This XSeed blog was written by Executive-in-Residence, Mike Hoefflinger, and originally appeared on Forbes.
If the Clever-Foolish 2×2 is Silicon Valley’s strategic playbook, here is how Mark Zuckerberg has employed it in the past, and will employ it long into the future.
Recap
In a previous post, I introduced the Clever-Foolish 2×2 behind Silicon Valley-style breakout innovation. Its essential quadrant is the very clever idea considered very foolish.
Here’s how Facebook has continually put themselves in the right position.
“Foolish” Beginnings
By May 2006, Mark Zuckerberg’s fledgling 2-year old college social network was sailing into a perfect storm of “that’s foolish” headwinds.
Social Networks were viewed in one of three ways, none of them friendly to a newcomer:
1. Failed: Friendster (launched in 2002) was towards the end of a huge erosion of its popularity that essentially caused most observers to write them off.
2. Dominated by a major player: Myspace (launched in 2003) was not only king of the hill of the social networks with 51M US monthly users, but enjoyed greater popularity than Google Search (as measured by page views). Facebook was roughly 1/10th the size of Myspace.
3. Unimportant: The giant Internet players of the time considered social networks non-core. It’s not likely many of us remember Yahoo 360 (5M US monthly users in May 2006), MSN Spaces (9.6M) or Google Orkut (0.2M). Opportunistic defense prevailed the strategic thinking relative to social networks. If there was much strategic thinking about them at all.
A grim outlook for Facebook.
Unless, of course, you are a world class Clever-Foolish thinker with the willpower of Zuckerberg.
What’s The (Big) Difference?
There were several approaches that made Facebook more clever than most around them realized in May of 2006 (and as we’ll see, these would just be the start):
1. The mission (and Zuckerberg’s willpower to execute it): In 2006 it was not yet clear to everyone outside of Facebook just how big the mission to “give people the power to share and make the world more open and connected” was, and just how committed Zuckerberg was (and is) to it. Even he has marveled at how it was Facebook — not giant players like Google or Microsoft — who “cared more” about making it happen. Although he would be tested, his will never fundamentally faltered.
2. Authentic identity for people: Zuckerberg was able to exploit a gap between Friendster’s decline (which had started down the authentic identity path, but was suffering from several years of access problems that created terrible user experiences) and Myspace’s rise (which appeared to place no emphasis on authentic identity, or at least didn’t attempt to give it the kind of simplicity and structure that Facebook did). Pedestrian — or even awkward — as it may seem, authentic identity is important to establishing and curating yourself online (making Facebook essentially your canonical identity online), to finding the people who matter to you (helping Facebook grow via network effects) and to the incredible daily engagement of the Facebook news feed, which is interesting because it is full of real people and things selected by Facebook’s famous algorithm because they matter to each user.
3. Playing big-small to be clever-foolish: By 2006 Facebook was much smaller than the biggest social network, but had built up unrivaled momentum with a critical audience from a string of “big fish in small pond” plays to win college campuses one at a time. Starting with Harvard, they would quickly get 50%+ of the undergraduate population of each school connected, often in less than a month.
Piling Clever-Foolish Onto Clever-Foolish
These quiet advantages were powerful, but Zuckerberg went back to the Clever-Foolish well three more times just in 2006 alone.
And in classic Clever-Foolish fashion he did it in the face of serious opposition from crucial constituents including his own management team, Facebook users and his highly respected investors:
Opening Facebook beyond colleges: Risking his own core asset (the crucial niche audience of college students), Zuckerberg moved ahead in September 2006 to open the network to all users. Conventional wisdom at the time held that the arrival of the older (and younger) set on Facebook would cause college users to abandon the service. Even his own management team was concerned that size would be the enemy of cool. In the end, the move proved crucial to Facebook’s growth and continued progress against its mission.
Introducing news feed: Today, with over a billion stories delivered world-wide every time you take a breath and used by nearly a billion people every day, the Facebook news feed is one of — if not the — most important media in the world. At its introduction, however, things were quite different with Facebook users famously using Facebook’s own services to protest the introduction.
Turning down acquisition offers: A well-documented string of suitors (Friendster, Google, Washington Post, Viacom, Myspace, News Corp, Viacom again, NBC, Viacom again, AOL) had begun to think that Facebook might not be as foolish as it appeared. The most important of these was Yahoo, which offered Zuckerberg a $1B deal in 2006 which he in the end rejected against the judgment of his two highly respected venture capital investors, Founders Fund leader and PayPal alum Peter Thiel and Accel’s Jim Breyer.
Mark is a master of the Clever-Foolish 2×2. The hits just kept on coming:
Crowd-sourced translation (2008): Considered dicey from a quality perspective, and in total opposition to Myspace’s feet-on-the-ground curation at the time, Facebook’s approach to split its site into component phrases and build tools that allow for crowd-sourced and crowd-voted local translations was critical to its rapid international growth, which in turn was critical to building the momentum that allowed it to overtake Myspace. Now available in over a hundred translations (many of which are crowdsourced, but also overseen by professional translators), Facebook is a near-ubiquitous global presence.
The IPO “fiasco” and mobile advertising crisis (2012): Waiting until Facebook was a $100B company carried both benefits ($16B in proceeds from the IPO) and risks (roadshow under glaring lights, unprecedented trading volume on the first day that broke NASDAQ’s ability to clear trades which drove uncertainty). Facebook’s own S1 amendment raised the specter of issues around being able to monetize consumers’ rapid shift to mobile. However, even as Facebook’s stock sunk to a “foolish” $17, Zuckerberg was on the road to a “clever” solution to mobile advertising: ads in Facebook’s news feed (which was utterly perfect for the smartphone form factor). Having built a $10B+ annual mobile advertising business from $0 in three years (and roughly quintupling their stock’s low water mark), it’s now clear just how Clever-Foolish Zuckerberg was under even the most intense circumstances.
Instagram (2012, $1B) and WhatsApp (2014, $19B+) acquisitions: As if to show what Clever-Foolish acquisitions look like, Zuckerberg first acquired Kevin Systrom and Mike Krieger’s Instagram (at an eye-popping $1B for 13 people, 30M monthly active users and $0 revenue) and then used his successful enablement of Systrom’s goals within the Facebook infrastructure (growing to 300M+ MAU) as his proof-point to acquire Jan Koum and Brian Acton’s WhatsApp (at a mind-boggling $19B+ for 55 people, 450M users and $0 revenue). These acquisitions were ridiculed for their cost or even “an admission of defeat” of Facebook’s organic efforts, but are now widely heralded as among the best acquisitions in the Internet space ever as they have continued to be wildly individually successful (Instagram now at 300M+ MAU, WhatsApp at 800M+ MAU), have strategically grown Facebook’s family of apps and services relative to the Facebook mission, and even Facebook’s organic apps have thrived (Messenger at 700M+ MAU).
With 20/20 hindsight this all looks very clever indeed, so Facebook’s world-class Clever-Foolishness may not be as apparent. To get another perspective, let’s look at some bets of Zuckerberg’s that are still in progress and openly considered “foolish” by some today:
Facebook-led Internet.org: Facebook’s efforts to make Internet access possible for the next few billion people in the world (starting with a free offering — in conjunction with local carriers — of a basic “911” version of the Internet) have been attacked as either (1) fiscally irresponsible by shareholders (not enough revenue potential), (2) grotesquely profit motivated (purely revenue focused instead of altruistic), or (3) unaligned with net neutrality (in violation of treating all Internet traffic alike). In the meantime, the projects in 14+ countries are already available to an additional 1B people. The final verdict on the project won’t be available for years to come, and “success” can take different forms, but betting against Zuckerberg when Internet.org is so deeply in the heart of Facebook’s “make the world more open and connected” mission is inconceivable.
Oculus acquisition (2014): Instantly pulling Oculus VR out of its niche Kickstarter beginnings with a $2B+ acquisition, Facebook’s goals were widely mis-understood (news feed in VR? ads in VR?). Even once the hardcore gaming community had appeared to forgive Facebook for co-opting its toy, there is still significant controversy over how VR can play a role for Facebook in the future. Understanding Zuckerberg’s motivation requires envisioning a future where VR is not just something for 10M or 100M gamers, but a new screen with no edges for making the world more open and connected through a feeling of presence. He envisions a future version of the technology being used by 1B people. It may be more useful to think of Oculus to Facebook as Android is to Google. A bet on a future computing platform being moved forward directly by its owner (e.g. Nexus for Google, Oculus Rift for Facebook) as well as a larger ecosystem (e.g. Samsung Galaxy for Android, Samsung Gear VR for Oculus). If Oculus winds up being anything like Android, Zuckerberg will once again look very Clever-Foolish.
11 years of Clever-Foolish thinking have made Facebook the premiere player when it comes to people’s engagement across the globe, especially with its wide lead in the most important medium to people today: mobile.
While there have been a few Foolish-Foolish occasions (Beacon, Facebook Home, HTML5), when it comes to Clever-Foolish, Zuckerberg and his leadership team are Hall-of-Famers.