The Facebook Effect

by David Kirkpatrick

  In late 2003 the Ivy League seems to have collectively decided that campus facebooks should go online. Student governments at Cornell, Dartmouth, Princeton, Penn, Yale, and Harvard, among others, were all complaining to college administrations that their campus facebook was not in digital form. The idea was no secret. A sense that the time had come helped push Zuckerberg to create Thefacebook and accounts for its name. Students everywhere had also been influenced by the rapid ascendancy of Friendster, and many were dismayed to see it stumbling. By fall, MySpace was already making waves in Los Angeles and in the music world.

  Aaron Greenspan, a Harvard senior, launched a service there in September 2003 called houseSYSTEM. It allowed residents of Harvard residential houses to buy and sell books and to review courses, among other functions. It also invited students to upload their photographs to something called the Universal Face Book. houseSYSTEM was controversial for how it treated student passwords and never got much usage, though hundreds of students signed up to try it.

  Separately, Divya Narendra claims to have come up with the idea for a Harvard-specific social network in December 2002. He later teamed up with the Winkelvoss brothers to build Harvard Connection, according to some of the voluminous legal documents filed in the lawsuit they brought against Zuckerberg and Facebook. The identical towering Winkelvoss twins—known to some Harvard classmates as “the Winklevii”—worked hard at rowing for years and made the finals for men’s pair rowing at the 2008 Olympics in Beijing. They came in sixth and last, but it was a huge achievement. Previously they’d won a gold medal at the Pan-American Games in Rio de Janeiro. The two athletic blond uber-WASPs couldn’t be more different from the scrawny, nerdy, brainy Jews who founded Thefacebook.

  The three worked fitfully on the idea that would become Harvard Connection over the next year. Since none of them were programmers themselves, they hired people to help. Two successive computer science students tried and failed, in the founders’ opinion, to get Harvard Connection right.

  During the first months of Harvard’s fall 2003 semester, Zuckerberg began making waves with ad hoc bad-boy applications that were intrinsically social—first Course Match, then Facemash. Narendra and the Winkelvosses read about him in the Crimson’s coverage of the Facemash episode. They got in touch and arranged a meeting. He agreed to help out, but says now he thought of it as just another of his many social software “projects.”

  Zuckerberg worked off and on writing code for Harvard Connection. After a few weeks he appears to have lost interest, though he apparently didn’t make that clear to the Winkelvosses and Narendra. They began to complain that he was taking too long. At one point Zuckerberg apologized for a delay, explaining he had forgotten to bring the charger for his laptop home with him for the Thanksgiving holidays. Eventually Harvard Connection’s trio accused Zuckerberg in a federal lawsuit of stealing their intellectual property. The case was settled in mid-2008 with the requirement that parties not disclose details. But some trial documents became public, including emails between the complainants and Zuckerberg. These exchanges give a picture of what Harvard Connection was intended to be. In one, Cameron Winkelvoss included proposed text for a page: “Harvard Connection has compiled a list of the premiere nights of the hottest clubs and lounges in the Boston area. We have brokered deals with promoters at these clubs to give all of our registered users reduced admission on these given nights.” This sort of discounted partying seems to have been a major focus of the planned site.

  On December 6, Cameron Winkelvoss emailed Zuckerberg again: “One idea I came up with is an ‘incest rating.’…Essentially it is a measure of how close your interests and the person’s interests you are looking at are.…It would be funny to see how closely related and how ‘incestuous’ it would be to request a date with a given person.” He also suggested the site provide recommendations on who a member should date, and mused that maybe Harvard Connection should deceive users by pretending that these matchups were determined by software algorithm: “Perhaps there could be some random element incorporated into it (obviously people viewing the site shouldn’t know this, for all they know it’s a thoughtfully calculated recommendation)”. Winkelvoss considered himself to be creating, as he put it here, a “dating site.”

  The emails appear to show that Zuckerberg began avoiding the three Harvard Connection founders. By January 8, 2004, he emailed Cameron: “I’m still a little skeptical that we have enough functionality in the site to really draw the attention and gain the critical mass necessary to get a site like this to run.” Yet in late November he had written, “Once I get the graphics we’ll be able to launch this thing.…It seems like everything is working.” The Harvard Connection guys repeatedly requested a meeting. When the four finally convened on January 14, Zuckerberg said he didn’t have any more time to work on the project.

  Zuckerberg also had a little involvement with houseSYSTEM creator Greenspan. The two met for dinner in early January in the Kirkland dining room. At the meeting, Zuckerberg invited Greenspan to partner with him to create his new project, which he didn’t describe in detail. But the older student demurred. In a 333-page self-published, self-justifying autobiography he writes, “I didn’t like the idea of working for someone who had just been disciplined for ignoring privacy rights on a massive scale.” (He’s referring to Facemash.) Greenspan, two classes ahead of Zuckerberg, had run his own small software company since he was fifteen and clearly felt superior to the sophomore.

  However, at the same meeting he invited Zuckerberg to incorporate his project, whatever it was, into houseSYSTEM. But Zuckerberg said he didn’t want to do that because houseSYSTEM was “too useful,” according to the book. Greenspan writes that this statement confused him. “It just does too much stuff,” Zuckerberg continued, according to the book. “Like, it’s almost overwhelming how useful it is.” Today, Zuckerberg won’t say much about houseSYSTEM, except that “the trick isn’t adding stuff, it’s taking away.” houseSYSTEM eventually disappeared. Zuckerberg classmate Sam Lessin, himself a programmer and now an Internet entrepreneur, recalls it as “a huge sprawling system that could do all sorts of things.” By contrast, he says, Thefacebook was almost obsessively minimal. “The only thing you could do immediately was invite more friends. It was that pureness which drove it.”

  Thefacebook launched on February 4. Six days after that, Cameron Winkelvoss sent Zuckerberg a letter saying he had misappropriated the Harvard Connection founders’ work and owed them damages. The letter demanded Zuckerberg stop working on Thefacebook. Winkelvoss and his partners complained to the Administration Board—the same body that had disciplined Zuckerberg for Facemash. A Harvard dean got involved and asked Zuckerberg for his account of what happened.

  In a long letter he wrote the dean on February 17, Zuckerberg said that from his first work on the project, he had been “somewhat disappointed with the quality of the work the previous programmers had done on the site.” He called it “messy and bloated.” He dismissed the ideas of the Winkelvoss brothers and Narendra. “My most socially inept friends at the school had a better idea of what would attract people to a Website than these guys.” He complained about their planning. “I wasn’t happy with the way they had failed to come through with their promises of advertising, the necessary hardware to run the site, or even graphics for the site (last time I checked, their front page was still using an image straight out of a Gucci ad).”

  “I’m kind of appalled,” he continued, “that they’re threatening me after the work I’ve done for them free of charge.…I try to shrug it off as a minor annoyance that whenever I do something successful, every capitalist out there wants a piece of the action.” He ended his letter about what he called “ridiculous threats” by saying, “I didn’t go through the differences between my site and theirs because the two are completely different.” The dean decided not to get involved in the dispute.

  Were the two services substantially different? As Cameron Winkelvoss’s emails indicate, Harva
rd Connection was intended largely as a party guide and dating service. The intention was to “broker deals with promoters,” taking a cut in the process. Thefacebook was noncommercial. It aimed to replace offline facebooks. It was centered on information about individuals. Everything on Thefacebook was generated by its users, while Harvard Connection was going to include content including “reviews of nightclubs.”

  The Harvard Connection, rebranded ConnectU, finally launched in late spring 2004. That fall, ConnectU’s founders, assisted by lawyers who usually worked for the Winkelvosses’ affluent father, sued Zuckerberg in federal court in Boston. The lawsuit asserted that Zuckerberg stole ideas including “creating the first niche social network for college/university students”; “serving as a directory of people and their interests and qualifications, a forum for the expression of opinion and ideas, and a safe network of connections”; requiring members to register using their “.edu” email addresses; and launching at Harvard and then extending to other schools, with an eventual plan to include “every accredited academic institution domestically and internationally.”

  During the time he was working for Harvard Connection, Zuckerberg may have become uneasy about the fact that he was already working on his own social network. He certainly should have alerted the Winkelvoss brothers and Narendra earlier about what to expect. He was rude. He became very uncooperative. But long before he met the Winkelvosses and Divya Narendra he already was thinking about what kind of social software was possible on the Internet. That’s why the Harvard Connection project interested him in the first place. The civil lawsuit filed on behalf of the three alleges behavior considerably worse than rudeness: “copyright infringement, breach of actual or implied contract, misappropriation of trade secrets, breach of fiduciary duty, unjust enrichment, unfair business practices, intentional interference with prospective business advantage, breach of duty of good faith and fair dealing, fraud, and breach of confidence.” The complainants asked to take over the entire Facebook site and be paid damages equal to its value. Pretty strong stuff for a supposed ten-hour project for which Zuckerberg never had a written contract and was never paid.

  Zuckerberg probably refined his own ideas during the course of working on Harvard Connection, but there don’t seem to be elements in common between the sites that had not already been used by other services in the past. Every social networking plan on the planet by this time was influenced by Friendster. It did prove critical for Thefacebook to use .edu addresses for registration, but other sites at colleges had already begun taking a similar approach. Club Nexus limited itself to Stanford-only email addresses as early as fall 2001.

  In September 2004 when they filed suit against Thefacebook, ConnectU claimed fifteen thousand users at two hundred colleges. Thefacebook competed with it vigorously. ConnectU did lead to one huge success for its founders, however—a 2008 financial settlement of the lawsuit. It gave the ConnectU’s creators plenty of money to go away—reportedly $20 million in cash as well as stock in Facebook worth at least $10 million. ConnectU was already moribund, but now it shut down.

  Aaron Greenspan also accused Zuckerberg of stealing his ideas. In his autobiography, titled Authoritas: One Student’s Harvard Admissions and the Founding of the Facebook Era, he writes that he “invented The Facebook while attending Harvard College.” In April 2008 he petitioned the U.S. Patent and Trademark Office to cancel the trademark “Facebook.” He claimed he was the rightful owner, because he pioneered the name months earlier than Zuckerberg as part of houseSYSTEM. Greenspan served as his own attorney. The Trademark Trial and Appeal Board decided his claims were plausible enough to let the action move forward. Some months later, Facebook settled with Greenspan for an undisclosed sum.

  Greenspan doesn’t accuse only Zuckerberg. He writes in his book that the Winkelvoss brothers and Narendra took ideas from him, too, and that Harvard Connection was also an imitation of houseSYSTEM.

  Social networking has now extended across the entire planet. Facebook is the world’s largest such network. It is the rare high school and college student who does not routinely use Facebook or MySpace. These systems have become so pervasive for communication that young people barely use email anymore. From sixdegrees to Friendster to Facebook, social networking has become a familiar and ubiquitous part of the Internet.

  4

  Fall 2004

  “Look at the world around you. With the slightest push—in just the right place—it can be tipped.”

  As the fall semester of 2004 loomed, Thefacebook was on the verge of a serious crisis. Over the summer, membership had almost doubled from about 100,000 to 200,000. That was good and bad. “We were just lucky it wasn’t completely bringing down the architecture,” says Dustin Moskovitz, who spent as much time as anyone working to keep that from happening. “Our servers were already stretched, but we knew a full load in the fall would be double that. Service got really unstable.”

  But the crisis wasn’t just a technological one. Tension was growing among the company’s small team about whether Thefacebook itself ought to be their only priority. Zuckerberg was getting increasingly interested in Wirehog, his parallel project to enable Thefacebook users to share photos and other media peer-to-peer.

  Throughout the summer, students and student governments from colleges around the country had been emailing, texting, and calling Thefacebook with pleas to add their school to its roster. Sometimes they sent physical letters and included candy or flowers, or even came to the house in Palo Alto. People were literally begging to get into the service.

  Saverin was still sitting on the bank account. Zuckerberg was paying bills out of his own pocket. He and his parents had loaned the company many tens of thousands of dollars. But the boys of Thefacebook knew that if they didn’t have enough servers when school opened the service might just grind to a halt. “We were really worried we would be another Friendster,” recalls Dustin Moskovitz. “We felt that the only reason Friendster wasn’t the dominant college network was because they were still having problems scaling.” (That’s “growing,” in non-Net parlance.)

  And another “Friendster” was unfolding before their eyes. Orkut, after briefly seeming to rival MySpace, was now getting bogged down with performance problems, in addition to being usurped by Brazilians. Even the great Google couldn’t help a social network grow smoothly.

  Thefacebook was an atypical start-up, in financial terms. It hadn’t required outside funding up to this point. By now—with growth likely and costs rising—a new Silicon Valley company would typically solicit venture capitalists to make a big cash infusion, possibly several million dollars for a company of Thefacebook’s size. But in such a scenario, VCs take their pound of flesh—a very big chunk of the company, perhaps a quarter or even a third. Parker had gone through that at Plaxo, where he’d lost the battle of wills with the VCs and been kicked out of his own company. He had successfully infected Zuckerberg with his aversion to VCs. The two were resolute about retaining full control of the company’s destiny. After all, they just wanted a few hundred thousand dollars to buy more servers.

  Within days after he joined Thefacebook, Sean Parker called his friend Reid Hoffman, the founder of LinkedIn and a big angel investor. Hoffman had been coaching him through the painful denouement of his relationship with Plaxo and had become a close friend. Parker also was pragmatic. He knew it was important to keep that sixdegrees patent close to Thefacebook’s camp.

  Hoffman was impressed with Thefacebook almost immediately but didn’t want to be its lead investor, given his involvement in LinkedIn. By mid-2004, many in the Internet industry were beginning to wonder if social networking might ultimately all converge in one big network. Although Hoffman didn’t believe that himself, he knew that some would see it as a conflict of interest if he led an investment in Thefacebook. So he arranged for Parker and Zuckerberg to meet with Peter Thiel, the brooding, dark-haired financial genius who had co-founded and led PayPal and was now a private investor.

>   Hoffman is a key member of a very distinct and important Silicon Valley subculture—the wealthy former employees of PayPal. Hoffman remained close to many onetime PayPal colleagues, including Thiel. PayPal created the first successful large-scale online payment system and sold itself to eBay for $1.5 billion in October 2002, just two years after it was created in a merger of two start-ups. Even before PayPal, Thiel had been a professional investor and he was now investing in start-ups and starting a hedge fund. He had put money into Friendster as well as LinkedIn.

  Thiel turned out to be the perfect investor for Thefacebook. He had seen the world from the perspective of a successful entrepreneur at PayPal. He was a fan of Sean Parker, whom he’d gotten to know at Plaxo and through Friendster. He was also a contrarian thinker. Investors were still generally leery about consumer Internet companies, recalling how much they’d lost when the dot-com bubble burst. “So we felt this was the place to look for opportunity,” recalls Thiel. “And within the consumer Internet, social networking seemed to be sort of an incipient trend. But in 2004 social networks were perceived as businesses that were very ephemeral, and people thought it was like investing in a brand of jeans or something. There was a question whether all these companies were just fashions that would only last a very short period of time.”

  But the message Thiel heard about Thefacebook gave him confidence. In his office sat Sean Parker, Mark Zuckerberg, and Steve Venuto, the company’s new lawyer, who had worked on Plaxo with Parker and had started working with Facebook in the late summer. Hoffman has set up the meeting and included his LinkedIn protégé Matt Cohler, an upbeat, brown-haired Yale graduate. Parker, still only twenty-four but already a practiced pitchman, did most of the talking. He explained that while Thefacebook was still relatively small, that was because it required a .edu email address. The potential universe of members was deliberately circumscribed. Only students at select schools could join. What happened once it opened at a new school was what most impressed Thiel. Within days it typically captured essentially the entire student body, and more than 80 percent of users returned to the site daily! Nobody had ever heard of such an extraordinary combination of growth and usage in a start-up Internet company.