Facebook Founders Fly The Coop

Posted: September 30th, 2018 | Author: | Filed under: facebook | No Comments »

Instagram, WhatsApp, and Oculus. These are the three prize acquisitions of Facebook and, as of last week, these three units no longer have their founders. For years Facebook has been praised for acquiring companies and, for the most part, allowing these companies to stay independent. As time went on, that independence eroded and the founders eventually left. Critics of Facebook are jumping all over this alleged change. Did Zuckerberg mismanage this situation? Will founders be less likely to sell their companies to Facebook going forward? Is Facebook a terrible place to work?

Gruber and Acton’s Take

Let’s start with Gruber’s take (of DaringFireball)

Parmy Olson, writing for Forbes:

For his part, Acton had proposed monetizing WhatsApp through a metered-user model, charging, say, a tenth of a penny after a certain large number of free messages were used up. “You build it once, it runs everywhere in every country,” Acton says. “You don’t need a sophisticated sales force. It’s a very simple business.”

Acton’s plan was shot down by Sandberg. “Her words were ‘It won’t scale.’”

“I called her out one time,” says Acton, who sensed there might be greed at play. “I was like, ‘No, you don’t mean that it won’t scale. You mean it won’t make as much money as… ,’ and she kind of hemmed and hawed a little. And we moved on.” […]

When Acton reached Zuckerberg’s office, a Facebook lawyer was present. Acton made clear that the disagreement — Facebook wanted to make money through ads, and he wanted to make it from high-volume users — meant he could get his full allocation of stock. Facebook’s legal team disagreed, saying that WhatsApp had only been exploring monetization initiatives, not “implementing” them. Zuckerberg, for his part, had a simple message: “He was like, This is probably the last time you’ll ever talk to me.”

Gruber’s response to this quote  – “Sounds like a delightful place to work.”

The WhatsApp founders are presenting themselves as benevolent product people who want to empower people to communicate. By contrast, Acton is presenting Facebook as greedy, immoral capitalists that want to make a buck at all costs. As usual, the truth is somewhere in the middle.

Facebook acquired WhatsApp four years ago, on February 2014 for $19 billion, yes billion with a “B”. Over the last four years, Zuckerberg and the rest of Facebook have let WhatsApp run independently. So far WhatsApp has made Facebook a whopping $0. It appears clear to me that Zuckerberg’s patience was up and he was pushing Acton and the rest of WhatsApp to start monetizing. For the leader of a public company, this is the right thing to do. Four years of no monetization and focusing on the user/product is very fair, now go make some damn money.

Was Acton against monetization? No, but he appears to be against Facebook’s preferred approach of monetization – Ads. His quote in the interview is great for eyeballs but did he actually believe Facebook would want to use a metered-user model? How long would it take for this metered-user model to make back the $19billion Facebook spent?

Facebook doesn’t make money this way. Facebook wants their products available to everyone, and for free, supported by ad revenue. Note to all founders – if you sell your product to Facebook (or Google) it will be supported by ads someday.

The second part of Acton’s quote, “You don’t need a sophisticated sales force. It’s a very simple business.”, also shows a naive understanding of Facebook’s business. Facebook’s long-term approach is a self-serve ad model. Facebook is implementing a “very simple business” monetization approach to WhatsApp, and one that they know very well.

Ads are Bad

What exactly is Acton’s beef with serving ads in WhatsApp Stories? Is this really as “evil” and “creepy” as Acton and many journalists believe? Are serving the most relevant ads to users to support a tool many people benefit from every day more “evil” than charging the same people? This is the narrative I have trouble understanding despite the amount of ink spilled about it.

The main fear is that Facebook’s drive for targetted ads forces it to act as a surveillance organization, not that dissimilar than the NSA. Some believe this information can be used against you. Does Facebook have enough personal/private information to cause harm to you? That’s in the eye of the beholder.

If the root of the fear against ads is not in the ads themselves but with the surveillance that comes with targeting ads, is there a way to improve this fear? How much less money would Facebook make with no targeting at all? 10x less? Could Facebook modify targeted ads to be opt-in, including what information is available for targeting? It’ll be interesting to see how Facebook addresses this issue in the long-term.

Sounds like a delightful place to work.

Gruber’s accusation that Facebook is a terrible place to work is laughable. Yes, Zuckerberg appears to have a ruthless side to him. I’d imagine all CEOs running a company of that size has this side to them. That being said, by all accounts, Facebook appears to be an excellent place to work.

Facebook is #1 in Glassdoor’s “Best Places to work” category and Zuckerberg consistently ranks high in the “Best CEOs at large companies”. He currently ranks 18.

But, but, the Instagram and WhatsApp founders quit! This must surely mean there is a problem!

Not quite. Founders leaving a company after being acquired is inevitable. The fact that the Instagram founders stayed for six years and the WhatsApp founders stayed for four is astounding. Most founders have zero desire to work for a large company, which is why they’re founders. Most companies work quickly to monetize and make their mark on their new baby, but Zuckerberg allowed these companies to run independent much longer than most, which kept their founders around longer than expected.

What this means for the future of Facebook Acquisitions

If there ever was a myth that you could sell your company to Facebook, get rich and never have to monetize, that myth is now exposed. But, I don’t believe this was ever the case. Every founder knows every deal has strings attached.

As Ben Thompson put it

Controlling one’s own destiny, though, takes more than product or popularity. It takes money, which is to say it takes building a company, working business model and all. That is why I mark April 9, 2012, as the day yesterday became inevitable. Letting Facebook build the business may have made Systrom and Krieger rich and freed them to focus on product, but it made Zuckerberg the true CEO, and always, inevitably, CEOs call the shots.

Perhaps Systrom, Krieger and Acton were all too naive to understand this but it’s unlikely. Their treatment and resentment of Facebook may cause founders in the future to take a closer eye at a Facebook offer but unlikely to deter them. Facebook’s pockets are deeper than ever, and these deeper pockets can make up for any goodwill lost here. The impact on these departures is hard to predict and even harder to measure but keep your eye out for more high-profile Facebook acquisitions, they’re not done yet.