Читать книгу Zucked: How Users Got Used and What We Can Do About It - Roger McNamee - Страница 11

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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.

In researching this book for key moments in the history of Facebook, one that stands out occurred months before I got involved. In the fall of 2005, Facebook gave users the ability to upload photographs. They did it with a new wrinkle—tagging the people in the photo—that helped to define Facebook’s approach to engagement. Tagging proved to be a technology with persuasive power, as users felt obligated to react or reciprocate when informed they had been tagged. A few months after my first meeting with Zuck, Facebook made two huge changes: it launched News Feed, and it opened itself up to anyone over the age of thirteen with a valid email address. News Feed is the heart of the Facebook user experience, and it is hard today to imagine that the site did well for a couple of years without it. Then, in January 2007, Facebook introduced a mobile web product to leverage the widespread adoption of smartphones. The desktop interface also made a big leap.

In the summer of 2007, Zuck called to offer me an opportunity to invest. He actually offered me a choice: invest or join the board. Given my profession and our relationship, the choice was easy. I did not need to be on the board to advise Zuck. The investment itself was complicated. One of Facebook’s early employees needed to sell a piece of his stake, but under the company’s equity-incentive plan there was no easy way to do this. We worked with Facebook to create a structure that balanced both our needs and those of the seller. When the deal was done, there was no way to sell our shares until after an initial public offering. Bono, Marc, and I were committed for the long haul.

Later that year, Microsoft bought 1.6 percent of Facebook for $240 million, a transaction that valued the company at $15 billion. The transaction was tied to a deal where Microsoft would sell advertising for Facebook. Microsoft paid a huge premium to the price we paid, reflecting its status as a software giant with no ability to compete in social. Facebook understood that it had leverage over Microsoft and priced the shares accordingly. As investors, we knew the Microsoft valuation did not reflect the actual worth of Facebook. It was a “strategic investment” designed to give Microsoft a leg up over Google and other giants.

Soon thereafter, Facebook launched Beacon, a system that gathered data about user activity on external websites to improve Facebook ad targeting and to enable users to share news about their purchases. When a Facebook user interacted with a Beacon partner website, the data would be sent to Facebook and reflected in the user’s News Feed. Beacon was designed to make Facebook advertising much more valuable, and Facebook hoped that users would be happy to share their interests and purchase activities with friends. Unfortunately, Facebook did not give users any warning and did not give them any ability to control Beacon. Their activities on the web would appear in their Facebook feed even when the user was not on Facebook. Imagine having “Just looked at sex toys on Amazon.com” show up in your feed. Users thought Beacon was creepy. Most users did not know what Facebook was doing with Beacon. When they found out, they were not happy. Zuck’s cavalier attitude toward user privacy, evident from the first day of Facemash back at Harvard, had blown up in his face. MoveOn organized a protest campaign, arguing that Facebook should not publish user activity off the site without explicit permission. Users filed class action lawsuits. Beacon was withdrawn less than a year after launch.

In the fall of 2007, Zuck told me he wanted to hire someone to build Facebook’s monetization. I asked if he was willing to bring in a strong number two, someone who could be a chief operating officer or president. He said yes. I did not say anything, but a name sprang to mind immediately: Sheryl Sandberg. Sheryl had been chief of staff to Secretary of the Treasury Larry Summers during Bill Clinton’s second term. In that job, she had partnered with Bono on the singer’s successful campaign to spur the world’s leading economies to forgive billions in debt owed by countries in the developing world. Together, Bono and Sheryl helped many emerging countries to reenergize their economies, which turned out to be a good deal for everyone involved. Sheryl introduced Bono to me, which eventually led the two of us to collaborate on Elevation Partners. Sheryl came to Silicon Valley in early 2001 and hung out in my office for a few weeks. We talked to Sheryl about joining Integral, but my partner John Powell had a better idea. John and I were both convinced that Sheryl would be hugely successful in Silicon Valley, but John pointed out that there were much bigger opportunities than Integral. He thought the right place for Sheryl was Google and shared that view with John Doerr, who was a member of Google’s board of directors. Sheryl took a job at Google to help build AdWords, the product that links ads to search results.

AdWords is arguably the most successful advertising product in history, and Sheryl was one of the people who made that happen. Based on what I knew about Sheryl, her success came as no surprise. One day in 2007, Sheryl came by to tell me she had been offered a leadership position at The Washington Post. She asked me what I thought. I suggested that she consider Facebook instead. Thanks to Watergate and the Pentagon Papers, the Post was iconic, but being a newspaper, it did not have a workable plan to avoid business model damage from the internet. Facebook seemed like a much better match for Sheryl than the Post, and she seemed like the best possible partner for Zuck and Facebook. Sheryl told me she had once met Zuck at a party, but did not know him and worried that they might not be a good fit. I encouraged Sheryl to get to know Zuck and see where things went. After my first conversation with Sheryl, I called Zuck and told him I thought Sheryl would be the best person to build Facebook’s advertising business. Zuck worried that advertising on Facebook would not look like Google’s AdWords—which was true—but I countered that building AdWords might be the best preparation for creating a scalable advertising model on Facebook. It took several separate conversations with Zuck and Sheryl to get them to meet, but once they got together, they immediately found common ground. Sheryl joined the company in March 2008. Looking at a March 2008 Wall Street Journal article on Sheryl’s hire and Zuck’s other efforts to stabilize the company by accepting help from more experienced peers, I’m reminded that Facebook’s current status as a multibillion-dollar company seemed far from inevitable in those days. The article highlighted the company’s image problems and mentioned Zuck complaining to me about the difficulties of being a CEO. Still, growth accelerated.

The underlying technology of the disastrous Beacon project resurfaced in late 2008 as Facebook Connect, a product that allowed users to sign into third-party sites with their Facebook credentials. News of hacks and identity theft had created pressure for stronger passwords, which users struggled to manage. The value of Connect was that it enabled people to memorize a single, strong Facebook password for access to thousands of sites. Users loved Connect for its convenience, but it is not obvious that they understood that it enabled Facebook to track them in many places around the web. With the benefit of hindsight, we can see the costs that accompanied the convenience of Connect. I tried Connect on a few news sites, but soon abandoned it when I realized what it meant for privacy.

The data that Facebook collected through Connect led to huge improvements in targeting and would ultimately magnify catastrophes like the Russian interference in the 2016 election. Other users must have noticed that Facebook knew surprising things about them, but may have told themselves the convenience of Connect justified the loss of privacy. With Connect, Facebook addressed a real need. Maintaining secure credentials is inconvenient, but the world would have been better off had users adopted a solution that did not exploit their private data. Convenience, it turns out, was the sweetener that led users to swallow a lot of poison.

Facebook’s user count reached one hundred million in the third quarter of 2008. This was astonishing for a company that was only four and half years old, but Facebook was just getting started. Only seven months later, the user count hit two hundred million, aided by the launch of the Like button. The Like button soon defined the Facebook experience. “Getting Likes” became a social phenomenon. It gave users an incentive to spend more time on the site and joined photo tagging as a trigger for addiction to Facebook. To make its advertising valuable, Facebook needs to gain and hold user attention, which it does with behavior modification techniques that promote addiction, according to a growing body of evidence. Behavior modification and addiction would play a giant role in the Facebook story, but were not visible during my time as a mentor to Zuck and would remain unknown to me until 2017.

It turns out everyone wants to be liked, and the Like button provided a yardstick of social validation and social reciprocity—packaged as a variable reward—that transformed social networking. It seemed that every Facebook user wanted to know how many Likes they received for each post, and that tempted many users to return to the platform several times a day. Facebook amplified the signal with notifications, teasing users constantly. The Like button helped boost the user count to 305 million by the end of September 2009. Like buttons spread like wildfire to sites across the web, and along with Connect enabled Facebook to track its users wherever they browsed.

The acquisition of FriendFeed in August 2009 gave Facebook an application for aggregating feeds from a wide range of apps and blogs. It also provided technology and a team that would protect Facebook’s flank from the new kid on the block, Twitter. Over the following year, Facebook acquisitions would enable photo sharing and the importing of contacts. Such acquisitions made Facebook more valuable to users, but that was nothing compared to the value they created for Facebook’s advertising. On every metric, Facebook prospered. Revenue grew rapidly. Facebook’s secret sauce was its ability to imitate and improve upon the ideas of others, and then scale them. The company demonstrated an exceptional aptitude for managing hypergrowth, a skill that is as rare as it is valuable. In September 2009, the company announced that it had turned cash flow positive. This is not the same as turning profitable, but it was actually a more important milestone. It meant that Facebook generated enough revenue to cover all its cash expenses. It would not need more venture capital to survive. The company was only five and a half years old.

With Sheryl on board as chief operating officer in charge of delivering revenues, Facebook quickly developed its infrastructure to enable rapid growth. This simplified Zuck’s life so he could focus on strategic issues. Facebook had transitioned from startup to serious business. This coming-of-age had implications for me, too. Effectively, Zuck had graduated. With Sheryl as his partner, I did not think Zuck would need mentoring from me any longer. My domain expertise in mobile made me valuable as a strategy advisor, but even that would be a temporary gig. Like most successful entrepreneurs and executives, Zuck is brilliant (and ruthless) about upgrading his closest advisors as he goes along. In the earliest days of Facebook, Sean Parker played an essential role as president, but his skills stopped matching the company’s needs, so Zuck moved on from him. He also dropped the chief operating officer who followed Parker and replaced him with Sheryl. The process is Darwinian in every sense. It is natural and necessary. I have encountered it so many times that I can usually anticipate the right moment to step back. I never give it a moment’s thought.

Knowing that we had accomplished everything we could have hoped for at the time I began mentoring him, I sent Zuck a message saying that my job was done. He was appreciative and said we would always be friends. At this point, I stopped being an insider, but I remained a true believer in Facebook. While failures like Beacon had foreshadowed problems to come, all I could see was the potential of Facebook as a force for good. The Arab Spring was still a year away, but the analyst in me could see how Facebook might be used by grassroots campaigns. What I did not grasp was that Zuck’s ambition had no limit. I did not appreciate that his focus on code as the solution to every problem would blind him to the human cost of Facebook’s outsized success. And I never imagined that Zuck would craft a culture in which criticism and disagreement apparently had no place.

The following year, 2010, was big for Facebook in surprising ways. By July, Facebook had five hundred million users, half of whom visited the site every day. Average daily usage was thirty-four minutes. Users who joined Facebook to stay in touch with family soon found new functions to enjoy. They spent more time on the site, shared more posts, and saw more ads.

October saw the release of The Social Network, a feature film about the early days of Facebook. The film was a critical and commercial success, winning three Academy Awards and four Golden Globes. The plot focused on Zuck’s relationship with the Winklevoss twins and the lawsuit that resulted from it. The portrayal of Zuck was unflattering. Zuck complained that the film did not accurately tell the story, but hardly anyone besides him seemed to care. I chose not to watch the film, preferring the Zuck I knew to a version crafted in Hollywood.

Just before the end of 2010, Facebook improved its user interface again, edging closer to the look and feel we know today. The company finished 2010 with 608 million monthly users. The rate of user growth remained exceptionally high, and minutes of use per user per day continued to rise. Early in 2011, Facebook received an investment of five hundred million dollars for 1 percent of the company, pushing the valuation up to fifty billion dollars. Unlike the Microsoft deal, this transaction reflected a financial investor’s assessment of Facebook’s value. At this point, even Microsoft was making money on its investment. Facebook was not only the most exciting company since Google, it showed every indication that it would become one of the greatest tech companies of all time. New investors were clamoring to buy shares. By June 2011, DoubleClick announced that Facebook was the most visited site on the web, with more than one trillion visits. Nielsen disagreed, saying Facebook still trailed Google, but it appeared to be only a matter of time before the two companies would agree that Facebook was #1.

In March 2011, I saw a presentation that introduced the first seed of doubt into my rosy view of Facebook. The occasion was the annual TED Conference in Long Beach, the global launch pad for TED Talks. The eighteen-minute Talks are thematically organized over four days, providing brain candy to millions far beyond the conference. That year, the highlight for me was a nine-minute talk by Eli Pariser, the board president of MoveOn.org. Eli had an insight that his Facebook and Google feeds had stopped being neutral. Even though his Facebook friend list included a balance of liberals and conservatives, his tendency to click more often on liberal links had led the algorithms to prioritize such content, eventually crowding out conservative content entirely. He worked with friends to demonstrate that the change was universal on both Facebook and Google. The platforms were pretending to be neutral, but they were filtering content in ways that were invisible to users. Having argued that the open web offered an improvement on the biases of traditional content editors, the platforms were surreptitiously implementing algorithmic filters that lacked the value system of human editors. Algorithms would not act in a socially responsible way on their own. Users would think they were seeing a balance of content when in fact they were trapped in what Eli called a “filter bubble” created and enforced by algorithms. He hypothesized that giving algorithms gatekeeping power without also requiring civic responsibility would lead to unexpected, negative consequences. Other publishers were jumping on board the personalization bandwagon. There might be no way for users to escape from filter bubbles.

Eli’s conclusion? If platforms are going to be gatekeepers, they need to program a sense of civic responsibility into their algorithms. They need to be transparent about the rules that determine what gets through the filter. And they need to give users control of their bubble.

I was gobsmacked. It was one of the most insightful talks I had ever heard. Its import was obvious. When Eli finished, I jumped out of my seat and made a beeline to the stage door so that I could introduce myself. If you view the talk on TED.com today, you will immediately appreciate its importance. At the time I did not see a way for me to act on Eli’s insight at Facebook. I no longer had regular contact with Zuck, much less inside information. I was not up to speed on the engineering priorities that had created filter bubbles or about plans for monetizing them. But Eli’s talk percolated in my mind. There was no good way to spin filter bubbles. All I could do was hope that Zuck and Sheryl would have the sense not to use them in ways that would harm users. (You can listen to Eli Pariser’s “Beware Online ‘Filter Bubbles’” talk for yourself on TED.com.)

Meanwhile, Facebook marched on. Google introduced its own social network, Google+, in June 2011, with considerable fanfare. By the time Google+ came to market, Google had become a gatekeeper between content vendors and users, forcing content vendors who wanted to reach their own audience to accept Google’s business terms. Facebook took a different path to a similar place. Where most of Google’s products delivered a single function that gained power from being bundled, Facebook had created an integrated platform, what is known in the industry as a walled garden, that delivered many forms of value. Some of the functions on the platform had so much value that Facebook spun them off as stand-alone products. One example: Messenger.

Thanks to its near monopoly of search and the AdWords advertising platform that monetized it, Google knew more about purchase intentions than any other company on earth. A user looking to buy a hammer would begin with a search on Google, getting a set of results along with three AdWords ads from vendors looking to sell hammers. The search took milliseconds. The user bought a hammer, the advertiser sold one, and Google got paid for the ad. Everyone got what they wanted. But Google was not satisfied. It did not know the consumer’s identity. Google realized that its data set of purchase intent would have greater value if it could be tied to customer identity. I call this McNamee’s 7th Law: data sets become geometrically more valuable when you combine them. That is where Gmail changed the game. Users got value in the form of a good email system, but Google received something far more valuable. By tying purchase intent to identity, Google laid the foundation for new business opportunities. It then created Google Maps, enabling it to tie location to purchase intent and identity. The integrated data set rivaled Amazon’s, but without warehouses and inventory it generated much greater profits for Google. Best of all, combined data sets often reveal insights and business opportunities that could not have been imagined previously. The new products were free to use, but each one contributed data that transformed the value of Google’s advertising products. Facebook did something analogous with each function it added to the platform. Photo tagging expanded the social graph. News Feed enriched it further. The Like button delivered data on emotional triggers. Connect tracked users as they went around the web. The value is not really in the photos and links posted by users. The real value resides in metadata—data about data—which is what we call the data that describes where the user was when he or she posted, what they were doing, with whom they were doing it, alternatives they considered, and more. Broadcast media like television, radio, and newspapers lack the real-time interactivity necessary to create valuable metadata. Thanks to metadata, Facebook and Google create a picture of the user that can be monetized more effectively than traditional media. When collected on the scale of Google and Facebook, metadata has unimaginable value. When people say, “In advertising businesses, users are not the customer; they are the product,” this is what they are talking about. But in the process, Facebook in particular changed the nature of advertising. Traditional advertising seeks to persuade, but in a one-size-fits-most kind of way. The metadata that Facebook and others collected enabled them to find unexpected patterns, such as “four men who collect baseball cards, like novels by Charles Dickens, and check Facebook after midnight bought a certain model of Toyota,” creating an opportunity to package male night owls who collect baseball cards and like Dickens for car ads. Facebook allows advertisers to identify each user’s biases and appeal to them individually. Insights gathered this way changed the nature of ad targeting. More important, though, all that data goes into Facebook’s (or Google’s) artificial intelligence and can be used by advertisers to exploit the emotions of users in ways that increase the likelihood that they purchase a specific model of car or vote in a certain way. As the technology futurist Jaron Lanier has noted, advertising on social media platforms has evolved into a form of manipulation.

Google+ was Google’s fourth foray into social networking. Why did Google try so many times? Why did it keep failing? By 2011, it must have been obvious to Google that Facebook had the key to a new and especially valuable online advertising business. Unlike traditional media or even search, social networking provided signals about each user’s emotional state and triggers. Relative to the monochrome of search, social network advertising offered Technicolor, the equivalent of Oz vs. Kansas in The Wizard of Oz. If you are trying to sell a commodity product like a hammer, search advertising is fine, but for branded products like perfume or cars or clothing, social networking’s data on emotions has huge incremental value. Google wanted a piece of that action. Google+ might have added a new dimension to Google’s advertising business, but Facebook had a prohibitive lead when Google+ came to market, and the product’s flaws prevented it from gaining much traction with people outside of Google. All it offered was interesting features, and Facebook imitated the good parts quickly.

Facebook took no chances with Google+. The company went to battle stations and devoted every resource to stopping Google on the beach of social networking. The company cranked up its development efforts, dramatically increasing the size limits for posts, partnering with Skype, introducing the Messenger texting product, and adding a slew of new tools for creating applications on the platform. As 2012 began, Facebook was poised for a breakout year. The company had a new advertising product—Open Graph—that leveraged its Social Graph, the tool to capture everything it knew from both inside Facebook and around the web. Initially, Facebook gave advertisers access only to data captured inside the platform. Facebook also enabled advertisements in the News Feed for the first time. News Feed ads really leveraged Facebook’s user experience. Ads blended in with posts from friends, which meant more people saw them, but there was also a downside: it was very hard to get an ad to stand out the way it would on radio or TV or in print.

The big news early in 2012 came when Facebook filed for an initial public offering (IPO) and then acquired Instagram for one billion dollars. The Facebook IPO, which took place on May 17, raised sixteen billion dollars, making it the third largest in US history. The total valuation of $104 billion was the highest ever for a newly public company. Facebook had revenues of nearly four billion dollars and net income of one billion dollars in the year prior to the IPO and found itself in the Fortune 500 list of companies from day one.

As impressive as all those numbers are, the IPO itself was something of a train wreck. Trading glitches occurred during the first day, preventing some trades from going through, and the stock struggled to stay above the IPO price. The deal set a record for trading volume on the first day after an IPO: 460 million shares.

The months leading up to the IPO saw weakness in Facebook’s advertising sales that triggered reductions in the company’s revenue forecast. When a company is preparing for an IPO, forecast reductions can be disastrous, as public investors have no incentive to buy into uncertainty. In Facebook’s case, investors’ extreme enthusiasm for the company—based primarily on user growth and Facebook’s increasing impact on society—meant the IPO could survive the reduction in forecast, but Zuck’s dream of a record-setting offering might be at risk. As described by former Facebook advertising targeting manager Antonio García Martínez in his book Chaos Monkeys, “The narratives the company had woven about the new magic of social-media marketing were in deep reruns with advertisers, many of whom were beginning to openly question the fortunes they had spent on Facebook thus far, often with little to show for it.” For all its success with users, Facebook had not yet created an advertising product that provided the targeting necessary to provide appropriate results for advertisers. Martínez went on to say, “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.” Advertisers had paid a lot of money to Facebook, believing the company’s promises about ad results, but did not get the value they felt they deserved. For Facebook, this was a moment of truth. By pushing the IPO valuation to record levels, Facebook set itself up for a rocky start as a public company.

The newly public stock sold off almost immediately and went into free fall after Yahoo Finance reported that the investment banks that had underwritten the IPO had reduced their earnings forecasts just before the offering. In the heat of the deal, had those forecast changes been effectively communicated to buyers of the stock? The situation was sufficiently disturbing that regulatory authorities initiated a review. Lawsuits followed, alleging a range of violations with respect to the trading glitches and the actions of one underwriter. A subsequent set of lawsuits named the underwriters, Zuck and Facebook’s board, and Nasdaq. The Wall Street Journal characterized the IPO as a “fiasco.”

For Facebook’s business, though, the IPO was an undisputed blessing. The company received a staggering amount of free publicity before the deal, essentially all of it good. That turbocharged user growth, news of which enabled Facebook to survive the IPO issues with relatively little damage. Investors trusted that a company with such impressive user growth would eventually figure out monetization. Once again, Facebook pushed the envelope, stumbled, and got away with it. Then they did something really aggressive.

The data from inside Facebook alone did not deliver enough value for advertisers. Thanks to Connect and the ubiquitous Like and Share buttons, Facebook had gathered staggering amounts of data about user behavior from around the web. The company had chosen not to use the off-site data for commercial purposes, a self-imposed rule that it decided to discard when the business slowed down. No one knew yet how valuable the external data would be, but they decided to find out. As Martínez describes it, Zuck and Sheryl began cautiously, fearful of alienating users.

Thanks to the IPO, Facebook enjoyed a tsunami of user growth. Within a few months, user growth restored investor confidence. It also overwhelmed the complaints from advertisers, who had to go where their customers were, even if the ad vehicles on Facebook were disappointing. The pressure to integrate user data from activities away from Facebook into the ad products lessened a bit, but the fundamental issues with targeting and the value of ads remained. As a result, the decision to integrate user data from outside Facebook would not be reversed.