Poking Back, Part 1: How Much Longer Will Facebook Rule?
Part one of a short series on a new film about Facebook-perhaps you’ve heard of it?
The Social Network is full of fibs, as everyone knows. The film is based on Ben Mezrich’s The Accidental Billionaires, which tells a colorfully embellished version of the story from the point of view of Facebook co-founder Eduardo Saverin, which tale, as it was written, was then adapted into the screenplay by Aaron Sorkin. The resulting account of the founding of Facebook amounts to a Hollywoodized game of Telephone. But the movie’s lies aren’t limited to those that blame Mark Zuckerberg for his rapacious and unscrupulous ambition (indeed, much of that stuff is true.) A lot of the lies praise the “Punk. Prophet. Billionaire.” for his unfailing and absolute brilliance and originality, his touching and Aspergery inability to express his True Feelings, and for being lonely and single, these fibs being told to generate erotic movie-star sympathy for the movie’s star, Jesse Eisenberg. (And they do. He is just wonderful. However does he make his eyes go so completely blank like that?)
Lawrence Lessig says that real Harvard students aren’t as witty as the ones in this movie, which is sad, because it is so appealing to imagine a magical place full of geniuses (some strapping, some Aspergery, and some Matt Damon ones getting the better of some guy in a bar). The charm of The Social Network is that it lets us believe in so many of these fairy tales, like the beauty and excitement of being rich and accomplished, The Beautiful People, and most of all the Super Genius who always knows the right answer without even trying. The Social Network is not a hatchet job; it makes a hero of Zuckerberg, not a villain; he’s the kind of love-to-hate hero you’re supposed to admire deep down inside, like Michael Corleone or Tony Soprano, a man of such brilliance, drive and rapacity that he just can’t help himself.
A lot of the facts here were brought to light when Zuckerberg “opened up” to The New Yorker recently.
IMs written by Zuckerberg while he was still at Harvard suggest that he knew exactly what he was doing in delaying work on what would have been a competing site he’d been asked to develop by the (amazingly, real) Winklevoss twins and their partner, Divya Narendra. These IMs reveal a far meaner Zuckerberg than the movie one; he boasts of “fucking” the Winklevoss twins “in the ear.”
Eduardo Saverin put up the seed money for Facebook; nowhere is this in dispute. Anyone who has ever tried to raise seed money can tell you that it is very difficult to get, and that those who take such risks are in the habit of demanding, and receiving, a lot of equity, because the extreme likelihood is that they are going to lose their dough, Harvard or no Harvard. No amount of suddenly giving tons of money to schools or showing people how humble you are is going to alter the fact that Saverin was deliberately ripped off. Zuckerberg wrote some pretty terrible IMs about that, too.
But once a young entrepreneur takes money from venture capitalists, they kind of own that person, for two reasons. One is that the VCs are there, allegedly, to give you, the young entrepreneur, expert insight into the ways of business; the other is the likelihood that you are going to need more money down the road. This is a downer manifestly at odds with the idea of a swaggering, arrogant young genius who always gets his way, and so that doesn’t appear in the movie either. For example, the real Sean Parker was busted in North Carolina in 2005, but formal charges were never filed against him, according to Fortune writer David Kirkpatrick’s recent The Facebook Effect. Nevertheless, Parker was forced out by the VCs, over the objections of Zuckerberg.
Likewise, if anyone ripped Eduardo Saverin off when Facebook received its first infusions of cash, it is next to impossible to believe that the dilution of his shares was the work of anyone but the venture capitalists who staked the company in its infancy, even if Zuckerberg did want him out. The first valuation of Facebook was scarcely over five million (Business Insider claims that Peter Thiel bought nine percent in the company with an initial half-million investment.) That is a very small valuation in the dot-com world, small even for 2004. Everyone knew they’d be going back to the well, and that is why they all wanted to vacuum up all the equity they could.
The movie also seems to suggest that Facebook was an original idea, sprung like Athena from the turbo-brains of Zuckerberg. We see him mulling over his competitors MySpace and Friendster; Friendster, a slightly more dating-oriented site, started in 2002, but MySpace wasn’t even formally launched from its long beta until January 2004, only a month before Facebook went live. Weirdly, there is no mention of Facebook’s real competition at that time, the then-unassailable LiveJournal, founded in 1999. At the time of Facebook’s launch, LiveJournal had over two million users, and was already the venue of choice for teen girls to share their crushes; it was (and still is) bloggier, but it already offered most of the features that would later distinguish Facebook-”friending”, mood text/icon (analogous to Facebook’s “status”), photographs, communities, text messaging, “mini-biographies,” the works. Even the blue and white logo of Facebook recalls the LiveJournal logo at that time.
LiveJournal (now gone off to Russia!) always suffered from bizarre tech issues-early growth was hampered by “invite codes” that weren’t discontinued until late 2003, they had frequent problems with upgrades to the software, and there was confusion about the tiered service; part of it was free, but only a paid account at $25/year would give you access to certain features like text messaging. But the Gospel of St. Zuckerberg requires that he be a visionary, bursting with “creativity,” so: no actual mention of LiveJournal, despite his obvious rapid-fire use of it in the movie.
Facebook is a private company that plays its cards pretty close to its vest, and until they release financial statements any and all valuations published in the press are just pie in the sky, casual estimates reached via rumors of private trading. Reports suggest that Facebook’s 2010 revenues are near $1 billion, and growing at a rapid rate; this comes from brand advertising, performance advertising and virtual goods. There’s no doubt that the site is growing, but even so, recent valuations over $25 billion look a bit rich, even if the gossip is to be believed. The real question is whether advertising (and “brand involvement”) on Facebook is effective enough that advertisers will continue to spend money there.
In any case, let’s not forget that Rupert Murdoch blew $580 million on MySpace five short years ago, in a move initially praised for its prescience, right before Facebook ate their lunch. It’s so hard to imagine that a brand as powerful as Facebook is now could ever diminish, but in the last twenty years many, many seemingly invincible online powerhouses have come and gone. AOL (yes), Prodigy, Compuserve, LiveJournal, MySpace, Netscape, GeoCities, and I’m not even getting into the disasters in the retail and auction sectors-many, many bloodbaths there-and definitely not getting into the tons of businesses that were funded up the wazoo but fizzled at the gate, like boo.com and the sad-but-hilarious fiasco of DEN.
Anyway. The users of social networking companies are very, very fickle and largely underage; it still seems very unclear whether or not they can be advertised to successfully in that context. You would think hey, there is a network effect, people love this thing, there is no reason for them ever to leave. But then the reason shows up in the form of a better social-networking mousetrap. It remains to be seen whether Facebook will live up to the lofty ambitions The Social Network seems to have for it.
Maria Bustillos is the author of Dorkismo: The Macho of the Dork and