How to Turn Down a Billion Dollars

by Billy Gallagher

  Kan tried out Snapchat in 2013 but didn’t really get the appeal at the time. In his own words, “I tried it, mostly for industry research purposes, found the UI confusing, saw I had very few friends active, felt old, and then didn’t open it for two years.” In 2015, friends were talking about DJ Khaled getting lost on his Jet Ski and laughing and watching the story over and over again. Kan decided to give Snapchat another shot.

  He found Snapchat was a much better version of what he had tried with the original Justin.tv. Broadcasting 24/7 was just too much time and involved too many boring moments. With Snapchat, Kan distills an entire day down to two to three minutes of the most interesting ten-second photos and videos. Kan leaves his messages open for his eleven thousand followers and typically gets ten messages an hour.2 In May 2016, Kan worked as a partner at the prestigious startup incubator Y Combinator; he let his followers apply to take over his Snapchat account for an hour and pitch their startup for funding from Y Combinator. Eventually, Kan and Y Combinator funded three startups from over four hundred applicants.

  * * *

  Venture capital money isn’t just headed to companies pitching on Snapchat. Investors are funding Snapchat-content companies, too. On an unusually windy afternoon in March 2016, I grabbed a coffee from Groundwork Coffee Co. in Venice, a couple blocks down the boardwalk from Snapchat’s main headquarters. I hopped in an Uber, and the driver took me north toward Santa Monica, past the scenic Binoculars Building now occupied by Google. As the Santa Monica pier rapidly approached, we pulled onto the 10, zipping past Evan’s old stomping grounds, the Crossroads School. Merging onto the 405, we … well, we sat in traffic for a while. Heading north, I played with Snapchat on my phone, seeing what geofilters I picked up as we drove through Brentwood, past UCLA, past the Getty Museum, and eventually pulled off onto Mulholland Drive. As we rose into the hills, Los Angeles sprawled out beneath us as we passed Harvard Westlake, a prestigious private school where Snapchat developed an early following, and arrived at the Arsenic House.

  I walked in and heard a techno version of Rihanna’s “Work” blaring. Half a dozen models were walking around in lingerie getting ready for a photo shoot for Arsenic, Snapchat’s new Playboy. Mimosas and Red Bulls littered the glass desks in the back of the kitchen-office combination as the models rolled dough and baked cakes in the front. An entourage of twentysomethings Snapchatted the photo shoot on iPhones while a couple of guys with professional cameras took pictures. The models and photographers alike danced and sang along to the deafening music.

  During the shoot, I chatted with Arsenic’s brain trust, Amanda Micallef and Billy Hawkins. Hawkins worked on Wall Street before becoming a Hollywood agent to stars like Will Smith. Micallef produced movies with Jamie Lynn Siegler and Julia Roberts, and started Arsenic Magazine—she had originally intended for it to be a print magazine—as a hobby in her spare time. Micallef quickly realized photographers and models were happy to come together and shoot for free if they were given creative freedom and able to showcase their work. As models increasingly used Instagram as a digital resume and leveraged their social media followings to book higher-paying gigs, Arsenic grew, primarily on Instagram.

  An intern for Arsenic, then an undergraduate at USC, suggested they get on Snapchat as well. Micallef and Hawkins knew nothing about Snapchat but told her to run with it and see how it went. It went quite well. Arsenic now has over five hundred thousand daily views on its Snapchat story. They’ve added new Snapchat accounts dedicated to music, art, and behind-the-scenes content to their family of channels. They’ve done music collaborations with A-listers like Diplo, Skrillex, Jeremih, and Dillon Francis. Katy Evans, a regular Arsenic model who has been in Maxim and other high-profile magazines, used to only get a few hundred views on her Snapchat stories. Once she started shooting with Arsenic, that figure ballooned up to almost fifty thousand, as the models regularly include their Snapchat handles in Arsenic shoots, give each other shoutouts on their accounts, and take over other Arsenic models’ accounts, much like Shonduras and MPlatco did when they were starting out.

  So why has Arsenic thrived on Snapchat? Is it just porn? That’s what I thought at first, but the fact is, anyone with a smartphone is a thumb tap away from all the porn they could possibly want. In fact, Arsenic isn’t even the porniest thing on Snapchat—there’s real porn!

  Just as every Vine star and aspiring actor took to Snapchat Stories to promote their work and gain followers, strippers and porn stars also took to Snapchat. Many sent videos and photos of themselves naked for a few dollars; turns out some people did use Snapcash! Others used Snapchat Stories to promote their work elsewhere on the web or just to develop a following. Still others offered to do personalized sex shows, via Snapchat’s video messenger, in exchange for cash. Pornography violates Snapchat’s community guidelines, and the company has been very aggressive about shutting down porn-related accounts. It still happens on the app—it is the internet, after all—but it’s not an epidemic.

  So why has a lingerie Snapchat channel thrived? Once again, it comes down to intimacy. No, not that kind. When you watch Arsenic TV, you’re watching these beautiful women, but they aren’t airbrushed or photoshopped to perfection. They’re dancing goofily and making silly faces just like your friends. And the low-quality videos are right next to your friends’ stories. So there’s an intimacy, even though you’re one of a million people watching it. The result is that people tell their friends to check out Arsenic, and just like DJ Khaled or Shonduras or YesJulz or any of the other stars we’ve talked about, it spreads through word of mouth.

  Alexis Madrigal, then an editor at The Atlantic, coined the term “dark social” in 2012 to describe the way we share articles and other links privately via messages and email. He estimated that 70 percent of referrals came not from the Facebooks and Twitters of the world, but from dark social. Snapchat has no links, so the entire rise of these little kingdoms has been through dark social, mimicking the way the app originally spread through high schools and colleges, being whispered about and texted person to person.

  As Snapchat grew ever more popular, every brand targeting customers from thirteen to thirty years old knew they needed to be involved with the app in some way, but most didn’t really know how. Advertisers and marketers became very comfortable with Twitter and Instagram after cutting their teeth with Facebook in the 2000s. But Snapchat is very different from other social media networks. Comedy brands like FuckJerry and TheFatJewish and parody accounts became very popular on Twitter and Instagram posting funny pictures they’d created or found elsewhere on the internet. Advertisers and marketers could take a page from the most popular accounts’ books and try to post funny content that was still relevant to their demographics. But Snapchat is so personal and geared toward an individual person’s story that these comedy brands and parody accounts don’t work. And neither do brand accounts, for the most part.

  A host of digital agencies have sprung up to fill this void between advertisers and Snapchat users. Some, like Naritiv and Delmondo, focus exclusively on bringing together advertisers and Snapchat stars; others, like Niche, offer Snapchat as one of their digital products alongside production for Instagram, Twitter, and other social media sites. These agencies are simultaneously competing and cooperating as they try to standardize key performance indicators and metrics (what counts as a view, what else can we measure in an app with no links, likes, comments, or retweets) for advertisers.

  In early 2015, as Discover was just rolling out and Snapchat advertising was still nascent, advertisers were struggling to put engaging content on the platform. Between 60 and 70 percent of viewers closed a Snapchat ad after three seconds of viewing it. Coca-Cola, like most other advertisers, was just repurposing its ads from TV for Snapchat. But the soda giant decided to rethink its strategy after its ads performed poorly during Snapchat’s Live Story for the NCAA Final Four.

  Coca-Cola turned to a young, rising Snapchat star named Harris Markowitz, known for hi
s sketch comedy and stop-motion stories. Markowitz explained to Coca-Cola that building a following on a Coke Snapchat account would still have value, even though the content disappeared after twenty-four hours, because this shelf life created urgency.

  “If Coca-Cola had their own TV station and you guys knew that every single night you guys are guaranteed 30 thousand views, would that be valuable?” Markowitz asked. Of course it would be. “That’s Snapchat!” he explained.

  For his first Coca-Cola ad, Markowitz made a stop-motion story of picking up a Coca-Cola and handing it to a friend; Coke gained five thousand followers from the promotion. Next, he and a friend fought over a can of Coca-Cola they wanted to give to a girl. Coke gained more followers. Coca-Cola asked him to film an advertisement for Snapchat’s fall Back to School Live Story.

  Markowitz was given the first advertising slot in the Live Story, which cost Coke hundreds of thousands of dollars. Markowitz studied what other advertisers were putting in Live Stories and noticed they all looked like TV ads awkwardly jammed into Snapchat. He shot a time-lapse video of himself in his apartment trying on different outfits to go back to school, and, of course, grabbing a can of Coke. He shot the entire ad on his iPhone and even lowered the quality of the video to make it look kind of grainy. The ad ran exclusively on the Snapchat live story, and 54 percent of users watched all ten seconds of it, one of the highest performing ads in Snapchat history.

  It turned out that the best way to get young Snapchatters to watch an ad was to have one of their own make it.

  CHAPTER TWENTY-SIX

  KEEPING SECRETS

  NOVEMBER 2014

  CULVER CITY, CA

  On a Monday morning in late November 2014, Sony Entertainment CEO and Snapchat board member Michael Lynton was driving to his office at the Sony Pictures’ complex in Culver City, just west of Los Angeles. Sony’s chief financial officer called Lynton and told him the company had been hacked. The US government would later blame the hack—the most devastating in corporate history—on North Korea, which was angry over Sony’s Seth Rogen–James Franco comedy The Interview that mocked North Korean leader Kim Jong-Un. By the time Lynton reached the office, Sony’s entire system was offline. Lynton had to deal with an onslaught of problems with employees, the press, and the FBI. And he had to call Evan Spiegel.

  For Evan, there could hardly be something worse than board-level emails being leaked en masse; besides Snapchat itself being hacked, of course. The media published article after article dredged from the leak, revealing companies Snapchat had quietly acquired and internal maneuverings behind rejecting Facebook’s $3 billion offer, among other high-level secrets.

  Evan sent a note to the Snapchat team titled “Keeping Secrets.” Unlike his bland statements and nonapologies when Snapchat was hacked and users’ data was leaked, his message to employees was deeply personal and passionate. He also published the note on Twitter for the press, and the world, to see:

  Keeping Secrets

  I’ve been feeling a lot of things since our business plans were made public last night. Definitely angry. Definitely devastated.

  I felt like I was going to cry all morning, so I went on a walk and thought through a couple of things. I even ran into one of my high school design teachers. She gave me a huge hug. I really needed it.

  And I really need to tell you that I’m so proud of all of you. I want to give you all a huge hug because keeping secrets is exhausting.

  Keeping secrets means coming home late, after working all day and night. Curling up with your loved ones, hanging out with your friends, and not being able to share all of the incredible things you’re working on. It’s painful. It’s tiring.

  Secrets also bring us together.

  We keep secrets because we love surprising people. We keep secrets because it’s the best way to keep showing the world that growth is not only possible, it’s necessary. We keep secrets because it’s the right thing to do, not because it’s the easy thing to do.

  We keep secrets because we get to do our work free from judgment—until we’re ready to share it. We keep secrets because keeping secrets gives you space to change your mind until you’re really sure that you’re right.

  We care about taking the time to get things right. Secrets help us do that.

  Secrets keep the space between the community and the public—space that we need to feel safe in our expression and creativity.

  I am so sorry that our work has been violated and exposed.

  A couple of people have asked me what we’re going to do. First we’re going to be really mad and angry and upset. And that’s ok.

  It’s not fair that the people who try to build us up and break us down get a glimpse of who we really are. It’s not fair that people get to take away all the hard work we’ve done to surprise our community, family, and friends.

  It’s not okay that people steal our secrets and make public that which we desire to remain private.

  When we’re done being mad and angry and upset we’re going to keep doing exactly what we are doing. And then we’re going to do it ten times better.

  We’re going to change the world because this is not the one that we want to live in.

  Evan Spiegel

  In early 2013, when Reggie filed his lawsuit against Evan, Bobby, and Snapchat, Evan went underground. He was furious at any reporters who covered the lawsuit, despite knowing it was their job. And reporters hammered him for kicking Reggie out of the company and lying about coming up with the idea with Bobby, conveniently forgetting that it was Reggie’s idea. When I reported on the lawsuit for TechCrunch, where I was a writer at the time, Evan cut off contact with me. After I started covering Reggie’s lawsuit, Evan never gave me another interview again.

  In the four years since Reggie sued him, Evan has only done a handful of interviews. He rarely makes anyone else at the company, including high-level executives, board members, and investors, available to the media. Speaking with the press can make you feel Evan’s wrath, even as a passive investor, advisor, or friend.

  When Evan did agree to an interview, it was often alongside a friendly face, like Michael Lynton or Cosmopolitan editor in chief Joanna Coles, who later joined Snapchat’s board. Evan also occasionally agrees to be interviewed by high school and college students, as he’s passionate about helping the next generation of entrepreneurs, artists, and thinkers; but no doubt the questions from students aren’t nearly as hard hitting as they would be from professional journalists. One interview with his hometown newspaper, the Palisadian-Post, included this disclosure at the bottom: “Full disclosure: Spiegel agreed to be interviewed by the Palisadian-Post under the guideline that no controversial questions would be asked. He also would not let this reporter audiotape the interview.”

  Evan’s relationships with many reporters mirror his other relationships in life. He tends to treat people in a binary fashion: smart or dumb, useful or useless, yes or no. He’s an emotional person and hates putting on a face and smiling and faking his way through anything, whether it’s an interview with a reporter or a cocktail event with potential advertisers. There are very few—if any—journalists who match Evan, who is still just twenty-seven years old, both in age and career stature. Older, more established journalists have struggled to understand Snapchat, frustrating Evan. Because Snapchat’s user base skewed so young, very few reporters covering the company were close in age to its core users.

  As a result, media coverage of Snapchat has been fairly harsh. At first, there was the sexting narrative. Then journalists decided that it was just a silly toy. All the while, very few journalists did the work to understand Snapchat, its users, and its impact. Evan has been unwilling to show journalists a significant peek behind the scenes at Snapchat, so the media continues to portray Snapchat as this silly, inconsequential company.

  Evan is extremely reluctant to answer very basic questions most CEOs get asked. When a Bloomberg Business reporter writing a cover story on Snapchat asked Evan what hi
s long-term vision for the company is, Evan replied, “These are the kinds of questions I hate, dude.” Snapchat investors and advisors, afraid of irritating Evan, have often been unwilling to speak publicly about even basic things like how the company differentiates itself and what its mission is.

  Evan is hardly the first tech founder to be secretive. Some of the industry’s most revered leaders like Steve Jobs and Jeff Bezos are known for their intense corporate secrecy. As much as Evan has had a rivalry with Mark Zuckerberg, he has also been empowered by Zuckerberg, who blazed the trail for him. Steve Jobs was not the CEO of Apple until his second stint with the company; Google’s investors demanded they bring in Eric Schmidt as a more professional CEO than cofounders Larry Page and Sergey Brin. But Zuckerberg’s overwhelming success and maturation from immature genius into visionary CEO caused a shift in Silicon Valley to strongly favor founders as CEOs. This profound, rapid shift has given founders of high-growth, breakout-success startups the upper hand with the media and investors alike. Zuckerberg’s “I’m CEO, Bitch” paved the way for Evan to be anointed Snapchat’s sole, unchallengeable leader.

  Like Steve Jobs at Apple, Evan keeps all Snapchat acquisitions secret. Jobs believed that every consumer encounter with a brand added either credits or debits to the brand’s account with the consumer. And part of the benefit of adding credits is the delight of surprise followed by gratification. Evan wants to announce new features and immediately roll them out to everyone so that users are both surprised and then instantly able to enjoy the new feature or product.