Fall 2004

As the fall semester of 2004 loomed, Thefacebook was on the verge of a
serious crisis. Over the summer, membership had almost doubled from
about 100,000 to 200,000. That was good and bad. "We were just lucky
it wasn't completely bringing down the architecture/' says Dustin Moskovitz,
who spent as much time as anyone working to keep that from
happening. "Our servers were already stretched, but we knew a full load
in the fall would be double that. Service got really unstable."
But the crisis wasn't just a technological one. Tension was growing
among the company's small team about whether Thefacebook itself
ought to be their only priority. Zuckerberg was getting increasingly interested
in Wirehog, his parallel project to enable Thefacebook users to
share photos and other media peer-to-peer.
Throughout the summer, students and student governments from
colleges around the country had been emailing, texting, and calling
Thefacebook with pleas to add their school to its roster. Sometimes they
sent physical letters and included candy or flowers, or even came to the
house in Palo Alto. People were literally begging to get into the service.
Saverin was still sitting on the bank account. Zuckerberg was paying
bills out of his own pocket. He and his parents had loaned the company
many tens of thousands of dollars. But the boys of Thefacebook
knew that if they didn't have enough servers when school opened the
service might just grind to a halt. "We were really worried we would be
another Friendster," recalls Dustin Moskovitz. "We felt that the only
reason Friendster wasn't the dominant college network was because
they were still having problems scaling." (That's "growing," in non-Net
parlance.)
And another "Friendster" was unfolding before their eyes. Orkut,
after briefly seeming to rival MySpace, was now getting bogged down
with performance problems, in addition to being usurped by Brazilians.
Even the great Google couldn't help a social network grow smoothly.
Thefacebook was an atypical start-up, in financial terms. It hadn't
required outside funding up to this point. By now—with growth likely
and costs rising—a new Silicon Valley company would typically solicit
venture capitalists to make a big cash infusion, possibly several million
dollars for a company of Thefacebook's size. But in such a scenario,
VCs take their pound of flesh—a very big chunk of the company, perhaps
a quarter or even a third. Parker had gone through that at Plaxo,
where he'd lost the battle of wills with the VCs and been kicked out of
his own company. He had successfully infected Zuckerberg with his
aversion to VCs. The two were resolute about retaining full control of
the company's destiny. After all, they just wanted a few hundred thousand
dollars to buy more servers.
Within days after he joined Thefacebook, Sean Parker called his friend
Reid Hoffman, the founder of Linkedln and a big angel investor. Hoffman
had been coaching him through the painful denouement of his
relationship with Plaxo and had become a close friend. Parker also was
pragmatic. He knew it was important to keep that sixdegrees patent
close to Thefacebook's camp.
Hoffman was impressed with Thefacebook almost immediately but
didn't want to be its lead investor, given his involvement in Linkedln.
By mid-2004, many in the Internet industry were beginning to wonder if
social networking might ultimately all converge in one big network. Although
Hoffman didn't believe that himself, he knew that some would
see it as a conflict of interest if he led an investment in Thefacebook.
So he arranged for Parker and Zuckerberg to meet with Peter Thiel,
the brooding, dark-haired financial genius who had co-founded and led
PayPal and was now a private investor.
Hoffman is a key member of a very distinct and important Silicon
Valley subculture —the wealthy former employees of PayPal. Hoffman
remained close to many onetime PayPal colleagues, including Thiel.
PayPal created the first successful large-scale online payment system
and sold itself to eBay for $1.5 billion in October 2002, just two years
after it was created in a merger of two start-ups. Even before PayPal,
Thiel had been a professional investor and he was now investing in
start-ups and starting a hedge fund. He had put money into Friendster
as well as Linkedln.
Thiel turned out to be the perfect investor for Thefacebook. He
had seen the world from the perspective of a successful entrepreneur at
PayPal. He was a fan of Sean Parker, whom he'd gotten to know at Plaxo
and through Friendster. He was also a contrarian thinker. Investors
were still generally leery about consumer Internet companies, recalling
how much they'd lost when the dot-corn bubble burst. "So we felt
this was the place to look for opportunity," recalls Thiel. "And within
the consumer Internet, social networking seemed to be sort of an incipient
trend. But in 2004 social networks were perceived as businesses
that were very ephemeral, and people thought it was like investing in
a brand of jeans or something. There was a question whether all these
companies were just fashions that would only last a very short period of
time."
But the message Thiel heard about Thefacebook gave him confidence.
In his office sat Sean Parker, Mark Zuckerberg, and Steve Venuto,
the company's new lawyer, who had worked on Plaxo with Parker and
had started working with Facebook in the late summer. Hoffman has
set up the meeting and included his Linkedln protege Matt Cohler, an
upbeat, brown-haired Yale graduate. Parker, still only twenty-four but
already a practiced pitchman, did most of the talking. He explained
that while Thefacebook was still relatively small, that was because it
required a .edu email address. The potential universe of members was
deliberately circumscribed. Only students at select schools could join.
What happened once it opened at a new school was what most impressed
Thiel. Within days it typically captured essentially the entire
student body, and more than 80 percent of users returned to the site
daily! Nobody had ever heard of such an extraordinary combination of
growth and usage in a start-up Internet company.
Zuckerberg wore his then-standard uniform of T-shirt, jeans, and
Adidas open-toed rubber flip-flops. It certainly wasn't calculated to impress.
Thiel recalls that he seemed kind of introverted. Zuckerberg said
little, occasionally answering questions, and asking a few. Yes, they were
receiving requests from hundreds of schools that wanted Thefacebook
on their campuses. He talked about some of his ideas for how the product
might evolve. He also spoke briefly about his hopes for Wirehog. He
showed absolutely no impulse to kowtow, and that, combined with his
matter-of-factness about what Thefacebook was achieving, made him
seem even more impressive. He didn't need to wear a tie to convince
someone he was an entrepreneur worth backing.
But Zuckerberg was also unself-conscious about admitting what he
didn't know. The conversation quickly turned to the mechanics of an
investment, and Thiel was slinging around technical phrases and jargon
about the deal. Zuckerberg repeatedly interrupted: "Explain that to
me. What does it mean?"
Within days, following a little back-and-forth with Parker, Thiel
agreed to what may go down in history as one of the great investments of
all time. He agreed to loan Thefacebook $500,000, which was intended
to eventually convert into a 10.2 percent stake in the company. That
would give Thefacebook a valuation of $4.9 million. One reason Thiel
agreed to provide the money as a loan was because until everything was
settled with Saverin there were legal obstacles to a formal stock investment.
The provisions of the loan were that if Thefacebook reached 1.5
million users before December 31, 2004—less than six months later—it
would convert to an equity investment, and the company wouldn't have
to pay it back. Zuckerberg and Parker had a big incentive to keep their
growth going.
The $4.9 million valuation was lower than others that had been
dangled in front of Zuckerberg, but he was pleased to have found an
investor who seemed to believe in giving the entrepreneur the benefit
of the doubt. Thiel told Zuckerberg "just don't fuck it up," which the
CEO now says was pretty much the only advice he got from Thiel
in the company's early years. "I was comfortable with them pursuing
their original vison," says Thiel, looking back. "And it was a very
reasonable valuation. I thought it was going to be a pretty safe investment."
Though Thefacebook didn't meet the December 31 deadline
for 1.5 million users, Thiel let the loan convert shortly afterward anyway.
Thiel sold almost half his stock in 2009, but even so his remaining
shares today are worth —at a minimum —several hundred million
dollars. When he made the loan Thiel also joined the company's
board of directors.
Hoffman put in an additional $40,000, as did his friend Mark Pincus,
and a couple friends of the company invested small amounts,
bringing the total financing to around $600,000. Attending the investment
presentation also made a deep impression on Hoffman's Linkedln
employee Matt Cohler. He wanted to buy stock in Thefacebook, but
Zuckerberg and Parker felt they had enough money for now. Later,
however, Cohler would find a way to get some.
Harvard's incoming freshman class in the fall of 2004 was both flattered
and shocked when college president Lawrence Summers, former
Treasury secretary of the United States, greeted them by announcing he
had already acquainted himself with many of them by viewing profiles
on Thefacebook. The service was already so entrenched in Harvard's
undergraduate culture that incoming students heard about it and created
profiles even before they arrived. But the information they had included
was intended to impress their peers, not be seen by the president
of the college. It made some uncomfortable to think that their personal
details and trivia were now so accessible to authorities like Summers.
Already Thefacebook was making people wonder how much online
self-disclosure was appropriate.
Thefacebook, however, did meet a concrete need among students
at Harvard and other colleges. Paper facebooks were handed out freshman
year at most schools and typically showed photos of every student
along with just their name and high school. Yet for all their limitations
they had come to play an outsize role in the social life of schools. If you
met a guy at a party, the next morning you'd pull out the facebook to
show your roommates what he looked like. If you were by now a junior,
the picture would be more than two years old, but it was still the best
people had. It was referred to at some schools as the "Freshmenu," and
people would play games with it if they were bored on Friday nights.
Open to a random page. The winner was the one who had to turn the
fewest pages before they came to ten people they'd slept with. Things
like that.
So at Harvard, Dartmouth, Columbia, Stanford, Yale, and other
schools, Thefacebook quickly became an essential social tool—a considerable
advance over the outdated paper book. Now if a girl met a guy
at a frat party, an elaborate set of electronic rituals was set in motion.
They took on even more significance if you had already "hooked up"
(slept together). The first key question was whether the guy immediately
friended you on Thefacebook. If he didn't, that was a disastrous
sign. At the time, any student could see everyone else's profile at his
or her school. Another urgent key activity was to closely examine the
friends of your new acquaintance. Thefacebook told you which friends
you shared. A large number was a promising indicator.
Thefacebook had a strong sexual undertone. You were asked to
list your relationship status and whether you were interested in men
or women. One of the site's standard data fields was labeled "Looking
for." Possible answers included Dating, A Relationship, Random Play,
and Whatever I Can Get. Flirting on Thefacebook became a sort of art
form, though one feature—the poke —made doing so absurdly easy.
Poking was a particular fascination in those days, even among the
supposedly sophisticated students of Harvard. There was no certainty
that a poke on Thefacebook would be seen as flirting—at least in theory
it could be construed as just a friendly gesture—so even the shy occasionally
found the gumption to click on it. The very fact that the meaning
of a poke was so indeterminate was one of its appeals. It could mean
you liked someone, found them attractive, enjoyed their comment in
class, wanted to distract them from their homework, or just wanted their
attention. The recipient was only told that he or she had been poked, so
was left to interpret that information however they would. The proper
response? A poke back, which Thefacebook's software politely inquired
if you'd like to do.
"Friending" had an element of competitiveness from day one, as
it had on Friendster and MySpace. If your roommate had 300 friends
and you only had 100, you resolved to do better. "Competition definitely
caused Thefacebook to spread faster at Dartmouth/' says Susan
Gordon, class of 2006. She was on an Italian study program in Rome
when Thefacebook blanketed Dartmouth almost overnight in March
2004. She immediately began receiving emails from friends telling her
that she had to join, otherwise she would be way behind when she returned
at the end of the quarter. "It made a lot of sense to all of us immediately/'
she says. "An online green book—how fun!" (Dartmouth's
facebook had a green cover.) The fact that it was Ivy League-only was
also reassuringly exclusive. It had started at Harvard. It must be okay.
Perfecting the details of your own profile in order to make yourself
a more attractive potential friend occupied a considerable amount of
time for many of these newly networked Ivy Leaguers. Find exactly the
right picture. Change it regularly. Consider carefully how you describe
your interests. Since everyone's classes were listed, some students even
began selecting what they studied in order to project a certain image
of themselves. And many definitely selected classes based on who Thefacebook
indicated would be joining them there. A subtle form of stalking
became almost routine —if someone looked interesting, you set out
to get to know them. The more friends you already shared the easier
that process would usually turn out to be. Your "facebook," as profiles
on the service began to be called, increasingly became your public face.
It defined your identity.
People spent hours and hours visiting the profiles of other students,
initially just at their own school but soon across Thefacebook's network
at other elite campuses as well. Nick Summers, Columbia '05, who was
user number 796 on Thefacebook, recalls being able to browse through
the faces of every user on the entire service from A to Z. There wasn't
that much you could do there except maintain your own profile, add
friends, poke people, and view the profiles of others. Nonetheless, students
spent thousands of hours examining every nook and cranny of
others' profiles. You could ask Thefacebook to display ten random students
from your school for you to peruse, or you could search for people
based on various parameters. The latent nosiness and prurience of an
entire generation had been engaged.
In September, Thefacebook added two features that gave students
even more reason to spend time there. Now included on user profiles
was something called "the wall/7 which allowed anyone to write whatever
they wanted right on your profile. It could be a message to you or
a comment about you—the equivalent of a public email. Any visitor to
your profile could see it. Now not only could you surf around examining
people, but you could react to what you learned. Or you could
simply invite someone to meet you in the cafeteria later. Or make a
seductive comment. And another friend could comment on that comment
in his or her own post to the wall. Suddenly every Thefacebook
user had their own public bulletin board.
Over the summer, Zuckerberg, Moskovitz, and Parker had coined a
term for how students seemed to use the site. They called it "the trance."
Once you started combing through Thefacebook it was very easy to just
keep going. "It was hypnotic," says Parker. "You'd just keep clicking and
clicking and clicking from profile to profile, viewing the data." The wall
was intended to keep users even more transfixed by giving them more to
see inside the service. It seemed to work. Almost immediately the wall
became Thefacebook's most popular feature.
The other new addition was Groups. Now any user could create a
group on Thefacebook for any reason. Each group had its own page,
much like a profile, which included its own wall-like comment board.
Instantly, inane groups sprouted at Harvard with names like "I puke Vitamin
Water," which for some reason quickly garnered 1,000 members.
Emma MacKinnon, Harvard '05, was writing her senior thesis on the
philosopher Emmanuel Levinas and remembers belonging to a group
on Thefacebook called "I hate the guy my thesis is about." Its members
were women writing about men. "There was always also a little description
about Why I really love him/" she recalls.
Many students began to abandon their address books because they
could use Thefacebook to contact anyone by simply entering their name.
You didn't need to remember or store anyone's email address. And if
you wanted to reach someone immediately, almost everyone listed both
the face took'effect
their cell-phone number and their AIM instant-message address in their
profile. These were not the anonymous identities of an AOL chat room.
The Internet had entered a different era. It was becoming personal.
Thefacebook's full-time California staff was down to just Zuckerberg,
Moskovitz, Parker, and operations manager Halicioglu, who stayed in
San Jose, twenty miles south. Andrew McCollum lived with them, too,
still focusing on Wirehog. Thiel's money enabled them to buy new servers,
and they were expanding furiously. In the first week of the fall semester
they added fifteen or so new colleges. Thefacebook was quickly
losing its elitist edge. By September 10, the list included places like the
University of Oklahoma and Michigan Tech.
Since they had to move out of the trashed summer sublet, they
found a new rental in Los Altos Hills, a few miles south. Its yard backed
onto Interstate 280. That helped solve problems with neighbors—it was
so noisy there all the time that nobody noticed parties and late-night
antics. But the construction dust left over in the brand new house made
the house almost uninhabitable for Sean Parker. His allergies went into
crisis mode there. Luckily his girlfriend let him stay at her place.
They were good at running a website, but not so good at running
a house. They turned the living room into a makeshift office with
whiteboards on the periphery, tables scattered with laptops, and papers
strewn everywhere. One of Zuckerberg's high school friends stopped by
and found that all the tables had been pushed to one side of the room.
They'd overloaded the wiring and tripped a circuit breaker, which shut
off power to some of the outlets. Rather than search for the circuit box,
they'd just moved over to the remaining outlets. The visitor found the
circuit breakers and flipped a switch, so the geeks could spread back
out. Most of the rest of the house was empty, except for mattresses here
and there and a bunch of never-unpacked boxes.
Hygiene was, if anything, deteriorating. In the kitchen, dirty dishes
spilled out of the sink and nobody ever emptied the trash. Ants were everywhere.
Zuckerberg continued leaving empty drink cans wherever he
happened to finish them. This is how twenty-year-old college kids live.
While the housekeeping may have been immature, the company
increasingly wasn't. With its new structure and rapidly growing membership,
Thefacebook seemed to be growing up. Demand was even
more ferocious than they'd expected. In September alone they nearly
doubled membership, to around 400,000. The number hit half a million
on October 21, as growth began to accelerate. They'd figured out
over the summer how to automate much of the process of adding a new
school, so the painstaking assembly of dorm lists and class schedules
was gone.
But it was quickly becoming clear that even Thiel's money wasn't
enough to cover all the costs of the rapidly growing company's infrastructure.
Adding new servers was an almost daily activity. Sean Parker,
whom Zuckerberg had deputized to handle all financial matters, got
in touch with a firm called Western Technology Investment, which he
knew from his Plaxo days. WTI, as it is known, is in the business of
"venture lending." It makes short-term loans—usually repayable within
about three years—to start-ups at interest rates ranging from 10 percent
to 13 percent. Maurice Werdegar, a partner at WTI, negotiated with
Parker a $300,000 three-year credit line that was specifically allocated
to cover Thefacebook's costs of computer hardware and other physical
assets, which WTI put a lien on until the loan was repaid. The loan
closed in December 2004 with its credit line expected to run out by the
following July. Werdegar, who was a big fan of Parker's and had not had
any difficulty dealing with him at Plaxo, liked what he was hearing from
him about Thefacebook's prospects. He asked if WTI could in addition
invest $25,000 at the same company valuation Thiel had gotten.
Werdegar, at the time a junior partner in the firm, arranged for
the two founders of WTI to join him for a meeting in October 2004
with Parker and an accountant named Mairtini Ni Dhomhnaill (she
was Irish) who was temporarily working for Thefacebook. Before the
meeting, Werdegar's partners told him that while they were happy to
be dealing with Sean Parker again, this company didn't seem to merit a
stock investment on top of the loan.
That attitude quickly changed. "After an hour and a half listening to
Sean we all walked out and —I will forever remember this—they asked
'How much of that equity can we get?'" recalls Werdegar. Parker was
refining his rap, and the facts were just getting better and better.
The company's latest governance structure, following Thiel's investment,
had some unusual provisions. The board of directors included
four seats: One was held by investor Thiel, one by Parker, and
one by Zuckerberg. The fourth seat was Zuckerberg's to allocate as
he saw fit, and remained for the time being vacant. The idea was to
outnumber outsiders and make it impossible for any future investor
to usurp the company. Since Thiel was himself a former entrepreneur
and a believer in letting founders control their creations, it didn't
bother him.
This is a key way Parker put his stamp on the company. He had
been fired twice—from Napster and from Plaxo. He didn't want to be
fired from Thefacebook, and he wanted to make it impossible for Zuckerberg
to get fired, either. "What I told Mark," says Parker, "was that I
would try to be for him what no one had been for me—a person who
sort of shepherds his rear and puts him in a position of power so he'd
have the opportunity to make his own mistakes and learn from them."
Another provision in the company's corporate documents guaranteed
that if any of the founders, or Parker, ever left the company for any reason,
they would be able to keep both their company email address and
their company laptop. After being ousted from Plaxo, Parker had found
himself without either, and thus nobody could get in touch with him.
"It was really beneficial to us that Sean had been a founder who
had been burned," says Moskovitz. "We didn't know anything about
how to incorporate a company or to take financing, but we had one
of the most conservative people figuring it out for us and trying to protect
us." When he calls Parker conservative he is referring not to his
personal style. Parker could be erratic. But Moskovitz recalls his role
at the company in those days fondly, despite some unhappy incidents
later. Parker was old enough to buy the alcohol, he knew how to throw
a party that involved more than Beirut beer pong, and he could talk the
language of venture capital. "It was just a comfort to have him around,"
says Moskovitz. "Sean is like excitable and kind of a crazy person, but it
just generally makes life more interesting when you're a bunch of geeks
sitting around a table hacking all day." Parker, twenty-four, seemed a
sophisticate to these twenty-year-olds.
Zuckerberg may have been more focused and steady than Parker,
but he too had his quirks. They were, however, mostly intellectual
and verbal. For instance, he had a way of punctuating a conversation,
when it reached a critical moment, by suddenly pronouncing, "Now
you know who you're fighting!" It was a quote from one of his favorite
movies, Troy, which he had seen on Harvard Square with friends on his
twentieth birthday the previous May. Zuckerberg had loved studying
the classics. In a key scene from the movie, the Greek warrior Achilles,
played by Brad Pitt, confronts his Trojan adversary Hector:
Hector: Let us pledge that the winner will allow the loser all the
proper funeral rituals.
Achilles: There are no pacts between lions and men.
[stabs spear into ground, and takes off helmet, throwing it to the
side]
Achilles: Now you know who you're fighting.
As a fencer—the civilized version of a swordsman—Zuckerberg sometimes
saw the world as a fencing match, a forum for combat in which
the ideal thrust is the one that catches an opponent off guard.
One battle that had become engaged was the one with the Winkelvoss/
Narendra axis. The company had by now hired another law firm
just to defend itself against the lawsuit, which was beginning to wend
its way through federal court in Boston and had become a significant
magnet for the company's limited assets, costing about $20,000 per
month in lawyers' fees. After a phone call from the lawyers, Zuckerberg
would briefly recount the latest news to Moskovitz, then stand up and
declaim, "Now you know who you're fighting!" At other moments, the
phrase made even less sense.
But incongruous movie quotes gave Zuckerberg, who could otherwise
frequently lapse into long periods of silence, tremendous if inexplicable
pleasure. He also inserted them inside Thefacebook. Whenever
you searched for something in those days there was a little box below
the results. Initially it had some tiny type that said, "I'll find something
to put here." Later that was replaced with "I don't even know what a
quail looks like." It's a throwaway line from The Wedding Crashers. Another
quote that appeared there was "Too close for missiles. Switching
to guns/' which is spoken at a critical moment in Top Gun by the fighter
pilot played by Tom Cruise.
The quotes came to encapsulate, in the fashion of schoolboy injokes,
the spirit of the company—playful, combative, and despite the
technical sophistication, a bit juvenile. Students at colleges around the
United States spent hours arguing about the significance of these inscrutable
epigrams. Not long afterward, Aaron Sittig designed company
T-shirts. They showed a fighter plane streaking past a couple of quails.
The twelve-year-old Ford Explorer they'd purchased over the summer
finally gave out. One day it just wouldn't start, with or without the
key. Zuckerberg and Parker brought it up at their next board meeting
with Thiel, who approved buying a company car. "Just keep it under
fifty," he exhorted them. They bought a sleek black new Infiniti FX35,
a luxury sport utility vehicle. The car has a streamlined, vaguely malevolent
look, as if poised on its haunches to leap on top of some unsuspecting
Ford. Now you know who you're fighting! They nicknamed it
"the Warthog," after a tank in the video game Halo, which they played
regularly on their Xbox. The toys were getting better.
Facebook seemed to be thriving, but Zuckerberg was thinking about
Wirehog almost as much. "What was so bizarre about the way Facebook
was unfolding at that point," says Sean Parker, "is that Mark just didn't
totally believe in it and wanted to go and do all these other things."
Zuckerberg felt he had cause to hedge his bets. He was worried that
once Thefacebook began trying to expand beyond college it would hit a
wall of resistance. He was genuinely unsure which of his projects would
ultimately lead to the best business. And it wasn't just about business.
Zuckerberg hadn't changed much since he was just out of Exeter and
turned down millions for Synapse, the MP3-playing tool he built with
D'Angelo. The ideas were at least as interesting as the prospect of riches.
In any case he was confident one of his projects would really catch
fire. Maybe it would be Wirehog. "Mark always talked about how he
just liked to start things, especially back then/' says Dustin Moskovitz.
"He was like 'My life plan basically is I'll prototype a bunch of these
apps and then like try and get people to run them for me/"
Parker, on the other hand, remained resolutely opposed to Wirehog.
"I specifically said Wirehog is a terrible idea and a huge distraction. We
shouldn't be working on it/" he recalls. Yet Zuckerberg prevailed upon
Parker, who reluctantly hired Steve Venuto, the same lawyer who had
set up Plaxo, to create Wirehog the company. In order to try to seduce
Parker's support, Zuckerberg made him one of Wirehog's five shareholders,
along with McCollum, D'Angelo, and Moskovitz, who himself
was ambivalent about Wirehog. "I needed Mark's attention on Facebook,"
remembers Moskovitz. Looking back, Zuckerberg concedes that
he didn't always make things easy for his partners: "Dustin was fully
bought in to what we were doing [with Thefacebook]. And I was always
thinking about the next thing. Until we got to this big inflection point,
for my calculus it may have just not been worth the amount of work."
The group was split. McCollum and D'Angelo focused almost entirely
on Wirehog, while Parker and Moskovitz worked only on Thefacebook.
Zuckerberg straddled both projects. "Wirehog was more
interesting to a lot of us," says D'Angelo. "There were a lot of social
networks. Wirehog was a product I was interested in using myself, and
it was more technically interesting, too."
Wirehog was a stand-alone program that users downloaded onto
their computers. The entrepreneurs built a little profile box for it on
Thefacebook, so it could figure out who your friends were and whether
they too had downloaded Wirehog. It gave you a window into their
computer and told you what files they were willing to share. Wirehog
was intended primarily for photos, since that was what Thefacebook's
users were most vociferously asking to share with one another. (At the
time you were only allowed one photo of yourself on your profile page.)
But Wirehog could also handle video, music, and documents. "We
kind of thought of Wirehog as the first application that was built on top
of Facebook," says D'Angelo. Zuckerberg also talks about Wirehog as
the first example of treating Thefacebook as a platform for other types
of applications. D'Angelo kept writing code for Wirehog in the fall after
he returned to Caltech.
Over the protestations of Parker and Moskovitz, Wirehog launched
in November 2004 as an invitation-only site at a few colleges. A page
on Thefacebook explained: "Wirehog is a social application that lets
friends exchange files of any type with each other over the web. Thefacebook
and Wirehog are integrated so that Wirehog knows who your
friends are in order to make sure that only people in your network can
see your files." Its site listed things you could do with it: "share pictures
and other media with friends; browse and save files through the web;
roll around in the mud oinking and such; transfer files through firewalls."
But Wirehog was too complicated for most users of Thefacebook,
just as Parker had predicted. He was desperate to shut it down, so Thefacebook
could avoid the prospect of a debilitating lawsuit. They may
have been separate companies, but Thefacebook was where a user went
to download the Wirehog software. Soon even Zuckerberg began to
cool on Wirehog. "He just like came back to reality on how much time
he was spending," says Moskovitz.
On November 2, MySpace hit 5 million users. The boys in Los Altos
Hills were bemused. They saw themselves creating an anti-MySpace.
Where that service was wide-open, florid and unconstrained, Thefacebook
was minimal, with limited flexibility and no decorative freedom.
MySpace was unconcerned with who you really were. Thefacebook
authenticated you with your university email, and you had no choice
but to identify yourself accurately. On MySpace, the default setting was
that you could see anybody's profile. On Thefacebook, the default allowed
you only to see profiles of others at your school, or those who had
explicitly accepted you as a friend. A degree of privacy was built in. "On
MySpace people got to do whatever they wanted on their profiles," says
Zuckerberg. "We always thought people would share more if we didn't
let them do whatever they wanted, because it gave them some order."
While Zuckerberg was relatively unflustered by MySpace's advances,
he worried much more about collegiate competition. A variety
of other university-centric social networks was quickly rising. It became
a top company priority to stamp them out. One, called CollegeFacebook.
com, was a pure copycat, in look and tone. Its strategy was to go
after less snooty schools that the elite Thefacebook hadn't yet targeted.
It briefly garnered hundreds of thousands of users until the real thing
arrived. The Winkelvoss/Narendra team had finally launched Harvard
Connection in May, now dubbed ConnectU to emphasize it was for
any school. Columbia's CUCommunity, similarly renamed Campus
Network, was also expanding to other campuses and becoming established.
These competitors were expanding more quickly than Thefacebook.
They typically had fewer users at each new campus so they
could add more users without putting as much demand on their systems
as Thefacebook's hordes did. But their widening presence still made
Zuckerberg and his partners nervous.
So they embarked on what they called a "surround strategy." If another
social network had begun to take root at a certain school, Thefacebook
would open not only there but at as many other campuses as
possible in the immediate vicinity. The idea was that students at nearby
schools would create a cross-network pressure, leading students at the
original school to prefer Thefacebook. For example, Baylor University
in Waco, Texas, had one of the earliest homegrown college social networks.
Thefacebook launched at the University of Texas at Arlington to
the north, Southwestern University to the southwest, and Texas A&M
University to the southeast. This pincer movement tended to work, since
Thefacebook typically saw such a viral explosion when it launched at
schools that didn't already have a social network on campus. Zuckerberg
was only twenty, but already he was strategically outmaneuvering
his competitors.
Zuckerberg took a utilitarian approach to advertising. If costs were
going to go up, ad revenues needed to as well. He wanted to make sure
Thefacebook earned enough to cover its costs, which were hovering at
around $50,000 a month. "If we're gonna need $100,000 worth of servers
or $500,000 worth of new people . . . then how much advertising do
we need now?" he asked rhetorically at the time, in an interview with
the Harvard Crimson.
Y2M, the advertising representative for the company, scored a coup
in August with a breakthrough ad deal from Paramount Pictures to promote
the November premiere of The SpongeBob SquarePants Movie. In
those days the only ads on Thefacebook were long vertical rectangles
on the lower left side of a page. Paramount paid Thefacebook $15,000
for 5 million impressions (what ad people call a $3 CPM, or cost per
thousand views). Paramount also pioneered a concept that would later
become a critical piece of Thefacebook's commercial structure—a special
group for fans of the movie. The ad urged users to join the group,
which consisted mostly of a discussion board. The "group description"
read, "Everyone sing it with me now! Who lives in a Pineapple under
the sea?'" Some users thought the whole thing idiotic and said so on
the movie's page. There were as many comments insulting people who
liked the movie as there were notes from fans. Nonetheless, the experiment
was deemed a success. Over 2,500 users of Thefacebook mentioned
the movie in their profile.
By December, Y2M had signed a landmark deal with Apple Computer.
Not only did Apple sponsor a group on Thefacebook for fans of its
products, but it also paid $1 per month for every user who joined, with
a monthly minimum of $50,000. The group was immediately popular,
and the minimum was easily exceeded. This was by far the biggest financial
development in Thefacebook's short history. It alone more or
less covered the company's expenses. Executives at Apple were thrilled
because they had acquired a powerful platform which allowed them to
be in constant touch with Apple fans in college, whom they began offering
special discounts and promotions like free iTunes songs. The deal
gratified Zuckerberg because it wasn't a conventional banner advertisement,
which he detested.
There were also more modest ads students could buy themselves
right on the site, called flyers. A flyer could be targeted just for students
at your school. At even the largest campus the ads cost less than
$100 per day. It was an effective way for campus groups to promote
activities or for a fraternity to announce a big party. The boys wanted
to take this further, to create a system so merchants in college towns
could buy ads that targeted students. So Parker recruited a new employee,
a former roommate of his named Ezra Callahan, who had sold
ads for the Stanford Daily when he was a student there. Parker offered
him the job by email while Callahan was traveling in Europe. A few
weeks later he showed up direct from the airport at 1 A.M. Parker was
at a movie with his girlfriend and hadn't told the others much about
the new hire. So when Moskovitz blearily opened the door he had
no idea who Callahan was. "I'm Ezra. I work for you guys/7 insisted
Callahan. Moskovitz let him in. Callahan got a bunch of stock options,
which he assumed would be worthless. He planned on going to
law school soon anyway. Though the local business product occupied
much of his time and that of many others in ensuing months, it never
launched. Callahan's other job was to learn from Saverin how to manage
and schedule all the other ads. The "CFO" had been doing it
remotely from the East Coast. Even though Zuckerberg had for now
reached a detente with his erstwhile partner, he was whittling away
Saverin's remaining responsibilities.
On November 30, Thefacebook registered its millionth user. It had
existed for just ten months. Peter Thiel had recently opened a nightclub
and restaurant in San Francisco called Frisson. He offered up its VIP
lounge for a party. Parker, the organizer, piggybacked on it a celebration
for his own twenty-fifth birthday on December 3.
The email invitations were portentous. At top was a quote from
Malcolm Gladweirs The Tipping Point: "Look at the world around you.
With the slightest push —in just the right place —it can be tipped." The
invitation continued: "And tip it has . . ." It was indicative of the way
Parker talked about the company. In his opinion the company's success
was essentially a fait accompli. Even Zuckerberg was amazed they had
gotten to a million so soon.
D'Angelo and Saverin flew in, along with public relations manager
and former Zuckerberg roommate Chris Hughes. Investors, friends,
and hangers-on drank the night away in glitzy surroundings, regardless
of the fact that several of the core team were not yet of legal drinking
age. And there were still questions about where priorities lay. One
guest at the party asked D'Angelo what he did at Thefacebook. "Oh no/7
D'Angelo answered. "I work at Wirehog."
Facebook's success was beginning to make waves. And in Silicon Valley,
success attracts money. More and more investors were calling. Zuckerberg
was uninterested.
One of the supplicants was Sequoia Capital. Among the bluest of
blue chip VCs, Sequoia had funded a string of giants—Apple, Cisco,
Google, Oracle, PayPal, Yahoo, and YouTube, among many others.
The firm is known in the Valley for a certain humorlessness and a willingness
to play hardball. Sequoia eminence grise and consummate
power player Michael Moritz had been on Plaxo's board and was well
acquainted with Sean Parker. It was not a mutual admiration society.
Parker saw Moritz as having contributed to his downfall. "There was no
way we were ever going to take money from Sequoia, given what they'd
done to me," says Parker.
But it seemed a good idea at the time to pitch them instead on Wirehog,
as a joke. It was ludicrous, but aside from sticking it to Sequoia it
had another, more symbolic purpose. Zuckerberg's acquiescence seems
to have been his way to surrender to Parker about Wirehog—to acknowledge
that it was dead. "We had done a couple of real pitches for Wirehog,
but our theory was that no one cared about that," says Zuckerberg.
"They just wanted to do Facebook." Sequoia, for its part, was so eager to
get close to them that partner Roelof Botha willingly accepted the idea.
The boys hatched a plan. On the appointed day, they overslept.
They were supposed to meet at 8 A.M. Botha called at 8:05 — "Where are
you guys?" Zuckerberg and Andrew McCollum, his Wirehog partner,
rushed over to Sequoia's swanky offices on Menlo Park's Sand Hill Road
in pajama bottoms and T-shirts. Though they said they'd overslept, it
was deliberate. "It was actually supposed to be worse," says Zuckerberg.
"We won't even go there." Then, as the stiff but attentive partners of
Sequoia looked on, Zuckerberg made his presentation.
He showed ten slides. He didn't even make a pitch for Wirehog. It
was a David Letterman-style list of "The Top Ten Reasons You Should
Not Invest in Wirehog." It started out almost seriously. "The number 10
reason not to invest in Wirehog: we have no revenue/7 Number 9: "We
will probably get sued by the music industry." By the final few points it
was unashamedly rude. Number 3: "We showed up at your office late
in our pajamas." Number 2: "Because Sean Parker is involved." And the
number one reason Sequoia should not invest in Wirehog: "We're only
here because Roelof told us to come."
Throughout it all, the partners seemed to listen respectfully, recalls
Zuckerberg, who says he now deeply regrets the incident. "I assume
we really offended them and now I feel really bad about that," he says,
"because they're serious people trying to do good stuff, and we wasted
their time. It's not a story I'm very proud of." Sequoia never invested in
Facebook.
Now, at last, Thefacebook was the sole priority. Not only the world,
but Zuckerberg himself had been tipped. President Parker started looking
for top talent to fill out its staff. One of the first people he targeted
for a senior position was Matt Cohler, Reid Hoffman's right-hand man,
who had attended the Thiel investment pitch. Cohler had a combination
of qualities Parker liked. He was a natural intellectual, well-versed
in the exigencies of the Internet, with extreme social dexterity. Cohler
had a degree in musicology with honors from Yale, so he fit in nicely
with Thefacebook's Harvard crowd. And he even had international experience,
having lived in China while working for an Internet company
there. But he was pretty happy at Linkedln, which at the time was seen
as one of the hottest and most promising of the Silicon Valley start-ups.
Cohler talked to a bunch of friends trying to figure out if he should
really consider Parker's offer. He was almost twenty-eight—no longer
a college kid—and had even spent time at the venerable McKinsey
consulting firm. He wasn't one to make rash moves. Cohler called his
brother, an undergraduate at Princeton, to ask if he knew about this
thing Thefacebook. "The answer was like, 'Duh!' as if I'd asked 'Do you
guys have electricity at Princeton?'" remembers Cohler. But he found
the numbers Thefacebook was claiming hard to believe.
He asked Zuckerberg if he could spend some time poking through
the service's database on his own. Cohler was blown away by what he
found. He, Parker, and Zuckerberg came to an agreement shortly afterward.
At that point everybody in the company was earning $65,000
a year, plus—and this was critical to Cohler—a fair amount of stock.
Cohler was convinced Thefacebook could get big. He had no interest
in Wirehog. His job was to help Thefacebook become a real company.
His role, as he later put it, was to be Zuckerberg's "consigliere."