Yeah, I'd prefer the one single take. So, you know, but we'll see what happens. Doesn't matter.
Welcome to season 7, episode 5 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs, a startup studio and venture capital firm in Seattle. And I'm David Rosenthal and I am an independent adviser to startups and angel investor based in San Francisco. And we are your hosts. Today we tell the story of a company that has changed every single one of our lives, Twitter. Whether you use the product all day every day like I know many of you out there do ostensibly as part of your jobs or you have just seen the occasional discomforting tweet from a world leader. There is no doubt that Twitter impacts us all, especially heading into this historic US presidential election. But how did these 140 character messages that grew out of the SMS protocol eventually play such an outsized role in our society? And conversely, why is it that despite being the heartbeat of the world, Twitter still pales in comparison both in user numbers and in revenue, to its juggernaut social media cousin, Facebook? So, a lot of ink has been spilled on Twitter's founding and its early days of musical chairs between various founders and board members, and most of our listeners know all about that. So, as Ben and I were reflecting on what the acquired way to do a Twitter episode would be, we realized that there actually was this pretty significant fork in history. You might say it turned on a knife point where starting in about 2010, it could have been Twitter that ended up owning Instagram, not Facebook. And the conversation we'd be having today about mobile, consumer, and social could all look very different.
Indeed. Well, we have the most authoritative source possible to help us tell that story, especially this period of Twitter, the former CEO who generated the first dollar of revenue, scaled it to a real business, and took it public, Dick Costolo. So, welcome to Acquired, Dick.
Thanks for having me. Great to be here.
Pleasure to have you. Well, listeners, as always, if you love acquired and want to hone your own craft of company building, you should join the community of acquired limited partners. You'll get access to the LP show where we dive deeper into the fundamentals of company building and investing in addition to our monthly LP calls where we talk with all of you directly and of course our book club and Zoom calls with the authors. Recently, we had Emily Chang on to discuss her book Brotopia that is now available in the LP feed if you missed that. And just awesome to have Emily on. So, so fun to see so many of you on there with us. Looking forward to the next one. If you aren't already a limited partner, you can click the link in the show notes or go to acquire.fm/lp and all new listeners get a 7-day free trial.
All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lora, the agentic operating system that is redefining how the world's best legal teams work. Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Lora took that insight and asked the question, 'What if you really built something with that power from the ground up for the legal industry?'
So, the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts, and it pulls every key term into a grid a lawyer can actually work with. Lora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lora agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Lora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Lora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries and crazily they went from 1 million to 100 million in ARR in about 18 months. Truly insane numbers and that is the real test. Plenty of things demo well but the question is whether a busy associate actually reaches for it during crunch time or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at lora.com/acquired and just tell them that Ben and David sent you.
All right, David, take us into Twitter. Well, before we go into Twitter, we're actually going to spend a little bit of time in another era, a simpler time, if you will, of web 2.0, of which Dick and another key Twitter person, another former Twitter CEO, Ev Williams, were critical parts. Dick, lots of people know, I think probably most listeners on our show know your background. You studied computer science at the University of Michigan, which my dad, if he's listening, will be very upset because he went to state, but that's okay. We'll make an exception.
And I'm very upset. I'm so sorry about the last 15 years of football as a Buckeye myself.
We don't talk about that anymore.
What rivalry?
And then after Michigan, you made the very natural career choice to throw away your computer science degree and go into standup comedy at Second City in Chicago. You have such amazing stories from that with Steve Carell and Tina Fey and I get so many other great places. We can do you talk about that a lot in the Recode episodes with Cara. But after that, when you came back to tech, you first, this would have been what, like the early 90s, right? You went to Anderson Consulting.
Yep. Early 90s. That's correct. Way back. Dating myself significantly, but yes. Right before it was about to all take off. Then after a few years at Anderson, you left. What was it that you set up? You started several companies. First, Feed Burner actually came a little later, right?
Yeah, that's right. We started a company. It was just basically a web consultancy. When Netscape first took off, well, this I should say Netscape was my first exposure to it, the Mozilla browser and then the Netscape browser. When that really took off, this is before the Netscape IPO, but when that stuff started to happen, it became obvious to me that the web was this really extensible thing and place and that that was where most of the innovation was going to occur in the immediate future, which was true, but not universally understood at the time. Started a little web consultancy, a little web design and technology consultancy called Burning Door Networked Media and that was the beginning of it. Feed Burner was actually the third or fourth company we created.
Was it the first one that was spy on it? Right.
So that was the second one. The idea behind spy on it was just look there are all these things happening over the web and you kind of got to go check them out to see when they change or see something happen. We just called them spies. You should be able to set little spies on things that come and alert you and find you when something on the internet changes in a way that's interesting to you. Super cool little early alerts idea that worked really really well and sold that to a company called 724 Solutions which public company in Canada. The reason I wanted to bring up Spy on it was I'm wondering if it was sort of like a predecessor to RSS. I mean I remember going and checking the gadget blogs every day like oh has anything changed? like have they posted new stories? People were just starting to think about like, hey, you can push updates to people on the internet. Is that kind of how you were thinking about it?
Yeah, both Spy on it and Feed Burner were really the brainchild of one of my co-founders, Eric Lunt. He had come up with the ideas for both of those companies. And that's correct. The idea behind Feed Burner was just look, there's going to be this new world of syndication that's important as people stop going to all these different websites to see if something's happened and start aggregating it or pushing it to individual places. And the idea behind Feed Burner was it'll be important to sit between publication and subscription because there will be all sorts of interesting things that happen at that intersection of publication and subscription and we should do that. So that was the idea behind Feed Burner. Basically managing syndication feeds for publishers and doing things to them and manipulating them to make the subscription experience better and then pushing them out. So long-winded way of saying yes, those two companies were very much related in the way we thought about the future of how content was going to be consumed.
It's just ironic for we have a lot of younger listeners who probably don't really know what RSS is. And it's best explained, I think, as a podcast player for text. It's an app that you open with all these different feeds in it.
When you said and did all sorts of interesting things to it when you manipulated these feeds, was the primary sort of monetary value driver the fact that you could insert ads into feeds?
Well, that was the primary monetization driver. You know, publishers obviously make money. Most of them did before there was pay walls on anything by people consuming ads on their sites. And if the content starts to be syndicated and there aren't any ads in the feeds, then publishers aren't going to make any money. And that's a problem. So that was the monetization idea, but there was just a bunch of other stuff we did. We to normalize the way they could show up in these things that were called readers, RSS readers that were basically where all the different content got aggregated. Just stuff to make publishers lives easier, be able to understand where their subscribers were, how many of them there were, how many of them had actually read articles, all that stuff. And of course, you say reader again for our maybe approaching middle-aged listeners like Ben and me, they'll think of Google Reader. You Feed Burner of course ends up at Google as does Ev's company Blogger. I mean, what was that like? So, I met Ev in web 1.0. I'll make this super short story when this company Miller Freeman was a conference company and they had this web design summit conference in the late 90s. Ev and I met through that. I think he was on their advisory board or something and I taught a couple sessions at the first one or two of those and then we didn't keep in touch much. When Google started looking at Feed Burner in gosh I guess it was 2006 it was over a year before they actually acquired it and Biz and those guys were at Google having acquired Blogger a couple years earlier or a year or so earlier and that's how I sort of got reacquainted with Ev. So actually by the time we got to Google Feed Burner that is in 2007 and I was working for Susan Ujiki who was running ads at the time and is now the CEO of YouTube. Most of the content advertising and AdSense strategy had been baked and Feed Burner was that look if content syndication becomes important we're going to need to be a player there on the ads front. So that was the logic behind the acquisition. But by the time we actually got there, Ev was in mid 2007, Ev was gone and doing obviously Odeo turned into Twitter. It was 2006 when they started pivoted from Odeo to Twitter and then 07 when it started the like sort of Ashton Kutcher CNN stuff started happening. The race to a million followers.
Dick, are you keeping in touch with them at this point or are you pretty like heads down on what you're building at Google?
We're keeping in touch with them at this point. I ended up putting some money into the I think it was the seed round in Twitter that Union Square Ventures, Fred Wilson led. I put a personal check into the seed round in Twitter. I think that's going to work out for me.
So that meant you didn't need an equity grant when you joined as COO, right? Because you were already screwed that I really screwed that up.
We'll come back to all this in a minute, but you end up doing Twitter's first actually revenue deal is a data deal with Google on this front.
Yeah, that's right. Google and Microsoft. I think we closed them both on the same day or launched them on the same day or something too. But yes, that's correct. The first revenue deal at Twitter was a data deal with Google. So in 2009, you finally make the jump from angel investor to executive. You join Twitter as COO and then in 2010 you became the CEO. We were just talking about acquisitions of Feed Burner and Blogger back at Google. This has been chronicled quite a bit, but there was a lot of acquisition discussion going on at Twitter at the time, right? The first, I think, was before you joined when Facebook tried to buy Twitter for 500 million. This was years before any revenue. And then there was a second round right after you joined. What was that discussion like? They're always the same acquisition discussions. It's funny. It's like 16-year-olds dating. And what I mean by that is, hey, we would be interested in a strategic discussion. Would you be interested in a strategic discussion? But otherwise, we're not interested in a strategic discussion. It's like that. I'm not really exaggerating. It really is like 16-year-olds trying to see if they should go out on a date or not and then not want to be embarrassed if the other person says no. Then, of course, everyone says, 'We're not for sale.' And you may be surprised and maybe you wouldn't be. In most cases, these things are like they are in movies where there's just some sophisticated plan of attack and you know that it's just sort of more informal conversations. We've been doing this working on this data deal. Stuff you're doing is obviously super important. We can see how it fits into our company in all sorts of interesting ways. Let's at least have the conversation. You have the conversation and obviously it all comes down to as it always does. Look, do we think the probabilistic outcome of us doing this on our own is better than calling it a day here? And significantly so so that it'll be worth the work we're going to do over the next few years. And at every step we thought it was, you know, at least when I was with the company when we were having those discussions, at every time there was an acquisition offer, we felt like the probabilistic outcome of us being able to do something a lot better than that and with more significant returns over time, we should do it on our own. I don't know if they still do it, but Biz, obviously Biz Stone and Peter Fenton used to come guest teach a class at Stanford GSP in Peter Wendell's venture capital class and they tell the story of that day. I told my wife afterwards and she was like, 'This is the epitome of tech.' The way Biz told it was he and Ev drove down and met with Zuck at the I think they were in Menlo Park by that point in time. I think they'd left Palo Alto campus and the discussion for between 500 million and a billionish dollars to sell the company which by the way we ran the math on that and if it were 500 million in Facebook stock back then in 2008 that Facebook was valued at 15 billion that would be $27 billion today in Facebook stock. Twitter would still be doing made the right decision by not taking that offer. He joked that on the way back they were discussing and Ev said something like, 'Well, if we're worth one billion, we're worth 10 billion.' And it's so true.
That's a very Biz thing to say. He's got this sort of very zen way about him. That doesn't surprise me.
The more interesting way to look at this was Zuck was then and is still incredibly smart as in many things and as an acquirer. I mean, at this point in time, Twitter was growing faster than Facebook. It would have been this was a little later that Twitter hit 50 million MAUs, but the growth was accelerating significantly during these years when you showed up a little bit after these discussions. So, there was still no revenue at the company. I'm curious to hear your perspective on what it was like building it, both in terms of how you first did those distribution deals with Google and Microsoft to monetize, but then also building out the ad platform. We've talked about a bunch on this show, whether it's Google or Facebook. There aren't that many people that have built out ad platforms at scale like you kind of set out to do when you arrived. Like, how did you think about even starting to do that?
I'll separate the two things. The two data deals with Google and Microsoft. I got in there I think September maybe August 29th, September 1st was my first day and we had those two data deals done at the very beginning of October. They were just the first priority like let's get these things done. There been discussions going on back and forth for a number of months now that kind of been dragging on. I'll go get those wrapped up. So we went and did those two data deals, but at the same time those were sort of a fixed amount for a fixed period of time and who knows whether we're going to have the leverage to do those same deals again 2 years down the road. So we knew we needed a more scalable strategy. It was pretty quickly decided to pursue an advertising strategy. So the big challenge with Twitter and building an ad network around Twitter was unlike Facebook for example, the Twitter content went all over the place. It went to twitter.com. It went to third party clients. It went to SMS alerts. It went to ESPN.com and the New York Times and on and on and on. So, we realized right away, all right, we need an advertising format that goes everywhere the tweets go. From there, you quickly realize, well, the one thing that can go anywhere a tweet can go is another tweet. So, we'll make the ads tweets and we'll just inject them into the feed, whether it's a syndication feed or a third party feed or our own site. And that was really the birth of the native probably much to this dismay of a bunch of your listeners. It was the birth of the feed based ad that ended up being what's used in all these products today, Facebook and Pinterest and Instagram, etc. Necessity is the mother of invention. The reason we invented that is because we had to. There was no demilitarized zone of tweets, the sidebar, where to put stuff. There was just the feed. The beauty of that innovation was, well, gosh, we'll be able to measure engagement with the ad in the same ways you measure engagement with a tweet. And so, we had this visiting professor at Stanford, Ashish Goyle. and Ashish really came up with the idea of using the tweet ad engagement as that'll be the way we charge. Instead of cost per impression or cost per click, we'll charge based on cost per engagement. They click and open the tweet or they like it or they retweet it or they reply to it. Those are great indicators of engagement. and he was the sort of the father of thinking about the way we built the ad model and the monetization engine behind it and charged for it. That was all him. He was the thinker on that.
And how do you make that management decision that we're pioneering something new here? We have this visiting professor who's a genius. We are going to sort of
Wait, how come he's the genius? I just described to you 90 things that we came up with. Now Ashish is the genius. No, Ashish is a genius. Ashish has the awesome characteristic of being a very soft talker. You're always kind of feeling like I think I just missed something really important there that he said, but I already asked him to repeat himself and now I don't want to look like an idiot. Anyway, I'm joking. He really was sort of the founding father of the way we thought about the ad model inside the company and the way we charged for it.
So, interesting to think back to this point. I already sort of exclaimed earlier I was surprised that this predated Facebook's now multi multi-hundred billion dollar cumulative revenue over time ad format. Twitter really pioneered this. It's important to remember Facebook was just garbage on mobile at this time. It was well before the Instagram acquisition. Everyone was basically worried that Facebook's moat wouldn't translate to mobile.
Yeah. Well, they were wrong. And if you would, there's a lot of money to be made buying Facebook at 19 when it crashed after the IPO because they thought they wouldn't figure out mobile. Betting against Mark has always proven to be not a very good strategy. There was obviously the mobile product issues of Facebook. I want to get into in a minute all the companies you were buying at Twitter and bringing the Twitter native app itself was a acquisition, right?
That's correct. So obviously there was the product issues but also I think you raised an interesting point I hadn't thought about. It's also just the nature of the ad unit itself. Facebook had done that big Microsoft deal. It was essentially still just display advertising on the site at this point. Right. Yes. I think they probably charged based on clicks. It was AdSense style was the ads were over in the sidebar. You know the news feed was in the middle and then on the right hand side of Facebook.com you'd have those bar of ads.
Wow. You tell that to the kids today and they don't believe you.
When you made the decision to pursue Ashish's vision of this ad model,
I think it was Dick's vision from what I heard.
Yeah. Based on engagement, there's like a ton of pieces you got to go build out. That's like a heavy engineering lift. There's obviously the product aspect of that and then the data feed aspect of that with all the third party applications and then there's also the now you got to go spin up teams to convince advertisers to do business a different way right what was your like Gantt chart of planning all this
I can't remember that far back I knew that I needed someone on the go to market side meaning the sales side to really build that whole organization I didn't know anything about building a sales organization I didn't know anything about building what sales ops was what sales find. I didn't know anything about that stuff. So before Google had purchased Feed Burner, we had been in discussions with another company and that company was Fox Interactive in Los Angeles. Adam Bain was running Fox Interactive and had built their whole ad stack and ad platform at Fox Interactive. Adam is president down there. He both understands the technology and probably one of the best business development networker relationship salespeople I've ever met in my life. So, I'm going to go try to convince him to come join us. So, I spent about four or five months trying to travel back and forth to LA trying to convince Adam to come up and be president of global revenue at Twitter. And he would say, let me think about it. He was super hard to convince, but I finally convinced him to do it. I remember and of course now we're partners on the investing side. I remember telling the board I got the perfect person and keep in mind it's very Silicon Valley board. Not all the investors on it were Silicon Valley. There was Fred Wilson from Union Square Ventures in New York. But a sort of traditional tech-heavy mindset of these are the kinds of people who do these jobs and these are the kinds of people who are good at those jobs. Obviously we should go to Google and get one of their people like Facebook did. And I was like no no no. I got the guy. He runs Fox Interactive and Ev and everyone else were like what? We're going to hire someone from Fox to do this. But we did and that was a great decision and Adam built one of the great go to market organizations in I would say in the last 20 years. I mean that team was so many of the leaders on that team have gone on to run other organizations and he's developed tons and tons of great leaders and that team was amazing. So that was on the go to market side. Once he got in, I kind of like you take the ball and run with it. I don't know how to do this and you do.
And just to underscore that, I mean, people know about Adam, but obviously he's your partner, but like he did an absolutely incredible job. I mean, the first year revenue in 2010 was mostly, I think, the Google and Microsoft deals, but then the first year of ad revenue in 2011, Twitter did over $100 million in revenue and then 3x that the next year. I mean, it's interesting, right? Like the Twitter revenue story is this incredible story.
Yeah, most people don't realize we went from literally 0 in revenue before I got there. Not close to zero, but zero to a run rate of over $2 billion a year when I left in July 2015. So 5-6 years later, 0 to 2 billion. I think that's probably only, I don't know, Amazon, Facebook, Google, maybe Spotify. You'd have to go check, but there aren't many that went from 0 to 2 faster than that. The point being right up there and with a new ad format and really from a challenger position. All those other companies were kind of like, you got to buy from me because I'm number one and I'm the biggest. And we did it from the challenger position. Facebook always being the 900 lb gorilla and us trying to fight for survival. So, it was super impressive what he was able to do. The guy's tireless. I remember one time, and I'll talk about the product and engineering side in a minute, but I remember one time in probably 2012, we were at a sales conference in Chicago. We had a sales conference with a bunch of marketers the next morning some on like a Wednesday morning or something and Adam and I are in the hotel lobby at midnight going through that deck that we're going to use the next day. Go up and go to bed, see at 7:00 in the morning, come down at 7:00 in the morning and he's still sitting in the same chair wearing what he was wearing last night working on the deck. And I was like, 'Dude, you got to like speak for an hour. How are you going to do that?' And he just powered through it. It was amazing. So, he's just one of those people that can go and go and go.
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On product and engineering, like today, we take this thing kind of for granted. Anyone who's bought ads on the internet, there's a self-served portal that you can go to and get incredibly granular on who you want to target and then it all just kind works and it gets displayed to them in the way that you expect. And there's probably only like 10 if you include the Reddits and the Snapchats. And obviously everybody has different levels of granularity and different formats of what the ads can look like. Twitter was one of the first three. How do you do that when it's a technology that's only been built before by like Google and other people who have copied Google and hired Google's team away?
The same way that was one where we definitely knew we had to go get people from Google involved and we did. The person who ended up running ads engineering, Alex Rudder, and built that. We recruited out at Google and then went and found other people who had done things like yield management and all of that. All of the crazy intricacies of auction-based advertising, pricing, and had done that at Google. We went and got some of those people. It's just hard and the learning curve on it is tough and especially on the some of the yield management stuff. So on product and engineering, we went and got engineers who had done some of this stuff before at Google. And on the product side, there were a handful of product managers. Aneesh Mohan was the first one who's now an investor, early stage VC was the PM on the very first ads product that promoted tweets inside Twitter search. Then Kevin Weil, who had been on the team, actually Kevin Weil was at the company before I got there and had been on the data science team. Kevin Weil then came over to the product side and obviously later on years later the vice president of product at Twitter and then after I left Twitter he went over to Instagram and was VP product there. I'm curious if you're willing to talk about it. What was it like recruiting all those folks? How did those conversations go? I mean I assume they were Google was paying them extremely well. It was hard because Twitter engineering despite having some really extraordinary people on the team. Kaylee Toransson running the data science team was extraordinary when I got there and there were a bunch of people I mean I won't go through all the specific names there were just a bunch of extraordinary engineers on the team some of whom are Evan Weaver who's a CEO of Phona DB now there's a bunch of great killer engineers on the team when I got there but despite that Twitter engineering had a horrible reputation why because the fail whale the site couldn't keep the site up. Go to try to recruit engineers to come work at Twitter and they're like what's the matter with you boneheads. You can't even keep your website up and running. I'm going to come like the most famous HTTP 500 return code in the history of, you know, then you're like, it's all built on Ruby on Rails. So, it's just hard, but we did it. Kudos to the people who took the risk and came in and worked on it because it was a slog. Migrating off of Ruby took forever and there were quarters where we couldn't do any new product work. We just had to like refactor the back end cuz it was such a train wreck cuz it was pieced together. It was cobbled together in the early days just to keep it up and running and keep up with demand. So that's just the way these things go.
You've told this story many times before, but it's too good not to share. Can you talk about when the Russian president stopped by the office?
Yeah, Medvedev came by the office. He's going to write this historic tweet to Obama. Surprise, surprise, the site crashed. So we're like, 'Oh man, one of the engineers fake wrote a backend for the tweet that Medvedev sent from the iPad on stage at the Twitter headquarters and rewrote it and inserted into the database and oh look, it worked.' I mean, it was madness. The next morning in the New York Times, there's this big headline, President Medvedev historic communication with Barack Obama on Twitter. And meanwhile, at the time, you're like, 'Oh my god, you've got to be kidding me.'
We literally hardcoded that.
Literally literally hard-coding the tweet that he wrote. Stupid stuff like that. Anyway, yeah, that kind of stuff happened all the time and there was truckloads of heroic work by engineers who would have much rather been doing other things, refactoring backends and doing all the work to get us off the monorail we used to call it because it was a monolithic backend into a more robust service-based architecture while obviously still scaling the whole company and users. So, that was real work and it was hard to convince people to come do it, but we did. To my mind at least, there's one other piece, maybe two other pieces, but one other piece in particular I want to cover to all this as you're building this engine, and that's the third party piece of this. If the advertising model for Twitter is tweets, people consume Twitter all over the place. It was obvious to me when I was CEO for a couple reasons, and I'll go into them, and they're not well understood, but it doesn't matter, that we had to own the user experience. You can't, despite what anyone else wants to say, you can't build an advertising business in which a bunch of other people own the user experience because it doesn't make any sense. You need to be a nonprofit at that point and just decide we're not going to be I'm being serious. I'm not being facetious.
Totally. Totally. I mean it makes a ton of sense.
Yeah, you can't do all the work to build the service, run the service, desperation customer service work with the hundreds of people that are responding to user requests, then send out all that content to a third party that takes the content and puts their own ad around it. It's stupid. You wouldn't take the New York Times and like hand it to, oh, if you're in Chicago, then you know when I have the New York Times, you can just take it and sell all the ads yourself and keep all the money. Well, the company's out of business like a day later. So, it was obvious to me we had to own the user experience. And at the same time, I think it was right before I became CEO, there was a company that started realizing, look, if Twitter's not going to go own their own network, we should tweet Tech, right? This is the idea lab guys. Yeah, Bill Gross. Bill realized smartly, look, if you guys aren't going to own your own network, I'm going to go aggregate it myself. And so he started going out and buying a bunch of the third party clients, maybe bought two or three, I don't remember how many of them he bought. And it started to realize like, oh, Bill's going to go build the network and then go, great, I now own all the users and I'm going to monetize them however I want and hold us hostage. So I was like, okay, we can't let these third parties do this anymore. And that was the beginning of the thinking of third parties differently. I wanted to have a platform in which third parties built into Twitter instead of taking our stuff and building away from Twitter. And so we had had prototypes for a number of kinds of platforms in the first couple years I was CEO around Twitter cards that never really materialized or came to fruition the way I'd wanted them to. Thesis was always let's have a platform in which people build into what we're doing, not take our stuff and build off of what we're doing. That's a real platform and that's where you get network effects.
Is the counterfactual to that? Well, this is why RSS didn't succeed because all those publishers own the content that got plumbed into someone else's experience and they couldn't in a first party way control the ads and the engagement on the ads and the data coming back from the ads.
No, I think the reason RSS didn't succeed is just because Facebook and Twitter displaced them. Just became easier for everyone in the world to use these things instead of RSS readers. Makes sense.
I remember so viscerally when for me personally that light bulb went off and I was like, 'Oh, I had been a religious Google reader RSS user before and I was like, wait a minute, I don't actually need that anymore. I can just be on Twitter.' I'm curious, maybe reflecting back on it today, there's an economic opportunity that comes from being a platform that developers can build experiences on, and you can think of that as maybe like the 10-cent opportunity. And there's an opportunity that comes from being the greatest place to buy ads in the world, which Facebook and Google basically have a duopoly on. Twitter also makes $3.5 billion dollars in revenue on, but not 70 billion or not like a hundred billion. How do you think about was that the right call to build an advertising business versus being a platform company?
Yes. Because the road to being a platform company for Twitter at the time based on the way the API had been leveraged to date, 95% of which was to build people going and building their own clients and taking the stuff out of Twitter and moving it away from Twitter and doing whatever they wanted with it. The road from that to building a platform where developers could build into Twitter was far. Having gotten the ad network and ads business up and running in the short time we did and having struggled with building out the platform of Twitter cards the way we had theorized was possible and could be awesome. I would say that in hindsight that proved to be the right decision.
Yeah, it's hard to imagine going from that to a WeChat like experience. It was just too long a road.
Yeah, it's also the most common application you could build upon Twitter's platform is a Twitter client. The vast majority of sort of apps that people could conceptualize were that it wasn't like it was Windows, it was Twitter.
Yeah. Yeah. Yeah. Correct. Twitter cards. This is the perfect kind of segue to talk about the other thing that was going on at this time. It's so fun talking about all this cuz so many hugely important both decisions and events happen for the internet and what shapes everything today right around this time. So Instagram basically launched on Twitter, right? And I believe was using Twitter cards. Is that right?
Yes. And they used our API. They used the API to build the network, the graph. Yeah. Yeah. We were close to Kevin and probably is annoyed by this. I remember everyone calling him Mikey. I'm sure he's like now like, 'Hey, I stopped going by Mikey 10 years ago. Jerk.' When Kevin had been at Google with you, right? Were you there all at the same time?
Yeah, I think we may have. He was in corp dev if I remember correctly and we may have crossed past once or twice but not tons but when they started Jess Varlli who was in corp dev at Twitter and was there before I was there and Kevin were close so we were close to them from the get-go and liked what they were doing and knew it was unique and different and there were a bunch of things that there was one camp that was like there were already filter companies Hipstamatic was doing it there were a couple other ones but it was pretty clear that these guys had it wasn't just the filter. It was the you don't have to think about the aspect ratio or the this or the that. It's just a square. It's always going to be a square and we're going to make it look great. Just point and click and we're going to make the photo look awesome. They're all going to be a square. It's all going to show up the same size in the feed. And that was a genius innovation. And it was just the two of them for a while. I mean the I remember even when we tried to buy the company probably getting ahead of where you want to be but March 2012 when I tried to buy Instagram it was before they had raised the $500 million valuation round from I think Greylock just before that it was March 2012 meeting with Kevin and Mike and just me and me and a couple members of my board and me and Jack and and Peter Fenton and stuff like that just couldn't convince them or get it over the finish line. A month later, I was in Tokyo. April, they went and raised the money instead. They're like, 'Look, we're going to go it alone. We're going to raise this round from Greylock.'
And what was the dollar amount you were talking about with them?
A lot. It was over 10% of the company. It was well over 10% of the company. Whatever the valuation was at that time of Twitter, it was like a lot. Maybe like 600 million, something like that. But I think, if I remember correctly, we made it so like it's 600 million to the cap table, but Kevin and Mike get a lot more cuz we're going to throw in a bunch of stuff just for them. Well, the crazy thing is that actually would have been a much better deal than what they did because when you went public the next year, 10% of Twitter would have been probably more than where Facebook stock was trading.
I think those guys would tell you things worked out just things worked out just fine for them. I mean, yeah, I don't know. Anyway, I remember just trying and trying and they came back and said, 'We're gonna go do this raise instead.' I was like, 'H, good luck. You're gonna crush it.' And then I was in Tokyo in April and I woke up and had a text message like, 'Hey, Instagram just sold to Facebook for a billion dollars.' And I remember thinking like, 'Oh man, that's rough for us.' Because the beauty of Instagram had been, well, we had text, but Facebook always had photos. And the beauty of Facebook was everybody pours all of their photos into here. I just remember thinking in February and March and I've been working with Ali Rowghani, my CFO on the acquisition and the numbers and the valuation of the deal and how we're going to structure it and everything and Ali was also really pushing the board that we got to do this which was great and we got approval from the board to do it and we just felt like look we've got a lock on text and they have a lock on photos and if we can get Instagram it's going to be a fair playing field. Yes, they've got this just extraordinary number of users and can crush us in so many ways, but this will really give us a beach head. Keep in mind at the time, I might be wrong about the numbers. At the time that we're talking about, Instagram is like 30 million MAU. It's not 500, it's not 200, it's like 30 to 35.
And Twitter is like 140 million MAU at this point.
These are big numbers. No one would say this now, but if you go back and read the articles at the time of the Facebook acquisition for a billion dollars, people are like, 'Is Facebook insane? Are they crazy giving them a billion dollars? They've got no revenue and only 30 million users.' But we knew we're really in a pinch now. These guys are going to be able to really outflank us and bring real leverage to bear against us. And they did. Wasn't too long after that that they stopped allowing Instagram photos to appear inside the feed and Twitter. And we were just the day of the acquisition we knew like oh man that's really going to be a problem for us.
Two things happen I don't remember the order which they happen. The first you mentioned where and I think to this day still when you post an Instagram link in Twitter it frustratingly is just a URL and you're like come on guys can't you get along? But the other thing is that the social graph stopped working. Instagram no longer could use Twitter's API to help you find your friends to follow. How did both of those go down?
Well, I got a call one day. I think it was from Mark. And Mark said, 'Hey, just want to give you the heads up. The Instagram team has decided that Instagram photos need to be viewed on Instagram. So, the insert the Instagram photo into the Twitter feed is no longer going to work and it's just going to be a link.' I think he said something like they're going to shut that off tomorrow. And I was like, 'That's a bummer. That's really, really bad. It's bad for the users.'
I love the phrasing, too. Like, oh, the team has decided it's a bad user experience and I don't think you should do it.
But more urgently, if you turn it off like 4 hours from now or 5 hours from now or whatever the number was, like it's just going to break Twitter. So, we need like 36 hours to go make it so that that just doesn't break when you post an Instagram link and it'll at least show the link. We hustled and did that work. Engineers stayed late that night and we did a bunch of work and people are constantly calling me and emailing me that week like, 'Why did you do this?' I didn't do it. Everyone knows that it's a better experience when the photo that you wanted to post actually shows up. So, nothing I can do about it. I can't go over there and show them all the mail and say, 'Look at all the people you've made sad.' I think if I remember correctly, keep in mind, we this whole time don't ever have access to the Facebook API that we were blocked from using it. You can't go use the social graph like fat chance. So, at this point, we were like, well, why are we going to be the schmucks that keep letting everybody use our stuff when we're blocked from using all theirs? So, shut that off. But then it didn't matter because they had the Facebook social graph. It is so interesting reflecting back on it because Instagram really has a perfect fit with Twitter. The asymmetric follower model instead of the Facebook social graph.
friend model, the world would have been very different. It would have been fun to see how it sorted out because it would have been a, I don't know if the word fair fight is the right way to put it, but we felt like we had a beachhead and an angle to compete if we had that text over here and photos over there with the same follower model and the same way of thinking about the asymmetry. And, you know, you could have imagined, I don't know if Kevin's probably want to stab me the next time he sees me if I say this. Instagram still doesn't really have rebroadcast, right? Or retweet or regram or whatever you want to call it. So Jack and I had been talking about it'd be great to talk to Kevin about you start to think about interjecting things like that and you really have these services that mirror each other. That would be really, really cool. And there were all these ways we would have been able to be a lot more competitive and that would have been fun. But say love. [laughter]
Well, that's one of the reasons we really wanted to do this episode and focus on this time period in particular is there is this alternate universe. A couple people wake up on a different side of the bed one morning or, you know, a butterfly flaps its wings in Australia somewhere and Twitter owns not only Instagram but also effectively Tik Tok as well because it was shortly after this that Vine happened. Right.
