How to Turn Down a Billion Dollars

by Billy Gallagher

  Just as venture capitalists had watched Snapchat’s ascent with great interest, so did another group of wealthy, bright technologists in Menlo Park. On November 28, Mark Zuckerberg, having purchased Instagram just eight months prior, emailed Evan, saying he was interested in Snapchat and what they had built and would love to have them over to Facebook’s campus. Evan responded coolly—he wasn’t sure when he would next be in the Bay Area—delivering the not-so-subtle message that he wasn’t going to plan a special trip just to see the Facebook billionaire. Zuckerberg noted that he would be in Los Angeles soon and they could meet then.

  Days later, Evan and Bobby traveled to a private apartment in Los Angeles to meet Zuckerberg in secret (Zuckerberg had obfuscated the purpose of the trip, saying he was going to meet architect Frank Gehry to discuss Facebook’s new headquarters). Zuckerberg asked probing questions about Snapchat and their vision for the product and company. He then wondered aloud what Snapchat might look like as a Facebook-owned company, with Evan and Bobby still at the helm, able to take advantage of the social giant’s resources and funding to grow more quickly, as Instagram had. And indeed, Zuckerberg had an impressive story to tell there: following its acquisition, Instagram’s daily active users grew almost 1,200 percent in just six months. Perhaps Facebook would be interested in acquiring Snapchat for $60 million, instantly making Spiegel and Murphy millionaires in their early twenties.

  Evan explained that they weren’t interested in selling the company.

  In response, Zuckerberg showed them something new that his team had been working on. Poke, a new Facebook app, would be released in a few days. What was it? A messaging app for disappearing photos and videos.

  The message was clear: join us, or we will crush you. Leaving the meeting, they returned home and ordered a book for each of their employees: The Art of War. Written in the fifth century BC by Chinese military strategist Sun Tzu, it is considered a seminal book on strategy and tactics, not just for the military but also for business. One aphorism from the book was particularly relevant to the challenges the upstart Snapchat faced:

  Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.

  CHAPTER ELEVEN

  POKED

  DECEMBER 2012

  STARTUP HAU5

  On December 14, 2012, Snapchat released its most significant product update yet, adding video recording and messages to the photo-sharing app. Users had already been plenty addicted to Snapchat, sharing twenty million photos per day on the app as of October; these new features made Snapchat even more alluring. When users opened the app, it still went directly to the camera. But this time, if users pressed and held the circular button at the bottom of the screen, it started taking a video. When a user released the button, the video stopped recording. It was a brilliant user experience, simple but useful and effective.

  At the time, messaging using videos was neither seamless nor easy from a user perspective. Most video recording user interfaces at the time required you to tap the screen twice—once to start recording, and once to stop. Evan constantly sought to minimize the number of touches required on Snapchat. Other apps like Instagram and the standard iPhone camera app had separate buttons that you had to toggle to for photo versus video. While the difference may seem trivial, Snapchat became the fastest and easiest way to open an app and immediately start capturing a funny or interesting moment to share with friends. Snapchat as simply a photo-sharing app may have been a quick fad that was soon overtaken by the myriad other ways to share images with friends. But this smooth, fast way to share videos gave users multiple options to interact with friends.

  The excitement from the launch did not last long.

  On December 21, Evan received a one-sentence email from Zuckerberg.

  I hope you enjoy Poke.

  Evan had deactivated his Facebook account, so he couldn’t even access the app. In a panic, he called Bobby, who downloaded Poke and made an account.

  It was an exact replica of Snapchat. An unabashed copy, Poke even stole Snapchat’s user interface for recording video. And in addition to sending disappearing photos and videos, users could send disappearing text messages, and even just “poke” each other to get their attention, like in the earliest days of Facebook, when it was fun and weird.

  But there was nothing fun about Poke. This was a show of might from Zuckerberg and his team up north. Veteran Facebook director of product Blake Ross had led a small team in developing Poke in just twelve days. Zuckerberg, who invented poking years prior, even wrote some of the code for Poke, even though he rarely programmed at Facebook anymore. If users dragged their message list all the way up in the Poke app, the text “I’ll find something to put here” appeared, which is the same text Zuckerberg left at the bottom of Facebook.com in its earliest days. And finally, the notification that said “Poke” to users when they received a message? It was a recording of Zuckerberg saying “Poke.” Designers Mike Matas and Sharon Hwang created the app’s icon; Zuckerberg changed the imposing sign outside Facebook’s campus from the Like symbol to the rightward-pointing hand for Poke.

  “If you’re trying to help convince people that they want to join you, helping them understand all the pain they would have to go through is a valuable tactic,” Mark Zuckerberg later said when asked about Facebook’s acquisition strategy. Now, he intended to show Evan and Snapchat the pain they would have to suffer to compete with Facebook.

  Reporters were quick to call Facebook out for the blatant ripoff. The Next Web’s Matthew Panzarino wrote, “Note, as well, that when I described Poke as ‘Snapchat-like’ above I really meant ‘complete clone’. This is essentially a Facebook skin on the Snapchat app. Fairly blatant copy of a popular app by Facebook here.”

  Many journalists who had not gotten over their initial impression that Snapchat was for sexting covered Facebook’s Poke from that angle, including “Here’s Your First Look at Facebook’s New, Sexting-Friendly Poke App” from Business Insider’s Kevin Smith; “Test Driving Poke, Facebook’s New ‘Safer Sexting’ App for Tweens” by ReadWrite’s Taylor Hatmaker; and “Poke for Mobile: Facebook’s New Sexting App” from CNET’s Donna Tam.

  When I called Evan to get a comment from him on Poke’s release, he sounded nervously energetic. Evan, Bobby, and the team had known this moment was coming since their meeting with Zuckerberg a few weeks prior. But now it was here and they had to put on a brave public face and hope the Snapchat community stayed loyal to them. Evan wanted his statement to be just three words: “Welcome, Facebook. Seriously.” It was an homage to Steve Jobs and Apple taking out a full-page ad in The Wall Street Journal saying, “Welcome, IBM. Seriously,” when the much larger computer giant started competing with Apple in the personal computer business. It also mentally conjured the image of a young Jobs standing below an IBM logo giving it the middle finger.

  Most rational people would have needed heavy odds to bet on Snapchat to beat Facebook’s Poke. Facebook launched the app right before the holidays—the same time of year that had given Snapchat its early liftoff just a year prior—when everyone was getting together with friends and family, sharing photos galore, and trying out new apps. Facebook also had the advantage of its billion-plus user base, allowing anyone who downloaded Poke to send a Poke message to any of their Facebook friends; if the recipient hadn’t downloaded Poke, they would receive a notification from the main Facebook app urging them to do so.

  On the day it launched, Poke shot up to the top spot in the iOS app store, pushing Snapchat down to ninth. But just a week later, Poke had dropped to thirty-fourth, while Snapchat rose back up to third. Influential tech blogger and venture capitalist Om Malik wondered,

  How is that Facebook, which has some of the smartest folks in the room, can’t really invent any new single online behavior that would keep people addicted to Facebook?

  Why does it have to look at others to come up with new user behaviors and new features? For instance, chec
kins came from Foursquare, while the short status updates were a direct response to Twitter. Facebook Answers were nothing but a variation on Quora’s offering. Poke is yet another example.

  Why did Poke fail? It failed to solve any problems for young users, who were more than happy with Snapchat, and it solved a problem that didn’t exist for older users, who still didn’t get the appeal of disappearing content.

  Facebook’s strategy with Poke was to have a family of separate, highly successful apps filling different user needs: Facebook, Messenger, Instagram, and Poke. Instagram, by far Facebook’s coolest property, was still just single-photo posts at the time, and had much more on its immediate product roadmap than adding impermanence.

  Poke was further hampered by the fact that teens were drawn to Snapchat because it explicitly was not Facebook, which was populated by their parents and collected everything they posted forever. Most of their friends were either on Snapchat or signing up by the day. They had no interest in Poke messaging with their Facebook friends who they weren’t friends with on Snapchat already. So why would they all pick up and leave Snapchat to share pictures on Poke when half the reason they had migrated to Snapchat was to escape the Facebook empire?

  Within weeks it became clear that Poke hadn’t just failed—it actively helped Snapchat.

  Searches for and mentions of Snapchat skyrocketed in the weeks following Poke’s debut. More importantly, Zuckerberg’s flailing attempt at an acquisition and then clone validated the ephemeral messaging space and helped change the sexting narrative that had been dogging Snapchat.

  Despite users sharing over a billion images through the service, Snapchat struggled to be taken seriously. Many people, particularly those over twenty-five, still thought of it as a sexting app or a toy.

  An internet revolution was going on, but all anyone wanted to talk about was sexting. By having the dominant, respected social network take impermanent photo sharing seriously, Poke helped change the narrative, and Snapchat benefited enormously. The logic changed from “The photos disappear—Snapchat must be for sexting” to “Facebook made a disappearing photos app—disappearing photos must be the next big thing!”

  Evan would later call Poke “the greatest Christmas present we ever had.”

  Evan, Bobby, David, Daniel, and Dena had every reason to celebrate. In a single year they had gone from an unknown app with a couple thousand users to over one million daily active users; they had rejected an acquisition offer from Mark Zuckerberg himself and then beat his Snapchat clone head-to-head. So they threw a Snapchat New Year’s Eve party at their beachfront office. Stanford was playing Wisconsin in the Rose Bowl on New Year’s Day, and the city of angels was filled with Stanford students and alumni. In a move seemingly antithetical to the company’s mission, Evan had put “no photos please” on the party invites, hoping the lack of documentation would let everyone loosen up and have more fun. This illuminated an interesting contradiction in Evan: he wanted to throw big, inclusive parties, but he was also a very private, often secretive person.

  As the start of the party drew nearer, a crowd formed at the entrance to the house, eager to get in and indulge in the open bar. The usual suspects from the Stanford Greek scene milled around greeting each other. Evan strode out and soaked in the scene, walking down the steps to say hi to a few friends. He was back in his element, where he had been since high school, entertaining a huge group of people. As everyone streamed into the house, the music blared and the liquor flowed. All of the furniture in the house had been taken out and replaced with bars or dance floors. The outside deck was covered in people, bars, and heat lamps. People who hadn’t been lucky enough to be invited snuck into the party through a hole in the fence. Inside, partygoers talked with old classmates, danced, and scoured the crowd for a midnight kiss. Upstairs, Evan had created a sectioned-off VIP area, with more bars and friends. It was a house party on steroids, with one hundred, maybe two hundred people crammed into Snapchat’s new headquarters to sip champagne and ring in the New Year.

  John Spiegel stopped by the party, saying hi and congratulating Evan, Bobby, David, Daniel, and Evan’s girlfriend at the time. He chatted with some of Evan’s friends he had met over the years, sharing a sense of bewilderment over how quickly his son’s crazy scheme had taken off. John had worked his way up a very traditional ladder, climbing from the law review to a Supreme Court clerkship to becoming an extremely successful litigator. Evan had eschewed a bachelor’s degree from Stanford to focus on his seemingly quixotic business.

  Everything seemed to be going perfectly.

  CHAPTER TWELVE

  REGGIE’S RETURN

  FEBRUARY 2013

  SANTA MONICA, CA

  On February 25, Reggie filed a lawsuit against Evan, Bobby, and Snapchat, seeking one-third of the company that he’d been kicked out of. Seeing Evan take his idea and turn it into a multimillion-dollar company infuriated Reggie. Instead of running the company together, Reggie sat on the sidelines watching Evan soar past Poke and Zuckerberg.

  Reggie hired James Lee, an up-and-coming partner at Lee Tran & Liang, as his lawyer in the case. Lee had begun his career as an LAPD detective; when he started studying at Stanford Law School, the Palo Alto campus was so quiet it gave him insomnia. Evan and Bobby still retained Cooley LLP, who responded to Reggie’s letter in May 2012, as their lawyers for Snapchat. The ensuing discovery and depositions cost Snapchat significant time and money, but perhaps most importantly it weighed heavily on Evan at a pivotal point for the company.

  On April 5, Evan, Bobby, and their attorneys from Cooley, along with Reggie and his attorneys from Lee Tran & Liang, filed into a conference room in Cooley’s offices in downtown Santa Monica. Outside, tourists strolled up and down Santa Monica Boulevard, stopping in the trendy neighborhood’s upscale shops, restaurants, and bars; they might walk down the palm-tree-lined street to the beach or the famous pier. Inside the conference room the temperature was more frigid.

  Cooley’s Mike Rhodes began deposing Reggie, attempting to establish that Reggie had accomplished little since graduation:

  “What is your current employment, if any?”

  “Well, currently I’m working in the South Carolina attorney general’s office.”

  “And how long have you worked there?”

  “I guess about a month at this point.”

  “And what is your position?”

  “It’s basically an intern/clerk position.”

  “Is that a nonpaying position?”

  “Yes, it is.”

  “And again, what was your approximate start date?”

  “A few weeks ago. Probably about a month.”

  “So early March?”

  “Yes.”

  “And what were you doing, if anything, for employment prior to that date?”

  “Well, I was applying to law school.”

  “Were you working?”

  “No.”

  Reggie became distracted midway through answering a question about which lawyers he had spoken with. A naked man had chosen the sidewalk across from the Cooley office as his performance stage for the day and was gesturing at Reggie through the window. The lawyers hastily closed the blinds and continued the deposition much less eventfully.

  Two days later, Bobby was deposed in the same office and had some trouble with his memory. James Lee asked Bobby if he had ever referred to Reggie Brown as an employer at Picaboo. Bobby said he hadn’t. Lee showed him an automated email from Facebook, reading “Bobby Murphy tagged you in Picaboo under Employers.” Bobby’s eyes darted, his head tilted down, and he twitched his mouth nervously. Glancing up at Lee, he sheepishly replied “Uh … Well it looks like here that I did something to that effect,” Murphy said. “I don’t have a specific recollection of this happening … although I would say that it would have been unclear to me what … tagging someone as an ‘employer’ under Facebook would mean.”

  The following Monday, it was Evan’s turn in front of the deposition c
amera. Like Bobby, Evan got tripped up a few times. After getting Evan on the record that Reggie had not been building an application with Evan and Bobby, Lee showed Evan an email he sent to Nicole James, the blogger who wrote about Snapchat, in which he wrote, “I just built an app with two friends of mine (certified bros.)” Evan reluctantly admitted that the two people he was referring to were Bobby and Reggie. The deposition continued:

  “Did you come up with the idea for deleting picture messages?”

  “No.”

  “Did Bobby come up with the idea?”

  “No, he did not.”

  “Who came up with the idea?”

  “Reggie did.”

  “Do you think Reggie deserves anything for the contributions he made on the project?”

  Evan paused for seven seconds. The room was dead silent.

  “Reggie may deserve something for some of his contributions.”

  “Do you have any regrets?”

  Evan sat still for thirty seconds. Again, the room was noiseless. Evan searched for the right words.

  “That’s a really hard question for me because it’s pretty clear that I lost a good friend.”

  Evan looked tired and miserable, his shoulders slumped in the chair, his eyes sullen and searching for the ground.

  “I regret inviting him to my house. I regret spending that time with him at my house. I regret giving him so many chances. He exploited my attempts at generosity … the generosity was giving Reggie an opportunity to work on something like this … for experience that he didn’t have.”

  “Do you regret Reggie sharing his idea with you?”

  There was no pause this time. “No.”

  These depositions did significant damage to Snapchat, both in the case and in the court of public opinion. Someone leaked videos of the depositions to Business Insider, making Evan and Bobby look bad for cutting Reggie out of the company and initially lying in response to deposition questions about Reggie’s level of involvement.