Zucked: How Users Got Used and What We Can Do About It

In the early days of Silicon Valley, software engineers generally came from the computer science and electrical engineering programs at MIT, Caltech, and Carnegie Mellon. By the late seventies, Berkeley and Stanford had joined the top tier. They were followed in the mid-nineties by the University of Illinois at Urbana-Champaign, the alma mater of Marc Andreessen, and other universities with strong computer science programs. After 2000, programmers were coming from just about every university in America, including Harvard.

When faced with a surplus for the first time, engineers had new and exciting options. The wave of startups launched after 2003 could have applied surplus processing, memory, storage, and bandwidth to improve users’ well-being and happiness, for example. A few people tried, which is what led to the creation of the Siri personal assistant, among other things. The most successful entrepreneurs took a different path. They recognized that the penetration of broadband might enable them to build global consumer technology brands very quickly, so they opted for maximum scale. To grow as fast as possible, they did everything they could to eliminate friction like purchase prices, criticism, and regulation. Products were free, criticism and privacy norms ignored. Faced with the choice between asking permission or begging forgiveness, entrepreneurs embraced the latter. For some startups, challenging authority was central to their culture. To maximize both engagement and revenues, Web 2.0 startups focused their technology on the weakest elements of human psychology. They set out to create habits, evolved habits into addictions, and laid the groundwork for giant fortunes.

The second important change was philosophical. American business philosophy was becoming more and more proudly libertarian, nowhere more so than in Silicon Valley. The United States had beaten the Depression and won World War II through collective action. As a country, we subordinated the individual to the collective good, and it worked really well. When the Second World War ended, the US economy prospered by rebuilding the rest of the world. Among the many peacetime benefits was the emergence of a prosperous middle class. Tax rates were high, but few people complained. Collective action enabled the country to build the best public education system in the world, as well as the interstate highway system, and to send men to the moon. The average American enjoyed an exceptionally high standard of living.

Then came the 1973 oil crisis, when the Organization of Petroleum Exporting Countries initiated a boycott of countries that supported Israel in the Yom Kippur War. The oil embargo exposed a flaw in the US economy: it was built on cheap oil. The country had lived beyond its means for most of the sixties, borrowing aggressively to pay for the war in Vietnam and the Great Society social programs, which made it vulnerable. When rising oil prices triggered inflation and economic stagnation, the country transitioned into a new philosophical regime.

The winner was libertarianism, which prioritized the individual over the collective good. It might be framed as “you are responsible only for yourself.” As the opposite of collectivism, libertarianism is a philosophy that can trace its roots to the frontier years of the American West. In the modern context, it is closely tied to the belief that markets are always the best way to allocate resources. Under libertarianism, no one needs to feel guilty about ambition or greed. Disruption can be a strategy, not just a consequence. You can imagine how attractive a philosophy that absolves practitioners of responsibility for the impact of their actions on others would be to entrepreneurs and investors in Silicon Valley. They embraced it. You could be a hacker, a rebel against authority, and people would reward you for it. Unstated was the leverage the philosophy conferred on those who started with advantages. The well-born and lucky could attribute their success to hard work and talent, while blaming the less advantaged for not working hard enough or being untalented. Many libertarian entrepreneurs brag about the “meritocracy” inside their companies. Meritocracy sounds like a great thing, but in practice there are serious issues with Silicon Valley’s version of it. If contributions to corporate success define merit when a company is small and has a homogeneous employee base, then meritocracy will encourage the hiring of people with similar backgrounds and experience. If the company is not careful, this will lead to a homogeneous workforce as the company grows. For internet platforms, this means an employee base consisting overwhelmingly of white and Asian males in their twenties and thirties. This can have an impact on product design. For example, Google’s facial-recognition software had problems recognizing people of color, possibly reflecting a lack of diversity in the development team. Homogeneity narrows the range of acceptable ideas and, in the case of Facebook, may have contributed to a work environment that emphasizes conformity. The extraordinary lack of diversity in Silicon Valley may reflect the pervasive embrace of libertarian philosophy. Zuck’s early investor and mentor Peter Thiel is an outspoken advocate for libertarian values.

The third big change was economic, and it was a natural extension of libertarian philosophy. Neoliberalism stipulated that markets should replace government as the rule setter for economic activity. President Ronald Reagan framed neoliberalism with his assertion that “government is not the solution to our problem; it is the problem.” Beginning in 1981, the Reagan administration began removing regulations on business. He restored confidence, which unleashed a big increase in investment and economic activity. By 1982, Wall Street bought into the idea, and stocks began to rise. Reagan called it Morning in America. The problems—stagnant wages, income inequality, and a decline in startup activity outside of tech—did not emerge until the late nineties.

Deregulation generally favored incumbents at the expense of startups. New company formation, which had peaked in 1977, has been in decline ever since. The exception was Silicon Valley, where large companies struggled to keep up with rapidly evolving technologies, creating opportunities for startups. The startup economy in the early eighties was tiny but vibrant. It grew with the PC industry, exploded in the nineties, and peaked in 2000 at $120 billion, before declining by 87 percent over two years. The lean startup model collapsed the cost of startups, such that the number of new companies rebounded very quickly. According to the National Venture Capital Association, venture funding recovered to seventy-nine billion dollars in 2015 on 10,463 deals, more than twice the number funded in 2008. The market power of Facebook, Google, Amazon, and Apple has altered the behavior of investors and entrepreneurs, forcing startups to sell out early to one of the giants or crowd into smaller and less attractive opportunities.

Under Reagan, the country also revised its view of corporate power. The Founding Fathers associated monopoly with monarchy and took steps to ensure that economic power would be widely distributed. There were ebbs and flows as the country adjusted to the industrial revolution, mechanization, technology, world wars, and globalization, but until 1981, the prevailing view was that there should be limits to the concentration of economic power and wealth. The Reagan Revolution embraced the notion that the concentration of economic power was not a problem so long as it did not lead to higher prices for consumers. Again, Silicon Valley profited from laissez-faire economics.

Technology markets are not monopolies by nature. That said, every generation has had dominant players: IBM in mainframes, Digital Equipment in minicomputers, Microsoft and Intel in PCs, Cisco in data networking, Oracle in enterprise software, and Google on the internet. The argument against monopolies in technology is that major innovations almost always come from new players. If you stifle the rise of new companies, innovation may suffer.

Before the internet, the dominant tech companies sold foundational technologies for the architecture of their period. With the exception of Digital Equipment, all of the tech market leaders of the past still exist today, though none could prevent their markets from maturing, peaking, and losing ground to subsequent generations. In two cases, IBM and Microsoft, the business practices that led to success eventually caught the eye of antitrust regulators, resulting in regulatory actions that restored competitive balance. Without the IBM antitrust case, there likely would have been no Microsoft. Without the Microsoft case, it is hard to imagine Google succeeding as it did. Beginning with Google, the most successful technology companies sat on top of stacks created by others, which allowed them to move faster than any market leaders before them. Google, Facebook, and others also broke the mold by adopting advertising business models, which meant their products were free to use, eliminating another form of friction and protecting them from antitrust regulation. They rode the wave of wired broadband adoption and then 4G mobile to achieve global scale in what seemed like the blink of an eye. Their products enjoyed network effects, which occur when the value of a product increases as you add users to the network. Network effects were supposed to benefit users. In the cases of Facebook and Google, that was true for a time, but eventually the value increase shifted decisively to the benefit of owners of the network, creating insurmountable barriers to entry. Facebook and Google, as well as Amazon, quickly amassed economic power on a scale not seen since the days of Standard Oil one hundred years earlier. In an essay on Medium, the venture capitalist James Currier pointed out that the key to success in the internet platform business is network effects and Facebook enjoyed more of them than any other company in history. He said, “To date, we’ve actually identified that Facebook has built no less than six of the thirteen known network effects to create defensibility and value, like a castle with six concentric layers of walls. Facebook’s walls grow higher all the time, and on top of them Facebook has fortified itself with all three of the other known defensibilities in the internet age: brand, scale, and embedding.”

By 2004, the United States was more than a generation into an era dominated by a hands-off, laissez-faire approach to regulation, a time period long enough that hardly anyone in Silicon Valley knew there had once been a different way of doing things. This is one reason why few people in tech today are calling for regulation of Facebook, Google, and Amazon, antitrust or otherwise.

One other factor made the environment of 2004 different from earlier times in Silicon Valley: angel investors. Venture capitalists had served as the primary gatekeepers of the startup economy since the late seventies, but they spent a few years retrenching after the dot-com bubble burst. Into the void stepped angel investors—individuals, mostly former entrepreneurs and executives—who guided startups during their earliest stages. Angel investors were perfectly matched to the lean startup model, gaining leverage from relatively small investments. One angel, Ron Conway, built a huge brand, but the team that had started PayPal proved to have much greater impact. Peter Thiel, Elon Musk, Reid Hoffman, Max Levchin, Jeremy Stoppleman, and their colleagues were collectively known as the PayPal Mafia, and their impact transformed Silicon Valley. Not only did they launch Tesla, Space-X, LinkedIn, and Yelp, they provided early funding to Facebook and many other successful players. More important than the money, though, were the vision, value system, and connections of the PayPal Mafia, which came to dominate the social media generation. Validation by the PayPal Mafia was decisive for many startups during the early days of social media. Their management techniques enabled startups to grow at rates never before experienced in Silicon Valley. The value system of the PayPal Mafia helped their investments create massive wealth, but may have contributed to the blindness of internet platforms to harms that resulted from their success. In short, we can trace both the good and the bad of social media to the influence of the PayPal Mafia.

Thanks to lucky timing, Facebook benefitted not only from lower barriers for startups and changes in philosophy and economics but also from a new social environment. Silicon Valley had prospered in the suburbs south of San Francisco, mostly between Palo Alto and San Jose. Engineering nerds did not have a problem with life in the sleepy suburbs because many had families with children, and the ones who did not have kids did not expect to have the option of living in the city. Beginning with the dot-com bubble of the late nineties, however, the startup culture began to attract kids fresh out of school, who were not so happy with suburban life as their predecessors. In a world where experience had declining economic value, the new generation favored San Francisco as a place to live. The transition was bumpy, as most of the San Francisco–based dot-coms went up in flames in 2000, but after the start of the new millennium, the tech population in San Francisco grew steadily. While Facebook originally based itself in Palo Alto—the heart of Silicon Valley, not far from Google, Hewlett-Packard, and Apple—a meaningful percentage of its employees chose to live in the big city. Had Facebook come along during the era of scarcity, when experienced engineers ruled the Valley, it would have had a profoundly different culture. Faced with the engineering constraints of earlier eras, however, the Facebook platform would not have worked well enough to succeed. Facebook came along at the perfect time.

San Francisco is hip, with diverse neighborhoods, decent public transportation, access to recreation, and lots of nightlife. It attracted a different kind of person than Sunnyvale or Mountain View, including two related types previously unseen in Silicon Valley: hipsters and bros. Hipsters had burst onto the public consciousness as if from a base in Brooklyn, New York, heavy on guys with beards, plaid shirts, and earrings. They seemed to be descendants of San Francisco’s bohemian past, a modern take on the Beats. The bros were different, though perhaps more in terms of style than substance. Ambitious, aggressive, and exceptionally self-confident, they embodied libertarian values. Symptoms included a lack of empathy or concern for consequences to others. The hipster and bro cultures were decidedly male. There were women in tech, too, more than in past generations of Silicon Valley, but the culture continued to be dominated by men who failed to appreciate the obvious benefits of treating women as peers. Too many in Silicon Valley missed the lesson that treating others as equals is what good people do. For them, I make a simple economic case: women are 51 percent of the US population; they account for 85 percent of consumer purchases; they control 60 percent of all personal wealth. They know what they want better than men do, yet in Silicon Valley, which invests billions in consumer-facing startups, men hold most of the leadership positions. Women who succeed often do so by beating the boys at their own game, something that Silicon Valley women do with ever greater frequency. Bloomberg journalist Emily Chang described this culture brilliantly in her book, Brotopia.

With the biggest influx of young people since the Summer of Love, the tech migration after 2000 had a visible impact on the city, precipitating a backlash that began quietly but grew steadily. The new kids boosted the economy with tea shops and co-working spaces that sprung up like mushrooms after a summer rain in the forest. But they seemed not to appreciate that their lifestyle might disturb the quiet equilibrium that had preceded their arrival. With a range of new services catering to their needs, delivered by startups of their peers, the hipsters and bros eventually provoked a reaction. Tangible manifestations of their presence, like the luxury buses that took them to jobs at Google, Facebook, Apple, and other companies down in Silicon Valley, drew protests from peeved locals. An explosion of Uber and Lyft vehicles jammed the city’s streets, dramatically increasing commute times. Insensitive blog posts, inappropriate business behavior, and higher housing costs ensured that locals would neither forgive nor forget.

Zuck enjoyed the kind of privileged childhood one would expect for a white male whose parents were medical professionals living in a beautiful suburb. As a student at Harvard, he had the idea for Facebook. Thanks to great focus and enthusiasm, Zuck would almost certainly have found success in Silicon Valley in any era, but he was particularly suited to his times. Plus, as previously noted, he had an advantage not available to earlier generations of entrepreneurs: he could build a team of people his age—many of whom had never before had a full-time job—and mold them. This allowed Facebook to accomplish things that had never been done before.

For Zuck and the senior management of Facebook, the goal of connecting the world was self-evidently admirable. The philosophy of “move fast and break things” allowed for lots of mistakes, and Facebook embraced the process, made adjustments, and continued forward. The company maintained a laser focus on Zuck’s priorities, never considering the possibility that there might be flaws in this approach, even when the evidence of such flaws became overwhelming. From all appearances, Zuck and his executive team did not anticipate that people would use Facebook differently than Zuck had envisioned, that putting more than two billion people on the same network would lead to tribalism, that Facebook Groups would amplify that tribalism, that bad actors would take advantage to harm innocent people. They failed to imagine unintended consequences from an advertising business based on behavior modification. They ignored critics. They missed the opportunity to take responsibility when the reputational cost would have been low. When called to task, they protected their business model and prerogatives, making only small changes to their business practices. This trajectory is worth understanding in greater depth.

3

Move Fast and Break Things

Try not to become a man of success, but rather try to become a man of value. —ALBERT EINSTEIN

During Mark Zuckerberg’s sophomore year at Harvard, he created a program called Facemash that allowed users to compare photos of two students and choose which was “hotter.” The photos were taken from the online directories of nine Harvard dormitories. According to an article in Fast Company magazine, the application had twenty-two thousand photo views in the first four hours and spread rapidly on campus before being shut down within a week by the authorities. Harvard threatened to expel Zuckerberg for security, copyright, and privacy violations. The charges were later dropped. The incident caught the attention of three Harvard seniors, Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra, who invited Zuck to consult on their social network project, HarvardConnection.com.

In an interview with the campus newspaper, Zuck complained that the university would be slow to implement a universal student directory and that he could do it much faster. He started in January 2004 and launched TheFacebook.com on February 4. Six days later, the trio of seniors accused Zuck of pretending to help on their project and then stealing their ideas for TheFacebook. (The Winklevoss twins and Narendra ultimately filed suit and settled in 2008 for 1.2 million shares of Facebook stock.) Within a month, more than half of the Harvard student body had registered on Zuck’s site. Three of Zuck’s friends joined the team, and a month later they launched TheFacebook at Columbia, Stanford, and Yale. It spread rapidly to other college campuses. By June, the company relocated from Cambridge, Massachusetts, to Palo Alto, California, brought in Napster cofounder Sean Parker as president, and took its first venture capital from Peter Thiel.

TheFacebook delivered exactly what its name described: each page provided a photo with personal details and contact information. There was no News Feed and no frills, but the color scheme and fonts would be recognizable to any present-day user. While many features were missing, the thing that stands out is the effectiveness of the first user interface. There were no mistakes that would have to be undone.

The following year, Zuck and team paid two hundred thousand dollars to buy the “facebook.com” domain and changed the company’s name. Accel Partners, one of the leading Silicon Valley venture funds, invested $12.7 million, and the company expanded access to high school students and employees of some technology firms. The functionality of the original Facebook was the same as TheFacebook, but the user interface evolved. Some of the changes were subtle, such as the multitone blue color scheme, but others, such as the display of thumbnail photos of friends, remain central to the current look. Again, Facebook made improvements that would endure. Sometimes users complained about new features and products—this generally occurred when Zuck and his team pushed users too hard to disclose and share more information—but Facebook recovered quickly each time. The company never looked back.

Facebook was not the first social network. SixDegrees.com started in 1997 and Makeoutclub in 1999, but neither really got off the ground. Friendster, which started in 2002, was the first to reach one million users. Friendster was the model for Facebook. It got off to a fantastic start, attracted investors and users, but then fell victim to performance problems that crippled the business. Friendster got slower and slower, until users gave up and left the platform. Started in 2003, MySpace figured out how to scale better than Friendster, but it, too, eventually had issues. Allowing users to customize pages made the system slow, but in the end, it was the ability of users to remain anonymous that probably did the most damage to MySpace. Anonymity encouraged the posting of pornography, the elimination of which drained MySpace’s resources, and enabled adults to pose as children, which led to massive problems.

The genius of Zuck and his original team was in reconceptualizing the problem. They recognized that success depended on building a network that could scale without friction. Sean Parker described the solution this way in Adam Fisher’s Valley of Genius: “The ‘social graph’ is a math concept from graph theory, but it was a way of trying to explain to people who were kind of academic and mathematically inclined that what we were building was not a product so much as it was a network composed of nodes with a lot of information flowing between those nodes. That’s graph theory. Therefore we’re building a social graph. It was never meant to be talked about publicly.” Perhaps not, but it was brilliant. The notion that a small team in their early twenties with little or no work experience figured it out on the first try is remarkable. The founders also had the great insight that real identity would simplify the social graph, reducing each user to a single address. These two ideas would not only help Facebook overcome the performance problems that sank Friendster and MySpace, they would remain core to the company’s success as it grew past two billion users.

When I first met Zuck in 2006, I was very familiar with Friendster and MySpace and had a clear sense that Facebook’s design, its insistence on real identity, and user control of privacy would enable the company to succeed where others had failed. Later on, Facebook would relax its policies on identity and privacy to enable faster growth. Facebook’s terms of service still require real identity, but enforcement is lax, consistent with the company’s commitment to minimize friction, and happens only when other users complain. By the end of the decade, user privacy would become a pawn to be traded to accelerate growth.

In 2006, it was not obvious how big the social networking market would be, but I was already convinced that Facebook had an approach that might both define the category and make it economically successful. Facebook was a hit with college students, but I thought the bigger opportunity would be with adults, whose busy schedules were tailor-made for the platform. To me, that suggested a market opportunity of at least one hundred million users or more in English-speaking countries. In those days, one hundred million users would have justified a valuation of at least ten billion dollars, or ten times the number Yahoo had offered. It never occurred to me then that Facebook would fly past two billion monthly users, though I do remember the first time Zuck told me his target was a billion users. It happened some time in 2009, when Facebook was racing from two hundred to three hundred million users. I thought it was a mistake to maximize user count. The top 20 percent of users would deliver most of the value. I worried that the pursuit of one billion users would force Zuck to do business in places or on terms that should make him uncomfortable. As it turned out, there were no visible compromises when Facebook passed a billion monthly users in September 2012. The compromises were very well hidden.

The company had plenty of capital when I first met Zuck, so there was no immediate opportunity for me to invest, but as I’ve said, the notion of helping the twenty-two-year-old founder of a game-changing startup deal with an existential crisis really appealed to me. As a longtime technology investor, I received many requests for free help, and I loved doing it. Good advice can be the first step in a lasting relationship and had ultimately led to many of my best investments. The strategy required patience—and a willingness to help lots of companies that might not work out—but it made my work life fresh and fun.

My first impression of Zuck was that he was a classic Silicon Valley nerd. In my book, being a nerd is a good thing, especially for a technology entrepreneur. Nerds are my people. I didn’t know much about Zuck as a person and knew nothing about the episode that nearly led to his expulsion from Harvard until much later. What I saw before me was a particularly intense twenty-two-year-old who took all the time he needed to think before he acted. As painful as that five minutes of silence was for me, it signaled caution, which I took as a positive. The long silence also signaled weak social skills, but that would not have been unusual in a technology founder. But in that first meeting, I was able to help Zuck resolve a serious problem. Not only did he leave my office with the answer he needed, he had a framework for justifying it to the people in his life who wanted their share of one billion dollars. At the time, Zuck was very appreciative. A few days later, he invited me to his office, which was in the heart of Palo Alto, just down the street from the Stanford University campus. The interior walls were covered with graffiti. Professional graffiti. In Zuck’s conference room, we talked about the importance of having a cohesive management team where everyone shared the same goals. Those conversations continued several times a month for three years. Thanks to the Yahoo offer, Zuck understood that he could no longer count on everyone on his team. Some executives had pushed hard to sell the company. Zuck asked for my perspective on team building, which I was able to provide in the course of our conversations. A year later, he upgraded several positions, most notably his chief operating officer and his chief financial officer.

Toward the end of 2006, Zuck learned that a magazine for Harvard alumni was planning a story about the Winklevoss brothers and again turned to me for help. I introduced him to a crisis-management public relations firm and helped him minimize the fallout from the story.

I trust my instincts about people. My instincts are far from perfect, but they have been good enough to enable a long career. Intensity of the kind I saw in Zuck is a huge positive in an entrepreneur. Another critical issue for me is a person’s value system. In my interactions with him, Zuck was consistently mature and responsible. He seemed remarkably grown-up for his age. He was idealistic, convinced that Facebook could bring people together. He was comfortable working with women, which is not common among Silicon Valley entrepreneurs. My meetings with Zuck almost always occurred in his office, generally just the two of us, so I had an incomplete picture of the man, but he was always straight with me. I liked Zuck. I liked his team. I was a fan of Facebook.

This is a roundabout way of saying that my relationship with Zuck was all business. I was one of the people he would call on when confronted with new or challenging issues. Mentoring is fun for me, and Zuck could not have been a better mentee. We talked about stuff that was important to Zuck, where I had useful experience. More often than not, he acted on my counsel.

Zuck had other mentors, several of whom played a much larger role than I did. He spoke to me about Peter Thiel, who was an early investor and board member. I don’t know how often Zuck spoke with Thiel, but I know he took Peter’s advice very seriously. Philosophically, Thiel and I are polar opposites, and I respected Zuck for being able to work with both of us. Washington Post CEO Don Graham had started advising Zuck at least a year before me. As one of the best-connected people in our nation’s capital, Don would have been a tremendous asset to Zuck as Facebook grew to global scale. Marc Andreessen, the Netscape founder turned venture capitalist, played a very important role in Zuck’s orbit, as he was a hard-core technologist who had once been a very young entrepreneur. Presumably, Zuck also leaned on Jim Breyer, the partner from Accel who made the first institutional investment in Facebook, but Zuck did not talk about Breyer the way he did about Thiel.