How to Turn Down a Billion Dollars

by Billy Gallagher

  Once you lifted your finger off the screen, your video chat ended—similar to how lifting your finger stopped recording a video or stopped a friend’s Snapchat or story from playing. Holding your finger on the bottom half of the screen used your front-facing camera to send your friend a video chat of your face; moving it up to the top half flipped around to use the front camera to show them where you were. These features and the design were natural and intuitive for longtime Snapchatters who only had to grow accustomed to one new thing at a time—they went from pictures only to video to Stories to messaging, and more and more got baked into the product. But these functions were much more confusing for people who joined later, as everything got dumped on them at once.

  Snapchat notifications didn’t differentiate between a photo Snap, video Snap, or text message—a universal notification simply appeared that your friend had sent you a Snapchat. This uniformity and users’ learned behaviors helped keep the emphasis on communicating through photos and videos.

  While AddLive and Snapchat’s new chat feature led existing users to be more active on Snapchat, Evan found another app that would help users add friends—and potentially much more. In September 2014, Snapchat paid $50 million to acquire Scan, a Provo, Utah, startup that specialized in QR code (a type of barcode) scanning.

  Garrett Gee started Scan as a student project at Brigham Young University, where he captained the varsity soccer team. Gee, Kirk Ouimet, and Ben Turley became obsessed with QR code scanners and the idea of using your smartphone to interact with the physical world. But every QR code scanner they had downloaded and used was terrible.

  So they built Scan, a simple, intuitive way to use your phone as a remote control for the physical world. Users could hover over an advertisement and pull up a one-pager on a product and purchase it. People could create their own QR code for their website or social media accounts. When the three founders were at a party at BYU, someone mentioned they had cracked twenty-seven downloads. That seemed nice, but not very spectacular, until they realized he meant twenty-seven thousand downloads.

  Scan’s intuitive name and design prompted millions of downloads. In February 2014, Gee appeared on ABC’s Shark Tank, where entrepreneurs pitch their startups to a panel of expert investors, including billionaire Mark Cuban. Shark Tank prohibited contestants from displaying URLs on camera but allowed Scan to use a big presentation board featuring a QR code for a demonstration. Before the show aired, Gee changed the end address that the QR code would lead to from a dummy URL that they’d used for filming to Scan’s Instagram page. While Scan ultimately did not receive funding from the Sharks, over three thousand people watching the show scanned the QR code, hundreds of whom followed their Instagram.

  A little over a year later, Gee was in Hawaii when Evan reached out to him about bringing Scan into the fold. He hopped on a flight to LA, met Evan on the beach in Venice, and explained his vision of using Scan to bridge the physical and digital worlds. They quickly struck a deal for $50 million. After selling the company, Gee, his wife, and their two young children sold most of their belongings and started traveling the world together, living out of two backpacks and two carry-on bags and posting about the adventure on their blog, The Bucket List Family.

  Snapchat quickly incorporated Scan’s QR scanning feature to make it very easy for users to scan each other’s codes to add someone as a friend. The Snapcodes, as they were called, were reminiscent of BlackBerry Messenger (BBM), where you could hold your phone over a friend’s BlackBerry and instantly become BBM contacts. This was another of the team’s great talents—taking an old technology or feature that had fallen out of fashion and making it cool again. The earliest versions of Snapchat had a public list of your top three friends akin to a Myspace top-friends panel.

  Snapchat is working on way to use Scan to realize its vision of bridging the digital and physical world. In its vision, you would tap on the barcode or QR code of an item in a store—say, a book like this one—and instantly receive a short page of information on it. You could learn more about the item and even buy it, potentially from Snapchat or through partners like Amazon.

  In March 2014, Evan rolled the dice on a company that had a chance to be a true game-changer for Snapchat. Snapchat paid $15 million to acquire a small hardware startup called Vergence Labs. Vergence made a Google Glass–like product they called Epiphany Eyewear that could record video and upload it to a computer.

  Erick Miller had begun working on the idea while studying for his MBA at UCLA in 2011; he was initially working on a set of virtual reality goggles, but when Google Glass was announced, he realized he could make something more fashion-forward that wasn’t as awkward to use and look at. Although Miller raised $70,000 on Indiegogo (a popular crowdfunding platform), he was still remarkably persistent in searching for funding, often walking around outside Facebook’s campus trying to catch Mark Zuckerberg walking to his car to pitch him.

  While researching other projects on crowdfunding platforms, Miller ran across Jon Rodriguez, a Stanford student who was looking to build virtual reality hardware and software for x-ray vision. Miller convinced Rodriguez to team up with him on Vergence Labs. When they eventually sold the company to Snapchat, it was a reunion of sorts, as Rodriguez had lived with Evan (and Reggie) in the Donner dorm at Stanford back in their freshman year.

  Evan set up a new division of the company, dubbed Snap Lab, and filled it with the ex-Vergence team and engineers with experience working on computer vision, gaze tracking, and speech recognition. Over the next year, Snapchat recruited a dozen wearable technology experts, industrial designers, and people with experience in the fashion industry. Members of the Snap Lab team took frequent trips to Shenzhen, China, to prepare a potential supply chain for a Snapchat hardware product.

  Snapchat never announces its acquisitions. One day the startup is fully functioning independently; the next, employees are telling their friends that they are moving to LA and can’t say any more. Even in this secretive culture, Snap Labs is particularly notable for its clandestine operations. When Vergence agreed to sell, Miller called their first investor, early Facebook executive Charlie Cheever, and said, “We sold the company. We can’t tell you who. You’ll get a check in the mail.”

  The division’s future depended just as much on its technical progress as it did on Evan’s evolving view of wearable technology. In September 2013, Evan spoke at the TechCrunch Disrupt conference, when Google Glass was near the height of its hype; he said Snapchat was not even considering building an app for Google Glass, saying it felt “invasive,” like “a gun pointed at you.” It remained to be seen if Vergence would ever launch a real product into the world or just stay hidden as an internal Snapchat experiment.

  CHAPTER TWENTY

  GOODBYE REGGIE

  MAY 2014

  RIO DE JANEIRO, BRAZIL

  luau fucking raged.

  Thanks to all of you.

  Hope at least six girls sucked your dicks last night. Cuz that didn’t happen for me.

  Thanks again for everything.

  Champions.

  Fuckbitchesgetleid

  Spiegel

  In May 2014, someone leaked thirteen emails Evan had written to his fraternity brothers in his freshman and sophomore years in 2009 and 2010. Worse, they had leaked the emails to Valleywag, a Gawker blog whose mission was to poke fun at Silicon Valley. The emails, nearly all of which were sent when Evan was heavily intoxicated, seemed to confirm the worst caricature of Evan as an obnoxious frat bro.

  Another message read:

  do not touch the stripper pole inside

  its going to live in the house for a few days while I try to figure out how to save it.

  None of us would want our college missives released, but these were truly horrifying, ranging from merely idiotic to downright homophobic and misogynist. The leak was devastating for Evan’s public image at a time when he was trying to build Snapchat into a serious, respectable company.

  Eva
n and Bobby scrambled to respond. Evan was in Brazil preparing for a special content project Snapchat was working on for the Summer Olympics that were quickly approaching. Evan’s main confidant on the board, Michael Lynton, was several time zones away in Tokyo. As they did during the hacking scandal, media pundits again called for Evan to be fired. Some wondered aloud how many companies would be willing to advertise with Snapchat or how many high-powered women would be willing to serve on the company’s all-male board given Evan’s comments.

  The Washington Post’s Jena McGregor tied Evan’s emails to wider industry problems in a column titled “Snapchat, Sexism and the Reason Women Don’t Stay in Tech.”

  “I’m obviously mortified and embarrassed that my idiotic emails during my fraternity days were made public,” Evan eventually said in a statement to the press. “I have no excuse. I’m sorry I wrote them at the time and I was a jerk to have written them. They in no way reflect who I am today or my views towards women.”

  Jordan Crook, my former TechCrunch colleague, responded in a piece dubbed, “Confirmed: Snapchat’s Evan Spiegel Is Kind of an Ass”: “He’s right to be embarrassed, the emails display the worst of the ‘bro’ mentality that continues to contribute to the marginalization of women in Silicon Valley.”

  “I think he needs to go a lot further than just apologizing and I think he needs to step down,” online reputation consultant Eric Schiffer said to Bloomberg. “Is a Coca-Cola or a Procter & Gamble or a Pepsi, which has a female CEO, going to want to put millions of dollars into a company when the senior leader talks about women like cattle?”

  Two days later, Stanford provost John Etchemendy emailed the entire student body, saying, “Like most of you, male and female, I found those messages abhorrent. I am writing now to convey clearly that the sentiments expressed in these emails do not reflect what we, as members of the Stanford community, expect of one another.”

  Evan had gone from the sterling example of a bright young Stanford student striking it big with an original idea to a looked-down-upon outcast.

  Many people I spoke to for this book went out of their way to explain that the emails don’t reflect who Evan is now. As a freshman and sophomore in the fraternity, Evan was constantly planning outlandish parties and writing ridiculous event descriptions trying to one-up his friends and his past efforts. Immature and superficial, he was trying to get attention in the worst way. Many say he has matured and grown since writing those emails as a nineteen-year-old. But he still wrote those emails. Unlike a Snapchat, the emails can’t be erased, and Evan’s own words stain his reputation.

  * * *

  The email leak and Reggie’s ongoing lawsuit combined to pose a major distraction to Evan and the Snapchat team. It was quickly becoming clear that Snapchat needed to settle the suit with Reggie at almost any cost just so they could move on and focus on more important issues.

  Since he filed his lawsuit, Reggie had changed his mind about law school and ended up attending a master’s of management studies program at Duke University. In June 2013, he began a one-year master’s program that covered most of the first-year core classes of an MBA. He was still the same old personable, affable Reggie, making friends in his sections and camping out to get tickets to the Duke men’s basketball team’s games.

  While his classmates would sometimes take Snapchats of each other falling asleep in class or making silly faces, Reggie never told anyone of his involvement with the company. His classmates found out through the grapevine, though, and word quickly spread through the program.

  When he wasn’t in class, Reggie was working with James Lee and his legal team on his ongoing lawsuit.

  The two sides failed to reach a settlement in several conferences during the spring and summer, and for a while it looked like the case could go to a trial by jury. This outcome would surely drag things out longer and could get much uglier. Each side had released a lot of incriminating evidence about the other party throughout various filings and motions. And each side had plenty of dry powder left in the cannons. The lawsuit was also a major distraction to Evan, Bobby, and Snapchat, during a time when they needed to focus more than ever.

  Finally, they reached a settlement. Reggie would receive $157.5 million and sign a gag order to never speak about Snapchat, the founding, or the lawsuit. Snapchat would acknowledge Reggie’s contributions to the company.

  Like Facebook’s multiple lawsuits with the Winklevoss twins and Eduardo Saverin, it’s difficult to neatly arrange the characters into winner and loser columns. Reggie Brown likely could not have built Snapchat into the multibillion-dollar company it is today. But he did not simply toss an idea out there for anyone to take—he recruited Evan, the best person he knew for the task, to join him and start the company. So what is fair for each side to receive? Snapchat’s valuation soared so high and so quickly during the lawsuit that it was hard for each side to wrap their heads around it, let alone arbitrate what each side deserved.

  This question isn’t going away. The Social Network, featuring courtroom scene after courtroom scene of friends hurling accusations at each other through expensive lawyers, spurred scores of young college students to pursue startups. Evan’s massive success with Snapchat has only increased the startup fervor on Stanford’s campus. And Reggie’s lawyers’ firm, Lee Tran & Liang, has become the hot law firm for ousted startup cofounders to sue young tech companies.

  In some ways, these lawsuits seem structural and inevitable: companies like Snapchat start on college campuses as part-time projects and change rapidly from a half-baked idea to a startup with real potential. There are dramatic differences in the talent of team members and the effort individual people are putting in while balancing school and other commitments. At first, they begin as silly, light projects between friends. But when there are millions of dollars at stake, people sue each other. And friendships are quickly thrown aside.

  * * *

  On September 9, 2014, Snapchat put out a press release about the settlement, writing, “Reggie Brown originally came up with the idea of creating an application for sending disappearing picture messages while he was a student at Stanford University. He then collaborated with Spiegel and Murphy on the development of Snapchat during its early and most formative days.” The company buried the news, releasing it one minute before Apple kicked off its live event announcing the Apple Watch and iPhone 6 and 6 Plus.

  Three years after being kicked out of Picaboo and eighteen months after suing Snapchat, Reggie finally settled with his old friends and was formally recognized by the company.

  The release included a quote from Evan, stating, “We are pleased that we have been able to resolve this matter in a manner that is satisfactory to Mr. Brown and the company. We acknowledge Reggie’s contribution to the creation of Snapchat and appreciate his work in getting the application off the ground.”

  CHAPTER TWENTY-ONE

  SNAPCHAT LIVE!

  JUNE 2014

  MENLO PARK, CA

  Eighteen months after Poke cratered, Facebook had not given up. Its new app, Slingshot, took another crack at copying Snapchat, with a slight twist. It forced users to send back a photo to the sender in order to unlock the picture they had received. This would ideally create a virtuous cycle in which people sent each other picture after picture in order to see what the other person was sending.

  Again, Facebook’s effort failed. The forced reply meant that people had to try to react to pictures before they saw them, or simply send an irrelevant photo. It wasn’t a fun, organic conversation like Snapchat, but a weird, forced Facebook game. Six months later, Facebook released a new version of Slingshot that copied Snapchat’s Stories feature; it also showed reactions to those Stories in a feed. Like the previous version of Slingshot, it failed. Facebook continually tried to copy Snapchat features without understanding the Snapchat community and why users were obsessed with the app’s focus on impermanence.

  In order to understand why Facebook failed to copy Snapchat, it’s
helpful to look back at Poke. On November 8, 2012, more than a month before Facebook launched Poke, Snapchat filed a patent: “Apparatus and method for single action control of social network profile access.” The patent describes the way users view content in Snapchat Stories, which only shows you content you haven’t seen yet (e.g., if you post a breakfast photo, an afternoon photo at the park, and an evening video from a bar, and I’ve already seen the breakfast photo, when I tap your story later on, I only see the latter two).

  So when Facebook was gearing up to build a clone of the disappearing photo and video messenger, Snapchat was thinking ahead with Stories. Within a year, Stories passed Snapchat messages for daily views as users watched more than a billion Snapchat Stories per day. And on the same day that Facebook launched Slingshot, Snapchat added a new dimension to Stories that made the app an even greater hit.

  In the spring of 2014, the illusionist David Blaine visited Snapchat’s offices in Venice. Snapchat’s head of content, Nick Bell, thought he might be able to figure out Blaine’s magic if he watched all his colleague’s Snapchat Stories, and was thus able to see the performance from dozens of different angles. This idea, which closely aligned with a product Snapchat had been working on internally, ended up being much more valuable than cracking Blaine’s secrets. An individual’s Snapchat Story showed their life from their point of view. But a group story, if done around a collective event like a concert or game, could show an engaging, interesting evening from everyone’s point of view. Or, better yet, from the very best points of view. Instead of My Story, it would be Our Story.