Facebook vs Snapchat - Children of Privilege | 2

Audible subscribers can listen to all episodes of business wars ad-free right now. Join Audible today by downloading the Audible app. [music] May 2012, Menlo Park, California. Mark Zuckerberg steps out of his office at Facebook HQ onto a paved quad called Hacker Square. Short, slim and dressed at his trademark dark hoodie in jeans. The 28-year-olds Zuckerberg looks more like a college freshman than a CEO. But on every side, he is flanked by the giant office buildings of the company he is built. He walks toward the center of the quad to a podium with the Nasdaq logo on it. Beyond it, a giant crowd, cameras and news crews and hundreds of elated Facebook workers cheer and clap. He's about to take the company public, the most anticipated tech IPO since Google in 2004. If all goes as planned, Facebook will raise $16 billion today, nearly 10 times Google's public offering. Traditionally, IPOs take place at Nasdaq in New York. But there's nothing traditional about Zuckerberg, and today, he's made a public show of it. Instead of going to New York to ring the bell, he's not going more than a few hundred miles away. He's more than a few hundred yards from his desk. At 6.30 a.m., he steps up to the podium. Alright, now I just want to say a few things and then we'll ring this bell and we'll get back to work. Right now, this all seems like a big deal. Going public is an important milestone in our history. But here's the thing. Our mission isn't to be a public company. Our mission is to make the world more open and connected. So, on this special day, on behalf of everyone at Facebook, I just want to say to all the people out there who use Facebook and our products. Thank you. So let's do this. Zuckerberg presses a buzzer on the podium, ringing the bell remotely for the Nasdaq Stock Exchange. This is the moment every entrepreneur dreams of growing a tiny startup into a publicly traded company worth billions. The stock closes that day just 23 cents higher than its $38 opening price. It's not a disaster, but it's not the runaway success speculators we're hoping for. It's another reminder to Zuckerberg that Facebook's supremacy is not a lifetime guarantee. It depends on Facebook's ability to innovate or to buy up innovators who typically succumb to big numbers or die like my space. But there's one upstart he's got his eye on that seems resistant to his charm and checkbook. The question is, is Snapchat super savvy or destined to self-destruct? From Wondry, I'm David Brown and this is Business Wars. [Music] Mark Zuckerberg made downplay at all he likes, but Facebook's IPO now makes him the leader of a giant publicly traded company. It was not inevitable that he would arrive here, but growing up he had the makings for a head start. He understood technology much better than his peers and even most adults. His wealthy parents had the means to feed his ambition. His upbringing was, well, not that different from that of Snapchat founder Evan Spiegel. And in some ways that put Zuckerberg in Spiegel toe to toe. This is episode two, Children of Privilege. It's 1996 at the Zuckerberg House in Dobbsferry, a wealthy New York City suburb. Zuckerberg is 12. His dad, a local dentist and a bit of a computer nerd himself, is griping about his practice over family dinner. I wish there was a better way to announce a patient's arrival than the receptionist yelling to me that so and so has arrived. It feels so unprofessional. Zuckerberg is looking down at his plate mulling over his dad's complaint and then snaps his head up. "Dad, I've got an idea." Zuckerberg jumps up from the table and scurries off to his computer. Home computers are still a rarity in those days, but not in Zuckerberg's house. His family has more than one. Zuckerberg's already versed in the coding book C++ for dummies and his dad's shown him the Atari basic computer programming language. Zuckerberg toys around with his idea and ultimately builds a program that lets the computers in the house and office send messages to each other. He calls it "Zucknet." His parents are thrilled. The dental office receptionist now quietly messages Zuckerberg's dad when patients arrive. The Zuckerberg siblings use Zucknet to message each other. It's a very basic version of AOL Instant Messenger which will come out the next year. Zuckerberg is a prodigy who loves technology and Latin. He has a dog-eared copy of Homer's The Odyssey and for kicks, he codes computer games for his friends. His first big venture, a game based on the board game risk, centered around the Roman Empire. By middle school, Zuckerberg's parents hire a private tutor to help feed their son's voracious appetite for learning. But before long, Zuckerberg leaves the tutor in the dust. When he gets to high school, the local public school doesn't have many advanced math or computer science courses. So he signs up at nearby Mercy College for a graduate computer course. When his father drops him off at his first class, the teacher frowns at the teenage Zuckerberg and then turns to his dad. "I'm sorry, Mr. Zuckerberg, but you can't bring your son in with you." "What? Oh, no, no, I'm not the student. He is." In his junior year, he transfers to the Elite Boarding School Phillips Exeter Academy. Tuition costs nearly $50,000 a year. As Zuckerberg's senior year comes to a close at Exeter in 2002, he's hanging around in the dorm, listening to music with friends. Suddenly, the playlist he created on iTunes brings up the last song. "You know, there's really no reason why my computer shouldn't know what I want next." "That's a great idea for a program. Yeah, I bet we could build that. Let's do it." Zuckerberg and his friend get to work writing a program that learns a listener's musical taste, then curates a playlist from their song library based on that. They create a plugin for an MP3 player that designs playlists and post them online. They call it "Synapse." It's like an early version of Pandora. A tech news site writes up the student's website. Then, the tech giants catch wind of this ingenious invention. Silicon Valley comes calling. Representatives from America Online and Microsoft reach Zuckerberg on his dorm phone. He's totally unprepared for their six-and-seven figure offers. But he's young, impulsive, self-confident, and maybe a tad arrogant. He initially turns them down, insisting money's not the point. But by the time he and his buddy have a change of heart, the offers have evaporated. Zuckerberg is devastated. But he learns an important lesson. Not only is it critical to protect what he develops, but he needs to make decisions quickly. The tech world is fickle and moves fast. With his parents money, he hires legal counsel to help him protect future projects. And then, he heads to Harvard for his freshman orientation. Across the country, another precocious computer nerd is blossoming in an upper middle-class family. Evan Speagle is born on June 4, 1990, and grows up in the fancy Pacific Palisades neighborhood in West Los Angeles. While Zuckerberg created a messaging app when he was in middle school, Speagle is building a computer from scratch. In sixth grade. Speagle also goes to a pricey private Santa Monica high school known for its celebrity student body. Think Jonah Hill, Winath Paltrow, Zoe Deschanel? While still in high school, Speagle nabs an internship with Red Bull, promoting the energy drink at bars and clubs. Then, in April 2007, his parents tell him they're divorcing, which ignites a messy legal dispute over money and child custody. In the process of this divorce, Speagle learns how to negotiate and manipulate his parents. Moves into his dad's coastal mansion, and his dad gives him free reign. He can decorate his room however he wants, and invite over any friends he wants. He takes advantage and throws some wild parties. Speagles start spending like crazy. He incurs overdraft fees, so his dad insists he come up with a budget. Speagles are already driving a new Cadillac Escalade, but he wants something flashier. Maybe Lisa knew $75,000 BMW 550i. The 17-year-old lays out his case in a letter to his dad. Thank you for working so hard to afford such an amazing lifestyle. I propose that I limit my spending on clothes, food, entertainment, and transportation to $2,000 a month. But I need a $2,000 emergency fund because my life is full of unforeseen circumstances. Also I'm doing more driving in the city. I need a more fuel-efficient vehicle. I would like a BMW 550i. I have decided I will not make other purchases like a vacation or art for the house, so that I can have the BMW. Cars bring me sheer joy. I would really appreciate you validating me and all of my hard work by leasing the BMW. Boys attach so much value to cars. I have overcome a lot of difficult obstacles in my childhood this past year included. And it feels really nice to have you and mom acknowledge my success. Evan's mom is in favor of the car. But his dad thinks it's ridiculous. But not because of the cost. No way! A 360 horsepower engine is not safe for a 17-year-old. So, Spiegel starts leveraging. He calls his mom. Hey mom, I've been thinking it would be cool if I could see you more. Of course honey, I'd love that. How would you feel if I came to live with you instead of dad? Oh, that would be amazing. You know, I really want this BMW. If I come live with you, do you think you could help me out with that? Oh, of course honey. He packs up his stuff and moves in with mom. The BMW is his. Spiegel isn't the best student, but he messes around on Photoshop enough to become a pretty decent graphic designer. Enough so that in 2008 he gets into the design program at Stanford. His dad's all my mother. Since Stanford, he rushes Kapasigma, known for being party animals, the frat brothers drink heavily and throw regular parties. In his sophomore year, he moves into the frat house. A senior named Bobby Murphy lives across the hall. Murphy is smart and quiet. He's majoring in mathematics and computational science. As hallmates, the two eventually become closer friends. Such close friends. They decide to go into business together. Twice. First, they create the website, Future Freshman, that gives high schoolers advice on how to get into college. It flops. Then, they develop a cool little app called Peekaboo. By the spring of 2012, Spiegel is a senior at Stanford. Murphy has taken a developer job in his living in San Francisco. Peekaboo failed to attract interest. But since relaunching as Snapchat six months ago, their project seems to be taking off. Thanks to their teen fans, Snapchat's users have grown to 100,000 by April 2012. Most adults haven't heard of it yet, but that doesn't matter. It's growing so fast that problems arise before they can anticipate them. Spiegel's worried. But Bobby, we can't even keep up with the server bills. They're costing us nearly $5,000 a month. Okay, Evan, what if I put in some money for my paycheck? Sure, that'll help. And I've got some cash I just inherited from my grandmod that we can use to keep this thing going. Murphy ends up handing over half his paycheck, but the situation is not sustainable. They need to raise money soon. Well do they know the teenagers are coming to the rescue again? Another high school, this time in Silicon Valley. Snapchat is wildly popular here. It's as popular as Instagram and Angry Birds. One teenager tells her dad about it. Her dad happens to be an investor at light speed venture partners, well known firm focused on early stage investments. So he tells his colleague Jeremy Liu about this new app he just heard about. Hey Jeremy, my daughter's obsessed with this thing called Snapchat. Users can send photos that disappear if you heard of it. No I haven't, but that's an intriguing idea. Yeah, with concerns over social media privacy getting more attention. It could be worth investigating. Liu goes hunting for Snapchat's owners. But there's no contact information on their website. So owners are listed on Snapchat's LinkedIn company page either. Finally, he looks up the owner of their web domain. It's listed to Toyopa Group. Toyopa is the name of the streetspeakled's dad lives on. Speakled's name is listed and Liu tracks him down on Facebook. He sends him a message and they agree to talk. Liu kicks off a conference call with Speakled and Murphy. Hey, I love what you're doing with Snapchat and it looks like you're really gaining momentum with teens. Yeah, we've got 100,000 users. Wow, 100,000 that's big. We're seeing really fast growth. Our user numbers are five times what they were three months ago. This is all very impressive. Listen, I want to invest. Speagle holds his breath. He's thrilled. This is perfect timing. They need help paying their server bills. I can put in $485,000 for a small stake in the company. Speakled's silently cheering. That will keep Snapchat afloat for months. But over the phone, he plays it cool. That's an interesting offer. Let me talk to Bobby and we'll call you back. He hangs up and dials Murphy and lays out the offer. We should take it. What do you think? I think we need the money. They call Liu back. We got a deal. A few weeks later, Speakled is sitting in a machine shop class. He's refreshing the Wells Fargo app on his iPhone, waiting for Liu's cash to come through. Nothing. Nothing. Still, nothing. And then, six digits appear. He just got $485,000 richer. He gets out of his seat and walks up to his professor. I'm dropping out of this class. Then, he drops out of Stanford just a few weeks before graduation. It's another move from the Mark Zuckerberg Playbook. He did the exact same thing at Harvard. But it's time for the student to face the master, not to learn, by you. But to conquer, now, Snapchat is coming for Facebook and Instagram. [MUSIC] [MUSIC] I'm Leon Nefak. Best known is the host and co-creator of podcasts, Slow Burn, Fiasco, and Think Twice, Michael Jackson. I'm here to tell you what my show, Final Thoughts, Jerry Springer, whose name is synonymous without rages guests, taboo confessions, and vicious on-stage fights. But before the Jerry Springer show became a symbol of cultural decline, its namesake was a popular Midwestern politician and a serious-minded idealist with lofty ambitions. Through dozens of intimate and revealing interviews with those who knew Springer best, I examined Springer's lifelong struggle to reconcile his TV persona with his political dreams and aspirations. Named one of the best podcasts of the year by the New Yorker and Rolling Stone, Final Thoughts Jerry Springer is a story about choices, how we make them, how we justify them to ourselves, and how we transcend them or do not. Listen wherever you get your podcasts, or binge the whole series at free right now, and be honest with you. Start your audible subscription in the audible app. November 2012, Facebook is the tech giant with 1 billion active users. Instagram, the photo story app, has more than 80 million users. Instagram is different from Snapchat. On Instagram, users post pictures to share on their feed. The photographs live there permanently, in a personal photo gallery. Unlike Snapchat, where pictures disappear. But Zuckerberg is savvy. He's always looking for the best. the next big thing. He knows that young people love Snapchat, and he's intrigued by its messaging capability, where people send pictures with captions directly to each other rather than broadcasting publicly on a feed. Zuckerberg is obsessed with connectivity, and this seems like such a cool way for people to communicate with each other. Snapchat is starting to look less like a flash in the pan, and more like the real deal. It smells like competition. At this point, people are sharing more than 50 million photos on Snapchat each day. Facebook is still beating it, with 300 million photos shared a day. But Zuckerberg knows he has to deal with Snapchat now, before it becomes another expensive acquisition, like Instagram was. What's he going to do? Like Facebook's own version of disappearing messages, of course, Zuckerberg gathers his developers for a meeting. I want you to build an app that sends disappearing chats, photos, and video messages. Mark, so this would be an added capability on Facebook? No. Everything is moving to mobile now, and we're geared too much toward desktop. Make it a standalone mobile app. After a few months of tinkering, the developers create "Poke." In "Poke," users pick a text, photo, or video message to send, then choose a friend or friend's to send it to. Users can draw on the photo and add a location. The sender decides how long he wants the material to exist, before it disappears. So basically, it's a clone of Snapchat. People doesn't know it yet, but he's about to face his first serious competition. But before "Poke" launches, Zuckerberg wants to do some recon. By November 2012, Spiegel is back at his dad's house in Pacific Palisades, working on Snapchat with Bobby Murphy. Holy s***, I just got an email from Mark Zuckerberg. What does it say? "Hey, Evan, I'm a big fan of what you're doing with Snapchat. I'd love to meet you and hear your vision and how you're thinking about it sometime. If you're up for it, let me know, and we can go for a walk around Facebook HQ one afternoon." For a young entrepreneur, this is a big deal. A private meeting with Zuckerberg, the 28-year-old billionaire CEO of the world's biggest social network site. But Spiegel is cocky. He plays it cool. I write him back now, but he should come to us, not the other way around. Thanks, smiley face emoji, would be happy to meet. I'll let you know when I make it up to the Bay Area. Yeah, it's pretty cheeky, but Zuckerberg won't be put off. He makes the trip to LA and strikes fear into the junior entrepreneur's heart during a private meeting. I'll let you in on some top secret intel. We're launching a new app called Poe. It has disappearing chats, photos, and video messages. Spiegel looks directly at Zuckerberg and tries to keep his expression neutral. It'll go live in a few days. We're even going to change the sign outside of the Facebook Silicon Valley campus from the Facebook thumbs up to the Poe icon. The message from Zuckerberg is clear, we're going to crush you. Spiegel tries not to betray anything. Hmm, sounds interesting. Spiegel keeps his cool, but inside he's terrified. This could be the end. The end of his company, the end of his vision of himself as a tech titan. He has no choice but to buckle up and hope somehow some way. The poke fails, but he won't give up without a fight. He and Murphy go back to work. They immediately go on Amazon and order a book for each of their six employees. The title, Sunsu's The Art of War. The battle is on. December 21, 2012. Facebook launches poke. This is Facebook's first direct shot at its new competitor. Spiegel is on the edge of his seat. Zuckerberg emails him that day. I hope you enjoy it. But Spiegel can't even see the app that could be at the heart of his demise. To focus on Snapchat and get rid of any distractions, Spiegel has deactivated his Facebook account. He can't check out poke himself. But Murphy still has an active Facebook profile. Spiegel calls him. Bobby, what's it like? Hold on, let me open it up. Hurry up. Oh man. Oh man. It's nearly an exact copy. Spiegel is stunned. How is it possible that Facebook's ripped off their idea in its entirety? The next day, poke hits number one in the app store. But the tech press clocks it as a copy of Snapchat. The leading industry blog, TechCrunch, calls the apps strikingly similar. Dozens of articles about poke are filled with comparisons to Snapchat. The publicity creates a halo effect for Snapchat. People wonder what is this new app that Facebook has supposedly copied. They start downloading it and playing around. They can tell Snapchat is legit. A few days later, a Christmas miracle. Snapchat sits at number four in the app store. Poke disappears from the top 30. A huge embarrassment for Facebook. This is the world's biggest social networking site. And their new app lost to 220 something, fratbrows? Zuckerberg is frustrated. But then he remembers the last time he was threatened. It's time to go the Instagram route. If you can't beat him, buy him. February 2013, Snapchat HQ at Speakles' Dad's House. They've just closed a $13.5 million funding round that puts their evaluation at over $60 $10. But the team's domestic bliss is about to evaporate. Who is it? Speagle and Murphy are being served with legal papers. 18 months after they cut him out of the company, their former frat brother and friend Reggie Brown is suing Snapchat. Speagle rips open the envelope and starts skimming the papers. I can't believe this. Reggie is claiming he came up with the idea for Snapchat and the logo. He wants a third of the company. What the hell? He did nothing. And now he wants a third of the business? Murphy can see right away that a lawsuit could really slow their momentum. Evan, let the lawyers figure it out. We've got a company to build. Not only is Snapchat battling Facebook, now they have another fight on their hands. This one internally. In the next episode, Snapchat hits on a new development that changes the future of social media sharing as we know it. And Zuckerberg makes Speagle an offer he thinks is too good to refuse. Follow Business Wars on the Audible app or wherever you get your podcasts. You can listen to all episodes of Business Wars ad-free by joining Audible. From Wondry. This is Business Wars. We hope you enjoyed this episode. A quick note about conversations you've been hearing, we can't know exactly what was said but this dialogue is based on our best research. I'm your host David Brown, Natalie Robomatt wrote this story. Karen Lo is our senior producer and editor. Emily Frost edited this story. Our editor and producer is Jenny Lauer Begner, sound designed by Kyle Randall for Bay Area Sound. Our executive producer is Marshal Louis, created by Ernan Lopez or Wondry. Raaka Ölyun hinted on the Ulyi $100 in Cymbria. "We've been waiting for you to come back to the world." [BLANK_AUDIO]