Sean Parker: The Vilified Visionary of the Valley

**Caemin** (0:10)
Morning, folks, and welcome to today's episode called Sean Parker, The Vilified Visionary of the Valley. And like most of you, my perception of Parker was of this reckless party boy who, you know, somehow inserted himself into three of the most influential internet companies of the last 25 years. We're talking Napster, Facebook and Spotify. And then through the movie, The Social Network, he's come to be seen as this scheming, duplicitous character. But that's not the guy I found when I dug a bit deeper. The real Sean Parker is more nuanced and definitely all the better for it. This is a cracking episode. Enjoy. So Sean Parker, he was born 3rd of December, 1979 in Herndon, Virginia. And from a very young age, he had severe asthma. He had serious allergies. He was in and out of hospitals and confined indoors. He didn't have a normal childhood. So as a result, he read really, read a lot voraciously, like anything he could get his hands on. And this is something that jumped out from the research I did. He is extremely well read, very intelligent, and has a very wide knowledge on an awful lot of subjects. Now, when he was 7, his father, who was an oceanographer, he brought home an Atari 800 computer, and he showed Young Parker how to program in BASIC. And this introduced him to a totally new world, a world now where he was in control, where he could write code and make things happen exactly as he wanted. So it changed how he saw the world. By the mid-90s, when he was around 15, he joined this thing called Hoo Hoo. It spelt W-0-0, W-0-0, but pronounced Hoo Hoo. And it was this legendary hacker collective. Now, it wasn't a criminal syndicate, but it did operate in what you'd call a gray zone between exploration and criminality. Its members were mostly very highly intelligent technologists who would go on to become senior figures in Silicon Valley, including Jan Coombe, who was the co-founder of WhatsApp. Now Parker set himself a challenge during this time. He was going to hack into a site of every top level domain,.com,.edu,.mil,.gov, in every country. And he treated it like a global scavenger hunt and also maintained these meticulous logs. And he claimed that he usually alerted administrators to their vulnerabilities after he hacked into the sites. Now, as part of this challenge, he targeted a Fortune 500 company. So, if you can picture the scene, it's 5 o'clock in the morning, Parker is hunched over his computer, deep into a hacking session. His father wakes up and finds his son at the computer. And so he's very angry. He confiscates the keyboard before Parker can log out. And so Parker couldn't cover his digital tracks. So his IP address was exposed and the FBI traced it straight back to his house. Now, because Parker was a minor, he avoided federal prosecution and he got community service instead. By his final year in high school, he was freelancing, writing codes, consulting, and earning about $80,000 a year. He also won the Virginia State Computer Science Fair for developing a web crawler. And this attracted the attention of the CIA who offered him a job. He rejected them. He also decided not to go to university because he didn't want to sacrifice four years at a time when the internet was really blowing up. So this was 1998, 1999 And together with Sean Fanning, a guy who he'd met on Hoo Hoo, he founded his first company called Crosswalk. So Fanning would have been the introverted, technical guy, while Parker was the strategist, the extrovert who could see the big picture. But Parker was also very, very technically adept. And the idea behind Crosswalk was very simple. They were going to use their hacking skills to help companies protect themselves from attacks from people just like Parker and Fanning. And despite being technically talented, they really lacked any business experience and structure to run a business properly. So the company failed. Now around this time though, Fanning's roommates complained about how hard it was to find and download MP3s. Getting digital music, it meant digging through clunky search results, dead links on personal websites or confusing chat rooms. So Fanning came up with a program that let people search for music and share files directly from each other's computers. And when he explained this to Parker, Parker wanted in immediately because he could see it wasn't just a useful tool. He could see it had the potential to revolutionize the entire music industry. And he did take this very seriously. Like he went out and raised $50,000 in seed capital from friends and acquaintances he'd met through his work in the tech business and in the hacking scene. And he and Fanning moved to California and launched Napster in June 1999 By November, they had a million users. By April 2000, they had 10 million users. And around this time, Napster raised $15 million in VC, with the business plan being to grow fast and then transition into legal subscription service. By February 2001, the service had anywhere from 30 million to 80 million users. And over 2.7 billion files were being shared monthly. So as you can imagine, the recording industry, they weren't going to take this line down. And for some context, at Napster's launch in 1999, the global recording industry was at its very peak, generating roughly $38 billion in annual revenue, largely driven by high margin CD sales. So you buy a CD for $15 and there was an album on that one CD. And the impact of Napster allowing free downloads of anything you want, it was immediate. CD sales plummeted by 39% in 2000 alone. And for the record labels, this wasn't just about loss of profit, although that was a big driving factor. It was also loss of control over their inventory. So of course, they went after Napster. But what made Napster technically clever, and not morally, of course, just technically, was that it didn't store the music on its own servers. Instead, it used this hybrid peer to peer system. So every user's computer became part of the network. Napster kept an index of who had which songs and then connected users directly. So the files were shared between them. Napster itself, though, never handled the music files. And this mattered legally. Because Napster argued it wasn't hosting pirated music. It was just connecting people, like a directory. It compared itself to Sony's VCR. And for younger listeners, that was the video recorder that Sony brought out, was it in the late 70s or early 80s, whereby people could play movie videos that they rented, but they could also record TV programs. So in the same way, Napster was saying that just as Sony wasn't responsible for what people recorded off TV, Napster shouldn't be responsible for how users shared files. Except there was a problem, a massive self-inflicted problem buried in the company's internal emails. Because during Discovery, when the Recording Industry Association of America sued Napster, their lawyers found two emails from Parker to Sean Fanning, where Parker wrote, almost word for word, We are not just making pirated music available, but also pushing demand. And in the second email, he wrote about remaining ignorant of users' real names since they are exchanging pirated music. So he used the word pirated, basically admitting that the founders knew exactly what they were facilitating. Now, while the legal case ground on, a cultural war exploded around Napster in April 2000 And I love this story. So a demo of a Metallica song leaked on Napster before it had even been released to radio. Lars Ulrich, Metallica's drummer, and if anybody knows Metallica, you know Ulrich. He's got a bit of a mouth on him, but he's not a bad sort. But he was furious. And when he tracked the file back to Napster, he discovered that the band's entire back catalogue was being shared by millions of users. So Metallica soon becoming the first band to do so. Then on May the 3rd, 2000, Ulrich arrived at Napster's headquarters with this huge media entourage. But he was confronted by a large crowd of Napster and former Metallica fans who were berating him like it's a fantastic scene. And Ulrich and his attorneys, they dropped off 13 boxes, 60,000 pages of documents with the usernames of over 335,000 Napster users who had allegedly shared Metallica songs. And he demanded that Napster ban these users immediately. Napster complied. But when those banned users tried to log in to Napster, they saw a message saying, Banned by Metallica, not banned by Napster. So that phrasing was very intentional. In other words, the greedy rock stars, the Luddites. Metallica won the legal battle. But Lars Ulrich spent a decade branded as this millionaire bully. And look, in fairness to Ulrich, in 2012 at a Spotify press event in New York, he appeared on stage with Parker and he admitted the band was ignorant of the technology back then and that the feud had escalated into a street fight that neither side fully understood. Now, while these legal battles were going on, Parker was pushed out of Napster. The management team brought in by the VC company because back then it was standard practice to replace founders with professional executives. They saw Parker as a liability, like not only were those emails where he casually mentioned piracy, but he also had erratic work habits, disappearing for days, sleeping under desks, a pretty chaotic lifestyle. And look, this narrative has has dogged Parker throughout his early career and kind of throughout his life that he's unreliable, misses meetings, unprofessional, this party boy. And while there's some true twists, like on the party tag, come on, he's 20, like let the guy live a little. And on the chaotic work habits, it's not because he's lazy. I read this great Forbes article where the journalist spent a lot of time with Parker and Parker's days are absolutely chaotic, but he's working constantly. And the punctuality thing, like his friends confirmed that when he's focused on something, he basically enters a trance and the outside world just vanishes. Time completely slips away. As Parker himself put it, it requires a lot of rescheduling, but I try to focus on things that are the highest value and get those done perfectly. Anyway, Parker was kicked out of Napster and Napster itself finally shut down in September 2002 But its legacy to me is very clear. It exposed how vulnerable the music industry's model had become in the internet age. A $15 CD made sense when music had to be manufactured, shipped and sold in shops. Not when it could move instantly across a network. Napster didn't destroy the record business. It showed how easy it was to bypass it. The industry fought back and shut it down, but instead of adapting, it dug in. And that vacuum was filled by technology companies. Apple reshaped distribution with iTunes. Spotify finished it with streaming. Now, the labels didn't disappear. In fact, as of today, they're prospering now as the ultimate gatekeepers of copyright, but they lost the initiative to control how we discover music, and were forced to adapt on someone else's terms. And they have no one else to blame but themselves for that. Anyway, it's 2001 the.com bubble has burst. The consumer internet is viewed as toxic. We mentioned this in many other episodes. Parker is unemployed and broke because when Napster raised the 15 million dollars, neither Fanning nor Parker cashed in at all. Every dollar went into the company's operations, into its massive server costs, and of course, into the huge legal fees. He's also only 21, so he's young enough to brush himself down and start a new venture, and this one was called Plaxo. Now, back then, most people used Microsoft Outlook for their emails. And Plaxo was this Outlook plugin that kept your contacts up to date automatically when address books were static and quickly went out of date. And to make it grow, Plaxo scanned your contacts and sent emails to everyone appearing to come from you, asking them to update their details, which pushed them to sign up and repeat the process. Yes, it was intrusive and it was famously very annoying. But Parker had figured out something crucial. Making people feel socially obligated to respond to a friend's request was way more powerful than any advertising. And that's an insight that would later fuel Facebook's explosive growth. By 2002, Plaxo got 2 million investment from the prestigious VC firm, Sequia Capsule. They've come up in many stories as well. But the relationship quickly fell apart because Parker, as we know, kept hacker hours, sleeping all day, coding all night. He was chronically late or absent from board meetings. So in 2004, the board pushed Parker out, allegedly even hiring a private investigator to find dirt on him, so that they could fire him for cause, which meant he lost all of his unvested stock. So for context in relation to this, I read an article where Parker's co-founder said that he'd often bring women into the office and that he quickly grew bored with the day-to-day operations. Fair enough, but they also said that he was essential in creating the company's strategy and in raising money. And to be cut off and lose all your equity, that is harsh. Because as a side note, Plaxo was sold years later in 2008 for $160 million. And the experience, it left Parker very angry naturally, but he also realized that owning shares means nothing if you don't control the board, and a rule he would never, ever forget. So now it's spring 2004, Parker is living a nomadic existence, crashing at friends' homes, and on a roommate's girlfriend's computer at Stanford, he comes across the Facebook. Now the site was only five months old, but Parker immediately saw its potential because he'd already come to believe that the best way to launch a social network was inside a closed community, and college was the perfect place to start. So he reached out to Mark Zuckerberg and Eduardo Savrin, and at their first meeting at a Chinese restaurant in New York, he immediately pushed Zuckerberg to think bigger. This wasn't a college project, but a world-changing utility that needed to move to Silicon Valley, drop the from the Facebook, and prioritize growth over everything else. That summer, Zuckerberg's team moved to Palo Alto, and Parker moved into the rental house, which was called Casa Facebook, becoming the founding president with one obsessive goal, raise money without losing control of the board. The lesson he'd learnt, the hard way at Plaxo. To this end, he introduced Zuckerberg to two members of the PayPal Mafia, Peter Thiel and Reid Hoffman. Thiel invests 500,000 for 10.2%.