Nick Bilton is the New York Times technology and business columnist and lead reporter for the Bits Blog. He’s the author of, “Hatching Twitter: A True Story of Money, Power, Friendship and Betrayal.” Bilton tells us about the betrayed friendships and high-stakes power struggles as Twitter’s four founders—Biz Stone, Evan Williams, Jack Dorsey, and Noah Glass—went from everyday engineers to overnight celebrities.
He explains the zeitgeist and global influence of Twitter, which has been used to help overthrow governments in the Middle East and disrupt the very fabric of the way people communicate. He also shares a story of Al Gore getting drunk and trying to buy Twitter in 2009.
Given Twitter’s recent IPO, Bilton describes how effective Twitter really is in marketing, branding, and sales conversion.
Find out more about Nick Bilton at www.nickbilton.com.
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ANNOUNCER: Welcome to Creating Wealth with Jason Hartman! During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing: fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it! And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
JASON HARTMAN: Welcome to the Creating Wealth Show. This is your host, Jason Hartman, and this is episode number three hundred and forty-seven. And after I get through the monologue portion of the show today, we are going to have a guest that I’m kind of taking out of order. This wasn’t necessarily specifically for the Creating Wealth Show, but I just thought it was very timely and interesting for you. Because our guest wrote a book about Twitter, and of course Twitter just had their IPO, a lot of us use social media, and a lot of us use Twitter specifically, so I just thought it was just a very timely and interesting show, so I decided to run that here on the Creating Wealth Show. Before we do that, let’s talk about some real estate investment stuff. And it constantly amazes me how we as humans, and myself included, sometimes our mind just goes to mush. And I don’t know why that happens. I don’t know what the psychological principle for it is. But it is certainly true, folks, and I will give you an example.
I was just talking with a very nice client of ours the other day, and she was looking at purchasing a property, a rental property. And it just didn’t make any sense as an investment, and I don’t know why someone would necessarily consider this. But I think it is because we have this propensity to view things that are in our own neighborhood—we view it differently than we view a strict numbers-based investment. And that is something we have to guard against in our own habits and our own psychology, and our own predispositions. Because we’ve got to think in an analytical ways always as an investor. And this isn’t the way of human beings.
Human beings are emotional creatures, they’re sentimental creatures, they just do all kinds of things that don’t make logical sense. We all do this. We all do this every day of our lives. So we’ve got to guard against this habit. So, in this example, this particular client lives in Seattle, and was looking at a condo in the Seattle area. Now, I like Seattle, I think it’s a beautiful city, especially when it’s not raining [LAUGHTER]. If you can overcome the rain in Seattle, it is a gorgeous place. The Pacific Northwest is just beautiful. And we haven’t done much business up there. You know, years ago I did business in Redmond, Oregon, which was outside, kind of a suburb of Bend, Oregon—a lower priced suburb. But you know, we’ve looked at Portland extensively, and we’ve done a little bit of business in Redmond, and those areas really just don’t work that well. They’re too expensive.
And in this example, this was a condo, and you know that I don’t like condos, first of all. If you can avoid condos, avoid them like the plague. And the reason for this is that when you have a homeowners association involved—and I’ve got to distinguish maybe three types of homeowners associations. There’s the homeowners association lite, that is a third less filling than your regular homeowners association, like the famous beer commercial goes, for Amstel Light, and that is the one where you have a single family home and you have very low homeowners association fees that are maybe $25-$40 or even $50 per month. Those are usually paid annually, where you’ll pay $300-$600 per year. Those are fine, no big deal. I mean, I don’t love those either, I’m kind of an anti homeowners association person in general. However, many people will, and rightfully so, disagree with me on this. And that’s fine. And homeowners associations in that realm, we’ll call that one the HOA Lite. Okay?
And we’re going to move up the spectrum here to the HOAs I don’t like. But that one I can tolerate, because that one will keep your neighbor from painting his house purple, or yellow, or some—well, yellow’s not always bad. There’s some Cape Cod houses that look pretty cute in yellow. But it will keep your neighbor from painting his house purple. I guess that’s a color nobody should really ever paint their house. Or black. You wouldn’t want a house to be black, right? I don’t know if I’ve seen too many of those. So purple, black, these are the colors that houses probably shouldn’t be. Little pink houses, gray, white, those are house colors. Yellow even. And that kind of thing. So, keep your neighbor from painting his house some funny oddball color that just isn’t attractive. Or from repairing their car on big blocks on the lawn, right? You don’t want this type of thing. And that’s what I call HOA Lite. That’s acceptable.
Now, the next step up is an HOA in a condo. And when you have a condo, you have these common walls, and common roofs. And here, you start coming into lots of problems, potentially, with HOAs. So, HOA or homeowners association here, is where your dues will typically be at the lowest end for a condo would probably be $100 a month, and on the highest end for a high rise condo, it might be $1400 per month, in a higher end high rise condo, which I wouldn’t touch a high rise condo with a ten foot pole. Now, personally, as you may know, I live in a swanky penthouse in a high rise. And I rent it. And I think that’s a great deal, because of the rent-to-value ratio, and the lack of rent elasticity in the high-end properties. My place might be worth—and I really don’t know what it’s worth, because it’s an apartment building, and they’re all rentals. But they were originally designed to be condos, and I’ll just take a guess that my place might be worth, I don’t know. A million two? A million five? Maybe on a great day in a robust market, maybe even two million dollars? I don’t know. And my rent is only about $3700.
So there, I take advantage, and I arbitrage the rent elasticity problem that the landlord has to my benefit as a renter. Because as you know hopefully by now, the quick rule of thumb is that the rent you receive every month should ideally be about 1% of the value of the property. Now, in the doldrums of the market, in what people call a buyer’s market, or a bad market, because they somehow put those two together—I don’t think that’s necessarily a bad market—in fact, I don’t know if there really is any such thing overall as a bad market, because any market can be made good by proper adaptation. So, if you adjust your strategy as an investor properly, a so-called bad market, which is known as a buyer’s market—or not a seller’s market, where a seller’s market is when prices are rising and there’s limited supply and everything’s in favor of the seller—that’s known as a good market. I’m not quite sure how this all developed this way. I guess they thought—I guess the sellers get to make the call, and the sellers decide whether the market’s good or bad, and when it’s bad for them, they say it’s a bad market. Or a down market. But it’s called a buyer’s market! And that’s kind of good for buyers, right? So, these are sort of dumb anecdotal interpretations here.
But anyway, where was I? You know I get off on these tangents. So, the rent-to-value ratio ideally should be somewhere in the ballpark, give or take, of 1% per month. So, to be an extreme simpleton here, and God I hope you know this by now, people, if you’ve been listening to the show for any length of time—you’ve got 346 episodes back you can go and listen to. If it’s a $100,000 property, how much rent should you get every month? A thousand dollars, a quick rule of thumb. So that’s the ideal rent-to-value ratio.
Now in the bad market, in the doldrums a couple of years ago, you could get as high as 1.4, maybe even 1.5% per month. So, $100,000 investment might yield you $1400 per month. You can’t do that anymore. The rent-to-value ratios for the owner, for the investor, for the landlord, have declined. They have suffered in this so-called good market, or seller’s market, because the prices have risen. The rents haven’t softened. It’s that the prices have gone up. And I’m saying all of these things in a very general way—of course it depends where you are geographically. There are specifics and particulars to any situation, of course. So, these are general concepts, and that’s why you need an investment counselor to help you interpret all these things. And that’s why we’re here. www.jasonhartman.com, contact us section, and get in touch with an investment counselor to help you wade through this in more detail.
But back to that 1% thing, so as I recall in this example, this was a $170,000 condo, and our lovely client here was hoping to get about $1200 per month. Is that a good deal? No! No way! Right out of the chute it’s bad from a cash flow perspective. But then we look at this, we have to add the homeowners association fees. In this case, we couldn’t quite determine on this phone call a few days ago whether the homeowners association fees were $300 per month, or $300 per year. However, I will bet you, because it’s a small condo complex with only 30 units, which is another mark against it—I don’t like these small condo complexes. They tend to have more problems than the large condo complexes, and I’ll get to that in a moment. But, $300 per month, I think that’s what the homeowners association fees were.
Okay, I’m really hating this deal now. Because now what you have to do is not only have the goal of getting about 1% per month—so, that $170,000 property should rent for $1700 per month—but now because you have the additional homeowners association expenses locked in here. Now granted, because you have the homeowners association, in an ideal world—in a somewhat theoretical way—it will reduce your maintenance costs, because they may or may not be responsible for the roof. They may or may not be responsible for the exterior painting. And they may or may not be responsible for landscaping of the front walkup area to your unit. I don’t want to say front yard, because it’s not yours, it’s common area if they maintain it. Or at least it’s what’s called restricted common area. And these definitions vary, and every situation is unique and individual.
But if you have $300 per month extra in expense, what do you have to do? Let’s say that reduces—and it may reduce your insurance cost too. But that’ll be relatively minor on all of these counts. So say it reduces your overall cost of ownership by $100 per month. Well, the homeowners association is just like the government. You give the government a lot of tax money, and only a little bit of it comes back, because they take a very large handling fee. And because things that are done by committee, and things done by the collective, are notoriously inefficient. So they take a large handling fee off the top, and you only get part of the benefit back! It’s a lousy deal. So, say that your true benefit from your homeowners association fee of $300 per month only really equates to—and I’m just gonna take a guess here from my experience—that that only equates to about a $100 a month actual benefit to you. So, the net difference in your increased expense here is now $200 per month.
So, here we’ve got an investment that costs $170,000 and will only yield $1200 per month in rental income. That’s bad. But it gets even worse, folks! Because now we have to get an extra $200 per month net, so not only should we bet getting $1700 that we would normally get on a nice, single family home investment of 1%, but we have to add $200 in net losses due to the homeowners association. Again, just my estimate here. So, here we should really be getting $1900 per month in rent for this $170,000 investment property. This deal sucks. And guess what? It gets even worse. Well, guess what the cost per square foot is? And the bedroom and bath count, in this property.
Again, Seattle—that area is just too expensive. You can’t get a good property there that will make sense. It’s not as bad as the Socialist Republic of California, but it just—I mean, things in these desirable cities like Seattle, and Portland, and Los Angeles, which I don’t—listen, Los Angeles is my home town, and I would hardly call LA a desirable city. I really do not like LA, in almost every way. You know, it’s crowded, it’s polluted, it’s overpriced, it’s overrated, it’s overregulated…yuck. But say it’s Newport Beach, my adult hometown. Los Angeles is my childhood hometown, where I grew up. Newport Beach, Irvine/Newport Beach area, is my adult hometown. As an adult I lived there for many years.
Well, any of these places, they’re not going to make sense in a million years, from a numbers perspective. San Diego, San Francisco—not even close. These areas just don’t work. Any expensive area doesn’t work, unless you’re a gambler, unless you’re a speculator. If you’re looking to get lucky on capital gains appreciation, then hey. More power to you. But there’s a high likelihood you’re going to lose a lot of money too. So, this deal, it gets even worse. And here’s how it gets worse. The cost per square foot is $257 per square foot. Oh my God. Remember the risk evaluator that I discovered and invented after 19 years of experience in the real estate business?
Took me a long time, and I had to buy that property in Georgia to discover this. And I tell that story in a past podcast; if you want to find it, just go to www.jasonhartman.com; in the upper right portion of our website is a little Google search bar, to just search only our site. Type in ‘risk evaluator’ and find that podcast and listen to it, where I explain how the cost per square foot is a huge guard against downside risk. Because if you can buy at or below, or even a little higher, than the cost of construction, you are limiting your risk. You want to get cheap or free land in the deal, and be very close to cost of construction. Now true, it probably costs a little more to construct something in Seattle or California, or any of these overpriced markets that don’t make sense as an investor, only as a gambler. Sure it does. And there are websites where you can look up the construction cost. Of course it varies by the spec level of what you’re building. All of this is true.
But so what? Look, that doesn’t get you $257 per square foot for a condo. We want to be buying stuff that’s under $120 per square foot, that’s the most we ever want to pay, okay? $120 per square foot. And hopefully we can buy for $70 or $80 per square foot, or even less in some cases. Hey look, if you go to www.jasonhartman.com and you click on properties, you can find properties today that you can buy for $55, $56 per square foot right now, below the cost of actual construction, below replacement cost.
Great deal. And they’re gonna be single family homes, they’re going to rent for somewhere in the ballpark of 1% per month, give or take. You’re going to have a wide market, because here’s what else I didn’t tell you about this little condo. It’s only 1 bedroom 1 bath. Think how limited your market is there! There, you can only rent to a single person or maybe a couple that wants to live in a little tiny dinky condo. Versus a 3 bedroom 2 bath, or 4 bedroom 2½ or 3 bath single family home. Look at the kind of market options you have there! You can rent to a family with children, with a few children. You can rent to a couple with no children, they call them DINKs—dual income no kids. You can rent to a single person who just wants to have a home all to themselves. You can rent to a single person who’s going to have a couple three roommates. You can rent to a couple, whether they be a couple cohabitating, or a married couple, that’s going to have a roommate or two.
I mean now, with the economy the way it is, that’s more common nowadays. You’ve got loads of options. You can rent to empty nesters that kids have left the nest, you can rent to an older person, younger person, a middle aged person—I mean, look at the latitude of the market you have here! Versus a 1 bedroom condo with an extremely limited market. Now listen. If the 1 bedroom condo was $40,000, I would think a little bit differently. But not that much differently, okay? It’d be a much better deal there, because at least there the numbers would work. For a 40, or a 50, or even a $70,000 condo, 1% is $400–$700 a month.
Now that’s achievable. Even if it were $120,000, at least you would be getting 1%. But then you have the homeowners association dues problem that I mentioned here, because this is not an HOA Lite—this is an HOA heavy. Big obligation here. $300 per month. Okay. So now, let’s talk about HOAs for a minute. HOAs are like another party that you have to engage with. And they do, in a limited way, for an HOA Lite, they do some real good. Because again, they keep the neighbor from repairing their car on the lawn, they keep them from painting the house purple. They keep basic order in a place. Now, would I rather have a neighborhood without an HOA that’s just a well-kept neighborhood?
Possibly. Because an HOA—they’re just another party you have to deal with, and another party you have to keep track of. And you have to make sure that you pay your bills! Because those HOAs have foreclosure rights. And the notorious thing that they do is they send the homeowners association a statement to the property address, and guess what? You’re an investor, and you don’t live at the property. And of course you’ve notified them of this in the past, but they somehow messed up and forgot, and they send the bill to the address of the property, and you don’t get the bill, and so you don’t pay the bill, because you never received the bill.
And then suddenly, they send you a letter from their lawyer saying, you’re very late, and you owe them a bunch of late fees, and you owe $400 in legal fees too, or they’re going to foreclose on your property. And somehow they got your address at that point. Hmm, very suspicious. You know how I know this? Because it’s happened to good old yours truly. Don’t make the same mistakes I’ve made, okay? I’ve gotten into battles with the homeowners associations on a couple of occasions, where I’ve suddenly gotten this letter saying, you know, you owe us a whole bunch of money. And one time I hired a lawyer to fight them, and I won! And they backed down.
So, you can negotiate with these HOAs, but you don’t want to go there, you don’t want to get to that point. So, how do you guard against this? Well, number one, you use the property tracker software. And in the property tracker software, you set up alerts for yourself. You can even do this on your calendar software too, if you use the calendar on your smart phone, or the calendar—you use Google calendar, or hopefully you use some sort of electronic calendar to keep track of your life. And you can put alerts and reminders in there. But property tracker is great, I love it. And there, you set up alerts for when your homeowners association dues are coming due again. You set up an alert for when your insurance policy is coming up for renewal. You set up an alert for when your leases are coming up for renewal.
Your property management contract is coming up for renewal. All of this stuff you can track in there very nicely. Okay, so, back to HOAs. Big, small, expensive, cheap, there are all these different things that we look for. I think the HOA Lite is pretty good. I like the HOA Lite. Okay? Where you’re just paying $25-$50 per month, you’ve got a single family home, you don’t have common walls, and you don’t fall susceptible to the problems of HOA heavy. Now, HOA heavy, here are some of the other problems. Homeowners associations are notorious for getting themselves into litigation. Is litigation ever something you win? Probably not.
Almost invariably in litigation, the only parties who win are the lawyers. You probably already know this. Hopefully you don’t know it from actual experience. The common case is, someone thinks oh gosh—I’ve been wronged, I’m a victim, and they go into court and they sue another party, and it turns out, these lawyers—they make it so murky, and it just takes so much time. The wheels of justice move so slowly, that you end up becoming a victim—you know, you’re a victim first, in the way that you think you got victimized and taken advantage of, and then, you’re victimized once again by your own lawyer. Yeah. Just ask anybody who’s ever been in litigation. They will tell you, they probably didn’t actually win anything except maybe a moral victory, okay?
Which sometimes there’s a case for even that. Okay, so, we want to avoid this. But, homeowners associations get into two types of litigation, pretty common. One is—and this happens in condos all the time, but it doesn’t happen too much in single family home homeowners association lite environments. And what happens here is, there are construction defects. And so far as I know, and this may vary state to state and I may not be aware of it, but—what happened in California a lot is, all these condo complexes, they’d be built, and 9½ years later, because the statute for construction defect, as I understood it, ran out—and again, I’m not a lawyer, okay, so I’m just telling you my own experience. Ask a lawyer if you want details.
But, the statute for construction defect would run out at 10 years, and invariably they would find some problem. And some of them were very justified problems, and some they probably—you know, some enterprising attorney looking for another client would convince the HOA that they should sue the developer, or sue the builder that built the condo complex. Well, as soon as they get into that litigation, all of the lenders that might make a loan in that complex, well, they get scared. Because you never know which way litigation will turn out. Even if you think you’re right, even if you think you have a good case, even if you think you’ve been the victim. Guess what? You can become the victim again. Because your lawyer will victimize you, and then the other party may still even win! Even if you’re right!
And so, the lenders—the banks—they get very leery about lending in condo complexes that are in litigation. So, what happens when there’s no loans? Well, when there’s no loans, there’s fewer buyers that can buy in there, and if there’s fewer buyers, there’s less demand. And if there’s less demand, the prices will generally go down. And if the prices go down, you, being one of the owners in there, will suffer. Let’s talk about another kind of litigation HOAs face. The HOA heavies face. The HOA Lites, they don’t face this kind of litigation quite so much. They could, but it’s much less common.
The other type is when an angry homeowner, or an angry group of homeowners in the association will sue their own association from the inside. This is the internal threat. So, they will feel that they’ve been victimized, and they may well have been victimized, by their own HOA—their own unchartered government, which an HOA is like an government, it’s like an unchartered government. So they turn around and they sue their HOA, and now the HOA is in litigation because of some angry homeowner. And hey, that angry homeowner may well be you! Okay, so again, you don’t want that, because then the same thing happens, potentially: the lenders don’t want to lend, the prices go down, blah blah blah and all that.
Now, small HOAs, like a 30 unit condo complex, are particularly susceptible to this. Why? Well, just some anecdotal observations. Number one, they don’t have a very big budget, so they can’t spread the risk. If the economy gets bad and someone doesn’t pay their HOA dues, or several people don’t, they have a very limited pool. So say 10 people are in foreclosure in this 30-unit homeowners association. Well, that’s one third of the revenue that the HOA is maybe not collecting. And now the HOA could go bankrupt. And if they go bankrupt, then the maintenance of the property suffers. Or what if nobody wants to volunteer and be the president, and the treasurer, and run the board of the HOA? Well, then the whole community suffers as well. Sometimes you get these egomaniacs on these HOA boards.
You know the type; the person who’s like the Napoleon type, okay, and they feel like they’ve just got to exert their power. These are nasty people that probably don’t have much power in their day job, or in other areas of their lives, so they pull this whole Freudian thing, and they project it onto the HOA, and they want to be the president that rules with the iron hand. It’s Joseph Stalin on the HOA board.
And you don’t want to deal with this stuff, folks. If you’re going to have an HOA, an HOA Lite is a good type of HOA. Where you know, they might provide a common area facility, like a pool, they make sure your neighbor doesn’t paint their house purple. They’re pretty good. They keep the values up. That’s the good side of a homeowners association. They are there to keep the values up in a neighborhood. That’s what they’re supposed to do. They want to maintain the property, the common areas, so you can make money as a real estate owner, as a homeowner in that HOA. So I think the HOA Lite is just fine. Just be careful, make sure you get your invoices, make sure you pay your bills, and then you’ll probably be in great shape.
But, again, this lousy little 1 bedroom 1 bath condo for $257 per square foot? Well, it’s in Seattle! Seattle’s a really desirable area! Yeah, you know, I heard that. Newport Beach, that’s a pretty desirable area too, by most people’s thinking. But it doesn’t work as an investment! It only works as a gamble. And you know what? We don’t teach gambling. So stay away from gambling.
Anyway, enough of my rant on that. That was like almost 30 minutes on that subject! I’m done. Hopefully that makes sense to you, and you will follow my sage advice. Alright. A couple things. Number one, before we get to our guest here, and we talk about some very interesting stuff on Twitter. You’ll hear all about that, and I think you’ll really enjoy this interview, even though it’s not very much related to real estate, it is related to kind of a broader economy. Before we get to that, two things.
Number one, I am almost out of these Meet the Masters physical products. Remember? I talked about that. And thank you so much for buying them. I just did another shipment today, and gosh, it feels so good to ship off those physical products. But go to www.jasonhartman.com, click on products, and you will see the Meet the Masters Home Study Course, the physical product, at half the price of the digital product: $247, it is an awesome deal, the shipping is free anywhere within the continental United States, and get that while they last, because I am not going to redo them. This is a closeout, and this will be it. They will adorn your bookshelf for years, and they look beautiful. So take advantage of that at www.jasonhartman.com.
And the other thing—I’m going to use this scarcity urgency plea again with you on this one as well, and that is our Meet the Masters live course that is coming up. Meet the Masters weekend, it’s coming up in January at the Hyatt Regency in Irvine, California. The early bird price, the first level of that has expired, and we’re going to the next level, and those tickets are selling very, very fast. So I have no doubt that event will sell out. I have no doubt that the room block that we have with the Hyatt for just $119 per night will sell out as well. So, get your tickets today at www.jasonhartman.com. Click on events, okay, or you can just go directly to www.jasonhartman.com/events, and register for that. And also, book your hotel room, so you don’t end up paying $50, $60, $70 more per night.
People who think in advance, they benefit in life. So make your plans now, and take care of that. Alright, enough of that stuff; let’s get to our guest—hey, by the way. We have so many great podcasts coming up for you, so stay tuned. We got a bunch of great stuff. I interviewed Noam Chomsky yesterday. I know, he’s a left-winger. And that guy, I tell you, some of his stuff really makes sense, but some of it just doesn’t make any sense at all.
It was so frustrating talking with him. And he kind of cut our interview a little bit short, which was annoying to me. He didn’t warn me in advance that might happen, because he had another interview, a bigger name. But I was asking him some pretty tough questions, and he wasn’t making much sense. I kind of wonder if he cut that interview short because he felt like he was losing the debate with me, or he was gonna lose it, or maybe he really had to go.
The world may never know. However, it’s interesting, and that will be coming up as well. Harry Dent’s interview, really interesting—that’s been published a while back in the members section, but that’ll be coming up too. And we’ve just go so much great stuff I’m really excited to get out to you. So without further ado, let’s get to our guest. He’s a New York Times reporter, and wrote a great book on Twitter, and I think you’ll really enjoy this. So, we will be right back with him in just a moment.
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JASON HARTMAN: It’s my pleasure to welcome Nick Bilton to the show. He’s the New York Times technology and business columnist, and lead reporter for the Bits blog. He’s also author of a very timely book entitled Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal. Nick, welcome. How are you?
NICK BILTON: I’m great, thank you for having me.
JASON HARTMAN: Good, the pleasure is all mine. And you’re coming to us from Manhattan, New York, so, very appropriately.
NICK BILTON: Yes.
JASON HARTMAN: So, this show won’t be published extremely fast, but Twitter’s IPO was yesterday, and it opened with a roar, starting at I guess $26, and immediately going to $45. Tell us about the book, and the exciting timely issues as well. Let’s dive in.
NICK BILTON: Well yeah, I mean, Twitter stock opened quite dramatically yesterday with a doubling, almost, in almost minutes. The timing, I think—I had an idea that the book was going to come out when the IPO was happening, and I really kind of raced to do that. I have to say, part of it was luck, by getting it two days before the IPO. So, but it was—it’s been a pretty wild week.
JASON HARTMAN: Fantastic. Well, there are four founders, and that’s Biz Stone, Evan Williams, Jack Dorsey, of course, everybody has heard of Jack Dorsey, and Noah Glass. I haven’t heard of the other three as much. Maybe Noah, I think. But tell us about the issues between them, and how the company came to be founded, and what happened later.
NICK BILTON: Well, it’s interesting that you say you’ve heard of Jack Dorsey and not the other three, and that’s actually part of the story in the book. These were four guys who were once very close friends, and they built this service, and in doing so ended up tearing their friendships apart. Noah Glass and Jack Dorsey were actually the original creators of this idea—co-creators of it. And it came after a night of drinking one night, and dancing, and they were sitting in a car, and Jack Dorsey had had this idea to be able to update your status somewhere, much like you do with your AOL Instant Messenger, where you can say I’m away, or I’m here, and Noah Glass had the concept of being able to actually take that idea and use it to connect to people. And what he said was to feel less alone. He was going through a very difficult time, getting divorced and other things at the time, and that was the genesis of it. And what happened was that Noah was kicked out very quickly from the company because his ideas did not line up with Jack’s, and Evan Williams’, the other founder. Eventually Jack Dorsey was fired from the company too, and he actually orchestrated a coup to have Evan Williams pushed out, and so, it’s a very dramatic story of all these people who were once very close friends, pushing each other out and aside for power and control.
JASON HARTMAN: Well, that’s certainly a familiar story throughout human history, so there’s nothing too terribly unique there. But what ended up happening?
NICK BILTON: Well, what is unique—I think you’re absolutely right; this is a story that happens in every business, in every company, in every corporation—
JASON HARTMAN: And every government, and every military—
NICK BILTON: Yeah. But you very rarely hear this about close friends. You have—and that’s something different about the Valley. Silicon Valley is a place where people are friends, and they build things together. What is different here is that these were people—I mean, Jack, and Ev, and Noah, these people were all best friends for a time, and now none of them talk to each other. And what happened here, and it’s also interesting, is that this is a company that’s changed everything. It’s changed the way we communicate, it’s changed the way we do politics, religion, everything. And I think they had this realization that that was the case, and they wanted this to be their idea, and their concept. And Jack Dorsey has been credited with creating this service, and that’s because he went out to the media and said that he was the sole inventor of it. And the reality is—and this is one of the narratives in the book—you know, this was created by a group of people in a room together. It was not one person’s idea. And without all the influence of all of these founders, it would be a very different product today. And without Noah Glass, it probably wouldn’t actually even exist.
JASON HARTMAN: So, who thought of the idea, then, first? Was it Noah?
NICK BILTON: Well, it was all—they all had an influence in it. So, Jack had the idea to be able to update his status and talk about what he was doing. But there were other services out there that did that already. There was a think called Dodgeball that existed in New York that was started by Dennis Crowley, who runs the company Foursquare. There was a service called TextMob that had been founded by some guys at MIT; there were a dozen other services like that. So Jack had the genesis of it, the germ of the idea. And Noah took it and said, well, let’s try to make this used to connect people, to make them feel less alone. So he layered on this conversational aspect, this connection feeling to it. And then you have Evan Williams and Biz Stone, who both worked at Blogger. Evan actually started Blogger. And they came up with the concept of making it feel more like a blog, with a stream of Tweets and things like that, and then there were other people in the room that are in the story, and they actually were the ones that helped come up with this friendship model that we have today, which is the follower experience. And without all of those little ingredients, it never would have existed. And one of the things that happens in the book is, Jack Dorsey gets fired in 2008 because he’s not doing a very good job running the company, and there’s fear that it will go down the tubes. And after that, he is very upset that he’s been pushed out, and he thinks it’s unjust, even though the board and Evan Williams had agreed he should go. So he goes on this kind of media spree to say that he is the complete inventor of Twitter, and he essentially writes everyone else out of the story. He writes Noah’s involvement out of the story, he doesn’t talk about Ev and Biz, and he changed his profile on Twitter to be inventor. And he does so to the ire of the board and the other employees, but yet manages to capitalize on the media frenzy around Twitter.
JASON HARTMAN: Very interesting, very interesting stuff. So, where do they stand now? Are they all still loners? Or, what’s the…?
NICK BILTON: Yeah, I think some of them learned some valuable lessons, and some of them did not. Noah Glass learns throughout the book—his original concept is that you can use technology to connect the people you care about, and connect with your friends. And he learns in the ends, he gets treated the worst out of everyone. He’s pushed out of the company, partially from Jack Dorsey, partially from Ev. Jack threatened to quit if Noah stayed. And he gets pushed out of the company, and not only that, these people who were his friends stop talking to him. He would text message Jack, and he would email Jack to check in and see how he was doing, and they just would not even respond. Though what happens is, he kind of goes through this very difficult time of trying to deal with that, and he eventually gets to the point where he realizes that technologies are never going to solve this human connection problem; you need humans to be connected, and he learns a very valuable lesson in that respect. Evan Williams also learns a lot of lessons about the way to run a company, and to treat people that work for you. And the thing I found really interesting is that he has been painted in the media as being a very shrewd and mean CEO that will cast anyone aside, but the reality is that’s not the truth. The truth was the people really loved working for him. He had issues running the company—he was slow to make decisions, he sometimes made decisions that were not in the best interest of the business of Twitter, but he wasn’t the villian that he was painted to be. And then you have Biz Stone who was just a really good guy. He’s this comedian kind of character in the story, and he’s the one that essentially erects a moral fence around Twitter, where they make sure they don’t pillage people’s privacy like Facebook has, and really cares about the user.
JASON HARTMAN: And, do you know their percentages now, of ownership? I mean, they’re not all equal, certainly.
NICK BILTON: Yeah. So after the IPO, Evan Williams has 10.2 I think, a little over 10% of the company. So he is now worth about $2.2 billion. Jack Dorsey has about 5% of the company, which makes him worth about a billion dollars. Biz Stone had about 3% in the very early days, but that has dwindled over the years as he sold some of his stock, and the stock split and so on as they brought in new investors, and diluted, sorry, and he’s worth a couple of tens of millions of dollars. And then Noah Glass, who essentially got nothing, may have made a little bit of money from some stock that Evan Williams had given him in the very early days.
JASON HARTMAN: Did these guys all go to Stanford?
NICK BILTON: No, that’s a great question actually. This is the non-startup. You know, you have these companies that have been—Facebook, where it’s the Stanford club. You have Snapchat, the same thing. All these companies where people go to Stanford and they become part of the boys club, and they become investors and billionaires and so on. These guys, none of them had degrees, at Twitter. They were all college dropouts. They had all come from lower income families. You know, Evan Williams was born in Clarks, Nebraska on a farm in the middle of nowhere, and no one knew what the Internet was. He had this great little story in the book where he figured out what the Internet was and decided that he was going to tell people, and he did so by creating a VHS tape that he tried to sell to businesses where he was on there explaining what the Internet was.
JASON HARTMAN: What year was that?
NICK BILTON: That was in the late 90s. Really hilarious video.
JASON HARTMAN: Late 90s! That’s pretty late, actually!
NICK BILTON: Well, it was like ’96, ’97, something like that.
JASON HARTMAN: Okay, yeah, mid to late. But I mean, he didn’t even use a DVD! That’s funny. Okay, interesting. Go ahead.
NICK BILTON: They all had this entrepreneurial spirit, I think. But yeah, Noah Glass, his story’s fantastic. He was born on a hippie commune. His dad left to go get milk one day and never came back, and Noah was raised by his grandparents. His grandfather was a tough mountain man, and tried to teach Noah about standing up for himself and being a fighter, and he just wasn’t wired for that, and that’s why he got pushed out very early on. And he’s I think the most sympathetic character in the story. And then you have Jack Dorsey, who was a very strange individual. Like when he first moved out to San Francisco, he used to wear a t-shirt that he would write his phone number on the front. He had his phone number sewn into the front, and he would walk around San Francisco waiting for people to call him. Very bizarre stuff. He had a nose ring, and shabby hair, and he was into grunge punky music, and he went through this dramatic transformation of becoming who he is today, where he’s this Steve Jobs kind of lookalike, and he is a very different person than he was when he was in his late 20s.
JASON HARTMAN: So I’m curious about that whole phone number thing, that’s totally interesting. Who was he expecting to call? Was he looking to pick up girls, or just any kind of startup funding?
NICK BILTON: He was just experimenting. He did these weird experiments; another one he did was—this is in the book too—he set up an eBay account. He didn’t have anything to sell; he was broke at the time. They were all totally broke at the time. But he set up this eBay account, and all he auctioned off was him calling someone and reading them Goodnight Moon, the children’s book. Which four people actually bid on. He came up with an idea to take people that were programmers and massage therapists, and team them up together, so that someone could massage you while you were writing programming code. So, lots of weird ideas. And I think that this for me is one of the really interesting aspects of the story. He was in his late 20s with a lot of these things. This wasn’t stuff he did when he was 14 or 15 years old. Everyone said he was a great guy, he was fun to hang out with, but he was also kind of strange and unique, and when he got pushed out of Twitter, he went through a transformation, and kind of pegged himself as the next Steve Jobs, and started using quotes by Steve Jobs, and started dressing in a uniform like Steve Jobs, and wearing the same glasses, and he kind of created this fictional character of who he is today.
JASON HARTMAN: Very interesting, fascinating. Let’s talk about Twitter’s influence on the world. It’s been used to overthrow governments. To try and overthrow governments, as well as successfully overthrow them. What do you think of Twitter’s influence, and the way it has spread, and what can it look forward to in terms of the future?
NICK BILTON: You know, it’s fascinating. There are these two stories in the book that are several chapters apart that I think really kind of summed it up for me, and one of them was when the South By Southwest festival, in 2007, the technology festival—
JASON HARTMAN: In Austin?
NICK BILTON: In Austin. And the founders are there, Noah’s been pushed out already, and it’s Ev and Jack and Biz and this guy Jason Goldman, who was a big influence in Twitter. So they’re there, and you know, they figured that people would be using Twitter, and they set up some screens to help people learn about it and so on, but they had no idea it would be used to the degree it was. And what happens is, they’re in bars, and they start to see people’s phones getting text messages, and that was when people were using Twitter over text. And they would see—they’d be like, where are you going? Because everyone would start leaving. And they’d say, oh, somebody on Twitter said that there’s a party down the street at this bar, and they’re giving away free beer, or whatever it is. And they called this flocking, at the time, some of the bloggers at South By called it flocking. And one thing that I found really interesting was, a couple of years later during the Iranian revolution, it was used in the exact same way. You had this flocking where people were organizing protests using Twitter and text messaging. So just in a two-year span you saw how something was once used to find a free beer, and then used to overthrow a dictatorship. And I found that utterly fascinating. And I think Biz Stone really deserves a lot of the credit, and so does Jason Goldman, for being the two people that really helped push that kind of philosophy of the service being used to kind of make the world a better place.
JASON HARTMAN: So, how about the future of it? And especially as it relates to Facebook. Will Twitter end up possibly being the winner of the social media game? Or has Facebook just got such a big lead that—I mean, I know they’re obviously different, but they’re competitors too, the way I look at it.
NICK BILTON: Yeah, I think Twitter will continue to grow. I think Facebook’s going to run into some problems, because they’re having trouble with teens. Teens don’t want to use Facebook anymore, or they want to use Twitter and Instagram. Luckily for Facebook, it owns Instagram, but unluckily for Facebook it does not own Twitter, even though they tried to purchase it several times, as I talk about in the book. But the reality is that I think for a while, for the foreseeable future, you’re going to see these two companies grow together. And Facebook, you know, people are not just going to advertise on Facebook and advertise—and yes advertise on Twitter; they’re going to advertise on both companies and both websites. But I do think that eventually Twitter is going to continue to grow much quicker than Facebook will.
JASON HARTMAN: I know that Facebook isn’t necessarily you specialty, but why are they having such problems with teens? You know, a lot of my friends just—they’re really leaving Facebook. They like Twitter better, they like Instagram better.
NICK BILTON: Because from a teen standpoint, the teens are leaving because they don’t—they can’t express themselves on there. Their parents are on there, their grandparents are on there, their cousins, their uncles, their nephews and nieces and everything. So they feel very self conscious, and they do very unique things where they don’t want their parents to see, so they’ll leave comments, and as soon as their friend has liked the comment, they’ll delete the comment, because they want it to go away, they don’t want anyone else to see it. Yet with Twitter, they can have private accounts, or they can post photos, and their parents aren’t necessarily on Twitter, because it’s a little bit more difficult for them to understand. And I think that’s one of the things. But the other thing is, Twitter has tried to compete with everyone, right? They have tried to literally take out every company online. They do search, they do social media, they do photography, video, everything.
JASON HARTMAN: You mean Facebook. Did you mean to say Facebook?
NICK BILTON: Facebook, yes. They do everything. And as a result, many people don’t know what they’re supposed to do there now. Is it a phone book? Is it a—what is Facebook? Whereas Twitter, in comparison, is a very simple concept. It’s a way to share what you’re doing, what you’re reading, or have a conversation.
JASON HARTMAN: Do you think much about the way Twitter has changed the news media business? I mean, you’re in the media business, obviously. And when you look at Twitter, and it’s just amazing how—what happened to the AP wire? These reporters nowadays, they just use Twitter, don’t they? Or I don’t know, maybe they don’t.
NICK BILTON: Yeah, no, I mean, I’ve come of age as a reporter at the New York Times using Twitter. Twitter existed when I became a reporter, and I actually could not imagine being a reporter without it, and it’s kind of ironic, because some of the older school people there think it’s a burden, and they don’t like it—they think it’s annoying, and it’s one more thing to have to deal with. But for me, it’s not only a way for me to capture what is happening and be able to talk to people in different places and see what they think of certain things to add to stories, but it’s also a way for me to share my stories and have a conversation with my readers, and one of the things that’s really fascinating, as you see in the book—there are these stories, and there’s certain stories that didn’t make it in. But there are these moments where people are using Twitter to become reporters, essentially! You know, reporters used to be the people that were on the ground, and they would go and write the story. And now the story originally starts with the person who’s closest to the news, and I think that that has been really fascinating from a news standpoint.
JASON HARTMAN: So, as a reporter, do you use the old techniques much? Do you use the wire service, or whatever it is that you guys do or did in the past? Or are you really, is your business centered around Twitter?
NICK BILTON: It’s still involved in everything, it’s not just one thing—Twitter, Facebook, Google Plus, you name it, we share it there. And we can interact with our users. But I think that Twitter is truly real time, and that is something that is—no one else does that. Facebook still can’t do that because of the way the algorithm is set up for the news feed. It’s interesting, I was at Bloomberg the other day doing a TV interview, and I ran into someone I’m friends with who works there. And he said that one of their biggest fears is Twitter, because what separates the Bloomberg terminals from everything else is that real time information. And what Twitter does better than everyone else is real time information. And so, interesting to see how those guys are disrupted by Twitter.
JASON HARTMAN: Yeah, that’s very interesting, what you just mentioned. I was actually asking the question though from a development standpoint, like when you develop stories, develop sources, and find information to create the stories. I certainly know you share them there, and all that is fantastic. But what about the development of the story? The old fashioned guys that you work with that consider it a bit of a burden, like, what’s this extra thing I’ve got to deal with—they’re developing stories in a different way than you, right? Or are you—do you use the old guys’ stuff too?
NICK BILTON: Yeah, of course. I’m not just sitting in a box somewhere just checking Twitter to see what people are saying. This book, for example, it was hundreds of hours of interviews, thousands of documents that I sifted through, got access to internal documents and emails—it was a result of all those things, and a lot of shoe-leather reporting, going to places and interviewing people that worked at certain restaurants nearby, and so on. But at the same time, I also used Twitter. I went to Twitter to find what people had said and done during the times that they were there at the company, and I used other social media to be able to report this, and that’s the same way I do things with the New York Times, you know. It’s all things work to help report the story, and that’s how we use them.
JASON HARTMAN: Yeah, fantastic. So, tell us—and this has got to be just a crazy funny story. But talk to us really quickly about Al Gore, and I guess in the book you talk about how he got drunk and he tried to buy Twitter back in 2009?
NICK BILTON: Yeah, so, it was in 2009, and Al Gore had been—they set up a partnership with Current TV and Twitter earlier on in 2008, and he recognized I think the power of what this thing was. So he invited Evan Williams and Biz Stone to his house for dinner and a drink, and sat there with Joel Hyatt, who was the co creator of Current TV, and they were pitching Evan and Biz to sell them Twitter, or at least merge the companies together. And they got the guys drunk, and were cracking jokes and telling stories, and Biz Stone was pretty inebriated, and at one point in the evening Al Gore emerges from the kitchen with a bottle of patron, and they do tequila shots, and so, it was a pretty funny story. Of course, the Twitter guys said no in the end. But they definitely—you know, Al Gore’s just one of the men. P. Diddy showed up to the office once with an entourage of folks ad tried to buy it. Ashton Kutcher made several attempts to get some revenue, along with a number of other celebrities.
JASON HARTMAN: Very interesting. That’s fascinating. Do you know what Al Gore’s offer was?
NICK BILTON: No, I do not. It didn’t get that far to an actual number.
JASON HARTMAN: Yeah, that would probably be pretty hard to find out, unless you were a fly on the wall in the room.
NICK BILTON: No, they just didn’t present a number, it wasn’t like let’s give you x million. It was more the pitch of, let’s figure this out. And they said no before it even got there.
JASON HARTMAN: Sure. Before you go, let’s talk for just a moment about marketing, branding, sales conversion, and how businesspeople are using Twitter to expand their businesses and expand their influence.
NICK BILTON: Yeah, it’s a good question. I think one of the things that you can do with Twitter for advertising that’s really interesting is you can target people, and I’m actually going to be doing some experiments with this for the book. I went to—yesterday I sent a Tweet, and I said, go buy my book Hatching Twitter, you can go to www.hatchingtwitter.com, and I put a picture of the book cover, and actually somebody who worked at Twitter messaged me and said, you should make that a promoted ad Tweet, which I’m going to do. And I could take that Tweet with the URL hatchingtwitter.com, I can take the picture of the book, all these things, and I can promote it to people that are talking about the IPO, maybe. Or people that live in New York and have the word ‘books’ in their Tweets, or something like that. And it’s a really interesting kind of way to market to the people you really want to reach, rather than just hoping for the best that they see something.
JASON HARTMAN: Fantastic. Well, Nick Bilton, thank you so much for joining us today, and your website, is it www.nickbilton.com?
NICK BILTON: Yes, but the book website is www.hatchingtwitter.com.
JASON HARTMAN: www.hatchingtwitter.com, fantastic. And I am sure you will do very well with the book. Your timeliness couldn’t be better.
NICK BILTON: Thank you so much.
JASON HARTMAN: So good for you. Nick Bilton, thanks so much for joining us today. The book is Hatching Twitter; take a look at it, get it on Amazon, and all the usual places. And really appreciate hearing some of this inside info. It was great.
NICK BILTON: Yep, thank you very much for having me, I appreciate it.
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