To understand Musk's renewed obsession with X and focus on financial services, you REALLY need to understand the X/Confinity merger that became PayPal.
And, particularly, the Peter Thiel-led coup that kicked Musk out as CEO/Chief Strategist.
Here's how that happened. 1/🧵 #history #technology
In early 1999 Zip2, the newspaper online directory service Musk had co-founded, was sold to Compaq for $300m. Elon's share of this was about $20m.
Elon begins hitting up old connections from his time at ScotiaBank.
He says he wants to launch "A Financial Superstore" /2
Having drummed up support, he founds a new company to take this forward. He immediately buys the x.com domain off Pittsburgh PowerComputer for 1.5 MILLION shares of A-Stock in his new company, X.
Advisors express concern over X as a brand. Elon loves it. /3
He describes x.com as "the coolest URL on the internet". X, he says, marks the spot for treasure. That's how people will see it he insists.
He invests $12.5m of his own cash into X and begins trying to build an 'online bank'. /4
Musk's obsession with speed and disdain for regulation means X developers love him, but causes worry with the financial expert side.
First Western, the banking partner, discover that accounts are being opened under fake names.
The finance peeps try (but fail) to coup Elon out. /5
In early 2000, X hits the news for a vulnerability that allows money to be moved between accounts with just account details. This is fixed, but spooks investors.
Elon agrees with investor Mike Moritz from Sequoia to become CTO while Bill Harris (ex-Intuit) becomes CEO. /6
Meanwhile, over the road (literally), a startup called Confinity is making waves. It's funded by Peter Thiel, who is also its CEO, but is the brainchild of Ukrainian Max Levchin its CTO.
Backed by Nokia, Confinity is making a way to 'beam' money between PalmPilots by infrared. /7
Need to skip A LOT here. But jump forward a bit and both X and Confinity ACCIDENTALLY create the same killer product as an offshoot of their main one:
The ability to exchange money via email.
Confinity pivot to this exclusively. X don't. Musk's goal is financial superstore. /8
The strength and focus that HAS gone on X's email payment processor has mostly been due to David Sacks, one of Elon's hires who he trusts and who spotted the huge potential.
He keeps Musk grounded with eyes on this while Elon is ALSO pushing into riskier financial service stuff. /9
But Harris (X CEO) sees Confinity and X are BOTH in a death spiral. They are BLEEDING cash fighting. He speaks to Thiel. Thiel suggests a merger.
Musk fights this. But ahead of another funding round, Harris threatens to quit, spooking investors
Elon: "He held a gun to my head." /10
The firms merge. Harris and Thiel insist the new firm (X) focus on email payments, ideally on Confinity's PayPal platform.
Elon INSISTS financial superstore is the future. When Thiel and Harris fall out over strategy, Elon persuades Thiel to help coup Harris out. Elon is now CEO /11
Thiel, and Levchin, are initially fine with this. Musk has promised to focus on email payments, and to improve PayPal first. Financial superstore a "future thing".
But over months Levchin realises that Elon has become obsessed with porting PayPal ENTIRELY to Microsoft not Linux. /12
This obsession with X as a brand causes enormous concern as it CONTINUALLY goes down terribly with consumers.
Vivien Go on focus group testing:
"Again and again, the theme of 'Oh God, I wouldn't trust this website. It's an adult website' and 'I just wouldn't trust that" /15
Meanwhile, Thiel finds out via X's financial wizard, Roelof Botha, that the financial superstore side stuff is WORSE than Musk has let on. X is offering credit on almost no identity checks.
Combined with the V2 fiasco, Thiel and others realise X is on the verge of failing. /16
Thiel and others approach Elon and BEG him to abandon Paypal V2, and his strategy of trying to become a one-stop global financial service. Thiel points out they only have $65m left in the bank.
Musk refuses.
They have to go for "the grand prize" he insists. /17
Thiel, Levchin, Botha and Sacks now cross the rubicon. They decide to coup Elon. They quietly gather the signatures of a lot of the Confinity loyalists on a mass-quit threat.
On 19th Sep 2000, as Elon is taking off for Europe on his honeymoon, they make their move. /18
Thiel and Levkin are board members. The other four are Musk, Malloy (repping another major investor), Moritz and Hurd (Chair).
As Elon is in the air, Thiel asks Hurd to summon an emergency board meeting by phone. /19
With Elon out of the country, he can't work his in person magic. He insists over the phone that the financial superstore is the big win. All this is in service of that.
It doesn't work. Malloy, Moritz and Hurd side with Thiel and Levkin. Elon is out as CEO before he can fly back /21
@garius I think this point is undervalued. In the US the MPAA introduced the NC-17 rating in 1990 in response to adult entertainment co-opting ‘X’: as a teenager during the mid-90s, anything ‘X’ basically meant porn. It was only towards the end of the decade, with the X-Games and other similar ‘x-treme’ branding that the edge started to come off.
So it’s very easy for me to understand that less than a decade after even the movie industry had to abandon their labelling, people were still very sceptical about anything using that labelling. What’s not so easy to understand is why on Earth Musk would have thought it was a good idea, however, other than accepting the explanation he’s just a big man-child with too much money.
@designative pretty much.
I did a full write up here. And nothing has happened since to make me look wrong about that.
“ Microsoft servers and MSSQL CANNOT scale enough at the time. But Elon decrees it. He even decrees a launch with no rollback option.” That’s what I like most of Musk. He can make so many obvious mistakes in such a short time forcefully.
The best is “no rollback option”.
@Geoff it wasn't scalable enough for what they were doing.
V2 was plagued with memory leak issues and more.
@Geoff i mean, there's no doubt platform partisanship played a part, but i'm also not gonna hindsight a thing that Levchin and co. spent a LOT of time in 2000 trying to do. With a considerable amount of platform testing.
You're welcome to argue the case with him though!
@Doire @garius given routing number and account number, somebody can just type them into a payment system and take money out ... there's 0 frontline security with everything resting on KYC and consumer protection laws. Check fraud is one of the few things authorities uniformly don't mess around with.
That's a reason why "money mules" are a thing, they add layers between people scamming money and those actually collecting it.
I find that very interesting. I agree, that x.com is probably the coolest URL on the internet. But for completely different reasons, than musk.
Two of my all time favourite games are "X" and "XCOM".
@faoluin various articles and dotcom histories.
If you want a good one on PayPal specifically, which covers all of this in a relatively non hagiographic way, I HIGHLY recommend The Founders by Jimmy Soni.
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