Inside Mark Zuckerberg’s controversial decision to turn down Yahoo’s $1 billion early offer to buy Facebook
This is an excerpt from the book “Becoming Facebook” by Mike Hoefflinger. It’s the inside story of Facebook told by the former Head of Global Business Marketing, chronicling the 10 major decisions Facebook made that led from their disastrous stock drop in 2012 to one of the biggest companies in the world. This section comes from the chapter “How Facebook Turned Down 1 Billion”, and discusses how what made Mark Zuckerberg turn down what was ( at the time) a substantial buyout.
In the summer of 2009, Silicon Valley’s (and my) past met its (and my) future.
I had worked at Intel from 1992 to 2008 and directly for former CEO Andy Grove from 1999 to 2001. In January 2009, I had moved to working at Facebook after interviewing with its business and engineering leaders as well as with Sandberg and Zuckerberg. When I had reached out to both Grove and Zuckerberg to see whether they’d be interested in connecting with each other over lunch, both agreed.
We found ourselves sitting at one of the outdoor tables on the small patio behind Facebook’s eclectic building adjacent to a Palo Alto neighborhood at the top of South California Avenue. The 50-year-old landmark, affectionately known inside Facebook simply by its street number—1601—and home to the entire company for a brief period prior to the 2011 move into its much larger and ever growing campus in nearby Menlo Park, has since been leveled to make room for larger buildings, dissociating our memories of navigating privacy crises, building client relationships, achieving unprecedented growth and surviving existential competition with Google from the place where we lived them.
Grove was the 72-year-old Silicon Valley legend. Cofounder, CEO and chairman of Intel, the company that more than any other gave the Valley its name and whose microprocessors were responsible for enabling personal computing and cost-effective servers and, with them, the Internet. When Silicon Valley talks about building on the shoulders of giants, it’s Grove’s shoulders we’re talking about. His passing in March 2016 was the end of a world-altering era.
Zuckerberg was the 25-year-old ascendant newcomer building services at a scale and speed only possible because of Grove’s legacy.
It was a meeting of the veteran who had made possible a billion connected computers and the rookie on his way to connecting the billion people on those computers. In the early stages of the conversation, the two circled slowly and respectfully in shallow waters. Grove trying to determine the legitimacy—his bar was notoriously high—of his lunch companion, something I had seen him do in dozens of one-on-one meetings a decade earlier with the likes of Amazon’s Jeff Bezos, Yahoo’s Jerry Yang, Google’s Larry Page and Sergey Brin, eBay’s Meg Whitman and LoudCloud’s Marc Andreessen and Ben Horowitz (now better known as the venture capital firm a16z). Zuckerberg, in turn, was looking to find common ground with Grove, the statesman who had jumped off the pages of the management bible Only the Paranoid Survive—a must-read for self-respecting technology l-eaders—and who now sat in front of him.
A few minutes in, Grove made his move. A direct question meant not to disrespect or trivialize but to penetrate to a more interesting place for both of them: “How did you turn down Yahoo’s $1 billion?”
Yahoo’s $1 Billion
Grove’s question deserves a quick refresher of the circumstances to which he was referring. Much has been made of the what-could-have-been acquisition offers for Facebook in its early years. Between 2004 and 2007, a string of suitors including Friendster, Google, The Washington Post, Viacom, MySpace, News Corp, Viacom again, NBC, Viacom a third time, Yahoo, AOL, Yahoo again, Google again and Microsoft were rumored to have made acquisition overtures of one kind or another to Facebook.
The most talked-about was Yahoo’s offer in June 2006, said to have initially been worth $1 billion.
Venture capitalist and Facebook board member Peter Thiel, the earliest outside Facebook investor and formerly key player at PayPal, recalled the July 2006 Facebook board meeting between him, fellow venture capitalist Jim Breyer and the then 22-year-old Zuckerberg, held to discuss the 10-figure offer at a time when Facebook was barely two years old and had only eight to nine million users and $20 million in revenue:
Both Breyer and myself on balance thought we probably should take the money and run. But, Zuckerberg started the meeting like, “This is kind of a formality, just a quick board meeting, it shouldn’t take more than 10 minutes. We’re obviously not going to sell here.” Zuckerberg’s argument was that there were all these things we were going to build at Facebook, and he wanted to have a chance to build those products [Facebook was about to open beyond colleges and launch the News Feed]. [Yahoo] had no definite idea about the future. They did not properly value things that did not yet exist. They were, therefore, undervaluing the business.
With a decade of Facebook success behind us, we can recognize Zuckerberg’s decision as prescient (judging by 2016 levels, Yahoo undervalued Facebook by more than 300 times). At the time, however, the young CEO and his board were widely questioned and publicly derided.
It was that very derision that had prompted Grove to ask the question: “How did you turn down Yahoo’s $1 billion?”
Even in 2009, three years after passing up the acquisition, it was still a defining—and possibly touchy—question since Zuckerberg’s decision had not yet been fully vindicated. Facebook’s valuation, which had run up to $15 billion in 2008 with Chinese investor Li Ka-Shing’s $120 million investment, had declined by as much as 80% to $3.1 billion in the lightly traded private secondary exchange earlier in 2009. Facebook had only just crossed 200 million monthly users globally and was still neck-and-neck with MySpace in the United States. Its eventual $100 billion IPO three years later was not yet a gleam in anyone’s eye.
Zuckerberg recognized, however, that Grove was not asking the question in its judgmental form but rather with genuine interest in
Zuckerberg’s process. He answered it in that spirit.
“I just thought we could do it,” he said, referring to growing to a much larger scale and eventually becoming a successful public company with much greater valuation.
While Zuckerberg’s answer may seem arrogant on paper—especially in the context of talking to someone who had done what Zuckerberg was still far from accomplishing—Grove saw there was in Zuckerberg no artifice, no arrogance and no lack of understanding of the difficulties that still lay ahead. In that answer, one visionary CEO with willpower recognized another across a chasm of nearly two generations. There was—at that moment—no difference between the two, as the torch passed viscerally from one Silicon Valley era to another. As a footnote to the moment, Zuckerberg would carry that torch forward to being named Time magazine’s Person of the Year the following year (an honor Grove had received in 1997), and by 2016, Facebook’s valuation would go on to eclipse the highest ever reached by Grove’s Intel in 2000 (not adjusting for inflation).
Curious, Grove followed up: “Where does that willpower come from?”
Zuckerberg considered the question—possibly for the first time—and concluded simply, “Jewish mother.”
From “Becoming Facebook” by Mike Hoefflinger, Copyright © 2017 by Mike Hoefflinger. Reprinted courtesy of AMACOM.