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Why Apple’s iMessage Is Winning: Teens Dread the Green Text Bubble

The iPhone maker cultivated iMessage as a must-have texting tool for teens. Android users trigger a just-a-little-less-cool green bubble: ‘Ew, that’s gross.’

Source: https://www.wsj.com/articles/why-apples-imessage-is-winning-teens-dread-the-green-text-bubble-11641618009

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Soon after 19-year-old Adele Lowitz gave up her Apple AAPL 0.51% iPhone 11 for an experimental go with an Android smartphone, a friend in her long-running texting group chimed in: “Who’s green?”

The reference to the color of group text messages—Android users turn Apple Inc.’s iMessage into green bubbles instead of blue—highlighted one of the challenges of her experiment. No longer did her group chats work seamlessly with other peers, almost all of whom used iPhones. FaceTime calls became more complicated and the University of Michigan sophomore’s phone didn’t show up in an app she used to find friends.

That pressure to be a part of the blue text group is the product of decisions by Apple executives starting years ago that have, with little fanfare, built iMessage into one of the world’s most widely used social networks and helped to cement the iPhone’s dominance among young smartphone users in the U.S. 

How that happened came to light last year during Apple’s courtroom fight against “Fortnite” maker Epic Games Inc., which claimed the tech giant held an improper monopoly over distribution of apps onto the iPhone. As part of the battle, thousands of pages of internal records were made public. Some revealed a long-running debate about whether to offer iMessage on phones that run with Google’s Android operating system. Apple made a critical decision: Keep iMessage for Apple users only. 

“In the absence of a strategy to become the primary messaging service for [the] bulk of cell phone users, I am concerned the iMessage on Android would simply serve to remove [an] obstacle to iPhone families giving their kids Android phones,” Craig Federighi, Apple’s chief software executive, said in a 2013 email. Three years later, then-marketing chief Phil Schiller made a similar case to Chief Executive Tim Cook in another email: “Moving iMessage to Android will hurt us more than help us,” he said. Another warning that year came from a former Apple executive who told his old colleagues in an email that “iMessage amounts to serious lock-in.” 

When Adele Lowitz, left, experimented with using an Android smartphone instead of an iPhone, one friend asked: ‘Who’s green?’ PHOTO: STEVE KOSS FOR THE WALL STREET JOURNAL

When Adele Lowitz, left, experimented with using an Android smartphone instead of an iPhone, one friend asked: ‘Who’s green?’ PHOTO: STEVE KOSS FOR THE WALL STREET JOURNAL

From the beginning, Apple got creative in its protection of iMessage’s exclusivity. It didn’t ban the exchange of traditional text messages with Android users but instead branded those messages with a different color; when an Android user is part of a group chat, the iPhone users see green bubbles rather than blue. It also withheld certain features. There is no dot-dot-dot icon to demonstrate that a non-iPhone user is typing, for example, and an iMessage heart or thumbs-up annotation has long conveyed to Android users as text instead of images. 

Apple later took other steps that enhanced the popularity of its messaging service with teens. It added popular features such as animated cartoon-like faces that create mirrors of a user’s face, to compete with messaging services from social media companies. Apple’s own survey of iPhone holders made public during the Epic Games litigation found that customers were particularly fond of replacing words with emojis and screen effects such as animated balloons and confetti. Avid teen users said in interviews with The Wall Street Journal that they also liked how they could create group chats with other Apple users that add and subtract participants without having to start a new chain. 

How Apple’s iPhone and Apps Trap You in a Walled GardenYOU MAY ALSO LIKEUP NEXT 0:00 / 6:21How Apple’s iPhone and Apps Trap You in a Walled Garden How Apple’s iPhone and Apps Trap You in a Walled GardenApple’s hardware, software and services work so harmoniously that it is often called a “walled garden.” The idea is central to recent antitrust scrutiny and the Epic vs. Apple case. WSJ’s Joanna Stern went to a real walled garden to explain it all. Photo illustration: Adele Morgan/The Wall Street Journal

The cultivation of iMessage is consistent with Apple’s broader strategy to tie its hardware, software and services together in a self-reinforcing world—dubbed the walled garden—that encourages people to pay the premium for its relatively expensive gadgets and remain loyal to its brand. That strategy has drawn scrutiny from critics and lawmakers as part of a larger examination of how all tech giants operate. Their core question: Do Apple and other tech companies create products that consumers simply find indispensable, or are they building near-monopolies that unfairly stifle competition?

Apple in its fight against Epic Games denied it held improper monopoly power in the smartphone market, pointing to intense competition globally with other phone makers and Android’s operating system. “With iMessage we built a great service that our users love and that is different from those offered by other platforms,” the company said in a statement.

Apple and other tech giants have long worked hard to get traction with young users, hoping to build brand habits that will extend into adulthood as they battle each other for control of everything from videogames to extended reality glasses to the metaverse. Globally, Alphabet Inc.’s Android operating system is the dominant player among smartphone users, with a loyal following of people who are vocal about their support. Among U.S. consumers, 40% use iPhones, but among those aged 18 to 24, more than 70% are iPhone users, according to Consumer Intelligence Research Partners’s most recent survey of consumers.

Shoppers at an Apple store in November.

PHOTO: NIYI FOTE/ZUMA PRESS

Apple is not the first tech company to come up with a must-have chat tool among young people, and such services sometimes struggle to stay relevant. BlackBerry and America Online were among the popular online communication forums of past decades that eventually lost ground to newer entrants. 

Yet grabbing users so early in life could pay dividends for generations for Apple, already the world’s most valuable publicly traded company. It briefly crossed $3 trillion in market value for the first time on Jan. 3. 

“These teenagers will continue to become consumers in the future and hopefully continue to buy phones into their 40s, 50s, 60s and 70s,” said Harsh Kumar, an analyst for Piper Sandler. The firm recently found that 87% of teens surveyed last year own iPhones. 

Never date a green texter

Apple’s iMessage plays a significant role in the lives of young smartphone users and their parents, according to data and interviews with a dozen of these people. Teens and college students said they dread the ostracism that comes with a green text. The social pressure is palpable, with some reporting being ostracized or singled out after switching away from iPhones. 

“In my circle at college, and in high school rolling over into college, most people have iPhones and utilize a lot of those kinds of iPhone specific features” together, said Ms. Lowitz, the Michigan student. 

She said she came to realize that Apple had effectively created a social network of features that keeps users, such as her and others, locked in. “There was definitely some kind of pressure to get back to that,” she said. 

Many of the new iMessage features—such as the 3D-like digital avatars known as memojis—exist fundamentally as a reason to own an iPhone and don’t make money for Apple directly. Last year Apple also made it possible to share FaceTime connections with Android users—a slight crack in Apple’s self-reinforcing ecosystem as video calling became more prevalent during the pandemic. In recent years, however, it has incorporated some moneymaking elements including Apple Pay and e-commerce links to other businesses such as Starbucks.

“We know that Apple users appreciate having access to innovative features like iCloud synching across all their Apple devices, Tapback and Memoji, as well as industry-leading privacy and security with end-to-end encryption—all of which make iMessage unique,” Apple said in a statement.Youthful ExuberanceThe share of Apple iPhones in the U.S. has swelled​dramatically among young smartphone owners. Source: Consumer Intelligence Research PartnersNote: Annual survey conducted each September of 2,000 U.S. people​who purchased a smartphone in the previous 12 months. Age 18-24Older than 242014’15’16’17’18’19’20’2120304050607080%

Apple’s iMessage uses the internet to send text, video and photo messages, while iPhone users communicating with non-Apple users use old-school cellular channels such as SMS and MMS. Apple said its closed, encrypted system ensures messages are protected from hackers. Apple also disputes the idea that users are locked in to iMessage, saying users can easily switch to other smartphones.

A Google executive said Apple could make it easier for iMessage and Android users to communicate. “There are no real technical or product reasons for this issue,” Hiroshi Lockheimer, Google senior vice president of platforms and ecosystems, said. “The solutions already exist and we encourage Apple to join with the rest of the mobile industry in implementing them. We believe people should have the ability to connect with each other without artificial limits. It simply doesn’t have to be like this.” TECH NEWS BRIEFINGWhat Apple’s Texting App Tells Us About Its Strategy to Attract Users 00:00

IPhone users switch among a variety of apps to communicate. But if you use an iPhone, it is likely you’re also using iMessage. Apple’s internal research made public during the Epic Games litigation found that a survey of U.S. iPhone users, some as young as 14, overwhelmingly use iMessage. Among those who used an instant messaging app at least once a month, 85% of those surveyed said they used iMessage compared with 57% and 16% using Meta’s Facebook Messenger and WhatsApp, respectively, the Apple research showed. Meta’s messaging apps are widely used globally. WhatsApp, for example, topped 2 billion users in 2020.

In the pitched battle for messaging, Facebook executives in recent years became interested in capturing users at a younger age, according to documents reviewed by the Journal that formed the basis of a series of articles, called the Facebook Files, published in recent months. 

One Facebook study, shared internally in 2019, aimed to understand why iMessage and SnapInc.’s Snapchat were the primary messaging apps for 10- to 13-year-olds. The research focused attention on a popular game played through iMessage called “Game Pigeon.” 

The third-party game, acquired through Apple’s App Store and designed to operate in the messaging app, illustrates just one of the ways iMessages connects with young people. The game consists of users taking turns playing activities, such as checkers or word games, and allows for texting back-and-forth among players. “Game Pigeon” can’t be played between iPhone and Android users.

PHOTO: MILES FRANKLIN

Facebook researchers concluded the appeal revolved around the social aspect of the games, helping younger people initiate conversations. “Game Pigeon generates amusement through digital interaction without the pressures of finding topics of conversation by enabling tweens to send games as content interactions and to use shared activities as a way to connect when they feel there is nothing to talk about,” according to the study.

Rounds of “Game Pigeon” in high school among friends were the first time Miles Franklin said he realized he was left out with his Android phone. “That’s my first taste of it,” said Mr. Franklin, now a 22-year-old senior at the University of Florida in Gainesville. 

He said he long considered himself an Android loyalist going back to when he got his first phone at age 13 for his birthday. That changed, however, two years ago when he switched to an iPhone because he preferred it for making TikTok videos. 

While it seems simple enough to shift to another messaging service, it isn’t in real life, according to Mr. Franklin. “I personally would do that,” he said. “But I’m not everyone else. I can’t convince other people to switch over to another app because they’re not gonna want to do that unless you’re really close to them.” 

Grace Fang, 20-years-old, said she too saw such social dynamics among her peers at Wellesley College in Massachusetts. “I’ve had people with Androids apologize that they have Androids and don’t have iMessage,” she said. “I don’t know if it’s Apple propaganda or just like a tribal in-group versus out-group thing going on, but people don’t seem to like green text bubbles that much and seem to have this visceral negative reaction to it.” Ms. Fang added that she finds the hubbub silly and that she prefers to avoid texting all together. 

‘I’ve had people with Androids apologize that they have Androids and don’t have iMessage,” said Grace Fang.

PHOTO: ASHLEY PANDYA

Jocelyn Maher, a 24-year-old master’s student in upstate New York, said her friends and younger sister have mocked her for exchanging texts with potential paramours using Android phones. “I was like, `Oh my gosh, his texts are green,’ and my sister literally went, `Ew that’s gross,’” Ms. Maher said. 

She noted that she once successfully persuaded a boyfriend to switch to an iPhone after some gentle badgering. Their relationship didn’t last. 

Such interactions have made fertile ground for memes on social media. During the pandemic, Jeremy Cangiano, who just finished up his MBA at the University of Massachusetts Lowell, dealt with his boredom on TikTok, quickly noticing that blue-bubble-green-bubble memes were popular among young people. He tried to cash in on it last year by selling his own merchandise that touted, “Never Date a Green Texter.” 

‘Serious lock-in’

The blue iMessage bubble was born out of a simple engineering need, according to Justin Santamaria, a former Apple engineer who worked on the original feature. At first, Apple engineers just wanted to be able to easily identify iMessages when working with other texting formats as they developed their system, he said. The effect just stuck as it moved forward for consumer rollout. 

“I had no idea that there would be a cachet or like, `Ugh green bubble conversations,’” he said. The idea that it would keep users locked in to using Apple devices wasn’t even part of the conversation at the time, he said. 

The idea of opening iMessage to Android users arose in 2013, according to some of the internal records made public during the courtroom fight with Epic Games. As a market rumor circulated that Google was considering the acquisition of the popular messaging app WhatsApp, senior Apple executives discussed how such an acquisition might roil competition and how they might better compete. 

Eddy Cue, who oversees Apple’s services business, told his colleagues he had some of his team investigating how to make iMessage available on Android phones, according to an email that surfaced as part of the Epic Games litigation. “We should go full speed and make this an official project,” he advised. “Google will instantly own messaging with this acquisition.” 

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How has the blue-green bubble battle played out in your own social circle? Join the conversation below.

Mr. Schiller, the executive who at the time oversaw marketing, wrote: “And since we make no money on iMessage what will be the point?” Mr. Cue responded: “Do we want to lose one of the most important apps in a mobile environment to Google? They have search, mail, free video and growing quickly in browsers. We have the best messaging app and we should make it the industry standard. I don’t know what ways we can monetize it but it doesn’t cost us a lot to run.” 

Others weighed in. Mr. Federighi, Apple’s chief software executive, said in an email that he worried that making iMessage an option on Android could have a serious downside by removing an obstacle for iPhone families to get their children Android phones. 

In the end, Google didn’t buy WhatsApp and Apple didn’t make its iMessage available to Android users. Facebook ultimately acquired WhatsApp in 2014 for $22 billion, ratcheting up competition with Apple. 

In just a few years, the value of iMessage’s blue texts had become more clear to Apple execs. After an executive left the company and began using an Android, he wrote former colleagues in 2016 and said he had switched back to iPhones after just a few months.

His family resorted to using Facebook products to message him, former Apple Music executive Ian Rogers said in the email. “I missed a ton of messages from friends and family who all use iMessage and kept messaging me at my old address,” he wrote, adding that “iMessage amounts to serious lock-in.” 

The note, which became public during Apple’s litigation with Epic Games, eventually made its way to Mr. Cook through then-marketing chief Mr. Schiller, who added his own two cents: “Moving iMessage to Android will hurt us more than help us, this email illustrates why.” 

As for Ms. Lowitz, the Michigan college student, she was glad when her switch to Android—brought about by her participation in a paid research study—came to an end. She was ready to get back to her iPhone. “There’s too much within the Apple network for me to switch,” she said. 

Anna Fuder, 19, a friend at Michigan who had declined to participate in the study for fear of giving up her iPhone, was overjoyed. “As soon as she switched back to her iPhone, it was like hallelujah,” Ms. Fuder said. “Blue again.

What Apple has lost—and gained—since Steve Jobs died 10 years ago

By multiple standards, the company is doing better than even an optimist would have predicted in 2011. But it still has a Steve Jobs-shaped hole in it.

What Apple has lost—and gained—since Steve Jobs died 10 years ago
Fans use smartphones to photograph a makeshift shrine in London after Steve Jobs’s death from pancreatic cancer at the age of 56 on October 5, 2011. [

Ten years ago today, I happened to be attending a trade show in Tokyo when a tech journalist friend back in California phoned to ask if I’d heard Steve Jobs had died. I hadn’t: Apple had just made the sad announcement and it hadn’t yet overtaken Twitter, news sites, and—it would soon seem—every other form of media.

Rather than continuing with my trip as planned, I spent the rest of it writing multiple pieces about Apple’s cofounder and his impact on his company and the world. Throughout, I did my best to avoid coming to any snap judgments about what an Apple without Jobs would look like. Even a year after Jobs’s death, I marked its anniversary by arguing that it was too soon to judge how Apple was faring, in part because the company was still releasing products that he’d had a hand in shaping.

Nine years after that, I have no excuses. Tim Cook has been Apple’s CEO for more than a fifth of the company’s history. Comparing his Apple to Steve Jobs’s legacy remains tricky, since we’ll never know how Jobs would have handled the same decisions Cook has made. But since it’s no longer premature to ponder such matters, I’m going to give it a shot. And I’m going to divide my musings into four broad categories.

Apple as a business

This one’s easy.

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When Jobs died, some who weighed in about Apple’s future—including Oracle CEO Larry Ellison, a close Jobs friend—expected the worst. You didn’t have to think Jobs was irreplaceable to guess that Cook would have his hands full dealing with threats such as the growing popularity of phones based on Google’s Android operating system.

Still, many observers concluded that Apple stood a good chance of flourishing under Cook. Hedge fund manager James Altucher, who had already predicted that Apple would be the first $1 trillion company, doubled down on the prognostication after Jobs’s passing.

But even Altucher didn’t talk about Apple becoming the first company to reach a valuation of $2 trillion, a feat it achieved less than nine years after Jobs’s death. Apple is now worth more than six times what it was on October 5, 2011. As the smartphone market matured, Cook turned out to be one of the best CEOs in the history of business, adroitly keeping Apple growing through strategies such as bolstering its services portfolio.

From a Wall Street perspective, the unanswerable question that feels most pertinent is not “would Apple have been more successful if Steve Jobs was still CEO?” Instead, it’s more like “would an Apple run by Steve Jobs have matched Tim Cook’s history-making financial results?”

The next big thing(s)

For the first year or two of Tim Cook’s tenure as Apple CEO, some pundits helpfully explained that Jobs had unveiled an epoch-shifting gadget every couple of years—and that Cook would be a failure if he didn’t continue that pace. As I wrote back then, this was silly. For one thing, even Jobs didn’t change history with anything like the frequency that people thought he did. For another, Cook deserved more than two years to prove how much vision Apple would have under his leadership.

Enough time has passed that it’s now fair to compare Cook’s biggest products to Jobs landmarks such as the Apple II, Mac, iPod, iTunes, iPhone, and iPad. Apples biggest all-new product since 2011 has unquestionably been the Apple Watch, which is now worn by 100 million people, including a third of iPhone users in the U.S. Judged purely as a revenue generator, the smartwatch deserves to be mentioned in the same breath as Jobs’s signature products: It’s a bigger business than the iPod was at its height.

The other obvious megahit of the Cook years are AirPods, which defined the modern wireless-earbud category and still lead it; they’re as iconic as wired iPod earbuds once were—and vastly more profitable for Apple.

Any Apple rival would salivate at the prospect of creating a business as successful as the Apple Watch and AirPods have been. Still, neither is culturally transformative in the way that Jobs’s biggest successes were. Rather than changing everything about our relationship with technology in one or two fell swoops, the Apple Watch has done well because Apple has patiently took something that initially felt like a tiny computer for your wrist and refocused it on fitness and health. Meanwhile, AirPods, delightful though they are, are ultimately an accessory, at least for the time being. And there’s a limit to how much an accessory can reshape human life.

But if Apple hasn’t managed to shift any epochs lately, that’s understandable. Neither has anyone else in the consumer electronics business:

  • On the smartphone front, pricey folding phones from Samsung and Microsoft cater to a niche that doesn’t feel like it’s about to explode.
  • Amazon’s Alexa has done more than Apple’s Siri to propel AI-infused voice interfaces to prominence, but it hasn’t rendered smartphones any less important.
  • Thanks to Facebook’s Oculus, virtual reality has made great strides, but a heck of a lot of people still haven’t strapped on a headset even once.
  • On the consumer hardware front, augmented reality has inspired some notorious flops; its successes, such as Pokémon Go and Google Lens, have gained traction by leveraging smartphones rather than replacing them.
  • From Facebook and Twitter to TikTok, social media has changed the world over the past decade, but it feels less like an invention than a virus that got out of control.
  • You might make the case that Elon Musk’s Tesla has had an Apple-like impact on the automotive industry, but the electrification of passenger vehicles remains a story in progress.

It’s even clearer in retrospect than it was during Jobs’s life that it might be impossible to top the iPhone by coming up with an even more popular, profitable gizmo. Had Jobs gotten another decade as Apple CEO, he might have chosen to pour most of the company’s energy into the evolution and expansion of the iPhone and iPad—just as Cook’s Apple has done. Incremental improvements to existing products, after all, were just as key to Jobs’s success as the great leaps forward.

One other thing: All evidence suggests that Apple hasn’t given up on trying to reinvent additional product categories. It’s just tackling ones that are hyper-ambitious even by its own standards—such as VR/AR headsets and cars—and is happy to chip away in private rather than hype stuff that won’t appear for years. Which means that it’s still too early to declare that we’ve seen the last history-making new Apple product.

The little things

Steve Jobs was not an inventor so much as an editor. None of the products he’s remembered for were the first in their category, and every one of them bulged with work done by people who had skills that Jobs did not possess. But he had a near-superhuman ability to know what to put into a product and what to leave out. He could make the seams between hardware and software nearly vanish. He made hard decisions that were often questioned, but almost always prescient and—eventually—widely imitated.

No single person has taken on that responsibility in the Cook era, and it shows. Compared to earlier days, the company has released more than its share of half-baked products, such as 2013’s iOS 7, whose newly minimalist look felt like a rough draft. In 2014, it had to create a $10,000 Apple Watch to learn that such a device made no sense. Instead of making touch-screen Macs, it replaced the MacBook Pro’s function keys with a skinny touchscreen in 2016, seemingly making very few people happy. Right now, the odd changes which the company decided to make to its Safari browser—and has only partially unwound—seem like an instance of inadequate editing of its raw ideas.

In all these cases, I’m not going to say “Steve Jobs would never have allowed that,” because . . . well, he might have. His own mistakes were often doozies. But present-day Apple does feel like it’s lost the final polish that Jobs gave almost everything.

Still, even if Apple errs in public more than it once did, it usually gets to a good place eventually. In the post-Jobs era, the iPhone lineup has had some false starts—remember the proudly plasticky iPhone 5c?—and grew confusing as Apple added more and more variants. But the four new iPhone 13 models—and the still-available iPhone SE—make for the most comprehensible iPhone line since the days when it consisted of a grand total of one phone. And by making the new iPhones slightly thicker and heavier to allow for larger, longer-lasting batteries, Apple abandoned Jobs’s thinner-is-better instincts to achieve a sensible goal. That’s an infinitely smarter act of editing than asking “what would Steve do?”

Steve Jobs the industry presence

We didn’t just lose Steve Jobs the business executive, strategic thinker, and product polisher 10 years ago. We lost the guy who may have been the single most memorable personality the consumer-tech business ever produced:

When most of us envision Jobs, what we see is the man onstage at the product presentations so inextricably associated with him that they were known as “Stevenotes.” Even if you steadfastly refused to get sucked into his reality distortion field, these demos were remarkably compelling. It wasn’t just because he was one of the best explainers the tech industry has ever seen, or even because he occasionally did reveal stuff that blew your socks off. Up there on stage—often by himself—he came off as human, even vulnerable, in a way that few business executives would choose to make themselves. That was true all along, and even more so in his final years as each appearance was an opportunity for public speculation about his health.

For a few years after Jobs’s death, Apple product launches were overseen by Cook and other longtime Jobs associates, and felt like Stevenotes that had been stripped of their most important ingredient. As people noted with increasing frequency that the same handful of white guys represented Apple at every event, the company began to switch things up, calling on a larger, more diverse group of Apple employees to divvy up the presenting. With the COVID-19 pandemic and the shift to virtual events, the company ventured even further away from the Stevenote approach. Even if it returns to live product launches in 2022, it seems likely that high-production-value canned videos will play a larger part than when almost everything that mattered was happening in front of a live audience.

Steve Jobs is in no danger of being forgotten. But more and more, when Apple does things that he wouldn’t have, it’s not a sign that the company has lost its way. Instead, it’s evidence that Apple is still restlessly looking forward rather than obsessing over its past. And what could be more Steve Jobs-like than that?

Steve Jobs Summed Up Apple’s Entire Strategy Using Just 6 Bullet Points. Each One Teaches an Amazing Lesson

In a recently published meeting agenda, Apple co-founder Steve Jobs teaches a master class in how to write a strategic plan.

Steve Jobs.

Steve Jobs.
 Getty Images

On October 24, 2010, Apple CEO Steve Jobs sent a very important email.

It contained the agenda for the company’s upcoming „Top 100“ retreat, a top secret and super exclusive offsite management meeting that was reserved for 100 of Apple’s most influential employees.

The agenda, part of an email which was recently published in connection with the ongoing Epic v. Apple lawsuit, is long and detailed, with tons of lessons for business leaders. But it’s the first point on the agenda, entitled „2011 Strategy“ and assigned to Jobs himself, that stands out most.

Jobs’s agenda point consists of only six major bullet points, but each one teaches an amazing lesson.

The six points are as follows:

  • Who are we?
  • What do we do?
  • Post PC era
  • 2011: Holy War with Google
  • 2011: Year of the Cloud
  • 2015: New Campus

Let’s break each of them down.

Be intentional

Jobs begins with two very important questions:

  • Who are we?
  • What do we do?

Upon first glance, these questions might surprise you. After all, Jobs had been back as CEO of Apple for over a decade at this point, and had conducted one of the greatest turnarounds ever.

But Jobs knew well how easy it is to fall from the top. Apple had experienced huge success in the past, only to lose itself in a flurry of products and initiatives.

To keep history from repeating itself, Jobs knew Apple needed to continually question who it was and what it did. It had to clearly identify company leadership, values, and focus — and make sure to align its goals with its desired culture and purpose.

Takeaway: Your company will change as time goes on. Keep questioning yourself, and make those changes intentional, not accidental.

Identify your strengths

The next bullet point, „Post PC era,“ did two important things. First, it early identified the consumer shift of purchasing more mobile devices.

Just as important, though, it highlighted Apple’s strength in this nascent market.

„Apple is the first company to get here,“ Jobs wrote — which was entirely true, as the iPhone and iPad had proven revolutionary. Mobile products now accounted for 66 percent of the company’s revenues, with the iPad alone having outsold the Mac within six months.

The key for future success, as Jobs outlined, would be to leverage this shift through continued improvement of mobile devices, communication, apps, and cloud services — a strategy that Apple is continuing to follow over a decade later and that has transformed it into a trillion-dollar company.

Takeaway: Identify what your company does well in the context of the overall market. Then, double down on doing those things better.

Learn from competitors

The next bullet point encapsulated Jobs’s view of the competition:

2011: Holy War with Google

While it was true that the iPhone and iPad were revolutionary, Google had begun to surpass Apple in some ways — and Jobs knew it. Later in the agenda, he highlighted how Google’s Android operating system excelled at deeply integrating Google’s cloud services, admitting that Android was „way ahead of Apple“ in cloud services for contacts, calendar, and mail.

The goal, then?

„Catch up to Android where we are behind…and leapfrog them.“

Takeaway: Focus on your strengths, but ignore your weaknesses at your own peril.

Focus on one big thing

Jobs next clearly establishes the single most important priority for 2011, which he terms „the year of the cloud.“

Apple „invented“ the digital hub concept, writes Jobs, by using the PC as a hub for digital assets like contacts, calendars, photos, music, and videos. But the digital hub was shifting from the PC to the cloud, and Apple had to move fast.

„Google and Microsoft are further along on the technology,“ he wrote, „but [they] haven’t quite figured it out yet…. [We need to] tie all of our products together, so we further lock customers into our ecosystem.“

Identifying and executing on this priority was pivotal in helping shape Apple’s strategy for years to come, and in helping the company keep up with — and, in some ways, surpass — its competitors.

Takeaway: There are countless things you could be working on, a few things you should be working on, and only one thing that should be your top priority.

Figure it out, and make sure everyone is working to support it.

Look to the future

Jobs’s final bullet point is only three words:

2015: New Campus

Of course, this was a reference to what eventually became „Apple Park,“ the company’s 175-acre campus and futuristic office complex that now serves as the its corporate headquarters. This was one of the final projects pitched by Jobs, a workplace that would embody the spirit of Apple and inspire employees to continue to „think different.“

Sadly, Jobs didn’t live to see construction on Apple’s new campus begin. However, he set the plans in motion and was heavily involved in the design of the campus, reportedly specifying even small details about building materials and other features.

And in April 2017, two years later than originally planned, Apple Park was opened to employees.

Takeaway: Focus on the here and now. But always, always plan for the future.

There it is.

A single agenda topic. Six major bullet points. Just enough words to form a few paragraphs, at most.

Yet, those few words contain a master class in business strategy:

1. Be intentional

2. Identify your strengths

3. Learn from competitors

4. Focus on one big thing

5. Look to the future

Take a page out of Steve Jobs’s playbook and use those five steps to help plan your business strategy.

Source: https://www.inc.com/justin-bariso/apple-steve-jobs-how-to-write-a-meeting-agenda-email-apple-vs-epic-business-strategy-how-to-write-a-strategic-plan-apple-ecosystem.html

How Tim Cook has grown the Apple empire in his decade as CEO

When Tim Cook took over as chief executive of Apple, it was a corporate transition unlike any other. He stepped out from the shadow of one of the best-known American CEOs and took the reins of one of the world’s biggest tech companies facing some uncertainty about how much more successful it could be.

Ten years into the job, Cook now leads the most valuable company in the world — technology or otherwise — and it remains among the most influential. More than a billion people worldwide use its devices and tens of millions of developers have built businesses on its software platforms.
Cook took over as CEO from Steve Jobs on August 24, 2011, less than two months before the Apple founder passed away. Since then, Apple’s (AAPL) market capitalization has grown around 600% to nearly $2.5 trillion, and its annual revenue has more than doubled.
If Jobs was known for his ability to create groundbreaking devices that redefined consumers‘ experience of technology, Cook may come to be known for expanding the Apple ecosystem — building a suite of subscription services and other hardware products that complement the core iPhone business Jobs launched.
Under Cook, Apple has gone from a premium device maker to a massive, multifaceted company with businesses ranging from payment services to an Oscar-nominated TV and film production studio. He’s overseen the acquisition of more than 100 companies, including the $3 billion Beats purchase in 2014 and the $1 billion acquisition of Intel’s smartphone modem business in 2019.
Inside Apple, Cook inherited a company culture known for being relentlessly demanding and he’s now managing at a time where tech workers have been increasingly vocal about social issues. (Cook himself, who in 2014 became one of the first leading CEOs to come out as gay, has been involved in LGBTQ+ rights advocacy.)
Cook has also been at the helm for major corporate missteps such as „Batterygate“ and allegations of poor labor conditions at its suppliers‘ factories. A recent announcement around a new child protection initiative also turned into an unexpected PR nightmare. And he has navigated a host of external threats to Apple’s business over the years, including, recently, feuds with the Trump administration, the US-China trade war and the Covid-19 pandemic.
What Cook hasn’t done is launch another product as successful and disruptive as the iPhone, but he’s found ways to keep Apple growing without that.
„It’s possibly the most successful handoff from strength to strength in corporate history,“ Mike Bailey, director of research at FBB Capital Partners, said of the transition from Jobs to Cook. „Apple, frankly, needed a cheerleader and a politician, possibly more than a micromanaging, stressed out founder.“
Bailey added: „You’re maintaining the empire, as opposed to building one.“

The growth of services

A month after taking over as CEO, Cook announced the launch of the iPhone 4S. Since then, Apple has released nearly two dozen more versions of the iPhone at a wider range of price points, along with new generations of the iPad, Mac and MacBook. Cook has also overseen the introduction of new hardware products — most successfully, the Apple Watch in 2015 and AirPods in 2016.
But even more important than the new devices brought to life under his leadership is the growth of Apple’s services business.
„From a hardware standpoint, I think you can make the argument that it’s been more iterative than revolutionary, but I think that diminishes his contribution to the company,“ said D.A. Davidson analyst Tom Forte, adding that Cook expanded the notion of what Apple is. „He said … ‚What can Apple be? Apple can be a music subscription service, Apple can be a fitness subscription service, Apple can be much more than the App Store.'“
Even in the first five years of his tenure, Apple was making meaningful revenue from its Services division, which included products such as iCloud, which launched in October 2011; Apple Podcasts, which launched in 2012; and Apple Music, which launched in 2015. In January 2016, Apple revealed for the first time that it had generated $20 billion in services sales in the previous year.
A central piece of Tim Cook's strategy has been expanding Apple services such as Fitness+.

Since then, Apple has launched even more services, including Apple Arcade, Apple TV+ and Apple Fitness+, along with a subscription bundle, which have further boosted the business. In the 2020 fiscal year, Apple generated nearly $53.8 billion in services revenue, accounting for around 20% of the company’s total sales. (Apple doesn’t break out sales for individual services.)
Apple’s focus on services has allowed it to be less reliant on iPhone sales, which can be volatile from quarter to quarter and have begun to plateau, even dipping at times under Cook. A key focus for Cook has been offsetting that slowing iPhone growth.
„He kept the iPhone party going, but he solved a boom-bust problem by exploding their services business,“ FBB’s Bailey said.
Apple still brings in hoards of cash each year from iPhone sales. But now, it also has the more consistent, higher margin profits from subscription services to act as a buffer as customers hold onto their devices for longer. Services also give consumers yet more reasons to choose Apple hardware over others, and helps the company eke out more dollars from each person that buys one of its devices.

What’s next?

Cook has already said he doesn’t plan to be at Apple in another 10 years. But most followers of the company expect him to stick around for at least a few more.
In that time, he’ll have plenty on his plate that could shape the future of the company, including the long rumored release of an Apple car and AR glasses, as well as its continued efforts to build its own chips for its devices.
But he’ll also face major challenges, including Apple’s current antitrust fight with app developers and regulators. Forte also questioned whether Apple will be able to maintain its leadership position if the growth in internet of things devices means consumers become less reliant on smartphones. Apple has yet to gain the same traction in connected home devices as Amazon’s Alexa, and earlier this year killed off its original HomePod in favor of the cheaper mini version.
„An argument can be made that they’re [still] heavily dependent on the iPhone,“ Forte said. „I’m still trying to envision what the future looks like and what happens when the smartphone is no longer the center of the universe.“
Under Cook, Apple has also been working to address its impact on the environment, including plans to become carbon neutral by 2030. But given that the company is dependent on a complex global supply chain and non-renewable rare earth metals to build its products, Cook will likely have to push the company’s efforts further in the coming years, as climate change poses an increasingly existential threat.
Then there’s the question of who will take over leading the world’s biggest company when Cook does step down. Jeff Williams, Apple’s current chief operating officer, who has been dubbed Tim Cook’s Tim Cook in the tech press, would be an obvious choice if he were taking over now. But at just two years younger than Cook, that succession plan could be more questionable in even a few years, Bailey said.
„It doesn’t look like there’s another insider, number two, ready to go, so I do think that’s something Apple’s going to have to start to address over the next two years,“ he said.

Tesla Is Dead (And Elon Musk Knows It) – The $600+ billion company is a game-changer, but it won’t exist in 50 years

I will never forget the first time I drove a Tesla Model X. My producer rented one when we met up with a movie star to record narration for a film I was directing. “This better not be tacked onto the film budget,” I griped.

He grinned and tossed me the Tesla-shaped key. “It’s your birthday present.”

I dropped the body to its most ground-hugging setting, set the acceleration to Ludicrous Mode, and roared out of the airport. It was one of the most exhilarating rides of my entire life — almost as fun as the time I drove 150MPH with no plates and no insurance on a toll road as an idiot teenager.

Driving a Tesla X is a pure pleasure, but it doesn’t mean Tesla Inc. will survive.

In fact, forces are aligning that could easily wipe Tesla off the map. Here are seven reasons why Tesla probably won’t exist fifty years from now:

1. It doesn’t make money from selling cars

As professor Scott Galloway recently pointed out, if you subtract Tesla’s Bitcoin ponzi profits and emissions credits, Tesla actually loses money:

“Tesla posts an accounting profit, but in its most recent quarter, it was emissions credits (a regulatory program that rewards auto companies for making electric rather than gas vehicles) and — wait for it — $101 million in bitcoin trading profits that morphed earnings from a miss to a beat. What Tesla did not do last quarter was produce a single one of its two premium cars, the Model S or the Model X.”

Losing money doesn’t seem to worry speculators during peaks of irrational exuberance, but when the rubber meets the road and the stock bubble pops and corporate credit constricts, real investors will want no part in money-burning businesses.

And it won’t take a full market meltdown for Tesla to become a money-losing entity: If the global crypto ponzi bubble pops due to more countries banning or regulating it, or regulators do away with emissions credits, Tesla once again becomes a money-bleeding company.

Image credit: The Martian

2. Elon Musk is too distracted to remain CEO

One thing you’ve got to appreciate about Elon Musk is that he’s voraciously curious and wants to solve some of humanity’s biggest challenges.

But that’s not who you want as CEO of a publicly-traded company.

One of the reasons you don’t see most Fortune 500 CEOs on Joe Rogan and SNL and, you know, running five other companies, is because they’re heads-down focused on running one company. When he ran Disney, Bob Iger woke up at 4:15 AM every day. Apple’s Tim Cook gets up at 3:45 AM and reads 800 emails. Elon Musk also puts in absurd hours — I personally question if sleep deprivation is what rational shareholders are looking for in any CEO — but in Elon’s case, it’s spread across too many projects to be sustainable for decades to come.

3. Elon is already diversifying

Have you ever heard of Dan Schulman?

Me neither.

He’s a former AMEX guy, now the CEO of Paypal.

Elon is brilliant at getting out early and pivoting hard.

He did it with Zip2, and then Paypal, and now he’s putting out feelers to do it with Tesla:

SpaceX.
SolarCity.
Hyperloop.
The Boring Company.
Neuralink.
BTC and DOGE. (Side note: Elon knows he’s the king memer and could easily add $100 billion to his net worth by launching his own altcoin.)

It’s only a matter of time before one of these side hustles takes off and he steps down as Tesla’s CEO, if only because…

4. More regulation and oversight are on the way

Elon once again put Tesla in the crosshairs when he started manipulating the cryptocurrency markets.

Never forget how close he came to getting banned from leading a publicly-traded company by the SEC.

If he keeps up these sorts of shenanigans — and he needs to in order to keep the stock price pumped — it’s only a matter of time before government regulators and progressive politicians renew their efforts to rein him in.

Speaking of lawsuits: There are already rumblings that his SNL Asperger’s announcement should have been disclosed to investors — when the stock tanks, expect to see this admission somewhere in the shareholder lawsuit, whether it’s fair grounds or not.

5. The stock price is wildly overvalued

Cue the angry comments from hodlers. (But please note that I automatically delete comments if the poster doesn’t disclose their TSLA holdings.)

As a sound investment, $TSLA stock is one of the worst picks in the world. As a fun gamble/speculation, it’s one of the best. But, just like Bitcoin, small investors are going to lose hundreds of billions of dollars when the price bubble pops.

Because let’s face it: Tesla is a story stock.

Don’t believe me? Just look at who’s been buying shares:

Image credit: Tulips to Tesla

Tesla stock is clearly being pumped by unsophisticated investors who haven’t done their due diligence regarding the company’s actual long-term worth.

The end result: When thousands of Tesla speculators lose their life savings, many will turn their backs on the company, if not become actively hostile.

What is $TSLA actually worth?

First, we need some context. The price-to-earnings (P/E) ratio is considered the benchmark number for comparing one company’s stock price to another. The ratio is based on the current stock price divided by the trailing 12-month earnings per share. If a stock price is $10/share, and the P/E ratio is 10, it means that company is earning $1 per share. If you buy a $10 share with a P/E of 20, it’ll roughly take you 20 years to break even.

  • Warren Buffett likes to buy stocks with a P/E of around 12.
  • The S&P 500’s long-term median P/E ratio is around 15.
  • The S&P 500’s current P/E ratio is around 44 — nearly triple its century-long average — despite the pandemic and a looming joblessness crisis. (#Bubble)
  • Apple’s P/E is typically <30.
  • Amazon hovers around 60.

Tesla’s P/E ratio is currently over 600.

That’s $0.99 worth of earnings for every $625 invested. Would you buy a business with an ROI of 0.001584%? Would you acquire a company that will take 600+ years to break even?

Cue the irrational exuberancers: “But Tesla’s future potential is huge!”

No, it’s not, not compared to its current price. To fall in line with the S&P’s historical averages and provide a reasonable rate of real return, Tesla would need to 40X its earnings. To provide a 10% annual return, it would need to 63X its earnings. Well over $2 trillion in annual revenue… 4+X more revenue than the largest revenue-earning company on earth. Not gonna happen.

Objectively, Tesla is wildly overpriced even compared to the overall market bubble. It’s a double bubble — the overall market bubble + the Musk fanboy story stock bubble. Tesla may very well be 13Xs better than the average S&P company right now, but that just means Tesla’s price bubble is that much more inflated once you scrub out all the irrational exuberance.

Tesla’s market cap is currently over $600 billion. If it traded at the same P/E as Amazon — arguably one of the strongest companies on earth — Tesla’s market cap drops to $60 billion. If you compare Tesla to Apple, which is a fair comparison and a far more rational P/E, it means that in reality, Tesla is probably only worth a measly $20 billion.

6. Volkswagen+ will come roaring back

To put things in perspective, Tesla’s market cap is currently higher than Mercedes, BMW, GM, Ferrari, and Ford, plus all the major airlines… combined.

Image credit: The Martian

But does Tesla have more customers, wider distribution, better engineers, deeper pockets, and more political connections than the rest of the auto and airline industries?

Absolutely not.

All his major competitors have deeper capital pools, wider distribution networks, and far more customers. Musk has nowhere near the political power. And the innovation gap is closing rapidly. That’s why Elon is constantly seeking new capital and pulling out all the stops to keep pumping the stock, even going so far as to manipulate people’s psychology through stock splits.

Elon Musk has unquestionably (and rightly) created a Thucydides Trap in the automotive industry, but is Tesla really the Athens that can best Sparta?

The question is almost irrelevant because another company is about to out-Athens Tesla and stuff Elon in his own Thucydides trap:

7. Apple will drop an atomic bomb

When Apple releases an electric car — and you can bet your bottom dollar it will — we can safely assume it will rival Tesla for looks and coolness and will likely beat it on price, too.

Follow the money with me…

  • When Apple makes a car play, it could easily pop Tesla’s 600 P/E bubble…
  • If Tesla deflates to an Apple-level P/E of 30, Tesla is suddenly only worth $20 billion…
  • Which makes it instantly ripe for acquisition by one of the majors, be it Apple, Amazon, BMW, Mercedes, or even an old-school company like GM. (Never forget: Ford once bought Jaguar and Fiat once owned Maserati.)

To be clear, Tesla is an amazing company at a $20 billion valuation, and if Elon can’t keep the $TLSA stock price inflated indefinitely, an acquisition is inevitable. Never mind the bite in Apple’s logo… someone could chomp Tesla whole.

In Conclusion

I adore Tesla. Like Russia and HBO, it punches way above its weight.

I also like Elon, minus his market manipulation. He’s an extremely important person in the carmaking space. I’ll say it loudly: Elon Musk is the best thing to happen to the auto industry since Henry Ford. As a maverick agitator, he awoke the slumbering giants who’d happily relied on fossil fuel combustion for more than a century. We’re better for having him.

But, in the same way that Paypal will continue to lose ground to companies like Wise and Stripe, expect Tesla to lose ground to Volkswagen and Apple and whatever innovators come next. If things play out the way I predict regarding an eventual acquisition, fifty years from now Tesla probably won’t even exist.

In the meantime, don’t buy into the stock hype and endanger your family’s future.

Just rent a Model X for a weekend and enjoy the ride.

Source: https://medium.com/surviving-tomorrow/tesla-is-dead-and-elon-musk-probably-knows-it-2858c86589d0

Why Google gains competitive advantage over all other competitors in the Online Ad Market

Source: https://www.wired.com/story/google-ad-market-regulated-like-stock-market/

Should Google’s Ad Market Be Regulated Like the Stock Market?

A leading antitrust scholar says yes. Congress may be listening.
A cowboy readies a lasso for a giant chrome logo.
In a new paper, Dina Srinivasan argues that “Google dominates advertising markets by engaging in conduct that lawmakers prohibit in other electronic trading markets.” Illustration: WIRED Staff; Getty Images

The days of suit-clad men shouting out orders on the bustling floors of stock exchanges are mostly gone, replaced by windowless rooms full of servers, but the stock market is still a busy place. On the 13 US stock exchanges combined, around 50 million trades happen every day. And yet there’s another digital marketplace out there that processes tens of billions of transactions daily, one whose complexity makes the NASDAQ look like a lemonade stand: online advertising.

It may sound odd to refer to advertising as a market, but that’s what it is. The industry’s own terminology provides a hint: Publishers selling ad space, and advertisers buying it, do business on so-called “ad exchanges”; one of the biggest companies involved is called the Trading Desk. Whenever you load a web page, advertisers compete in an automated process called real-time bidding to show you their ad. Multiply that by billions of internet users around the world, loading many different pages and apps per day, and you can start to appreciate the scope. As antitrust scholar Dina Srinivasan puts it in a forthcoming paper, online advertising “is likely the most sophisticated of all electronic trading markets.” And yet, despite the market’s size and complexity—and unlike other markets—online advertising is almost completely unregulated.

A former digital advertising executive, Srinivasan gained attention last year for her paper “The Antitrust Case Against Facebook,” which laid out a novel theory of why Facebook’s market dominance can be bad for users even as it offers a free product. Now she aims to do something similar for Google—specifically, for the sprawling advertising empire that accounts for the vast majority of the company’s revenue. In her new paper, which will be published in the Stanford Technology Law Review, Srinivasan takes a deep dive into the inner workings of the digital ad market. The details are astoundingly complex, but the broad argument is straightforward. When you see an ad online, the odds are very high that the advertiser used Google to buy it, the website used Google to put the space up for sale, and Google’s exchange matched them together. In other words, Google both runs the largest exchange and competes as the biggest buyer and seller on that exchange. On top of that, it also owns YouTube, one of the biggest suppliers of ad inventory, meaning it competes against publishers on its own platform. And yet there are no laws governing any of it.

That regulatory vacuum, Srinivasan argues, has allowed Google to dominate the industry by doing things that are prohibited in other parts of the economy. “In the market for electronically traded equities, we require exchanges to provide traders with fair access to data and speed, we identify and manage intermediary conflicts of interest, and we require trading disclosures to help police the market,” she writes. Her proposal flows naturally from that observation: Apply those regulatory principles to digital advertising.

The resemblance between securities and ad markets first occurred to Srinivasan back in 2014. That’s when Michael Lewis published Flash Boys, which documented the extensive mischief created by high-frequency trading and other modern tricks of the digital securities market—and which helped spur a wave of investigations, fines, and regulatory action. At the time, Srinivasan saw similar issues arising in her own industry.

“When Flash Boys came out, it was comical. That book was being passed from executive to executive,” she said in an interview. “People would laugh about how there were operatives who were arbitraging between ad exchanges too. People were just laughing at the parallels.”

Over the past year, as she researched the paper, Srinivasan realized that the resemblance went even further than she thought, sometimes uncannily so. Lewis describes high-frequency traders seeking an edge by placing their computers as physically close as possible to the stock exchange servers to shave microseconds off trade times. Srinivasan relays a similar anecdote from the world of ad tech: Last year, OpenX, one of the largest non-Google ad tech companies, announced a five-year, $110 million deal to move its exchange to Google Cloud. OpenX was open about the fact that being on Google’s servers would give it a speed edge. “You have to operate at speed, efficiency, closeness to the publisher and the demand side of Google,” one executive said. It’s almost an exact copy of high-speed traders’ tactics. The difference, Srinivasan notes, is that “in financial markets, co-location practices are tightly regulated” to make sure everyone has equal access to speed. In advertising, they aren’t.

Speed is crucial in online advertising because the auctions occur in milliseconds. If an ad buying platform submits its bid too slowly, the exchange might exclude it from the auction entirely. This gives a leg up to a platform that shares infrastructure with the exchange—in other words, to Google. Google advertises this fact. “Since Google Ads and Display & Video 360 run on servers in the same data centers as Ad Exchange, they can respond faster to Ad Exchange bid requests compared to other exchange requests,” says a Google help page. “There are no network latency or timeout issues between either Google Ads or Display & Video 360 and Ad Exchange.” When the buying platform isn’t the same as the exchange, on the other hand, latency issues “can prevent buyers from successfully submitting a bid on up to 25% of bid requests.”

Srinivasan also explores the way Google benefits from unequal access to information. Modern digital advertising is all about being able to target users with the most precision. When someone arrives on a website using Google’s DoubleClick ad server, Google’s exchange “hashes” the ID, passing a different one along to the ad buying platforms. Those buyers then must match their ID with the hashed one to make sure they’re targeting the right person—a process called “cookie syncing.” But cookie syncing, Srinivasan writes, “is inherently inefficient.” Some percent of the time, the platform will fail to match the user. In those situations, she writes, advertisers aren’t willing to pay as much, or anything, because they aren’t guaranteed to reach the right audience.

Google doesn’t have this problem, because it allows its own exchange, and its own ad buying platform, to see the DoubleClick ID. That means it automatically knows who the user is. Google says it shares the DoubleClick ID only with its own platforms to protect user privacy. But another result is to put a thumb on the scale of Google’s own properties: If you want to make sure you’re targeting the right user, you have an extra incentive to buy ads using Google. Google advertises this advantage as well.

While securities law has its share of problems, it does broadly curtail the kind of flagrant information and speed imbalances that Srinivasan describes in the ad market. Indeed, the contrast between the digital advertising regulatory vacuum and the world of financial markets is striking.

“It’s a highly, highly regulated system,” said Kevin Haeberle, a professor at William & Mary Law School who specializes in securities law. Only registered brokers are allowed to execute trades, and those brokers must register with the Securities and Exchange Commission. “You’ve got to take tests, you’ve got to be registered, you have to be supervised in certain ways, you’ve got to pay into various insurance mechanisms to make sure the trades actually do settle.” He added, “There’s this whole regulatory regime, it’s very complex, and it applies to regulating these exchanges that run this important market for our society. In the ad market, we don’t have that.”

Why does that matter? At the broadest level, when one entity is allowed to both run a market and participate in it, and when there are no rules requiring it to let everyone else participate on equal terms, there’s nothing stopping it from enriching itself at the expense of the other buyers and sellers. In digital advertising, that means Google could be inflating prices advertisers pay, or depressing the amount of money publishers receive, or both. Google, of course, denies this characterization. It says its ad tools benefit both advertisers and publishers, no regulation necessary. To Srinivasan, believing that claim would be like trusting J.P.Morgan to run the New York Stock Exchange.

Srinivasan is particularly worried about the publishers who rely on digital advertising for revenue. “From a very big-picture perspective, we are a democracy and we want a healthy and robust economy of news,” Srinivasan said. “We want the news business as a sector in our economy, we want to make sure that it works. And so we should make sure that the market is not rigged for the middleman, so that entrepreneurs are encouraged to enter the business of news.” (In the paper, she discloses that she is “advising and consulting on antitrust matters, including for news publishers whose interests are in conflict with Google’s.”)

Her argument may be catching on. At the tech CEO hearing held by the House antitrust subcommittee in July, Pramila Jayapal, a Democratic congresswoman from Washington state, cited Srinivasan’s paper directly as part of her questioning of Google CEO Sundar Pichai.

“The problem is that Google controls all of these entities,” she said. “So it’s running the marketplace, it’s acting on the buy side, and it’s acting on the sell side at the same time, which is a major conflict of interest. It allows you to set rates very low as a buyer of ad space for newspapers, depriving them of their ad revenue, and then also to sell high to small businesses who are very dependent on advertising on your platform. It sounds a bit like the stock market. Except, unlike the stock market, there’s no regulation on your ad exchange market.”

In an interview after the hearing, Jayapal said she was looking into developing legislation that would address that regulation gap. She suggested that the underlying principles of any regulation would be straightforward. “It seems to me that the simplest thing to do is say, you can’t control the market and engage as a buyer and seller. Those two things have to be separated. And then, if you’re buying and selling, then you’re regulated by insider trading rules.” She added, “I think it’s just an unregulated marketplace that should be relatively easy to do something about.”

Sex, Beer, and Coding: Inside Facebook’s Wild Early Days

Adam Fisher @ Wired Magazine Source

Image may contain Mark Zuckerberg Clothing Apparel Human Person Face Jacket and Coat

Mark Zuckerberg and his cofounders moved from Harvard to Palo Alto, California, in March 2004. The whole enterprise began as something of a lark.Scott Beale

 

Sex, Beer, and Coding: Inside Facebook’s Wild Early Days

When the young Mark Zuckerberg moved to Palo Alto in 2004, he and his buddies built a corporate proto-culture that continues to influence the company today.
Image may contain Mark Zuckerberg Clothing Apparel Human Person Face Jacket and Coat
Mark Zuckerberg and his cofounders moved from Harvard to Palo Alto, California, in March 2004. The whole enterprise began as something of a lark.Scott Beale

This story is excerpted from Valley of Genius, by Adam Fisher.

Everyone who has seen The Social Network knows the story of Facebook’s founding. It was at Harvard in the spring semester of 2004. What people tend to forget, however, is that Facebook was only based in Cambridge for a few short months. Back then it was called TheFacebook.com, and it was a college-specific carbon copy of Friendster, a pioneering social network based in Silicon Valley.

Mark Zuckerberg’s knockoff site was a hit on campus, and so he and a few school chums decided to move to Silicon Valley after finals and spend the summer there rolling Facebook out to other colleges, nationwide. The Valley was where the internet action was. Or so they thought.

In Silicon Valley during the mid-aughts the conventional wisdom was that the internet gold rush was largely over. The land had been grabbed. The frontier had been settled. The web had been won. Hell, the boom had gone bust three years earlier. Yet nobody ever bothered to send the memo to Mark Zuckerberg—because at the time, Zuck was a nobody: an ambitious teenaged college student obsessed with the computer underground. He knew his way around computers, but other than that, he was pretty clueless—when he was still at Harvard someone had to explain to him that internet sites like Napster were actually businesses, built by corporations.

Image may contain Text
Excerpted from Valley of Genius by Adam Fisher. Copyright © 2018. Available on Amazon and from Twelve Books, an imprint of Hachette Book Group, Inc.

But Zuckerberg could hack, and that fateful summer he ended up meeting a few key Silicon Valley players who would end up radically changing the direction of what was, at the time, a company in name only. For this oral history of those critical months back in 2004 and 2005, I interviewed all the key players and talked to a few other figures who had insight into the founding era. What emerged, as you’ll see, is a portrait of a corporate proto-culture that continues to exert an influence on Facebook today. The whole enterprise began as something of a lark, it was an un-corporation, an excuse for a summer of beer pong and code sprints. Indeed, Zuckerberg’s first business cards read, “I’m CEO … bitch.” The brogrammer ’tude was a joke … or was it?

Image may contain Human Person Mark Zuckerberg Footwear Shoe Clothing Apparel Sitting Flooring and Floor
Zuckerberg, photographed in March 2006 at the headquarters of Facebook in Palo Alto. His first business card read “I’m CEO … bitch.”

Elena Dorfman/Redux


Sean Parker (cofounder of Napster and first president of Facebook): The dotcom era sort of ended with Napster, then there’s the dotcom bust, which leads to the social media era.

Steven Johnson (noted author and cultural commentator): At the time, the web was fundamentally a literary metaphor: “pages”—and then these hypertext links between pages. There was no concept of the user; that was not part of the metaphor at all.

Mark Pincus (co-owner of the fundamental social media patent): I mark Napster as the beginning of the social web—people, not pages. For me that was the breakthrough moment, because I saw that the internet could be this completely distributed peer-to-peer network. We could disintermediate those big media companies and all be connected to each other.

Steven Johnson: To me it really started with blogging in the early 2000s. You started to have these sites that were oriented around a single person’s point of view. It suddenly became possible to imagine, Oh, maybe there’s another element here that the web could also be organized around? Like I trust these five people, I’d like to see what they are suggesting. And that’s kind of what early blogging was like.

Ev Williams (founder of Blogger, Twitter, and Medium): Blogs then were link heavy and mostly about the internet. “We’re on the internet writing about the internet, and then linking to more of the internet, and isn’t that fun?”

Steven Johnson: You would pull together a bunch of different voices that would basically recommend links to you, and so there was a personal filter.

Mark Pincus: In 2002 Reid Hoffman and I started brainstorming: What if the web could be like a great cocktail party? Where you can walk away with these amazing leads, right? And what’s a good lead? A good lead is a job, an interview, a date, an apartment, a house, a couch.

And so Reid and I started saying, “Wow, this people web could actually generate something more valuable than Google, because you’re in this very, very highly vetted community that has some affinity to each other, and everyone is there for a reason, so you have trust.” The signal-to-noise ratio could be be very high. We called it Web 2.0, but nobody wanted to hear about it, because this was in the nuclear winter of the consumer internet.

Sean Parker: So during the period between 2000 and 2004, kind of leading up to Facebook, there is this feeling that everything that there was to be done with the internet has already been done. The absolute bottom is probably around 2002. PayPal goes public in 2002, and it’s the only consumer internet IPO. So there’s this weird interim period where there’s a total of only six companies funded or something like that. Plaxo was one of them. Plaxo was a proto–social network. It’s this in-between thing: some kind of weird fish with legs.

Aaron Sittig (graphic designer who invented the Facebook „like“): Plaxo is the missing link. Plaxo was the first viral growth company to really succeed intentionally. This is when we really started to understand viral growth.

Sean Parker: The most important thing I ever worked on was developing algorithms for optimizing virality at Plaxo.

Aaron Sittig: Viral growth is when people using the product spreads the product to other people—that’s it. It’s not people deciding to spread the product because they like it. It’s just people in the natural course of using the software to do what they want to do, naturally spreading it to other people.

Sean Parker: There was an evolution that took place from the sort of earliest proto–social network, which is probably Napster, to Plaxo, which only sort of resembled a social network but had many of the characteristics of one, then to LinkedIn, MySpace, and Friendster, then to this modern network which is Facebook.

Ezra Callahan (one of Facebook’s very first employees): In the early 2000s, Friendster gets all the early adopters, has a really dense network, has a lot of activity, and then just hits this breaking point.

Aaron Sittig: There was this big race going on and Friendster had really taken off, and it really seemed like Friendster had invented this new thing called “social networking,” and they were the winner, the clear winner. And it’s not entirely clear what happened, but the site just started getting slower and slower and at some point it just stopped working.

Ezra Callahan: And that opens the door for MySpace.

Ev Williams: MySpace was a big deal at the time.

Sean Parker: It was a complicated time. MySpace had very quickly taken over the world from Friendster. They’d seized the mantle. So Friendster was declining, MySpace was ascending.

Scott Marlette (programmer who put photo tagging on Facebook): MySpace was really popular, but then MySpace had scaling trouble, too.

Aaron Sittig: Then pretty much unheralded and not talked about much, Facebook launched in February of 2004.

Dustin Moskovitz (Zuckerberg’s original right-hand man): Back then there was a really common problem that now seems trivial. It was basically impossible to think of a person by name and go and look up their picture. All of the dorms at Harvard had individual directories called face books—some were printed, some were online, and most were only available to the students of that particular dorm. So we decided to create a unified version online and we dubbed it “The Facebook” to differentiate it from the individual ones.

Image may contain Mark Zuckerberg Furniture Human Person Electronics Lcd Screen Monitor Screen Display and Footwear
Zuckerberg, left, cofounded, Facebook with his Harvard roommate, Dustin Moskovitz, center. Sean Parker, right, joined the company as president in 2004. The trio was photographed in the company’s Palo Alto office in May 2005.

Jim Wilson/New York Times/Redux

Mark Zuckerberg (Facebook’s founder and current CEO): And within a couple weeks, a few thousand people had signed up. And we started getting emails from people at other colleges asking for us to launch it at their schools.

Ezra Callahan: Facebook launched at the Ivy Leagues originally, and it wasn’t because they were snooty, stuck-up kids who only wanted to give things to the Ivy Leagues. It was because they had this intuition that people who go to the Ivy Leagues are more likely to be friends with kids at other Ivy League schools.

Aaron Sittig: When Facebook launched at Berkeley, the rules of socializing just totally transformed. When I started at Berkeley, the way you found out about parties was you spent all week talking to people figuring out what was interesting, and then you’d have to constantly be in contact. With Facebook there, knowing what was going on on the weekend was trivial. It was just all laid out for you.

Facebook came to the Stanford campus—in the heart of Silicon Valley— quite early: March 2004.


Sean Parker: My roommates in Portola Valley were all going to Stanford.

Ezra Callahan: So I was a year out of Stanford, I graduated Stanford in 2003, and me and four of my college friends rented a house for that year just near the campus, and we had an extra bedroom available, and so we advertised around on a few Stanford email lists to find a roommate to move into that house with us. We got a reply from this guy named Sean Parker. He ended up moving in with us pretty randomly, and we discovered that while Napster had been a cultural phenomenon, it didn’t make him any money.

Sean Parker: And so the girlfriend of one of my roommates was using a product, and I was like, “You know, that looks a lot like Friendster or MySpace.” She’s like, “Oh yes, well, nobody in college uses MySpace.” There was something a little rough about MySpace.

Mark Zuckerberg: So MySpace had almost a third of their staff monitoring the pictures that got uploaded for pornography. We hardly ever have any pornography uploaded. The reason is that people use their real names on Facebook.

Adam D’Angelo (Zuckerberg’s high school hacking buddy): Real names are really important.

Aaron Sittig: We got this clear early on because of something that was established as a community principle at the Well: You own your own words. And we took it farther than the Well. We always had everything be traceable back to a specific real person.

Stewart Brand (founder of the Well, the first important social networking site): The Well could have gone that route, but we did not. That was one of the mistakes we made.

Mark Zuckerberg: And I think that that’s a really simple social solution to a possibly complex technical issue.

Ezra Callahan: In this early period, it’s a fairly hacked-together, simple website: just basic web forms, because that’s what Facebook profiles are.

Ruchi Sanghvi (coder who created Facebook’s Newsfeed): There was a little profile pic, and it said things like, “This is my profile” and “See my friends,” and there were three or four links and one or two other boxes below that.

Aaron Sittig: But I was really impressed by how focused and clear their product was. Small details—like when you went to your profile, it really clearly said, “This is you,” because social networking at the time was really, really hard to understand. So there was a maturity in the product that you don’t typically see until a product has been out there for a couple of years and been refined.

Sean Parker: So I see this thing, and I emailed some email address at Facebook, and I basically said, “I’ve been working with Friendster for a while, and I’d just like to meet you guys and see if maybe there’s anything to talk about.” And so we set up this meeting in New York—I have no idea why it was in New York—and Mark and I just started talking about product design and what I thought the product needed.

Aaron Sittig: I got a call from Sean Parker and he said, “Hey, I’m in New York. I just met with this kid Mark Zuckerberg, who is very smart, and he’s the guy building Facebook, and they say they have a ‘secret feature’ that’s going to launch that’s going to change everything! But he won’t tell me what it is. It’s driving me crazy. I can’t figure out what it is. Do you know anything about this? Can you figure it out? What do you think it could be?” And so we spent a little time talking about it, and we couldn’t really figure out what their “secret feature” that was going to change everything was. We got kind of obsessed about it.

Two months after meeting Sean Parker, Mark Zuckerberg moved to Silicon Valley with the idea of turning his dorm‐room project into a real business. Accompanying him were his cofounder and consigliere, Dustin Moskovitz, and a couple of interns.

Mark Zuckerberg: Palo Alto was kind of like this mythical place where all the tech used to come from. So I was like, I want to check that out.

Ruchi Sanghvi: I was pretty surprised when I heard Facebook moved to the Bay Area, I thought they were still at Harvard working out of the dorms.

Image may contain Human Person Sitting Chris Hughes Electronics Pc Computer Clothing Apparel Furniture and Laptop
Zuckerberg recruited fellow Harvard student Chris Hughes in the early days of Facebook to help make suggestions about the fledgling service. The two were photographed at Eliot House in May 2004.

Rick Friedman/Getty Images


Ezra Callahan: Summer of 2004 is when that fateful series of events took place: that legendary story of Sean running into the Facebook cofounders on the street, having met them a couple months earlier on the East Coast. That meeting happened a week after we all moved out of the house we had been living in together. Sean was crashing with his girlfriend’s parents.

Sean Parker: I was walking outside the house, and there was this group of kids walking toward me—they were all wearing hoodies and they looked like they were probably pot-smoking high-school kids just out making trouble, and I hear my name. I’m like, Oh, it’s coincidence, and I hear my name again and I turn around and it’s like, “Sean, what are you doing here?”

It took me about 30 seconds to figure out what was going on, and I finally realize that it’s Mark and Dustin and a couple of other people, too. So I’m like, “What are you guys doing here?” And they’re like, “We live right there.” And I’m like, “That’s really weird, I live right here!” This is just super weird.

Aaron Sittig: I get a call from Sean and he’s telling me, “Hey, you won’t believe what’s just happened.” And Sean said, “You’ve got to come over and meet these guys. Just leave right now. Just come over and meet them!”

Sean Parker: And so I don’t even know what happened from there, other than that it just became very convenient for me to go swing by the house. It wasn’t even a particularly formal relationship.

Aaron Sittig: So I went over and met them, and I was really impressed by how focused they were as a group. They’d occasionally relax and go do their thing, but for the most part they spent all their time sitting at a kitchen table with their laptops open. I would go visit their place a couple times a week, and that was always where I’d find them, just sitting around the kitchen table working, constantly, to keep their product growing.

All Mark wanted to do was either make the product better, or take a break and relax so that you could get enough energy to go work on the product more. That’s it. They never left that house except to go watch a movie.

Ezra Callahan: The early company culture was very, very loose. It felt like a project that’s gotten out of control and has this amazing business potential. Imagine your freshman dorm running a business, that’s really what it felt like.

Mark Zuckerberg: Most businesses aren’t like a bunch of kids living in a house, doing whatever they want, not waking up at a normal time, not going into an office, hiring people by, like, bringing them into your house and letting them chill with you for a while and party with you and smoke with you.

Ezra Callahan: The living room was the office with all these monitors and workstations set up everywhere and just whiteboards as far as the eye can see.

At the time Mark Zuckerberg was obsessed with file sharing, and the grand plan for his Silicon Valley summer was to resurrect Napster. It would rise again, but this time as a feature inside of Facebook. The name of Zuckerberg’s pet project? Wirehog.

Aaron Sittig: Wirehog was the secret feature that Mark had promised was going to change everything. Mark had gotten convinced that what would make Facebook really popular and just sort of cement its position at schools was a way to send files around to other people—mostly just to trade music.

Mark Pincus: They built in this little thing that looked like Napster—you could see what music files someone had on their computer.

Ezra Callahan: This is at a time when we have just watched Napster get completely terminated by the courts and the entertainment industry is starting to sue random individuals for sharing files. The days of the Wild West were clearly ending.

Aaron Sittig: It’s important to remember that Wirehog was happening at a time where you couldn’t even share photos on your Facebook page. Wirehog was going to be the solution for sharing photos with other people. You could have a box on your profile and people could go there to get access to all your photos that you were sharing—or whatever files you were sharing. It might be audio files, it might be video files, it might be photos of their vacation.

Ezra Callahan: But at the end of the day it’s just a file-sharing service. When I joined Facebook, most people had already kind of come around to the idea that unless some new use comes up for Wirehog that we haven’t thought of, it’s just a liability. “We’re going to get sued someday, so what’s the point?” That was the mentality.

Mark Pincus: I was kind of wondering why Sean wanted to go anywhere near music again.

Aaron Sittig: My understanding was that some of Facebook’s lawyers advised that it would be a bad idea. And that work on Wirehog was kind of abandoned just as Facebook user growth started to grow really quickly.

Ezra Callahan: They had this insane demand to join. It’s still only at a hundred schools, but everyone in college has already heard of this, at all schools across the country. The usage numbers were already insane. Everything on the whiteboards was just all stuff related to what schools were going to launch next. The problem was very singular. It was simply, “How do we scale?”


Aaron Sittig: Facebook would launch at a school, and within one day they would have 70 percent of undergrads signed up. At the time, nothing had ever grown as fast as Facebook.

Ezra Callahan: It did not seem inevitable that we were going to succeed, but the scope of what success looked like was becoming clear. Dustin was already talking about being a billion-dollar company. They had that ambition from the very beginning. They were very confident: two 19-year-old cocky kids.

Mark Zuckerberg: We just all kind of sat around one day and were like, “We’re not going back to school, are we?” Nahhhh.

Ezra Callahan: The hubris seemed pretty remarkable.

David Choe (noted graffiti artist): And Sean is a skinny, nerdy kid and he’s like, “I’m going to go raise money for Facebook. I’m going to bend these fuckers’ minds.” And I’m like, “How are you going to do that?” And he transformed himself into an alpha male. He got like a fucking super-sharp haircut. He started working out every day, got a tan, got a nice suit. And he goes in these meetings and he got the money!

Mark Pincus: So it’s probably like September or October of 2004, and I’m at Tribe’s offices in this dusty converted brick building in Potrero Hill—the idea of Tribe.net was like Friendster meets Craigslist—and we’re in our conference room, and Sean says he’s bringing the Facebook guy in. And he brings Zuck in, and Zuck is in a pair of sweatpants, and these Adidas flip-flops that he wore, and he’s so young looking and he’s sitting there with his feet up on the table, and Sean is talking really fast about all the things Facebook is going to do and grow and everything else, and I was mesmerized.

Because I’m doing Tribe, and we are not succeeding, we’ve plateaued and we’re hitting our head against the wall trying to figure out how to grow, and here’s this kid, who has this simple idea, and he’s just taking off! I was kind of in awe already of what they had accomplished, and maybe a little annoyed by it. Because they did something simpler and quicker and with less, and then I remember Sean got on the computer in my office, and he pulled up The Facebook, and he starts showing it to me, and I had never been able to be on it, because it’s college kids only, and it was amazing.

People are putting up their phone numbers and home addresses and everything about themselves and I was like, I can’t believe it! But it was because they had all this trust. And then Sean put together an investment round quickly, and he had advised Zuck to, I think, take $500,000 from Peter Thiel, and then $38,000 each from me and Reid Hoffman. Because we were basically the only other people doing anything in social networking. It was a very, very small little club at the time.

Ezra Callahan: By December it’s—I wouldn’t say it’s like a more professional atmosphere, but all the kids that Mark and Dustin were hanging out with are either back at school back East or back at Stanford, and work has gotten a little more serious for them. They are working more than they were that first summer. We don’t move into an office until February of 2005. And right as we were signing the lease, Sean just randomly starts saying, “Dude! I know this street artist guy. We’re going to come in and have him totally do it up.”

David Choe: I was like, “If you want me to paint the entire building it’s going to be $60,000.” Sean’s like, “Do you want cash or do you want stock?”

Ezra Callahan: He pays David Choe in Facebook shares.

David Choe: I didn’t give a shit about Facebook or even know what it was. You had to have a college email to get on there. But I like to gamble, you know? I believed in Sean. I’m like, This kid knows something and I am going to bet my money on him.

Ezra Callahan: So then we move in, and when you first saw this graffiti it was like, “Holy shit, what did this guy do to the office?” The office was on the second floor, so as you walk in you immediately have to walk up some stairs, and on the big 10-foot-high wall facing you is just this huge buxom woman with enormous breasts wearing this Mad Max–style costume riding a bulldog.

It’s the most intimidating, totally inappropriate thing. “God damn it, Sean! What did you do?” It’s not so much that we set out to paint that, because that was the culture. It was more that Sean just did it, and that set a tone for us. A huge-breasted warrior woman riding a bulldog is the first thing you see as you come in the office, so like, get ready for that!

Ruchi Sanghvi: Yes, the graffiti was a little racy, but it was different, it was vibrant, it was alive. The energy was just so tangible.

Katie Geminder (project manager for early Facebook): I liked it, but it was really intense. There was certain imagery in there that was very sexually charged, which I didn’t really care about but that could be considered a little bit hostile, and I think we took care of some of the more provocative ones.

Ezra Callahan: I don’t think it was David Choe, I think it was Sean’s girlfriend who painted this explicit, intimate lesbian scene in the woman’s restroom of two completely naked women intertwined and cuddling with each other—not graphic, but certainly far more suggestive than what one would normally see in a women’s bathroom in an office. That one only actually lasted a few weeks.

Max Kelly (Facebook’s first cyber-security officer): There was a four-inch by four-inch drawing of someone getting fucked. One of the customer service people complained that it was “sexual in nature,” which, given what they were seeing every day, I’m not sure why they would complain about this. But I ended up going to a local store and buying a gold paint pen and defacing the graffiti—just a random design— so it didn’t show someone getting fucked.

Jeff Rothschild (investor turned Facebook employee): It was wild, but I thought that it was pretty cool. It looked a lot more like a college dorm or fraternity than it did a company.

Katie Geminder: There were blankets shoved in the corner and video games everywhere, and Nerf toys and Legos, and it was kind of a mess.

Jeff Rothschild: There’s a PlayStation. There’s a couple of old couches. It was clear people were sleeping there.

Karel Baloun (one of the earliest Facebook programmers): I’d probably stay there two or three nights a week. I won an award for “most likely to be found under your desk” at one of the employee gatherings.

Jeff Rothschild: They had a bar, a whole shelf with liquor, and after a long day people might have a drink.

Ezra Callahan: There’s a lot of drinking in the office. There would be mornings when I would walk in and hear beer cans move as I opened the door, and the office smells of stale beer and is just trashed.

Ruchi Sanghvi: They had a keg. There was some camera technology built on top of the keg. It basically detected presence and posted about who was present at the keg—so it would take your picture when you were at the keg, and post some sort of thing saying “so-and-so is at the keg.” The keg is patented.

Ezra Callahan: When we first moved in, the office door had this lock we couldn’t figure out, but the door would automatically unlock at 9 am every morning. I was the guy that had to get to the office by 9 to make sure nobody walked in and just stole everything, because no one else was going to get there before noon. All the Facebook guys are basically nocturnal.

Katie Geminder: These kids would come in—and I mean kids, literally they were kids—they’d come into work at 11 or 12.

Ruchi Sanghvi: Sometimes I would walk to work in my pajamas and that would be totally fine. It felt like an extension of college; all of us were going through the same life experiences at the same time. Work was fantastic. It was so interesting. It didn’t feel like work. It felt like we were having fun all the time.

Ezra Callahan: You’re hanging out. You’re drinking with your coworkers. People start dating within the office …


Ruchi Sanghvi: We found our significant others while we were at Facebook. All of us eventually got married. Now we’re in this phase where we’re having children.

Katie Geminder: If you look at the adults that worked at Facebook during those first few years—like, anyone over the age of 30 that was married—and you do a survey, I tell you that probably 75 percent of them are divorced.

Max Kelly: So, lunch would happen. The caterer we had was mentally unbalanced and you never knew what the fuck was going to show up in the food. There were worms in the fish one time. It was all terrible. Usually, I would work until about 3 in the afternoon and then I’d do a circuit through the office to try and figure out what the fuck was going to happen that night. Who was going to launch what? Who was ready? What rumors were going on? What was happening?

Steve Perlman (Silicon Valley veteran who started in the Atari era): We shared a break room with Facebook. We were building hardware: a facial capture technology. The Facebook guys were doing some HTML thing. They would come in late in the morning. They’d have a catered lunch. Then they leave usually by mid-afternoon. I’m like, man, that is the life! I need a startup like that. You know? And the only thing any of us could think about Facebook was: Really nice people but never going to go anywhere.

Max Kelly: Around 4 I’d have a meeting with my team, saying “here’s how we’re going to get fucked tonight.” And then we’d go to the bar. Between like 5 and 8-ish people would break off and go to different bars up and down University Avenue, have dinner, whatever.

Ruchi Sanghvi: And we would all sit together and have these intellectual conversations: “Hypothetically, if this network was a graph, how would you weight the relationship between two people? How would you weight the relationship between a person and a photo? What does that look like? What would this network eventually look like? What could we do with this network if we actually had it?”

Sean Parker: 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. It was a way of articulating to somebody with a math background what we were building.

Ruchi Sanghvi: In retrospect, I can’t believe we had those conversations back then. It seems like such a mature thing to be doing. We would sit around and have these conversations and they weren’t restricted to certain members of the team; they weren’t tied to any definite outcome. It was purely intellectual and was open to everyone.

Max Kelly: People were still drinking the whole time, like all night, but starting around 9, it really starts solidifying: “What are we going to release tonight? Who’s ready to go? Who’s not ready to go?” By about 11-ish we’d know what we were going to do that night.

Katie Geminder: There was an absence of process that was mind-blowing. There would be engineers working stealthily on something that they were passionate about. And then they’d ship it in the middle of the night. No testing—they would just ship it.

Ezra Callahan: Most websites have these very robust testing platforms so that they can test changes. That’s not how we did it.

Ruchi Sanghvi: With the push of a button you could push out code to the live site, because we truly believed in this philosophy of “move fast and break things.” So you shouldn’t have to wait to do it once a week, and you shouldn’t have to wait to do it once a day. If your code was ready you should be able to push it out live to users. And that was obviously a nightmare.

Katie Geminder: Can our servers stand up to something? Or security: How about testing a feature for security holes? It really was just shove it out there and see what happens.

Jeff Rothschild: That’s the hacker mentality: You just get it done. And it worked great when you had 10 people. By the time we got to 20, or 30, or 40, I was spending a lot of time trying to keep the site up. And so we had to develop some level of discipline.

Ruchi Sanghvi: So then we would only push out code in the middle of the night, and that’s because if we broke things it wouldn’t impact that many people. But it was terrible because we were up until like 3 or 4 am every night, because the act of pushing just took everybody who had committed any code to be present in case anything broke.

Max Kelly: Around 1 am, we’d know either we’re fucked or we’re good. If we were good, everyone would be like “whoopee” and might be able to sleep for a little while. If we were fucked then we were like, “OK, now we’ve got to try and claw this thing back or fix it.”

Katie Geminder: 2 am: That was when shit happened.

Ruchi Sanghvi: Then another push, and this would just go on and on and on and on and on until like 3 or 4 or 5 am in the night.

Max Kelly: If 4 am rolled around and we couldn’t fix it, I’d be like, “We’re going to try and revert it.” Which meant basically my team would be up till 6 am So, go to bed somewhere between 4 and 6, and then repeat every day for like nine months. It was crazy.

Jeff Rothschild: It was seven days a week. I was on all the time. I would drink a large glass of water before I went to sleep to assure that I’d wake up in two hours so I could go check everything and make sure that we hadn’t broken it in the meantime. It was all day, all night.

Katie Geminder: That was very challenging for someone who was trying to actually live an adult life with, like, a husband. There was definitely a feeling that because you were older and married and had a life outside of work that you weren’t committed.

Mark Zuckerberg: Why are most chess masters under 30? Young people just have simpler lives. We may not own a car. We may not have family … I only own a mattress.

Kate Geminder: Imagine being over 30 and hearing your boss say that!

Mark Zuckerberg: Young people are just smarter.

Ruchi Sanghvi: We were so young back then. We definitely had tons of energy and we could do it, but we weren’t necessarily the most efficient team by any means whatsoever. It was definitely frustrating for senior leadership, because a lot of the conversations happened at night when they weren’t around, and then the next morning they would come in to all of these changes that happened at night. But it was fun when we did it.


Ezra Callahan: For the first few hundred employees, almost all of them were already friends with someone working at the company, both within the engineering circle and also the user support people. It’s a lot of recent grads. When we move into the office was when the dorm room culture starts to really stick out and also starts to break a little bit. It has a dorm room feeling, but it’s not completely dominated by college kids. The adults are coming in.

Jeff Rothschild: I joined in May 2005. On the sidewalk outside the office was the menu board from a pizza parlor. It was a caricature of a chef with a blackboard below it, and the blackboard had a list of jobs. This was the recruiting effort.

Sean Parker: At the time there was a giant sucking sound in the universe, and it was called Google. All the great engineers were going to Google.

Kate Losse (early customer service rep): I don’t think I could have stood working at Google. To me Facebook seemed much cooler than Google, not because Facebook was necessarily like the coolest. It’s just that Google at that point already seemed nerdy in an uninteresting way, whereas like Facebook had a lot of people who didn’t actually want to come off as nerds. Facebook was a social network, so it has to have some social components that are like really normal American social activities—like beer pong.

Kate Geminder: There was a house down the street from the office where five or six of the engineers lived that was one ongoing beer pong party. It was like a boys’ club—although it wasn’t just boys.

Terry Winograd (noted Stanford computer-science professor): The way I would put it is that Facebook is more of an undergraduate culture and Google is more of a graduate student culture.

Jeff Rothschild: Before I walked in the door at Facebook, I thought these guys had created a dating site. It took me probably a week or two before I really understood what it was about. Mark, he used to tell us that we are not a social network. He would insist: “This is not a social network. We’re a social utility for people you actually know.”

MySpace was about building an online community among people who had similar interests. We might look the same because at some level it has the same shape, but what it accomplishes for the individual is solving a different problem. We were trying to improve the efficiency of communication among friends.

Max Kelly: Mark sat down with me and described to me what he saw Facebook being. He said, “It’s about connecting people and building a system where everyone who makes a connection to your life that has any value is preserved for as long as you want it to be preserved. And it doesn’t matter where you are, or who you’re with, or how your life changes: because you’re always in connection with the people that matter the most to you, and you’re always able to share with them.”

I heard that, and I thought, I want to be a part of this. I want to make this happen. Back in the ’90s all of us were utopian about the internet. This was almost a harkening back to the beautiful internet where everyone would be connected and everyone could share and there was no friction to doing that. Facebook sounded to me like the same thing. Mark was too young to know that time, but I think he intrinsically understood what the internet was supposed to be in the ’80s and in the ’90s. And here I was hearing the same story again and conceivably having the ability to help pull it off. That was very attractive.

Aaron Sittig: So in the summer of 2005 Mark sat us all down and he said, “We’re going to do five things this summer.” He said, “We’re redesigning the site. We’re doing a thing called News Feed, which is going to tell you everything your friends are doing on the site. We’re going to launch Photos, we’re going to redo Parties and turn it into Events, and we’re going to do a local-businesses product.” And we got one of those things done, we redesigned the site. Photos was my next project.

Ezra Callahan: The product at Facebook at the time is dead simple: profiles. There is no News Feed, there was a very weak messaging system. They had a very rudimentary events product you could use to organize parties. And almost no other functions to speak of. There’s no photos on the website, other than your profile photo. There’s nothing that tells you when anything on the site has changed. You find out somebody changed their profile picture by obsessively going to their profile and noticing, Oh, the picture changed.

Aaron Sittig: We had some people that were changing their profile picture once an hour, just as a way of sharing photos of themselves.

Scott Marlette: At the time photos was the number-one most requested feature. So, Aaron and I go into a room and whiteboard up some wireframes for some pages and decide on what data needs to get stored. In a month we had a nearly fully functioning prototype internally to play with. It was very simple. It was: You post a photo, it goes in an album, you have a set of albums, and then you can tag people in the photos.

Jeff Rothschild: Aaron had the insight to do tagging, which was a tremendously valuable insight. It was really a game changer.

Aaron Sittig: We thought the key feature is going to be saying who is in the photo. We weren’t sure if this was really going to be that successful; we just felt good about it.

Facebook Photos went live in October 2005. There were about 5 million users, virtually all of them college students.

Scott Marlette: We launched it at Harvard and Stanford first, because that’s where our friends were.

Image may contain Randi Zuckerberg Mark Zuckerberg Pants Clothing Apparel Human Person Jeans Denim and Footwear
Zuckerberg started coding while growing up in Dobbs Ferry, New York, where he was raised by his parents, Edward and Karen along with his sisters Randi, left, and Arielle, right.

SHERRY TESLER/New York Times/Redux

Aaron Sittig: We had built this program that would fill up a TV screen and show us everything that was being uploaded to the service, and then we flicked it on and waited for photos to start coming in. And the first photos that came in were Windows wallpapers: Someone had just uploaded all their wallpaper files from their Windows directory, which was a big disappointment, like, Oh no, maybe people don’t get it? Maybe this is not going to work?

But the next photos were of a guy hanging out with his friends, and then the next photos after that were a bunch of girls in different arrangements: three girls together, these four girls together, two of them together, just photos of them hanging out at parties, and then it just didn’t stop.

Max Kelly: You were at every wedding, you were at every bar mitzvah, you were seeing all this awesome stuff, and then there’s a dick. So, it was kind of awesome and shitty at the same time.

Aaron Sittig: Within the first day someone had uploaded and tagged themselves in 700 photos, and it just sort of took off from there.

Jeff Rothschild: Inside of three months, we were delivering more photos than any other website on the internet. Now you have to ask yourself: Why? And the answer was tagging. There isn’t anyone who could get an email message that said, “Someone has uploaded a photo of you to the internet”—and not go take a look. It’s just human nature.

Ezra Callahan: The single greatest growth mechanism ever was photo tagging. It shaped all of the rest of the product decisions that got made. It was the first time that there was a real fundamental change to how people used Facebook, the pivotal moment when the mindset of Facebook changes and the idea for News Feed starts to germinate and there is now a reason to see how this expands beyond college.


Jeff Rothschild: The News Feed project was started in the fall of 2005 and delivered in the fall of 2006.

Dustin Moskovitz: News Feed is the concept of viral distribution, incarnate.

Ezra Callahan: News Feed is what Facebook fundamentally is today.

Sean Parker: Originally it was called “What’s New,” and it was just a feed of all of the things that were happening in the network—really just a collection of status updates and profile changes that were occurring.

Katie Geminder: It was an aggregation, a collection of all those stories, with some logic built into it because we couldn’t show you everything that was going on. There were sort of two streams: things you were doing and things the rest of your network was doing.

Ezra Callahan: So News Feed is the first time where now your homepage, rather than being static and boring and useless, is now going to be this constantly updating “newspaper,” so to speak, of stuff happening on Facebook around you that we think you’ll care about.

Ruchi Sanghvi: And it was a fascinating idea, because normally when you think of newspapers, they have this editorialized content where they decide what they want to say, what they want to print, and they do it the previous night, and then they send these papers out to thousands if not hundreds of thousands of people. But in the case of Facebook, we were building 10 million different newspapers, because each person had a personalized version of it.

Ezra Callahan: It really was the first monumental product-engineering feat. The amount of data it had to deal with: all these changes and how to propagate that on an individual level.

Ruchi Sanghvi: We were working on it off and on for a year and a half.

Ezra Callahan: … and then the intelligence side of all this stuff: How do we surface the things that you’ll care about most? These are very hard problems engineering-wise.

Ruchi Sanghvi: Without realizing it, we ended up building one of the largest distributed systems in software at that point in time. It was pretty cutting-edge.

Ezra Callahan: We have it in-house and we play with it for weeks and weeks—which is really unusual.

Katie Geminder: So I remember being like, “OK, you guys, we have to do some level of user research,” and I finally convinced Zuck that we should bring users into a lab and sit behind the glass and watch our users using the product. And it took so much effort for me to get Dustin and Zuck and other people to go and actually watch this. They thought this was a waste of time. They were like, “No, our users are stupid.” Literally those words came out of somebody’s mouth.

Ezra Callahan: It’s the very first time we actually bring in outside people to test something for us, and their reaction, their initial reaction is clear. People are just like, “Holy shit, like, I shouldn’t be seeing this, like this doesn’t feel right,” because immediately you see this person changed their profile picture, this person did this, this person did that, and your first instinct is Oh my God! Everybody can see this about me! Everyone knows everything I’m doing on Facebook.

Max Kelly: But News Feed made perfect sense to all of us, internally. We all loved it.

Ezra Callahan: So in-house we have this idea that this isn’t going to go right: This is too jarring a change, it needs to be rolled out slowly, we need to warm people up to this—and Mark is just firmly committed. “We’re just going to do this. We’re just going to launch. It’s like ripping off a Band-Aid.”

Ruchi Sanghvi: We pushed the product in the dead of the night, we were really excited, we were celebrating, and then the next morning we woke up to all this pushback. I had written this blog post, “Facebook Gets a Facelift.”

Katie Geminder: We wrote a little letter, and at the bottom of it we put a button. And the button said, “Awesome!” Not like, “OK.” It was, “Awesome!” That’s just rude. I wish I had a screenshot of that. Oh man! And that was it. You landed on Facebook and you got the feature. We gave you no choice and not a great explanation and it scared people.

Jeff Rothschild: People were rattled because it just seemed like it was exposing information that hadn’t been visible before. In fact, that wasn’t the case. Everything shown in News Feed was something people put on the site that would have been visible to everyone if they had gone and visited that profile.

Ruchi Sanghvi: Users were revolting. They were threatening to boycott the product. They felt that they had been violated, and that their privacy had been violated. There were students organizing petitions. People had lined up outside the office. We hired a security guard.

Katie Geminder: There were camera crews outside. There were protests: “Bring back the old Facebook!” Everyone hated it.

Jeff Rothschild: There was such a violent reaction to it. We had people marching on the office. A Facebook group was organized protesting News Feed and inside of two days, a million people joined.

Ruchi Sanghvi: There was another group that was about how “Ruchi is the devil,” because I had written that blog post.

Max Kelly: The user base fought it every step of the way and would pound us, pound Customer Service, and say, “This is fucked up! This is terrible!”

Ezra Callahan: We’re getting emails from relatives and friends. They’re like, “What did you do? This is terrible! Change it back.”

Katie Geminder: We were sitting in the office and the protests were going on outside and it was, “Do we roll it back? Do we roll it back!?”

Ruchi Sanghvi: Now under usual circumstances if about 10 percent of your user base starts to boycott the product, you would shut it down. But we saw a very unusual pattern emerge.

Max Kelly: Even the same people who were telling us that this is terrible, we’d look at their user stream and be like: You’re fucking using it constantly! What are you talking about?

Ruchi Sanghvi: Despite the fact that there were these revolts and these petitions and people were lined up outside the office, they were digging the product. They were actually using it, and they were using it twice as much as before News Feed.

Ezra Callahan: It was just an emotionally devastating few days for everyone at the company. Especially for the set of people who had been waving their arms saying, “Don’t do this! Don’t do this!” because they feel like, “This is exactly what we told you was going to happen!”

Ruchi Sanghvi: Mark was on his very first press tour on the East Coast, and the rest of us were in the Palo Alto office dealing with this and looking at these logs and seeing the engagement and trying to communicate that “It’s actually working!,” and to just try a few things before we chose to shut it down.

Katie Geminder: We had to push some privacy features right away to quell the storm.

Ruchi Sanghvi: We asked everyone to give us 24 hours.

Katie Geminder: We built this janky privacy “audio mixer” with these little slider bars where you could turn things on and off. It was beautifully designed—it looked gorgeous—but it was irrelevant.

Jeff Rothschild: I don’t think anyone ever used it.

Ezra Callahan: But it gets added and eventually the immediate reaction subsides and people realize that the News Feed is exactly what they wanted, this feature is exactly right, this just made Facebook a thousand times more useful.

Katie Geminder: Like Photos, News Feed was just—boom!—a major change in the product and one of those sea changes that just leveled it up.

Jeff Rothschild: Our usage just skyrocketed on the launch of News Feed. About the same time we also opened the site up to people who didn’t have a .edu address.

Ezra Callahan: Once it opens to the public, it’s becoming clear that Facebook is on its way to becoming the directory of all the people in the world.

Jeff Rothschild: Those two things together—that was the inflection point where Facebook became a massively used product. Prior to that we were a niche product for high-school and college students.

Mark Zuckerberg: Domination!

Ruchi Sanghvi: “Domination” was a big mantra of Facebook back in the day.

Max Kelly: I remember company meetings where we were chanting “dominate.”

Ezra Callahan: We had company parties all the time, and for a period in 2005, all Mark’s toasts at the company parties would end with “Domination!”

Mark Zuckerberg: Domination!!


Max Kelly: I especially remember the meeting where we tore up the Yahoo offer.

Mark Pincus: In 2006 Yahoo offered Facebook $1.2 billion ,I think it was, and it seemed like a breathtaking offer at the time, and it was difficult to imagine them not taking it. Everyone had seen Napster flame out, Friendster flame out, MySpace flame out, so to be a company with no revenues, and a credible company offers a billion-two, and to say no to that? You have to have a lot of respect to founders that say no to these offers.

Dustin Moskovitz: I was sure the product would suffer in a big way if Yahoo bought us. And Sean was telling me that 90 percent of all mergers end in failure.

Mark Pincus: Luckily, for Zuck, and history, Yahoo’s stock went down, and they wouldn’t change the offer. They said that the offer is a fixed number of shares, and so the offer dropped to like $800 million, and I think probably emotionally Zuck didn’t want to do it and it gave him a clear out. If Yahoo had said, “No problem, we’ll back that up with cash or stock to make it $1.2 billion,” it might have been a lot harder for Zuck to say no, and maybe Facebook would be a little division of Yahoo today.

Max Kelly: We literally tore the Yahoo offer up and stomped on it as a company! We were like, “Fuck those guys, we are going to own them!” That was some malice-ass bullshit.

Mark Zuckerberg: Domination!!!

Kate Losse: He had kind of an ironic way of saying it. It wasn’t a totally flat, scary “domination.” It was funny. It’s only when you think about a much bigger scale of things that you’re like, Hmmmm: Are people aware that their interactions are being architected by a group of people who have a certain set of ideas about how the world works and what’s good?

Ezra Callahan: “How much was the direction of the internet influenced by the perspective of 19-, 20-, 21-year-old well-off white boys?” That’s a real question that sociologists will be studying forever.

Kate Losse: I don’t think most people really think about the impact that the values of a few people now have on everyone.

Steven Johnson: I think there’s legitimate debate about this. Facebook has certainly contributed to some echo chamber problems and political polarization problems, but I spent a lot of time arguing that the internet is less responsible for that than people think.

Mark Pincus: Maybe I’m too close to it all, but I think that when you pull the camera back, none of us really matter that much. I think the internet is following a path to where the internet wants to go. We’re all trying to figure out what consumers want, and if what people want is this massive echo chamber and this vain world of likes, someone is going to give it to them, and they’re going to be the one who wins, and the ones who don’t, won’t.

Steve Jobs: I don’t see anybody other than Facebook out there—they’re dominating.

Mark Pincus: So I don’t exactly think that a bunch of college boys shaped the internet. I just think they got there first.

Mark Zuckerberg: Domination!!!!

Ezra Callahan: So, it’s not until we have a full-time general council onboard who finally says, “Mark, for the love of God: You cannot use the word domination anymore,” that he stops.

Sean Parker: Once you are dominant, then suddenly it becomes an anticompetitive term.

Steven Johnson: It took the internet 30 years to get to 1 billion users. It took Facebook 10 years. The crucial thing about Facebook is that it’s not a service or an app—it’s a fundamental platform, on the same scale as the internet itself.

Steve Jobs: I admire Mark Zuckerberg. I only know him a little bit, but I admire him for not selling out—for wanting to make a company. I admire that a lot.


Author’s Note:

The written language is very different from the spoken word. And so, I’ve taken the liberty of correcting slips of the tongue, dividing streams of consciousness into sentences, ordering sentences into paragraphs, and eliminating redundancies. The point is not to polish and make what was originally spoken read as if it were written, but rather to make the verbatim transcripts of what was actually said readable in the first place.

That said, I’ve been careful to retain the rhythms of speech and quirks of language of everyone interviewed for this article intact, so that what you hear in your mind’s ear as you read is true in every sense of the word: true to life, true to the transcript, and true to the speakers‘ intended meaning.

The vast majority of the words found in this article originated in interviews that were given to me especially for this article. Where that wasn’t possible I tried, with some success, to unearth previously unpublished interviews and quote from them. And in a few cases I’ve resorted to quoting from interviews that have been published before.

Mark Zuckerberg’s quotes were uttered at a guest lecture he gave to Harvard’s Introduction to Computer Science class in 2005 and in an interview he gave to the Harvard Crimson in February that same year. Dustin Moskovitz’s quotes were taken from a keynote address at the Alliance of Youth Movements Summit in December of 2008 and from David Kirkpatrick’s authoritative history, The Facebook Effect. David Choe’s comments were made on The Howard Stern Show in March 2016. Steve Jobs made his remarks to his biographer, Walter Isaacson. The interview was aired on 60 Minutes soon after Jobs died in 2011.


This story is excerpted from Valley of Genius, by Adam Fisher.

Jeff Bezos’s vision comes true, here’s how you’ll shop in 2020: The vast bulk of store-bought goods – food staples, paper products, cleaning supplies, and the like – you will order electronically. Some physical storefronts will survive, but they’ll have to offer at least one of two things: entertainment value or immediate convenience.

If Jeff Bezos’s vision comes true, here’s how you’ll shop in 2020:

The vast bulk of store-bought goods – food staples, paper products, cleaning supplies, and the like – you will order electronically. Some physical storefronts will survive, but they’ll have to offer at least one of two things: entertainment value or immediate convenience.

 

Source: https://www.wired.com/1999/03/bezos-3/

 

The Inner Bezos

Amazon.com’s founder figured out how to sell books on the Web, and now he wants to sell you everything else. Simple, right? So why is he so far ahead of the pack?

The counter clerks at Amelia Island’s Flash Foods convenience store never saw it coming. Around Christmas 1997, a rented white Chevrolet Suburban pulled into the parking lot and disgorged three members of a commando squad on a mission. The team was disguised in the tourist garb common to the Florida resort island, and the only hint that it might be a military operation was the way the squad members whispered code words like „Whiskey, Bravo, Tango“ into their Motorola walkie-talkies. While the driver sat in the car and timed the exercise, a second soldier stood guard at the door. Another quickly grabbed a spot in line for the cashier. The fourth rushed toward the dairy case in quest of the squad’s ultimate goal: a quart of milk.

Within two minutes, the purchase was completed and the car was roaring back onto the streets.

One of these odd customers bore the code name Ffej Sozeb. If the clerks had heard this nom de guerre, they still might not have figured out that they’d been hit by a pioneering Internet entrepreneur who one year later would be worth north of $9 billion. The slightly built, 5′ 8″, brown-eyed faux Navy SEAL with thinning hair was, in reality, Jeff Bezos, founder, chair, and CEO of Amazon.com. His comrades on this mission of breakfast necessity were members of his immediate family: father Mike, brother Mark. Behind the wheel: his mother Jackie.

That Jeff Bezos is almost innately programmed to turn something as mundane as a milk run into a fantasy game should serve him well during the next few years, as he attempts to drive Amazon.com beyond its phenomenal, if so far unprofitable, early success as a book, music, and video seller. The 35-year-old Bezos must make Amazon.com, to this point little more than a convenient place to shop for a limited range of goods, the kind of environment that lures men, women, and children in from vast distances, then seduces them into acts of acquisition. As Internet commerce matures from the exotic to the everyday, as it becomes less about exploiting a position on the frontiers of technology and more about mastering the art of sales and merchandising, the challenges Bezos faces have become exactly those that confronted the great retailers who invented the mass market for consumer goods in the United States a century ago.

To reach historical heights – to become as important to 21st-century culture as Richard W. Sears, Macy’s Isidor Straus, and John Wanamaker were to the culture of the late 19th and early 20th centuries, when they fundamentally changed not only the experience of shopping but also the essential nature of American life – Bezos will need to deliver on the second promise in the oft-repeated goal he sets for his staff: „to build a valuable and lasting company.“

„It’s a question,“ says Stanley Marcus, chair emeritus of Neiman Marcus, with the simplicity of an expert in long distance seduction, „of how you get the merchandise you’re infatuated with into the hands of the people you like.“

The goal is within reach. Bezos’s vision has always been about taking advantage of a new platform and new tools to change shopping itself. Long before he launched the company, he had dreams of making Amazon.com „broader than books and music“ – a point reinforced this past Christmas season by his move into gift sales and by his December move to offer Amazon.com customers goods from other retailers. Analysts who had projected $190 million in revenue for the company during the fourth-quarter holiday period were flabbergasted when Amazon.com registered sales of approximately $250 million, news that helped send the company’s stock as high as $350 per share by early January (shortly before a three-for-one stock split) – just shy of the $400 per share CIBC Oppenheimer foresees by 2002.

If Jeff Bezos’s vision comes true, here’s how you’ll shop in 2020:

The vast bulk of store-bought goods – food staples, paper products, cleaning supplies, and the like – you will order electronically. Some physical storefronts will survive, but they’ll have to offer at least one of two things: entertainment value or immediate convenience.

Successful „shoptainers“ will be like the Gap, with its environment of music and youth culture, or Nordstrom, with its tinkling pianist and distinctive face-to-face service. They may be even more amplified, with personal service and showmanship turning every shopping trip into a Super Bowl-style destination event. „That experience is what you get when you go to movie theaters, and why you don’t always rent movies, right?“ Bezos notes.

As Internet commerce matures, Bezos faces the same challenges that confronted the great retailers who invented the mass market for consumer goods a century ago.

Convenience specialists will also have contemporary antecedents – the 7-Eleven chain, say, or Walgreen’s, where you can get a quart of milk or NyQuil geltabs at 10 p.m. – but these, too, will evolve: open 24/7, for example, so that you can take care of the last mile of delivery yourself at any time. The consultants at the Global Business Network even sketch out a scenario where, within a generation or two, vans carrying inventories of more popular necessities, such as toilet paper or diapers, may be constantly circling neighborhoods, ready to drop off an order within moments of receiving it.

The United States – whose culture has been defined by consumption since at least the 1840s, when the British consul in Boston was appalled to see servant girls „strongly infected with the national bad taste for being overdressed“ – will be utterly transformed, Bezos believes, by this bifurcation of shopping and consumer desire into shoptainment and just-in-time components. The urban downtowns, which just a few years ago planners and politicians gave up for dead, will continue to renew and thrive, thanks to the inherent entertainment value in the great retail districts like Times Square or Pine Street in Seattle. Yet within a generation’s time the kitschy and cluttered landscape of today’s suburbia will disappear, because the new retail environment won’t support „the sort of bad stores that people go to because they don’t have any alternative.“

„Strip malls,“ Bezos predicts, „are history.“

Bezos reserves an evangelical passion for the changes he expects in the most manipulative aspects of today’s consumer culture.

„What consumerism really is, at its worst,“ he adds, „is getting people to buy things that don’t actually improve their lives. The one thing that offends me the most is when I walk by a bank and see ads trying to convince people to take out second mortgages on their home so they can go on vacation. That’s approaching evil.“

When Bezos describes his primary goals for the Amazon.com interface, he becomes a whistle-stop campaigner for a new politics of consumerism. „We want to turn visitors into customers, and we want to make the experience as welcoming as possible,“ he says. He insists that the lures and aids Amazon.com provides for its online shoppers – the one-click ordering system that stores credit card and shipping information; the variety of helpful suggestions and information that seem configured to exploit a customer’s most impulsive tendencies – are far removed from the world’s entrenched consumerist come-ons.

The new merchant, he suggests, volubly and unstoppably, is a community builder, a facilitator, a networker. He cites Amazon.com’s willingness to post negative book reviews as an example of harnessing the antimanipulative truths the Internet allows consumers to root out. The Net’s famously decentralized, open flow of information, he goes on, inevitably deflates the most extravagant hype of traditional retailing. And that shifts the balance of power – which since the origins of department stores and mass merchandising has favored the merchant – back into the hands of consumers. Amazon.com’s scheme is, in effect, to form a strategic alliance with all that newly unleashed power.

„This doesn’t mean that you can’t build a valuable, lasting enterprise in the online environment,“ Bezos says, „but it does mean you better recognize the environment you’re in, and not try to build an airplane to fly underwater. Ah-ha-ha-ha-ha-ha!“ The laugh, which frequently interrupts conversation, comes out as a long, extended bray, startling the uninitiated. The laugh has become famous, too, yet it only underscores Bezos’s ardor. Almost since the beginning of Amazon.com’s remarkable rise, Bezos has been characterized as yet another fuzzy-cheeked geek who lucked into an IPO, an uninspired financial technician with a good but not very original idea about distributing goods over the Internet, who would soon be, in the ill-fated phrase of Forrester Research president George Colony, „Amazon.toast.“ It’s a characterization Bezos’s competitors have found costly. They may also have missed that, in focusing on the consumer in a way few Web entrepreneurs can match, he is actually trying to transform the world.

„Jeff always wanted to make a lot of money,“ says his high school girlfriend, Ursula „Uschi“ Werner. She herself was an overachiever – valedictorian of the Miami Palmetto Senior High School class a year ahead of Bezos, winner of a full scholarship to Duke University, and a Rhodes Scholar – but she remains awed by Bezos’s commitment. „It wasn’t about money itself. It was about what he was going to do with the money, about changing the future.“

Family is important. The Bezos family is extremely close; they actually enjoy spending the holidays together. Reflecting on the source of Jeff Bezos’s drive, his closest friends turn inevitably to the legion of family stories, all of which seem to revolve around the theme of hard work and equally hard play.

But within the well-known Bezos family story lies a remarkable story of collective strength.

Mike Bezos is not Jeff’s biological father. „I’ve never met him,“ Jeff says of the man who is. „But the reality, as far as I’m concerned, is that my Dad is my natural father. The only time I ever think about it, genuinely, is when a doctor asks me to fill out a form.“ While it’s easy enough to theorize that the circumstance of Bezos’s birth has had profound psychological repercussions, he responds to questions about it with complete equanimity – if some surprise; his family rarely discusses the matter and even close friends don’t know the truth. „It’s a fine truth to have out there,“ he says. „I’m not embarrassed by it.“

He recalls that his parents sat him down and told him when he was 10. Whatever their concerns about the possible consequences, they needn’t have worried. Jeff describes the moment as not nearly as important or memorable as learning, at around the same time, that he would need to wear glasses. „That made me cry,“ he says.

Mike Bezos (pronounced BAY-zoes) had arrived in the United States, alone, in 1962, at the age of 15. He came under the auspices of Operation Pedro Pan, an education/rescue program crafted by a south Florida Catholic priest that spirited thousands of teenagers out of Castro’s régime during the early ’60s. After learning English and graduating from high school in Delaware, where he lived in a Catholic mission with 15 other refugees, Mike Bezos moved to New Mexico to attend what was then the University of Albuquerque.

There, he met Jackie Gise, in a local bank where the two worked. In his freshman year of college – he was 18, she was 17 – they married.

Jeff was born soon after, in January 1964, and Mike Bezos legally adopted him.

With a young family – Jeff’s sister Christina and brother Mark are five and six years younger than him, respectively – Mike Bezos still managed to finish his education, then joined Exxon as a petroleum engineer. The family moved several times during Jeff’s childhood, from Albuquerque to Houston, then briefly to Pensacola, Florida.

Bezos remembers he always had the youngest parents around. But his friend Joshua Weinstein says that even during their high school years, when she was in her early 30s, Jackie Bezos commanded as much if not more authority and respect than any other mother. She says her values came from her own father, who offered another strong role model for Jeff.

Jeff spent summers working at his maternal grandfather’s ranch in Cotulla, Texas, fixing windmills, castrating cattle, laying pipes, and repairing pumps. Lawrence Preston „Pop“ Gise had held jobs that a young boy couldn’t help but find cool. Gise worked on space technology and missile defense systems at Darpa in the late 1950s; in 1964, Congress appointed him manager of the Atomic Energy Commission’s Albuquerque operations office, where he supervised 26,000 employees in the AEC’s western region, including the Sandia, Los Alamos, and Lawrence Livermore laboratories. He retired to his southwest Texas spread in 1968, and he doted on Jeff from the time his grandson was an infant. „Mr. Gise was a towering figure in Jeff’s life,“ says Weinstein.

His grandfather sparked and indulged Jeff’s fascination with educational games and toys, assisting him with the Heathkits and the other paraphernalia he constantly hauled home to the family garage. (Picture the scattered components of a robot; an open umbrella spine clad in aluminum foil for a solar cooking experiment; an ancient Hoover vacuum cleaner being transformed into a primitive hovercraft.)

Jackie Bezos’s challenge as a parent was to stay a step ahead of, or at least next to, her prodigy. „I think single-handedly we kept many Radio Shacks in business,“ she jokes. During his late grade school years, Jeff became fixated on a device called an Infinity Cube, which uses a set of motorized mirrors to allow one to stare into „infinity.“ But at $20 it was too expensive to buy, she told him. Jeff figured out that the pieces of the cube could be bought cheaply, so he did – and built it himself. „The way the world is, you know, someone could tell you to press the Button,“ he said at the time. „You have to be able to think … for yourself.“

The story of Bezos and the Infinity Cube is documented in Turning on Bright Minds: A Parent Looks at Gifted Education in Texas. Written by Julie Ray and published locally in the Houston area in 1977 – and, incidentally, not available via Amazon.com – the book follows 12-year-old Jeff (renamed Tim) through a typical day in the Vanguard program at Houston’s River Oaks Elementary School, a magnet school that was part of a voluntary integration effort in the city’s public school system. Jeff endured a 40-mile round-trip commute each day to attend. The author describes him as „friendly but serious,“ even „courtly,“ and possessed of „general intellectual excellence,“ though, according to teachers, „not particularly gifted in leadership.“

He used his brain to compensate. Jackie and Mike, concerned that Jeff wasn’t always comfortable with kids his own age, enrolled him in the high-pressure world of Texas youth football. „He barely made the weight limit, and I thought he was going to get creamed out there,“ Jackie recalls, laughing. Within two weeks, however, the coach had named him defensive captain, because Jeff was one of the few kids on the team who could remember all the plays – not only where he was supposed to be but also the assignments for the other 10 players on his squad.

He completed his personal immersion in the shared world of every American geek growing up in the ’70s and early ’80s by diving into the deep end of the sci-fi and fantasy pool. When the River Oaks school gained access to a mainframe computer in downtown Houston via a timeshare system, he and his friends spent hours on it playing a primitive Star Trek game, searching for cloaked Klingon ships in a three-by-three matrix.

By the time he reached high school in Dade County, Jeff had focused on space travel as his future. It wasn’t just that he wanted to be an astronaut, like thousands of other kids; as he told friends and acquaintances, he intended to be a space entrepreneur. „Oh, he had ideas about space promotion!“ says Bill McCreary, a Miami Palmetto science teacher. Some were drawn from real-life experiences in a high school space initiative he attended at NASA’s Huntsville, Alabama, center. But behind the young Bezos’s space-station plans was serious intent. „He said the future of mankind is not on this planet, because we might be struck by something, and we better have a spaceship out there,“ recalls Rudolf Werner, the father of Jeff’s high school girlfriend. Uschi Werner still jokes that Bezos’s real goal for Amazon.com is to amass enough of a personal fortune to build his own space station. Reminded of those concerns today, Bezos laughs but quickly turns serious. „I wouldn’t mind helping in some way,“ he says. „I do think we have all our eggs in one basket.“

Achieving his astronaut goals meant succeeding at school, and Bezos would show as a teenager that behind the easygoing façade and booming laugh was a relentless, even intimidating, work ethic, one that has become his hallmark at Amazon.com. „He was always a formidable presence,“ says Joshua Weinstein. When Bezos made clear his intention to become class valedictorian, for example, Weinstein says everyone else understood they were working for second place. Besides securing the valedictorian’s title, Bezos was also one of three members of his graduating class awarded a Silver Knight Award, a prestigious academic honor in south Florida high schools, sponsored by Knight Ridder’s Miami Herald. (Pilgrimage note: One of the few remaining talismans of Jeff Bezos’s presence at Miami Palmetto is an oak board, in a glass display case cluttered with sports memorabilia just inside the school’s front door, that holds the names of Silver Knight winners.)

Bezos got his first taste for retail during this time, spending one summer as a fry cook at McDonald’s, studying the company’s automation improvements even while he responded to the Pavlovian cues of the many and often simultaneously sounding buzzers that told him when to scramble his eggs, flip his burgers, and pull his fries out of the boiling vat. „Now, actually, the french fries raise themselves up out of the oil,“ he says, „which let me tell you is a major technological innovation! Ah-ha-ha-ha-ha-ha!“

In an attempt to avoid a second summer in the grease pit, Bezos, with Uschi Werner, embarked on his first serious entrepreneurial effort: a summer-education camp for fourth-, fifth-, and sixth-graders that the two labeled the DREAM Institute. (DREAM stood for Directed REAsoning Methods.) Six students signed up for the $600 camp; two of them were Jeff’s own brother and sister.

The program, prophetically, emphasized a mix of science and literature, the future and the past. Required reading included The Once and Future King, Stranger in a Strange Land, The Lord of the Rings, Dune, Watership Down, Black Beauty, Gulliver’s Travels, Treasure Island, and David Copperfield, along with the plays Our Town and The Matchmaker. The science curriculum ranged from fossil fuels and fission to space colonies and interstellar travel – with a dollop of television and advertising study thrown in for good measure. „Our program,“ the budding entrepreneurs wrote in a „Dear parent“ flyer generated on Jeff’s Apple II and a dot-matrix printer, „emphasizes the use of new ways of thinking in old areas.“

„When I’m 80,“ he asked himself, „am I going to regret leaving Wall Street? No. Will I regret missing the beginning of the Internet? Yes.“

Jeff and Uschi’s long distance relationship didn’t survive his matriculation at Princeton, but their entrepreneurial exploits nonetheless helped Bezos overcome his first serious intellectual disappointment. Intent on becoming a theoretical physicist and following the likes of Einstein and Hawking, he discovered that although he was one of the top 25 students in his honors physics program, he wasn’t smart enough to compete with the handful of real geniuses around him. „I looked around the room,“ Bezos recalls, „and it was clear to me that there were three people in the class who were much, much better at it than I was, and it was much, much easier for them. It was really sort of a startling insight, that there were these people whose brains were wired differently.“ The pragmatic Bezos switched his major to computer science and committed himself to starting and running his own business.

In his senior year, Bezos turned down job offers from Intel, Bell Labs, and Andersen Consulting to join a start-up called Fitel, which had run a full-page ad in The Daily Princetonian soliciting the school’s „best computer science graduates.“ The company, launched by two Columbia professors in the days when VANs and EDI were hot topics, was attempting to build an ambitious worldwide telecommunications network for trading firms that would help them clear and settle cross-border equity transactions – piggybacking atop General Electric Information Service’s network alongside GEnie, GE’s early consumer online service.

Bezos was employee number 11. His success at debugging spaghetti code earned him rapid promotion to head of development and director of customer service, which entailed a weekly commute between New York and London, where his divisions were located, aboard discount airline People’s Express. „This is not,“ he says, „the right way to organize a start-up company, just for the record. Ah-ha-ha-ha-ha-ha!“

After nearly two years of failed attempts to grow Fitel, Bezos bailed out for a more stable job as a product manager at Bankers Trust. There, he sold software tools to the company’s pension-fund clients, but he also explored outside projects. At one point, he collaborated briefly with a Merrill Lynch consultant named Halsey Minor (who would later become well known as the founder of CNET) on an abortive plan to start a company that would use then-fledgling software agents to create a personalized news fax for financial professionals. By 1990, however, after only two years at Bankers Trust, Bezos was circulating his résumé to headhunters with the express goal of escaping financial services for a technology company, where he could pursue what he had decided was his „real passion,“ using computers and so-called second-wave automation to revolutionize business.

Then a headhunter called, telling Bezos, „I know you said you would kill me if I even proposed the finance thing, but there’s this special opportunity that’s actually a very unusual financial company.“ It was the two-and-a-half-year-old hedge fund firm D. E. Shaw.

David Shaw, like Bezos, was a computer scientist. His specialty was devising new trading strategies for particular financial instruments. The two clicked immediately, with Bezos finding Shaw „one of those people who has a completely developed left brain and a completely developed right brain. He’s artistic, articulate, and analytical. It’s just a pleasure to talk to someone like that.“ Shaw, in turn, thought his 26-year-old hire „fantastic,“ a „pleasurable person to talk to“ who was „also very entrepreneurial.“

Four years later, Bezos had worked his way up to senior vice president, one of four at the firm. He’d also devised a plan for his personal life.

„At a certain point I was sort of a professional dater,“ he explains about his years in New York. His systematic approach to the quest for a permanent relationship was to develop what he labeled „women flow,“ a play on the „deal flow“ Wall Streeters try to generate to locate worthwhile investments. In managing their deal flow, bankers will set limits like „I won’t look at anything under a $10 million equity investment.“ The limitation Bezos set for friends producing candidates for his „women flow“ was more esoteric. „The number-one criterion was that I wanted a woman who could get me out of a Third World prison,“ he says.

„What I really wanted was someone resourceful. But nobody knows what you mean when you say, ‚I’m looking for a resourceful woman.‘ If I tell somebody I’m looking for a woman who can get me out of a Third World prison, they start thinking Ross Perot – Ah-ha-ha-ha-ha-ha! – they have something they can hang their hat on! Life’s too short to hang out with people who aren’t resourceful.“

His self-deprecatory explanation for asking friends to set him up on blind dates is that „I’m not the kind of person where women say, ‚Oh, look how great he is,‘ a half hour after meeting me. I’m kind of goofy, and I’m not – Ah-ha-ha-ha-ha-ha! – it’s not the kind of thing where people are going to say about me, ‚Oh my God, this is what I’ve been looking for!'“

As it happened, women flow did not produce the desired result. Instead, he fell in love with a member of his own staff. The future MacKenzie Bezos was a research associate who had been an assistant to novelist Toni Morrison while studying at Princeton. MacKenzie – whose first novel will be published by Random House later this year – and Jeff were married in 1993. A year later, Shaw put Bezos in charge of exploring new business opportunities in the burgeoning world of the Internet.

It was while brainstorming ideas in the then-unfamiliar area of electronic commerce that Bezos came to his deceptively simple conclusion: The most logical thing to sell over the Internet was books, largely because two of the country’s largest book distributors already had exhaustive electronic lists.

As Amazon.com has long since established, no single bookstore, even a superstore, can carry a comprehensive inventory of the books in print. The distributors, carrying thousands of titles, in effect act as the warehouse for most stores, particularly smaller independent booksellers. When customers ask a store for a book it doesn’t have, the first place many of them will turn to fill the customer’s order is Ingram or Baker & Taylor, the two largest distributors. These companies‘ inventory lists, once regularly circulated to bookstores on packs of microfiche, went digital in the late 1980s along with others in the book trade – an unheralded benchmark that would enable Bezos to offer books online through the virtual retailer he envisioned creating.

But David Shaw and others at the firm weren’t ready to make books a priority. After consulting initially with another partner, Bezos approached Shaw to tell him he had been bitten by the entrepreneurial bug and wanted to leave. Bezos says he kept staring at the Net’s 2,300 percent annual growth figure and placing his thoughts within what he calls a „regret-minimization framework.“ „When I’m 80,“ he asked himself, „am I going to regret leaving Wall Street? No. Will I regret missing a chance to be there at the beginning of the Internet? Yes.“

„Let’s take a walk,“ he recalls Shaw saying, and the two of them set off for Central Park. Shaw, while acknowledging that he himself had left an established business to pursue entrepreneurial dreams, tried to impress on Bezos what he would be giving up by leaving; not just financial security but a pivotal role at D. E. Shaw. „I did tell him that we might be competing with him, too,“ Shaw says. Bezos was willing to accept that risk.

When MacKenzie and Jeff Bezos made their now semifamous cross-country road trip to the Seattle area, Jeff tapping out a business plan on his computer along the way, he had already spent months laying the groundwork for Amazon.com, beginning with his Internet investigations at D. E. Shaw. Bezos had also made at least one recruiting trip to California to meet with three programmers he’d learned about through a D. E. Shaw partner. Over blueberry pancakes at the Sash Mill Cafe in Santa Cruz, Bezos managed to convince one of them, Shel Kaphan, to become employee number one.

Kaphan has a reputation among the engineering staff at Amazon.com as the prototypical pessimist, a geek convinced that the company’s systems are always on the verge of implosion. He came by his doomsaying honestly – he had worked for at least a dozen companies before Amazon.com, including failed start-ups and bureaucratically inept monsters. Shortly before he and Bezos met he had left Kaleida Labs, an ill-fated Apple spin-off, which makes it all the more remarkable that he almost immediately found Bezos trustworthy – so trustworthy, in fact, that Kaphan agreed in short order to relocate to Seattle.

Bezos returned in principle to the setting of his childhood experiments, building the prototype for Amazon.com with Kaphan and a contractor named Paul Barton-Davis in the cramped, poorly insulated converted garage of a rented home in the Seattle suburb of Bellevue. A potbellied stove commanded the middle of the room, and extension cords ran everywhere because there weren’t enough electrical outlets to power the trio’s Sun SPARCstations. Eventually the stove was ejected in a space-saving flurry and replaced by a set of ceramic space heaters, which further taxed the overburdened power supply.

Bezos has profited directly from his Amazon.com stock only once, selling 180,000 shares last November for $23 million.

In their quest to revolutionize retailing, the threesome made ample use of the unsuspecting competition’s physical resources. One can never tire of the delicious irony that Kaphan and Bezos would frequently repair to the Barnes & Noble store in downtown Bellevue to drink coffee and toss around ideas in the relative calm of the in-house Starbucks café. The superstore also served as a venue for business meetings with outsiders. MacKenzie Bezos even negotiated the company’s first freight contracts there.

The first million dollars of seed capital came from a group of 15 angel investors Bezos had persuaded to help him, including Wall Street chums, friends of his parents, buddies from Princeton, and a small group of local investors. Tom Alberg, onetime president of Lin Broadcasting, a subsidiary of McCaw Cellular, was part of the group and became Amazon.com’s first board member.

At one point, a single venture capital firm in the Seattle area wanted to take the whole million-dollar round but demanded a 50 percent discount on the valuation Bezos had offered. He refused and the VCs passed, in part because they believed Barnes & Noble would crush Amazon.com as soon as it turned its attention in Bezos’s direction. Watching that decision, Alberg says, taught him that „you need to do due diligence in this world, but at some point you need to make a judgment about the people.“

Bezos and Kaphan rigged the SPARCstations to sound a bell’s ring every time the servers recorded a sale. Amazon.com launched in July 1995, and the bell started ringing – so often that within a few weeks the noise had become unbearable and they disabled it. „Every week, the revenues went up,“ says Alberg. „By the second or third week, there was $6,000 or $10,000, and by the end of early September there was $20,000 a week. It was clear there was a trend here.“ It also helped that even in the earliest days sales were coming from around the country. „He could say, ‚I had a sale in New Hampshire,‘ and we were all impressed,“ Alberg recalls.

It wasn’t that Bezos was first out of the box with an idea for shopping, or that he had discovered some magic elixir unknown to other merchants. But he had made a series of small, smart choices that added up.

It starts with the realization that in fact not everything should be virtual – that Amazon.com should own its own warehouses, so that it can maintain quality control over the packaging and shipping of orders, which Bezos sees as an essential opportunity to enhance the Amazon.com customer experience. This allows the company to combine orders for books from multiple publishers – or orders that include a book, a CD, and a video – into single packages. It also gives Amazon.com employees who pack orders a chance to check for defective goods. In its music department, for example, the company will replace cracked or broken CD jewel cases. Locating in Seattle, therefore, wasn’t about being near a technology hub as much as it was about being near one of Ingram’s distribution facilities, which allowed for quicker turnaround on deliveries from that key supplier. And Washington had a relatively small population, which limited the pool of potential customers from whom Amazon.com would be forced to collect sales tax. (It’s no accident that the company’s second warehouse is in Delaware, which not only has no sales tax but is also an ideal base for serving East Coast customers; its third and latest warehouse is near Reno, Nevada – which lets Amazon.com originate deliveries close to the huge California population, but just outside that state’s tax-collection borders.)

Bezos combined those pragmatic choices with a relentless focus on the customer experience: tweaking the interface to make it ever easier to understand, streamlining the ordering process at every turn, responding immediately to every customer query. „We want people to feel like they’re visiting a place,“ he says, „rather than a software application.“

He also turned hiring staff into a Socratic test. „Jeff was very, very picky,“ says Nicholas Lovejoy, who joined Amazon.com as its fifth employee in June 1995. In endless hiring meetings, Bezos, after interviewing the candidate himself, would grill every other interviewer, occasionally constructing elaborate charts on a whiteboard detailing the job seeker’s qualifications. If he ferreted out the slightest doubt, rejection usually followed. „One of his mottos was that every time we hired someone, he or she should raise the bar for the next hire, so that the overall talent pool was always improving,“ Lovejoy says.

With its potential $250 million in revenues in the fourth quarter of 1998, Amazon.com is on track for at least $1 billion in annual sales this year. The company has moved its headquarters three times since starting in the Bellevue garage, and its staff is spread out in four buildings in downtown Seattle, in addition to its Northwest warehouse location, in an industrial area near the port facilities that stretch along the harbor south of downtown. This summer, the company will consolidate all but the warehouse operation in the old Pacific Medical Center building, which sits on a bluff near the intersection of I-5 and I-90 southeast of central Seattle.

But nothing about the company’s physical or revenue growth can compare to the astonishing rise in its stock price in recent months – on January 19 Amazon.com’s $22.1 billion market value exceeded that of Kmart and JCPenney combined – and the concurrent growth in Bezos’s personal net worth, over $9 billion by mid-January 1999. (A few other billionaires, including his parents, and dozens of multimillionaires have been created during the two short years of Amazon.com’s public existence.)

Bezos is thus far facing down stratospheric wealth with a modesty that outsiders to tech culture often find odd (and maybe even unnatural) but which is surprisingly common in the industry, where twentysomethings worth millions routinely rent along the freeway. When Joshua Weinstein teased Bezos about being listed on the Forbes 400 roster of the richest Americans, for example, „Jeff said the only real difference was that he doesn’t have to look at the prices on a menu anymore.“

„One thing to keep in mind,“ Bezos says, about not only his own gains but those of any Amazon.com employee who holds unvested options or hasn’t sold their stock, „is for many of these people the wealth that they have is paper wealth, and it will exist at that level only for as long as we continue to serve our customers well.“ Securities and Exchange Commission records show that Bezos himself has profited directly from his Amazon.com stock only once, when, last November, he sold 180,000 shares (of the more than 19 million he held at the time) for approximately $23 million.

Like a lot of other newly minted tech barons, Bezos’s splurges tend to involve having a good time with friends. In August, to celebrate Shel Kaphan’s fourth anniversary at Amazon.com, Bezos organized „the Shelebration,“ a four-day surprise weekend excursion to Maui. He chartered a jet to carry himself and MacKenzie, Kaphan, and members of the Amazon.com engineering staff and their spouses from Seattle to Hawaii. When the group arrived at the house Bezos had rented, Kaphan discovered a second surprise: An even larger group of Shel’s old friends from the San Francisco Bay Area had arrived there first, aboard a second plane Bezos had chartered for them from San Jose.

MacKenzie and Jeff, who’ve lived till now in a one-bedroom rental in downtown Seattle, also recently went shopping for a house, spending a reported $10 million for a rustic mansion alongside Lake Washington in a neighborhood littered with Microsoft millionaires.

It’s often forgotten how recently the mass American consumer market has evolved, how profoundly it has changed the way people shop, and how dramatically it has altered the very structure of society. Little more than 100 years ago, most Americans bought their goods – including clothes, food, furniture, even at times books – directly from the people who created them. But as the Industrial Revolution penetrated industry after industry, a gap began to open between producers and consumers until the one had little or no direct contact with the other. A new breed of middlemen arose to act as brokers between them (creating legendary opportunities for what sociologist Thorstein Veblen, in his Theory of the Leisure Class, derided as „conspicuous consumption“). In turn, routine, public display of manufactured, store-bought wares enabled the development of virtual societies (or „consumption communities,“ as historian Daniel Boorstin labeled them) in which membership and status were based not on an inborn class hierarchy but on the ownership of specific types of goods.

The most successful of the new retailing middlemen were the salesmen and magnates who understood that Americans, particularly in the rapidly urbanizing society of the late 19th and early 20th centuries, wanted their status anxieties satisfied by the shopping experience, and who built the modern department store for this express purpose. Among the most flamboyant was John Wanamaker, who sounds like a latter-day Internet entrepreneur with his boast 89 years ago that he had „revolutionized the retail business in America.“ Among the innovations Wanamaker could claim credit for developing or popularizing were escalators, the glass display cabinet, the street-level store entrance, the revolving door, free delivery anywhere in the world, and charge accounts. Wanamaker’s landmark Philadelphia store still operates at the corner of Broad and Market streets, and his New York store at Broadway and Astor Place was that city’s premier shopping destination from the 1890s until the 1920s, when it was finally surpassed by Macy’s, „The World’s Largest Store.“

But perhaps the most significant innovation by Wanamaker and his peers – who included Marshall Field, Boston’s Filene family, and Isidor Straus, who ran Macy’s – was their decision to display their mass-produced goods artfully behind plate glass, which new technologies had made easier to produce in ever larger sheets.

Before 1885, most merchants, if they chose to display anything, simply piled goods haphazardly in their front windows. It took an impresario named L. Frank Baum – who later indulged another kind of American fairy tale when he wrote The Wizard of Oz – to change that. In 1897 Baum began publishing a trade journal called The Show Window and a year later founded the National Association of Window Trimmers.

„You know, the potential exists in a broadband world for every author to have a five-minute video snippet explaining the intended audience.“

The goal of any good store-display designer, according to Baum, was to „arouse in the observer the cupidity and longing to possess the goods.“ Under his example, department store merchants began to use glass, light, and color to create street-corner crowds and stimulate their audiences in ways previously unknown. „What a stinging, quivering zest they display,“ novelist Theodore Dreiser said in 1902 about the newfangled „show windows“ he had encountered, „stirring up in onlookers a desire to secure but a part of what they see, the taste of a vibrating presence, and the pictures that it makes.“

A century later, the „show window“ is alive and well, now transferred to the modern video display, whether it’s connected to the Internet or receiving a television signal. Bezos and crew have focused as intently on trimming their video windows as Baum and Wanamaker concentrated on theirs.

Certainly, his backers insist, Amazon.com’s founder has the necessary talents. Board member Patty Stonesifer, a former Microsoft executive, points to last year’s annual meeting of Amazon.com shareholders, at the Seattle Art Museum, where Bezos held the audience spellbound in a way that reminded her of the best Hollywood executives she has met. „I don’t think he’s a showman,“ says Stonesifer, „but people are drawn to him because he seems unbelievably like a winner. And they want to help him win.“

Translating that ability from the annual meeting to the screen is, of course, another matter. Up to this point, the focus has been on minimizing flash in favor of speed, and on accepting the limitations of what it’s possible to do within the 640 x 480 pixels available inside a browser window on a computer screen. „Every business has to deal with some scarcity, and in our case it’s screen real estate,“ Bezos observes.

But even amid the tiny graphics and fast-loading pages, the entertainment value built intentionally into Amazon.com shows through. Rankings, for example – updated in real time for the company’s best-sellers – tell shoppers exactly how well each book is selling. (It’s not unheard-of for authors to purchase copies of their own books just so they can see the ticker bump up.) And dedicated collectors of rarities – the most notoriously exacting crowd around, with significant cultural trickle-down – can readily appreciate Amazon.com’s attention to detail. Using the music keyword-search function, for example, you can pull up a listing of the six CDs offered by Amazon.com that feature the oud, the traditional Middle Eastern stringed instrument. (Oud by George Mgrdichian was number 14 on Amazon.com’s Middle East music chart in early January.)

As bandwidth and speed increase, making it ever easier for consumers to browse through goods online, Bezos expects e-catalogs to finally drive their paper counterparts into extinction. The bulletin-board discussions and review areas on Amazon.com will also grow more sophisticated, he promises. „You know, the potential exists in a broadband world for every author to have a five-minute video snippet explaining who the intended audience is, why they should buy that book, or that music CD, or that video, and you’ll be able to show the trailers from the videos.“ (Asked, however, to name the one missing technology that, if it existed, would dramatically improve Amazon.com’s business prospects, he says simply, „Windows instant on“ – meaning a personal computer that boots up as quickly as a TV or a PalmPilot. „At home it’s a real pain,“ he says, „because in the 90 seconds or two minutes that it takes, I’ve forgotten what I was going to do!“)

Bezos spends hours at a time thinking about the future: trawling for ideas, exploring his own site, sometimes just surfing the Web, particularly on Mondays and Thursdays, which he tries to keep unscheduled. „I catch up on email, I wander around and talk to people, or I set up my own meetings – ones that are not part of the regular calendar.“ His surfing isn’t always confined to retail: Let the record note that on a Thursday in January he spent five hours on the Web using MacKenzie’s MSN account, plumbing the depths of his space fascination and learning more about „roton“ rockets.

He also gathers new ideas from other wanderers in the company. Amazon.com’s purchase last August of Junglee, then a Silicon Valley-based company that produces product comparison software for Web shoppers, came about when Amazon.com treasurer Randy Tinsley approached Bezos sometime in late April 1998 and lobbied for the acquisition. After a half-hour debate during which Tinsley allowed that Junglee might resist a sale, Bezos’s final word was, „We have a million other things to do – drop it.“ Two hours later, Tinsley called Bezos back to say he had called Junglee anyway and the management there was actually interested. „It shows you how much people listen to me!“ Bezos jokes.

Like an investor checking his portfolio, every three months Bezos sits down with his assistant Kim Christenson to examine and analyze his calendar for the quarter just past. He wants to know, among other things, how much time he has devoted to each of the dozen or so categories to which Christenson has assigned every meeting, phone call, or trip. (The categories include standards like recruiting, as well as onetime items like the launch plans for Amazon.com’s UK and German sites.)

Although he won’t disclose all the projects currently occupying those 12 categories, one that surely colors all of them is the need to fend off the renewed challenge by Barnes & Noble to Amazon.com’s book business – in particular, the potential threat to his supply chain in Barnes & Noble’s recent purchase of Ingram, the book distributor that has been an essential source of Amazon.com inventory. Asked whether B&N’s bid for Ingram took him by surprise, Bezos implies that he knew Ingram was for sale and passed on it, adding, „We don’t talk about what we might have looked at and not done.“ Given that getting items into customers‘ hands as quickly as possible is a key part of the Amazon.com experience, he admits that distributors are also key, at least currently. But he insists they aren’t a necessity long term. „There are so many ways to solve that problem,“ he says, one of which appears to lie in Amazon.com initiatives to build direct relationships with publishers. As for Barnes & Noble, „I bet you a year from now they will not consider us direct competitors,“ Bezos predicts. „Clearly they do today, but we’re on different paths … we’re trying to invent the future of ecommerce, and they’re just defending their turf.“

Jeff Bezos is shopping in meatspace. „I want to get a pair of cargo pants,“ he says, „although my wife says she hates them.“

We’re striding up Pine Street toward the new Nordstrom store in Seattle’s downtown shopping district, next door to the Pacific Place mall and only a couple of blocks from Amazon.com headquarters. Bezos wants cargo pants, he says, because he has too much stuff to carry in his pockets. Today he’s packing a gizmo he calls his World Trade Center Escape Kit, a combination flashlight, penknife, and key chain that he began to carry after the New York landmark was bombed. (For Christmas, he bought every member of his family their own survival kit, an off-the-shelf postmodern version of the Swiss Army knife, from Brookstone, called the Tool Logic Tool Lite Deluxe. Bezos, who has given the matter a good deal of thought, insists that the people trapped for hours in the smoky darkness of the World Trade Center’s fire escapes would have reached safety faster if they had had these simple tools.) Toy shopping, online and off, captivates him. Jeff and MacKenzie’s Christmas gift to everyone a year ago was laser-tag guns and vests, which, combined with the walkie-talkies his parents offered up, served as weapons in a nighttime game of laser-enhanced Capture the Flag on Amelia Island. The entire Bezos clan raced around in the dark zapping each other. „I never realized my mom was such a good shot!“ he says. But Jeff, as his mother recounts with a hint of disapproval, used a secret weapon to stack the deck in his favor: a pair of night-vision goggles MacKenzie had given him. „It’s not clear,“ Bezos counters, „that you’re supposed to have a level playing field when you’re marching into battle. Ah-ha-ha-ha-ha-ha!“

In Nordstrom we pick up lattes and stand in the middle of the main floor. Bezos comments idly on the down escalator: „Look, you turn immediately and go down, instead of walking from one end to the other and circulating through the merchandise.“ He pauses to consider whether the utility in facilitating quick passage from the main floor to the basement would outweigh the retail imperative.

For the kind of shopper Bezos represents, utility is, of course, a mantra. His wardrobe consists of white or blue dress shirts and a pair of khaki pants. Back in the late ’80s in New York, when he had to wear a suit every day to the office, he gained a preference for shirts with hidden snaps under the collar points for easy tie removal. He has trouble locating this style in the Pacific Northwest, so now he buys a pack of standard snapless shirts and has the snaps sewn on. When he discovers a pair of shoes he likes, he’ll buy four pairs at once and wear them in regular rotation for years.

Bezos has a full-steam-ahead, leaning-into-the-wind style of walking when he’s in a hurry, and in the Pacific Place mall he is continually veering off on some new quest for knowledge. He marches into an upscale pen shop and asks the first salesperson we encounter to show us the most expensive model in stock, which turns out to be a $975 Mont Blanc fountain pen. „That was a very good salesman,“ he announces when we leave, pleased with the young man’s knowledge of nib and ink arcana. As we pass Victoria’s Secret he says slyly, „You know, they charge you for the catalog in the stores,“ and whisks me through racks of bras and panties to a cash register in the back, where he asks the clerk to show him the goods. It turns out two catalogs are for sale, one for $5 and another for $3. „It’s the rare store that gets to charge for the catalog,“ he notes admiringly.

We bomb out of the mall and across the street to Old Navy. („You know, they treat jaywalking as seriously here as they do in Los Angeles,“ Bezos says before leaping bravely into mid-block traffic.) Once inside, he tries on a pair of light khaki cargos, size 33R. He deliberates. He decides to buy the pants. „I’m only going to buy one pair,“ he says, „because my wife hasn’t seen them yet.“

Back out in the street, the shopping throng envelopes us. Bezos waves an arm across the scene. „You see, none of this is going away,“ he says. „The Net can’t replace this experience.“

Not that it matters. Back in his office, he’s once again enumerating Amazon.com’s unlimited upside and its not insignificant advantages over the places we’ve just been – small, centralized inventory, low-cost warehouse space, one-to-one knowledge of consumer preferences. „There’s no comparison between the two models,“ he says gleefully, leaning forward and clasping his hands. „Online is so much cheaper.“

It remains to be seen what the long-term costs for Amazon.com will be. In business, of course, the conventional wisdom is that being an innovator costs a lot more than being an imitator, a fact Bezos acknowledges. But the pioneering quality of his business model is as much an aspect of his personality as the personality of Amazon.com. „You cannot,“ he says, „make a business case that you should be who you’re not.

„One of the things that I hope will distinguish Amazon.com is that we continue to be a company that defies easy analogy,“ he goes on. „This requires a lot of innovation, and innovation requires a lot of random walk“ – that is, spontaneous, open-ended search.

„There’s a strong case to be made for being a copier. It’s just not as satisfying, or as fun!“ Rule number one on how to succeed in business, from the new master of the game.

PLUS

Count the Change: All $22.1 Billion of It*

Mall of America 2010

In this room 50 years ago, the internet was born

On October 29, 1969, in this room at UCLA, a student programmer sent the first message using ARPANET, a precursor to the modern internet. The message didn’t go well. The programmer, Charley Kline, got halfway through the word login before the program crashed. It wasn’t a great start.

 

It would take a few more decades until the internet started entering our homes, but its impact is almost incalculable. It’s transformed nearly every facet of life, and whole human generations identify around its existence.

Source: https://www.popularmechanics.com/technology/a29608415/welcome-to-internet-week/

Apple will be around for a long time. But the next Apple just isn’t Apple.

Apple, the iPhone, and the Innovator’s Dilemma

David Paul Morris/Bloomberg/Getty Images

If you re-read the first few chapters of The Innovator’s Dilemma and you insert “Apple” every time Clayton Christensen mentions “a company,” a certain picture emerges: Apple is a company on the verge of being disrupted, and the next great idea in tech and consumer electronics will not materialize from within the walls of its Cupertino spaceship.

The Innovator’s Dilemma, of course, is about the trap that successful companies fall into time and time again. They’re well managed, they’re responsive to their customers, and they’re market leaders. And yet, despite doing everything right, they fail to see the next wave of innovation coming, they get disrupted, and they ultimately fail.

In the case of Apple, the company is trapped by its success, and that success is spelled “iPhone.”

Take, for example, Christensen’s description of the principles of good management that inevitably lead to the downfall of successful companies: “that you should always listen to and respond to the needs of your best customers, and that you should focus investments on those innovations that promise the highest returns.”

Molly Wood (@mollywood) is an Ideas contributor at WIRED and the host and senior editor of Marketplace Tech, a daily national radio broadcast covering the business of technology. She has covered the tech industry at CNET, The New York Times, and in various print, television, digital and audio formats for nearly 20 years. (Ouch.)

Then think about the iPhone, which, despite some consumer-unfriendly advances like the lost headphone jack and ever-changing charging ports, has also been adjusted and tweaked and frozen by what customers want: bigger screens, great cameras, ease of use, and a consistent interface. And the bulk of Apple’s investment since 2007, when the iPhone came out, has been about maintaining, developing, and selling this one device.

In the last quarter of 2018, the iPhone accounted for $51 billion of Apple’s $84 billion in revenue. Its success, the economic halo around it, and its seeming invincibility since its launch have propelled Apple to heights few companies have ever imagined. But the device will also be its undoing.

Here’s what happens when you have a product that successful: You get comfortable. More accurately, you get protective. You don’t want to try anything new. The new things you do try have to be justified in the context of that precious jewel—the “core product.”

So even something like Apple’s Services segment—the brightest non-iPhone spot in its earnings lately—mostly consists of services that benefit the iPhone. It’s Apple Music, iTunes, iCloud—and although Apple doesn’t break out its numbers, the best estimate is that a third or more of its Services revenue is driven by the 30 percent cut it takes from … yep, apps downloaded from the App Store.

The other bright spot in the company’s latest earnings report is its Wearables, Home, and Accessories category. Here again, Apple doesn’t break out the numbers, but the wearables part of that segment is where all the growth is, and that means Apple Watches. And you know what’s still tied nice and tight to the iPhone? Apple Watches.

Even Apple’s best-selling accessories are most likely AirPods, which had a meme-tastic holiday season and are, safe to say, used mostly in conjunction with iPhones. (I’d bet the rest of the accessories dollars are coming from dongles and hubs, since there’s nary a port to be found on any of its new MacBooks.) As for stand-alones, its smart speakers are reportedly great, but they’re not putting a dent in Amazon or Google, by latest count. Apple TV, sure. Fine. But Roku shouldn’t have been embedded in a TV before Apple was.

And none of these efforts count as a serious attempt at diversification.

You may be tempted to argue that Apple is, in fact, working on other projects. The Apple acquisition rumors never cease; nor do the confident statements that the company definitely, absolutely, certainly has a magical innovation in the works that will spring full grown like Athena from the forehead of Zeus any day now. I’m here to say, I don’t think there’s a nascent warrior goddess hiding in there.

Witness Apple’s tottering half-steps into new markets that are unrelated to the iPhone: It was early with a voice assistant but has stalled behind Amazon and even Google Assistant. It wasn’t until last year that the company hired a bona fide machine-learning expert in John Giannandrea, former head of search and AI at Google—and he didn’t get put on the executive team until December 2018. That’s late.

There’s its half-hearted dabble in self-driving technology that was going to be a car, then became software, then became 200 people laid off. Its quailing decade-long attempt to build a streaming service would be sort of comical if there weren’t clearly so much money being thrown around, and so tentatively at that. Rumors of its launch go back as far as 2015, although now it’s supposed to launch in April—this time they mean it.

But even if the streaming service actually arrives, can it really compete against YouTube, PlayStation, Sling, DirecTV, Hulu, and just plain old Netflix? Apple’s original programming is also apparently “not coming as soon as you think.” Analysts are, at this point, outright begging Apple to buy a studio or other original content provider, just to have something to show against Netflix and Amazon originals.

Of course, lots of companies innovate through acquisition, and everyone loves to speculate about what companies Apple might buy. Rumors have ranged from GoPro to BlackBerry to Tesla to the chipmaker ARM. Maybe Netflix. Maybe Tesla. Maybe Disney. Maybe Wired. (Apple News is a hugely successful product … mostly on iPhones, of course.) But at every turn, Apple has declined to move, other than its $3 billion Beats buy in 2014 (which it appears to be abandoning, or cannibalizing, these days).

Now, let me be clear, once again. None of this is to suggest that Apple is doing anything wrong. Indeed, according to Christensen, one of the hallmarks of the innovator’s dilemma is the company’s success, smooth operations, great products, and happy customers. That’s one of the things that makes it a dilemma: A company doesn’t realize anything’s wrong, because, well, nothing is. Smartphone sales may be slowing, but Apple is still a beloved brand, its products are excellent, its history and cachet are unmatched. But that doesn’t mean it has a plan to survive the ongoing decline in global smartphones sales.

The Innovator’s Dilemma does say an entrenched company can sometimes pull out of the quicksand by setting up a small, autonomous spinoff that has the power to move fast, pursue markets that are too small to move the needle for a company making $84 billion a quarter, and innovate before someone else gets there first.

Well, Apple has no autonomous innovation divisions that I know of, and the guys in charge are the same guys who have been in charge for decades: Tim Cook, Eddy Cue, Phil Schiller, Craig Federighi, Jony Ive—all have been associated with Apple since the late ’80s or ’90s. (I mean, has there ever really been a time without Jony Ive?)

You see what I’m saying here: brilliant team with a long record of execution and unparalleled success. Possibly not a lot of fresh ideas.

And then there’s the final option for innovation, one that Apple has availed itself of many times in the past. As Steve Jobs often said, quoting Picasso: “Good artists copy; great artists steal.” The iPod was born of existing MP3 players; the iPhone improved on clunky, ugly smartphones already on the market. The MacOS and the computer mouse were developed to maturity (yes, with permission) after being invented at Xerox PARC.

So maybe Apple will find the hottest thing in tech that’s still slightly unknown and come out with a better version. But is there such a thing as a way-sexier cloud computing business?

I guess it’s possible that the rumored virtual- and augmented-reality headset that Apple is supposed to release in 2020 will take the world by storm and popularize VR in a way that no one imagined, and like AirPods, will take a look that’s painfully dorky on the surface and turn it into a not-quite-ironic must-have statement of affluence and cool. It’s happened before. But this time, I think the company will get beaten to that punch—or whatever punch is next. Apple will be around for a long time. But the next Apple just isn’t Apple.

Source: https://www.wired.com/story/ideas-molly-wood-apple/