposition, not business reality. An investor writes you a check for $100,000 to get the startup going. A year later, after hitting some product or usage milestones, you raise $1 million on a $10 million valuation (your typical postseed funding round, referred to as a “series A”). That debt—the original $100,000—converts into equity in the company. Given that the valuation is $10 million, and the investor put in $100,000, he now owns 1 percent of the company. From the point of the view of the investor, this is actually problematic. Say you’re the hot startup of the moment in the midst of a bubble, and you raise on some crazy valuation, such as $100 million. Well, pity our poor angel investor; he gets only 0.1 percent of the company. In essence, the better the company does, the less of it he gets. While he’s guaranteed (in theory) to get a price per share equal to follow-on investors, that’s actually a gross mispricing of his risk, as he put his money in far earlier, when the company was far riskier. Enter the investor’s great friend: the cap. The cap dictates the maximum number at which the company will be valued, for the purposes of calculating the investor’s stake when the company takes more investment capital. In our previous example, say the initial $100,000 investment had been done at a cap of $3 million. Then, despite the company’s raising later at a valuation of $10 million, the angel’s stake amounts to $100,000 ÷ $3 million = 3.3%, a much bigger slice. The angel’s effective price per share is that of the cap (rather than that of the valuation), giving him a huge discount on the equity compared with investors who just put money in. As a result, this cap is perceived in essence, if not in contractual reality, to be a proxy for the valuation of the company at the time of the angel’s investment. Early-stage entrepreneurs will bandy about their cap number as if it were a real company valuation, when in truth it’s an input to a hypothetical calculation that may or may not play out in the future.
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Funding a company via equity, rather than debt, is a different beast. With a capped note, there’s no universal agreed-upon value. You can bounce from investor to investor, like a bee from flower to flower gathering pollen, getting notes signed at various caps, and no one need be the wiser. In priced-equity rounds, however, everyone has to agree on a share price and a total amount sold, and everyone must sign on the dotted line at once. Typically there’s a round lead, usually the biggest investor in that round, who will help you herd the other investor cats into the deal. Also, the contractual legal work is more complex, and hence more expensive. Then the bank wires fly and you’re money. To make an analogy, a capped note is like having to seduce five women one after the other, while an equity round is having to convince five women to do a sixsome with you. The latter is exponentially harder than the former.* Why all this obsession with either a cap or a real valuation? Does it matter more than mere phallic jockeying for a big number? Yes, because the great enemy of every entrepreneur, the villain hiding in each cap table, is that monster of gradual, withering decay: dilution (!).* This refers to the obvious numerical fact that a company is in some ways a big, creamy cheesecake. You and your cofounders might own 90 percent of it to begin with (with 10 percent left for the eventual employee-option pool), but the more money you take in, the smaller the founders’ segment becomes. The higher the valuations (or the caps), the less the investors’ take, even for the same amount of money they give you. And so with each successive round of…
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Gates, smelling an opportunity, offered to provide one, hiring a local Seattle programmer to clone Kildall’s operating system, calling it QDOS (Quick and Dirty Operating System), and which eventually shipped in the IBM PC as DOS (Disk Operating System). Gates, correctly suspecting that other hardware companies would copy IBM’s approach of bundling software separately from hardware, retained copyright over this hacked and copied DOS. As a result, the proceeds from the new computing world where hardware was interchangeable, but software was not (rather than the reverse, which was the status quo in 1980), accrued to Gates and Microsoft rather than IBM. That licensing arrangement became what we now know as Microsoft, as it grew to provide everything from word processing (can we still use that term?) to browsers, calendars, and all the rest of the worker-bee software armamentarium. And Kildall? IBM eventually threw him a bone by offering his (original) operating system alongside Microsoft’s, but it was too little, too late, and it flopped.
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Bushnell announced a $700 prize for anyone who could design a hardware-software combo that would power the game, with a $1,000 bonus for every chip that was saved in manufacturing the circuit (chips used to be expensive). Jobs convinced his eventual Apple cofounder, Steve “Woz” Wozniak, to take on the project, stipulating it had to be done in four days to fit his social schedule (he had to go pick apples at a utopian commune). Woz worked like hell, with Jobs doing the manual labor of testing the designed circuits, and they made the deadline. Jobs, however, never told Woz about the bonuses, having mentioned only the base prize. He gave Woz $350, shortchanging his collaborator, who had made the entire thing possible, and used the stolen cash to finance his lifestyle. Steve Jobs was all smoldering ambition, ruthless will to power, and narcissistic amour propre; by all accounts of people who actually worked with him, he was a mediocre engineer who had good taste and knew how to recognize in others talents he didn’t posses, and got them to work like hell for him, while fending off competitors in the meantime. In that sense, he was the absolute exemplar of your successful startup CEO, even if not in the way people commonly think.
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That means VCs who would formerly say “Get back to me when you’re raising a series A or B, kid” were basically blocked from popular companies by investors who had nurtured and supported the company since it had been two guys in a trashy office. Heavyweight funds like Mayfield and August knew this, and started doing seed investing, not to own some little piece of a company (they could write small checks all day and still not invest their entire funds) but merely as an option on the real rounds down the road. Which brings us (finally) to our point: in the day-to-day, the lifeblood of a VC wasn’t money, it was deal flow. Getting a first look at a potential Uber or Airbnb is what distinguished a first-class VC from an also-ran.
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The harsh reality is this: to have influence in the world, you need to be willing and able to reward your friends and punish your enemies.
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I had stalked people on LinkedIn like some recruiter trying to poach a hire, searching for an intersection point with Microsoft.
NOTE: metaphor
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Starting from a point of outright panic verging on imminent rout, AdGrok now had Adchemy surrounded.
NOTE: metaphor
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While I was nominally still in a relationship with British Trader, my penis was anatomically equivalent to my coccyx: a purposeless vestige of a bygone era.
NOTE: metaphor
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It was a Saturday morning, a brief respite from the startup bullshit. Car Talk blaring on NPR as I made either pancakes or a big omelet. That feeling in the air, so rare in my life, of a certain stability and repose, glistening like the bright morning sunlight and about as fleeting.
NOTE: metaphor
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Then they’re playing the slow-and-steady, long game, accruing social capital and personal brand gradually, like ants storing food for the winter.
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As the waterboarding continued, I began to notice an air of arrogance that stank like bad aftershave. I’d later realize that it was his Friend of Zuck (FoZ) status I was smelling, and to which I evidently was genetically allergic. Some allergies, it turns out, worsen on exposure.
NOTE: metaphor
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Walking over festering carpet that looked like it had last been cleaned during the Reagan administration,
NOTE: meta
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Managing a combined deal between Facebook and Twitter was like trying to engineer simultaneous orgasm between a premature ejaculator and a frigid woman: nigh impossible, fraught with danger, and requiring a very steady hand.
NOTE: metaphor
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As every new arrival in California comes to learn, that superficially sunny “Hi!” they get from everybody is really, “Fuck you, I don’t care.” It cuts both ways, though. They won’t hold it against you if you’re a no-show at their wedding, and they’ll step right over a homeless person on their way to a mindfulness yoga class.
NOTE: metaphor
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In a posthistorical developed world devoid of transcendent values, whose pantheons look like North Korean grocery stores, bare shelves empty of any gods or heroes, this corporate fascism was intoxicating.
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NOTE: metaphor
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As PM, if you can convince engineers to build things you stipulate, you are golden. But if you can’t, then you are like the dictator who has lost control of his army. It doesn’t matter if you have the United Nations or the church on your side (i.e., if management has anointed you as leader), you’re ending up in front of a firing squad sooner rather than later. The most pitiful sight in the Facebook Ads team was the PMs
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The contest for users, he told us, would now be direct and zero-sum. Google had launched a competing product; whatever was gained by one side would be lost by the other. It was up to all of us to up our game while the world conducted live tests of Facebook versus Google’s version of Facebook, and decided which it liked more. He hinted vaguely at product changes we would consider in light of this new competitor. The real point, however, was to have everyone aspire to a higher bar of reliability, user experience, and site performance. In a company whose overarching mantras were DONE IS BETTER THAN PERFECT and PERFECT IS THE ENEMY OF THE GOOD, this represented a course correction, a shift to the concern for quality that typically lost out to the drive to ship. It was the sort of nagging paternal reminder to keep your room clean that Zuck occasionally dished out after Facebook had suffered some embarrassing bug or outage. Rounding off another beaded string of platitudes, he changed gears and erupted with a burst of rhetoric referencing one of the ancient classics he had studied at Harvard and before. “You know, one of my favorite Roman orators ended
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Facebook was not fucking around. This was total war. I decided to do some reconnaissance. En route to work one Sunday morning, I skipped the Palo Alto exit on the 101, and got off in Mountain View instead. Down Shoreline I went, and into the sprawling Google campus. The multicolored Google logo was everywhere, and clunky Google-colored bikes littered the courtyards. I had visited friends here before, and knew where to find the engineering buildings. I made my way there, and contemplated the parking lot. It was empty. Completely empty. Interesting. I got back on the 101 North and drove to Facebook. At the California Avenue building, I had to hunt for a parking spot. The lot was full. It was clear which company was fighting to the death. Carthage must be destroyed!
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That meant leaning on the product marketer to lean on our partners and biggest advertisers to make them think “#Action Movies” was the hottest thing since democracy and antibiotics.
NOTE: metaphor
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Sure, it paid well, but if you cranked up your lifestyle to the level of your means, then you were beholden to your industry and the people who ran it. I was in deep reruns, dating from the Goldman days, of being surrounded by professional peers in hock to their pricey lifestyles. Facebook couldn’t mail me Zoë’s fingers until I came up with a new targeting idea, but they sure could pull the plug on the equity gravy train that was paying for Zoë’s hypothetical $2,500/month preschool in Menlo Park. Did I really want to be the Willy Loman figure, coming home after a shitty day at work, having a beer, but thinking it all worthwhile after staring into Zoë’s eyes, and then glumly taking the boss’s shit (again) the next day? Because that’s what it would be when we slapped the Bay Area mortgage, date night in Palo Alto, and two preschools onto the cash-flow statement. All my Facebook colleagues in the over-thirty cohort were in that dependent boat. Facebook said jump and they could only ask “How high?” And jump they did, reciting whatever corporate script and leaping through whatever hoops their paymaster required, down to the logo-ed onesie they’d slap on their newborns, photos posted on Facebook to the online applause of their equally enslaved colleagues.
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Angry pearl-clutchers everywhere would click the X in the upper-right-hand corner of the ad, and indignantly leave feedback. The software would calculate rates of
NOTE: meta
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relevant. If they were to publish content themselves, or work in the business of delivering all of humanity’s digitized social life 24/7 all over the world, they’d realize there’s a human cost to that blue-framed browser tab, and it most certainly is not free. Ad blocking is tantamount to theft, or at the very least running a toll booth without paying. Oh, and spare me your claims that you’d be willing to pay for Facebook instead of seeing ads. It’s not even clear what Facebook should charge you. The whole point of the ad auction and the dynamic marketplace for your attention is figuring that out. Setting a usage fee would be like IBM declaring it’s going to pick an individual price for every investor who wants to buy a share, rather than leaving the price discovery to the open market of a stock exchange.
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Facebook doesn’t sell your data; it buys it. It does this by providing services to advertisers that incentivize them to let Facebook ingest the data you’ve generated outside Facebook. In fact, as we’ll soon see, Facebook is one of the most jealous guardians of user data known to man. It is a black hole of data that can never leave.
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photos), or tastefully typeset excerpts from the gospel according to Facebook (“The quick shall inherit the earth”; “We don’t build services to make money, we make money to build services”). The penultimate page captured the spirit best. In white sans serif font, against a stark black background, it read: If we don’t create the thing that kills Facebook, someone else will. “Embracing change” isn’t enough. It has to be so hardwired into who we are that even talking about it seems redundant. The Internet is not a friendly place. Things that
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don’t stay relevant don’t even get the luxury of leaving ruins. They disappear. Mark that well, FB soldier. In a thousand small ways, the company was forever reminding its people of the cost of failure. Facebook had the death awareness of the person planning on living forever. Death didn’t inspire fear, however; only a reminder of the discipline required to keep decay at bay. I had never seen a company before or since so maniacal in ensuring the perpetuation of its original values. It was like the United States on the Fourth of July, every day: OUR WORK IS NEVER OVER MAKE IT FASTER WHAT WOULD YOU DO IF YOU WEREN’T AFRAID? THIS JOURNEY 1% FINISHED
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required? Same in both. A (mostly) pliant media that flatters the existing system of production, framing it as the only such system possible? Check! Foot soldiers who sacrifice their families and personal lives for the efficient running of the system, and who view their sole human value through the prism of advancement within that system? Welcome to the People’s Republic of Facebook. But one can simply quit a job in capitalism, while from communism there is no escape, you’ll protest. As for the actual ability to opt out under capitalism: look at Seattle or SF real estate prices, and the cost of a decent US education, and consider whether Amazon or Facebook employees could really opt out of their treadmill. I’ve never known one who did, and I know many. Ask your average family providers, even those in a two-income family, whether they felt they could simply quit when they liked. They could barely get a few weeks off when they had a child, much less opt out. Switching jobs would amount to nothing more than changing the color of the shackles. As the ever-sagacious @gselevator quoted: in communism people made lines for bread, while in capitalism they make lines for iPhones. Sure, iPhones are better than bread, and the standard of living in capitalist countries is clearly higher, but the lived experiences of either, from the point of view of the working proles, bears more than a passing resemblance. The reality is that capitalism, communism, and every other sweeping ideology feed off the same human drives—the founder’s or revolutionary’s narcissistic will to power, and the mass man’s desire to be part of something bigger than himself—even if with very different outcomes. National Socialism, Technofuturism, Bolshevism, the Islamic State, Pan-Arabism, la Commune, Jonestown, the Crusades, la mission civilisatrice, the white man’s burden,
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As part of the collective noodling on just what the hell to do, I participated in the first of what would be a long series of Sheryl meetings. Sheryl’s role in the Ads construct was interesting. During that time, her conference room—whose name “Only Good News” soon assumed an ironic tinge—would serve as the final appellate court in any disputes on product direction inside the Ads organization (and there were many). Since Zuck had more or less completely outsourced the management of monetization to her, she was the vicar of the social media Christ, the viceroy of the Zuckian throne. She would front for his leadership, as well as strategize how to best gain his favor, a billion-dollar skill in which she excelled above all others. On a sunny day in March 2012 the Ads high command, plus a few relevant PMs like your humble correspondent, gathered in Sheryl’s lair to discuss the worsening revenue situation. The IPO was in a couple of months. Forward-looking growth was not what the market had come to expect via the leaked whisper numbers about FB revenue, which had historically almost doubled year to year. Sponsored Stories was a bust, and all Facebook had to offer was more fairy tales about Facebook pages and the magical effects of followers to one’s brand. Those fairy tales had been believed for a while, with the biggest brand budgets in the world—Burberry, Ford, Starbucks, BMW—spending money on Likes they didn’t know what to do with, and that at best were a license to spam users’ News Feeds. Toward the end of the meeting, Sheryl finally snapped: “That’s it! Starbucks isn’t going to spend ten million dollars per year for Likes. No one will do that anymore!” She was of course right. The Like-buying party was officially over. Revenue growth was cratering. If Facebook didn’t cook up something else, we were fucked.
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Remember, this was taxed as common income, even the shares I’d waited a year for, given the IRS’s incomprehension of tech compensation. So it was really about $550,000 take-home per year, or about twelve times the median US family income, for a guy whose biggest line-item expenditures were fancy Belgian beer and marine hardware. This was about San Francisco middle class, or barely, really. Coupled with another tech salary from a spouse, it would be the high-six-figure take-home that would permit a normal, though not posh, life in what was becoming the country’s priciest city. It meant that I and my hypothetical spouse could afford a house, though we’d need a mortgage, as average apartment prices in Noe Valley were $1.5 million or so. (Want a proper house? You’re talking $3 million and up.) It meant the kids could attend private school and avoid the public school savages. It meant occasional weekends in Tahoe, Christmas somewhere exotic, and Hawaii a couple of times a year, maybe. It meant a new BMW X5 for the missus every three years, and maybe splurging on a Tesla S for me. But that’s about it. And if I lost the Facebook teat, kiss it all good-bye; already-public companies weren’t comping at these rates, and earlier-stage companies were paying piles of risky paper. There are only two inflection points in personal wealth, two points where your life really changes. One is the aforementioned fuck-you money, the other is the even loftier fuck-the-world money. Before that first rung of fuck-you money, when you’re counting your nickels and dimes and shares and bonuses and what all to get to a few hundred K of dosh, all that changes is what I’ll call your indifference threshold to expense. If before you didn’t think about dropping $6 for another pint of beer with your friends (and believe me, I’ve lived through times when I had to think about even that), now you don’t think about the pricey $60 salmon lunch at Anchor & Hope. If previously you
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thought before indulging yourself with some questionably useful $50 gadget, now you’ll drop $500 on a new phone or ultracompact projector without thinking about it. As if you lived in some dodgy country undergoing a period of hyperinflation, what used to be worth $10 in mental decision cost now takes $100 to trigger. It’s like your mental decimal point of concern has moved over a zero (or perhaps more than one). You’re not even really thinking about costs until you’ve broken $1,000. This sliding around of an indifference threshold is peanuts in the scheme of things. Real transformation happens at the first real rung on the wealth ladder. Fuck-you money is like reaching the break-even point in the startup of you, and it means you are no longer beholden to outside forces. Imagine that inflection point for a moment. I didn’t quite realize all this, sitting there on the first day the company was public, looking at a stock price, but I would soon enough. I’d see not just my fortunes change (even if not in a fully “fuck you” sort of way) very quickly; those of everyone around would change as well. From the slightly ridiculous nights out (I recall a double steak dinner and four-figure restaurant bills in there somewhere), to the rather rapid accumulation of Porsches, Corvettes, and even the odd Ferrari in the parking lot, things did assume a certain debauched air at Facebook, despite all the corporate clamor for austere discipline. That was all in the future. Right then, it just seemed I was finally going to live at something above a subsistence level, and have more than peanuts in the bank. I quickly flipped to the countdown timer on my Mac, the one I had set to count down to my first year of vesting when I joined. I’d make a quarter of my nut on July 15, in about two months. It couldn’t arrive fast enough.
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The news coverage surrounding the IPO, even from the supposedly savvy tech and financial press, was a reminder of that harsh lesson of life: there are those who write headlines about money for a living, and then there are those who make money. “Facebook IPO Blunder” announced Fortune; “Mark Zuckerberg’s Big Facebook Mistake,” thundered Forbes; “Facebook Disappoints on Its Opening Day” intoned VentureBeat, a Valley insider rag that should have known better.
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But here is where I shamefully displayed my naïveté. For someone who had spotted the resemblance between Goldman Sachs and Facebook within an hour of meeting the latter, I had forgotten my lessons learned at the former. When it came to monetization, Facebook had no interest in real innovation. It liked its faxes. Like any large company, Facebook would always aim to create monopoly pricing power and maintain information asymmetry, rather than drive true innovation. If Facebook played with the outside world, it always played with loaded dice. Recall the depths of the credit crash at Goldman back in 2008. Goldman could have pushed for the obvious technical step of trading credit derivatives on exchanges, which would have resulted in greater volume and greater transparency, and taken the regulatory heat off. But would Goldman cede its information asymmetry in the form of the trading flows that it, and only it, saw? Would it cede the ability to more or less arbitrarily set prices for credit risk, alongside a tightly knit network of brokers, effectively manipulating the market to its own benefit, rather than offering an open one? Of course not. And neither would Facebook, when it came down to it. I wasn’t thinking about that on June 15, though. Because that was the day the first successful bid on FBX finally was made, with one of FBX’s better partner companies, TellApart.* We had pulled it off—we’d built an ads exchange and a parallel ads system to Facebook in about five weeks of engineering work, and maybe two months total of product ideation. The mood was high at the FBX table. Trackie the Owl would finally be able to eat his long-sought mouse. Initial volume was of course light, and what would preoccupy us all for the next six months was increasing the volume of bids and money as quickly as possible and making FBX the centerpiece of an entire vision of how Facebook should monetize. Eventually, though, the race became simply to make FBX too big for even Facebook’s murderous management to kill. FBX was fighting for its life almost from the moment it was born.
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To paraphrase Lord Palmerston about great nations, companies like Facebook had no eternal allies and no perpetual enemies, they merely had eternal and perpetual interests. Despite the various “partner programs” it ran, Facebook didn’t really have partner companies, much less real friends. It perceived the world as populated by either fearsome enemies that presented existential threats—and there were only a few of these—or companies that presented convenient temporary alliances. Facebook’s good graces were always conditional, and it was a foolish company indeed that took them for granted. Amazon clearly fell into the former category. Jeff Bezos was a maniacal leader who would stop at nothing until his vision of the world was realized, and who had inspired, cajoled, or intimidated an army to implement that vision. Zuck looked over at Bezos in Seattle, or Larry Page from Google in Mountain View, or (in the past) Steve Jobs from Apple in Cupertino, and he saw more than just a tech company and a chief executive. He saw a reflection of himself among those men, and that was terrifying. Other players in the tech or media worlds could be outwitted, out-engineered, or otherwise co-opted or bought off, but not these alpha companies. With Amazon or Google, the Facebook army had to close ranks and present a phalanx, and possibly battle an equal foe whose CEO was just as much of a kamikaze as Zuck was (Carthage must be destroyed!). (Twitter didn’t even enter this worldview, and was merely a distraction. Zuck had once famously derided the company as “a clown car that drove into a gold mine,” and that’s possibly the last time anyone at Facebook had thought about it.)
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The initial noises around Google Plus had been more than alarming, as it became increasingly clear that their foray into social media wasn’t some halfhearted effort to knock off a pesky upstart. As had slowly leaked out over the past year, either via the press or current Google employees, all of Google’s internal product teams were being reoriented in favor of Google Plus. Even Search, then and now the most frequented destination on the Web, was being dragged into the fray, and would supposedly sport social features. Search results would vary based on your connections via Google Plus, and anything you shared—photos, posts, even chats with Friends—would be used as part of Google’s ever-powerful and mysterious search algorithm.
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As part of the budding media seduction around this new product, Google posted whopping usage numbers. By September 2012, Google announced the service had 400 million registered users and 100 million active ones. Facebook hadn’t even quite reached a billion users yet, and it had taken the company four years to reach the milestone—100 million users—that Google had reached in one. This caused something close to panic inside Facebook, but the reality on the battlefield was rather different from what Google was letting on. This contest had so rattled the search giant, intoxicated as they were with unfamiliar existential anxiety about the threat that Facebook posed, that they abandoned their usual sober objectivity around engineering staples like data and began faking their usage numbers to impress the outside world, and (no doubt) to intimidate Facebook. This was the classic new-product sham, the “fake it till you make it” of the unscrupulous startupista, meant to flatter both ego and chances of future (real) success by projecting an image of present (imagined) success. The numbers were taken seriously initially—after all, it wasn’t absurd to think Google could drive usage quickly—but after a while, even the paranoid likes of FB insiders (not to mention the outside world) realized Google was juicing the numbers, like an Enron accountant would do a revenue report. Usage is always somewhat in the eye of the beholder, and Google was considering anyone a “user” who had ever so much as clicked on a Google Plus button as part of their usual Google experience. Given the overnight proliferation of Google Plus buttons all over the Google-user experience, like mushrooms on a shady knoll, one could claim “usage” when a Google user so much as checked email or uploaded a private photo. The reality was Google Plus users were rarely posting or engaging with posted content, and they certainly weren’t returning repeatedly, like the proverbial lab rat in the drug experiment hitting the lever for another drop of cocaine water (as they did on Facebook). To further stoke the fighting spirit (as well as internal trollery), the face of Google Plus was a perfect target of Facebook-ian contempt. Vic Gundotra was a former Microsoft exec who’d climbed the treacherous corporate ladder there before jumping to Google. It was he who had whispered a litany of fear into Larry Page’s ear, who had greenlit the project, and it was he who headed the rushed and top-down effort (unusual for Google) to ship a product within an ambitious one hundred days.
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It’s because you are without a doubt the least daring and least innovative person at your organization, because in the opportunity-rich environment in which you live, the ambitious and capable have left to pursue it. There’s a negative selection in which the cream (or whatever it is that initially rises) gets constantly skimmed off, and you are what’s left after years of continual skimming. Changing from big company A to big company B is cosmetic, as it’s of course at least a lateral move if not a step up. You learn that what matters in a big company is to avoid falling victim to firing or layoffs, and to appear important and critical to the company’s mission. You have mastered the art of “managing up”: namely, controlling the feelings and perceptions of the management layer above you. You take feedback well, and make sure to be seen speedily acting on that feedback. If you have reports, you champion their careers internally (make sure they know you’re doing that), and try to mold them into people like yourself, who are organizationally effective and recognized as such. In all but the most pathological organizations, your reports’ success will reflect well on you and create your own success. You make sure to form allegiances and friendships with your peer managers, particularly in organizations like sales or business development that you’ll need to push your business agenda forward. When there’s an ineffective and incompetent member in the organization, rather than calling them an idiot to their face and firing them if possible, you channel feedback to their manager and learn to work around their incompetence. If the incompetence does not directly affect you or your team, you look the other way and focus on the levers you do control. You’re middle management: you’re the necessary layer between the visionaries and risk-takers who created the organization, and the new acolytes of your religion for whom this is a job, and you are their first whiff of corporate culture and authority. If you’re cleverer than most middle managers (e.g., Gokul), you’ll work at building your personal brand in a way that both augments your prestige and reflects well on the organization, all in a studiously self-effacing way that allays any concerns around thinking yourself a “star.” Failing that, the logo on your business card is your strongest asset, and you need to bank as much on that as you can, right up to the moment you trade it for another (hopefully better) one.* These were the ingredients of the toxic meeting cocktail that was being poured right there in LiveBoz: the corporate aristocrat of Boz, the middle management lifer of Boland, and the obnoxious, shit-stirring self-assurance of the acqui-hired startup founder. It went down about as well as it sounds.
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