In early October 2012, the company announced it had surpassed one billion monthly users, with 600 million mobile users, 219 billion photo uploads, and 140 billion friend connections. Despite the mess of the IPO—and not being privy to the issues with ads—I took great pride in Facebook’s success. The stock turned out to be a game changer for Elevation. Even though my partners had turned down our first opportunity to invest, Elevation subsequently made a large investment at a relatively low price, ensuring on its own that the fund would be a winner.
Only eight and a half years from Zuck’s dorm room, Facebook had become a powerful economic engine. Thanks to the philosophy of “move fast and break things,” no one at Facebook was satisfied with a record-setting IPO. They began hacking away at the problem of monetizing users. There were several challenges. As Martínez wrote in Chaos Monkeys, the advertising team around the time of the IPO was, for the most part, young people who had no previous work experience in advertising or even media. They learned everything by trial and error. For every innovation, there were many mistakes, some of which would have been obvious to a more experienced team. The team may have been young, but they were smart, highly motivated, and persistent. Their leadership, with Sheryl Sandberg at the top, created a successful sales culture. They took a long view and learned from every mistake. They focused on metrics.
In the early days, Facebook did its best to create effective advertising products and tools from profile data, users’ friend relationships, and user actions on the site. My band, Moonalice, was an early advertiser, with a budget of less than ten thousand dollars a year. Our first ads, a few years before the IPO, were tiny rectangles on the side of the page, with a few words of text and maybe a link. The goal was to introduce Moonalice to new fans. We promoted a song called “It’s 4:20 Somewhere” this way. We ran an ad for several years—typically spending ten or twenty dollars a day—and people downloaded the song 4.6 million times, a number cited by the Rock & Roll Hall of Fame as a record from any band’s own website. A little Facebook ad running every day for three years made it possible. But when the only option was a tiny rectangle, Facebook ads were ineffective for many advertisers and products. The same format that worked so well for downloading a song was worthless for promoting a conference. I have no idea why it worked for one thing and not the other. It did not matter much, because in those days, Facebook allowed plenty of free distribution, which they called “organic reach.” Back then, for a fan page likes ours, Facebook would let a really compelling post reach about 15 percent of our fans for free. The value of organic reach on Facebook compelled us and millions of others to shift the focus of our communications from a website to Facebook. We trained our fans to interact with us on Facebook and to use our website as a content archive. Many others did the same, helping to cement Facebook’s position as the social hub of the web. Embracing Facebook worked really well for Moonalice, and our page eventually gathered more than 420,000 followers.
Not surprisingly, there was a catch. Every year or so, Facebook would adjust the algorithm to reduce organic reach. The company made its money from advertising, and having convinced millions of organizations to set up shop on the platform, Facebook held all the cards. The biggest beneficiaries of organic reach had no choice but to buy ads to maintain their overall reach. They had invested too much time and had established too much brand equity on Facebook to abandon the platform. Organic reach declined in fits and starts until it finally bottomed at about 1 percent or less. Fortunately, Facebook would periodically introduce a new product—the Facebook Live video service, for example—and give those new products greater organic reach to persuade people like us to use them. We signed up for Facebook Live on the first day it was available and streamed a concert that same day. The reach was fantastic. Facebook Live and Moonalice were made for each other. I streamed one set of the very first concert by Dead & Company, a spin-off from the Grateful Dead, and so many people watched it that the band saw a surge in ticket sales for other dates on the tour. As a result, one of the band’s managers invited me to stream their next show from the stage.
At the time of the IPO, targeting options for Facebook ads were limited to demographic information from activity on the site, things like age, sex, and location, as well as interests and relationships. The introduction of Open Graph and News Feed ads in 2012 set the stage for much better targeting, which improved rapidly when Facebook integrated “off-site” data into the suite available to advertisers. If Moonalice wanted to promote a concert, we would target demographic data—say, people over twenty-one in the city where our gig was—and then filter that audience with interests, like “concerts,” “Beatles,” and “hippie.” We would spend perhaps one hundred dollars to promote a show on Facebook. We would get a few thousand “impressions,” which in theory meant users who saw the ad. The nature of News Feed is such that users race past a lot of posts. To capture attention, we switched from promoting Events—which is what Facebook called our concerts—to creating posts that included a rich graphic element, such as a poster. In doing so, we ran afoul of the 20 percent rule. As it was explained to me by a senior Facebook executive, Zuck had decided that too much text made ads boring, so he set an arbitrary limit of 20 percent text. Our posters are works of art, but many of them violated the 20 percent rule because rock posters sometimes integrate lots of text into the art. Facebook would reject those ads, so I learned to superimpose a little bit of text onto attention-grabbing photos to create compelling images that would comply with Facebook’s rules.
Moonalice is not a sophisticated advertiser, but we were not alone in that regard. Facebook enabled millions of organizations with small budgets to reach audiences for a fraction of the cost of print, radio, or TV advertisements. But Facebook recognized that the really big money would come from attracting the advertisers who had historically spent giant budgets on traditional media. Such advertisers had completely different expectations. They expected to reach large, targeted audiences at a reasonable cost with complete transparency, which is to say they wanted proof that their messages reached their intended audiences. At the time of the IPO, Facebook could not meet those expectations consistently. In 2013, Facebook began experimenting with data from user activity outside Facebook. They created tools for advertisers to exploit that data. The tools enabled Facebook advertisers the ability to target audiences whose emotions were being triggered in predictable ways.
Facebook’s culture matched its advertising challenge perfectly. A company that prided itself on its software hacking roots perfected a new model to monetize its success. Growth hacking applies the intensely focused, iterative model of software hacking to the problem of increasing user count, time on site, and revenue. It works only when a company has a successful product and a form of monetization that can benefit from tinkering, but for the right kind of company, growth hacking can be transformational. Obsessive focus on metrics is a central feature of growth hacking, so it really matters that you pick the correct metrics.
From late 2012 to 2017, Facebook perfected growth hacking. The company experimented constantly with algorithms, new data types, and small changes in design, measuring everything. Every action a user took gave Facebook a better understanding of that user—and of that user’s friends—enabling the company to make tiny improvements in the “user experience” every day, which is to say they got better at manipulating the attention of users. The goal of growth hacking is to generate more revenue and profits, and at Facebook those metrics blocked out all other considerations. In the world of growth hacking, users are a metric, not people. It is unlikely that civic responsibility ever came up in Facebook’s internal conversations about growth hacking. Once the company started applying user data from outside the platform, there was no turning back. The data from outside Facebook transformed targeting inside Facebook. Additional data improved it more, giving Facebook an incentive to gather data anywhere it could be gathered. The algorithms looked for and found unexpected correlations in the data that could be monetized effectively. Before long, Facebook’s surveillance capabilities rivaled those of an intelligence agency.
To deliver better targeting, Facebook introduced new tools for advertisers. Relative to the 2016 election, the two most important may have been Custom Audiences and Lookalike Audiences. As described in Facebook’s Advertiser Help Center, a Custom Audience is “a type of audience you can create made up of your existing customers. You can target ads to the audience you’ve created on Facebook, Instagram, and Audience Network,” the