The tech industry’s engineers and entrepreneurs saw the Facebook hearings this week as more than just the grilling of one of its stars.
To them, the congressional criticism against Facebook chief executive Mark Zuckerberg felt like a referendum on the industry itself and on the social network’s growth-at-any-cost playbook that hundreds of start-ups have sought to emulate over the last decade — and that some have turned against.
“In a way, Silicon Valley is Facebook,” said Max Motschwiller, a general partner with the venture firm Meritech Capital Partners. “This is who we are. The whole identity is being challenged.”
Motschwiller said the revelations about how Facebook allowed its users’ data to be mishandled amounted to a broader questioning of the ways people’s information is being used.
“We’ve been beating this drum around open data and AI and a connected world and everyone having a voice and simplifying your life with new convenience,” Motschwiller said.
But there were consequences, he added, such as the growing public distrust of tech giants, the threat of new legislation and the harmful ways the technology is being used. “And for the first time, everyone is saying, we can’t ignore them anymore,” Motschwiller said.
Some start-ups and investors were not sympathetic to Zuckerberg, who endured 10 hours of testimony in two days. They find themselves in the odd position of being on the same side as lawmakers who want to regulate Facebook.
Over the last year, attitudes toward Facebook have begun to shift in Silicon Valley. As Facebook has consolidated its power as a mobile advertising behemoth and has cut off developers’ access to data, start-ups and investors have become resentful of what they see as anti-competitive behavior.
“The maturity of social media as a business has evolved to the point that it has become integrated in consumer lives and as a result, creates the opportunity for bad actors to do bad things,” said Joe Horowitz, managing general partner of the firm Icon Ventures. “This merits closer scrutiny and is worthy of some regulation to prevent inappropriate behavior such as foreign government interference with our elections.”
Some entrepreneurs say regulation of technology giants could help them get an edge. Others say they worry that broader regulation of people’s data would turn technology giants into a regulated monopoly like a utility, giving them even more power — something that was unimaginable when Facebook was a small start-up.
In congressional testimony this week, Zuckerberg denied Facebook is a monopoly. “When you’re thinking through regulation, across all industries, you need to be careful that it doesn’t cement in the current companies that are — that are winning,” Zuckerberg said in his testimony. Facebook declined to comment on Friday.
Facebook’s success story spawned a generation of social start-ups that replicated its tactics for measuring user behavior, conducting user research and mining data. Venture capitalists have used that story to change the way young start-ups are measured, evaluated and treated by funders.
For example, well before the social network went public or was profitable, it was prized by investors here for its stunning growth in membership and for the tactics it used to get people hooked on the service — known as “growth hacking” in Silicon Valley. That success made it more acceptable for investors to assume a start-up with no revenue could be considered valuable based on the enthusiasm of its users, investors said. One metric that has recently come into favor is called enterprise value per monthly active user, a measurement of the company’s value based on how frequently users log into a company’s app.
Many experts in Silicon Valley attribute a growing deference to start-up founders — a “cult of the founder” — to the example Zuckerberg set when he successfully maintained control of his company and its voting shares.
Before Zuckerberg, hiring a “professional chief executive” was standard practice for start-ups, such as when Google brought on Eric Schmidt as chief executive in 2001, to provide “adult supervision” to founders Larry Page and Sergey Brin. Today, venture capitalists advertise on their websites that they are “founder-driven” — signaling to entrepreneurs that they put them first.
Former Facebook employees have fanned out across the Valley over the last decade, founding dozens of companies of their own. Zuckerberg’s deputies from the early years of Facebook hold leading positions at the Valley’s venture capital firms, such as Sequoia Capital and Benchmark Capital. They have helped spread the growth gospel.
Mike Vernal, a former Facebook vice president who became a partner with the prominent venture firm Sequoia Capital in 2016, said he has brought the lessons from his experience at Facebook, as vice president of search and product, to start-ups in the company’s portfolio, such as video conferencing app Houseparty and the crime-spotting app Citizen. “It’s ubiquitous now, the entire culture around experimentation, A/B testing, making it easier to sign up for products, trying to remove friction about understanding what are the blocks to people joining the community. A lot of that has its roots in Facebook,” Vernal said.
In 2011, the executive who pioneered many of Facebook’s growth techniques, Chamath Palihapitiya, started his own venture capital firm, Social Capital, where he helps the companies he invests in re-create Facebook’s model. Growth teams are now standard at Silicon Valley companies, from Pinterest to Yelp to Lyft.
After Palihapitiya joined Zuckerberg in 2007, he created a Facebook unit, known as a growth team, that was dedicated to using advanced data mining techniques to discover how to bring new users to the platform and keep them there, experimenting with slight tweaks to people’s experience to make them stick. He helped to refine the now widespread practice known as A/B testing, where different people are shown slightly different versions of a company’s app and engineers measure which version is more engaging.
Palihapitiya — who, after leaving, gave an online course on growth hacking — has brought several of his former Facebook colleagues into his firm so they can provide Facebook-like tactics to tiny companies that work in areas of health care, climate change or education, among others. With their help, one start-up, texting-for-teachers app Remind, leaped from 1.6 million users in 2012 to 10 million the following year, Palihapitiya said in a talk at Stanford University last year.
Palihapitiya has since said he feels “tremendous guilt” about the tools he built at Facebook. He is among a group of former Facebook employees and Zuckerberg confidants, including early Facebook investor Roger McNamee, who have come forward to say they believe the company is too powerful and should be subject to more government oversight. Palihapitiya declined to comment.
Vernal, who worked at Microsoft around the time the company was involved in a major antitrust case in which chief executive Bill Gates also testified before Congress, said he agreed that technology companies, including Facebook, need to be more cautious about the ways bad actors can attack their platforms.
There could also be a downside to that caution. “At Microsoft [during that period], there was feeling internally that the world didn’t like us, and there was a sort of retrenchment. It created a kind of caution — a fear of experimenting and making bold decisions,” Vernal said. “We should be more cautious, but I hope we don’t lose the optimism in the process.”