This Week in Startups - Facebook’s whistleblower reveal & major outage + reacting to OZY media CEO on Today Show | E1296

Episode Date: October 4, 2021

In this news episode, Jason covers the Facebook whistleblower Frances Haugen's "60 minutes" interview and breaks down some clips. Then he shares the highlights and rationalizations from the OZY Media CEO's Today Show appearance.

We have a jam-packed news program for you today. Two huge stories have broken. First, the Facebook whistleblower was on 60 minutes last night, and I am going to go step by step through her clips and how amazingly devastating this is for the Facebook. Second, Ozzie Media's founder was on the Today Show today saying, they're not going to shut down, and he comes across as so deranged, sociopathic,

and narcissistic. It is like Theranos, Elizabeth Holmes level insanity. And I'm going to go clip by clip through his deranged performance on the Today Show today. And it's making me mental. The amount of fraud going on right now is nuts. We're going to cover it. Every time it happens, stick with us. This week in startups is brought to you by lemon.io. Need to speed up your product development without draining your budget, hire vetted engineers from Europe at lemon.io. Go to lemon.io slash twist to get 15% off for the first four weeks. Real Good Foods is modernizing frozen foods and has become one of the fastest growing food brands in the US. Everything Real Good Foods makes is low in carbs, high in protein and made from real food ingredients. From enchiladas to Italian

entrees to breakfast and more. Real Good Foods can be found in the freezer section of your grocery store, Walmart or Costco. And Our Crowd helps you invest early in pre-IPO companies alongside professional VCs. If you're interested in investing, you can join Our Crowd for free at OUR-C-O-W-D.com slash twist. The Facebook whistleblower revealed themselves on 60 minutes last night. And it was a lot of confirmation. The person came across as incredibly credible. And I do think this is a turning point in this Facebook saga because we can talk about how Facebook or Instagram are having a negative effect on society.

And that's an important discussion. But when somebody from inside of Facebook who was involved in this critical research has a crisis of conscience and says, I need to record all of these documents. I mean, we're talking thousands and thousands of pages according to 60 minutes. And then I need to give them to a very trusted, uh, journalistic outlet like, say, the Wall Street Journal. And I need to do this because I feel democracy, uh, and human trafficking and, um, young women, young adults and their body image and depression and mental health are at stake.

That is different than me as a commentator or some Republicans who, you know, or Sacks who feels like the Republican Party is being singled out for being canceled unfairly on social media. We can all have our opinions, but we're not inside the machine, are we? Right. So we're looking from the outside. We have 10%, 20% of the information. This is a person on the inside with, you know, I would say close to 100% of the information, right? She had the keys to the kingdom.

And this to me is the beginning of the end game. Now, the end game is not that Facebook gets shut down. Of course not. You know, there's never been a company that's reached this many people. Can you think of a modern company that has two or three billion people using it every month across their services? Coca-Cola, McDonald's, I wonder how many people they serve every month. Very few companies have this level of reach. Maybe Disney, right?

Hundreds of millions of people consume Disney content every month. Is it $2 billion? No. So Apple products? Yeah, maybe. Google search, maybe. Yeah, those are billion-dollar franchises, Chrome, Android, iOS. So this is rarefied air in terms of the footprint of the number of people who use these services.

And the majority of people love and get value from them. So that's fine. But the question now becomes, what is the copability of Facebook's ongoing philosophy with regard to how they run that business? In other words, internally, are they covering things up? Are they being considered? With great power comes great responsibility. The company is no longer in the move fast and break things, beg for forgiveness rather than ask for permission. Those are what early stage startups do, whether it's Airbnb or DoorDash.

would put in and out burger on their menu or postmates would put in and out burger on their menu, even though in and out didn't want to be on the menu. And they'd say, listen, we're an assistant. We're sending an assistant to pick something up. A rich person can send their personal assistant to pick up in and out burgers. Why can't, you know, like a poor person or a middle class person, you know, send their assistant. And postmates was a virtual assistant at the start. Okay. So putting that aside, let's get into what she said. Because the key, key moment for me is when she explained exactly how the engagement algorithm drives people to engage more if they feel outrage and that outrage and things that are intense like that then lead to more clicks on ads,

right? And so we will go through a number of her quotes and it's going to be similar to another podcast where I'll tell you how many seconds the quote is for and then I'll come back on the other side with my feedback. Now, the woman's name is Francis Howgan. And as I said, she came across as extremely credible in what she does. According to her LinkedIn, she started working on Facebook in June of 2019 and previously worked at, and here's the credibility, Google, Pinterest, Yelp, and was co-founder of the dating

act hinge. This is serious bona fides, as they say in the business. This is a highly credible individual. Here's the 55 second clip of her talking about how people in the integrity department were run into the ground. The thing I saw at Facebook over and over again was there were conflicts of interest between what was good for the public and what was good for Facebook. And Facebook over and over again chose to optimize for its own interests, like making more money. Francis Hogan is 37, a data scientist from Iowa, with a data scientist. degree in computer engineering and a Harvard master's degree in business. For 15 years, she's

worked for companies, including Google and Pinterest. I've seen a bunch of social networks, and it was substantially worse at Facebook than anything I'd seen before. You know, someone else might have just quit and moved on, and I wonder why you take this stand. Imagine you know what's going on inside of Facebook, and you know no one on the outside knows. I knew what my future looked like if I continued to stay inside of Facebook, which is person after person after person has tackled this inside of Facebook and ground, ground. All right, powerful stuff. I mean, essentially what she's saying here is there was no way to make change inside

of Facebook, and that's why she went public. So let's just think about this in terms of game theory for a minute. Facebook wants to do this research. Facebook does this research. Facebook gets the answer, gets answers for this research that would materially impact revenue and usage. And then they take these incredible researchers that are highly credible. She went to Harvard Business School as well. I didn't actually know that.

So they hire these stunningly impressive people. They give them the results. And then smart and impressive people, you know, say, listen, I'm not being listened to. And I'm getting ground, down. Not only I may not be listening to, but I am being driven into the ground. So it seems as though when we investigate this Facebook situation, we're not going to just find that they disregarded their own research. It's that the people who they hired who are brilliant and not bitter.

She was there to make positive change, right? Does she sound bitter to you at all? Does not sound bitter to me. Does not sound like she has an ax to grind. does not sound like she needs money, does not sound like she's doing this for fame. I mean, she sounds like she's doing this for exactly the right reasons. And it's also, it's completely possible that she does have an extra grind and that could be revealed later.

But it does not seem like that now. So as we turn over each card in this hand of poker, what we're finding out in this specific acute instance is that Facebook was not only not listening to their own research, they were grinding, they were making those people feel like they were being ground into the earth and were being absolutely dismissed. There's no financial gains here for her, I think. Of course, whistleblowers do with the SEC. If they uncover fraud, do get a piece of that. So that's an interesting wrinkle here, is that I wonder if she will get a whistleblower grant. So if the SEC were to fine Facebook for a securities fraud.

In other words, they knew there were these problems with their product and it had a material detrimental impact to their business. I don't know if securities fraud would be the way to put this. But let's say there was an SEC settlement and, you know, they paid a billion dollars. I think she's entitled to some portion of that. And we'll cover that later and we'll look a little bit of it up. And by the way, before I was saying, which companies have, you know, a footprint like Facebook, Facebook, 2.9 billion monthly active users for Q2 of 2021.

That's pretty impressive. Now, that's monthly, so it's not daily. And then we found a little research online. 1.9 billion servings of our drinks are enjoyed in more than 200 countries each day. That's the Coca-Cola Corporation. So just let it sink in how the scale of these businesses. Very few I have reached this. When you are trying to grow a startup fast, hiring engineers will slow you down like nothing else.

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The root of the problem, we all know, lies with the algorithm. And that was changed in 2018, according to her, to gear people toward meaningful interactions, which was supposed to be a good thing. It turned out it was a monster. It was a disaster.

So in this 70-second clip, you're going to hear Hogan. She's going to talk about how the algorithm, them, as I mentioned earlier, and I thought this was the money quote, just steers, excuse people towards hateful content, which is basically more engaging, right? Meaningful interactions, that is a hard thing to determine because that's qualitative. So how do you define meaningful interactions? Is it that people wrote three sentences versus two words? Is it that people shared the post and wrote a quote? What does meaningful interactions even mean in this context?

Well, let's listen to this 70-second clip, and this is the most important one I think of the interview. The root of Facebook's problem is in a change that it made in 2018 to its algorithms, the programming that decides what you see on your Facebook news feed. So, you know, you have your phone. You might see only 100 pieces of content if you sit and scroll off for, you know, five minutes. But Facebook has thousands of options that could show you. The algorithm picks from those options based on the kind of content you've engaged with the most in the past. And one of the consequences of how Facebook is picking out that content today is that it is optimizing for content that gets engagement or reaction.

But its own research is showing that content that is hateful, that is divisive, that is polarizing, it's easier to inspire people to anger than it is to other emotions. misinformation, angry content is enticing to people and keeps them on the platform. Yes. Facebook has realized that if they change the algorithm to be safer, people will spend less time on the site, they'll click on less ads, they'll make less money. All right. So it's pretty devastating. What she's just done there is connected, how they design the algorithm. obviously in the rest of the interview, she talks about the research that inform all of this, and then she connects it to the business. And, you know, I've been saying this for a long time. And I think a lot of other people who are critical of social media, not just Facebook,

have pointed out that the more salacious, the more angry, the more charged a tweet, a Facebook post is the more of a reaction it will get. What this does is it trains the algorithm that, okay, this post, we don't know what's in it. Algorithms are not looking at what's in it. They're looking at what the outcome is. So they'll say, okay, here are the thousand pieces of content. Show the thousand pieces of content to a thousand people. Tell me, or maybe even less, show to 100 people. So now we've got 100,000 people have seen these thousands of content.

Which one, which 10 got the most reaction? Comments, likes, shares. Okay, let's look at the words in there. Which one got the most charged words? Which one's got the longest responses? Which one got the most follow-ups? In other words, I replied on your post and then you as the OP, the original poster, did you respond to me? That would be like the definition of a really vibrant conversation happening.

I commented on your post and you actually got back to me. So that ping-pong thing could also be a signal. Because if we are now in a debate and you're saying, you know, the Clintons are this murderous, cabal of maniacs. And I'm saying Trump is owned by the Russians. And now we're going back and forth, you know, like your aunt and your second cousin are probably doing on your Facebook with the rest of the family watching in horror and saying, how are we going to even have Thanksgiving this year? Like when those two morons are going back and forth talking through each other, that's just incredible signal to the algorithm because those people keep coming back to Facebook. You know, your aunt or your cousin who's on Facebook all day long.

That's what this algorithm is doing. It's trying to make all of us that addicted. That's why the best thing to do is to just turn off notifications, delete Facebook, delete Twitter, take a break from it, put a pause on it, and maybe use it only when you're at your desktop and put a timer on it or put yourself on a little timer. So this is truly devastating, I think, for Facebook that an insider has made the connection between the research, the explicit design of the algorithm, and the financial outcome. Of course, for Facebook, if this thing actually comes down to, you know, brass tuesday,

tax, I think what the people inside of Facebook are going to say is, well, of course we want people to use our product more. What company does not want to delight their customers and make the product better? We're looking at the signals. If people are using the product, we will look at how they're using it and make it better. That's our goal as a business is to grow. That's our mandate with our shareholders. Are you saying that we should break our fiduciary responsibility to shareholders and make and tank the business? Because some people don't like some conversations or some number of people become addicted to it is there are people who are addicted to Disneyland. There are people who are addicted to gambling. It doesn't mean you

shut Vegas down. It doesn't mean you don't allow them to buy tickets to Disney World and go every day. Like there are people who will spend a disproportionate amount of their personal revenue and time and their personal income on gambling, on Disneyland, on alcohol, on cigarette, on cigarettes on whatever their passion happens to be, even if it's, you know, I don't know, ordering expensive wine. Doesn't mean the wine company is responsible. That's going to be their defense. So back to the Wall Street Journal, Facebook files article.

Here is how Facebook quantitatively measured their new algorithm. And this is a quote from that Wall Street Journal story. Facebook's solution was to create a formula that measured how much meaningful interaction of post spark, meaningful is in quotes. Then organize the news feed to encourage us much of the newsfeed to encourage us much of that is possible. Okay, we get it. Under an internal point system used to measure its success, a like was worth one point. A reaction, reshare without text or reply to an invite was worth five points, okay? And a significant comment message reshare or R SHVP 30 points. So that's really

interesting. If you reshared it with a comment or write a big message, 30 times more than just a simple like, which is what I said earlier. I think they're obviously looking for you to spend more time and add more content. If you add content and you share it with your group, that is the ultimate way to get you more involved because just even composing that response might take a 10 minutes, right? And that's 10 more minutes they get of the attention economy. Additional multipliers were added depending on whether the interaction was between a members of a group, friends, or strangers. Ah, so they know who your family are because you say, these are my family, this is my spouse, these are my kids.

This is somebody I work with. These are friends. I think you can even say close friends on Facebook. So I'm assuming the multiplier might be two-exists if it's a family member, three-exit if I said this is a close friend, right? So now what they want to do is really get people who are close to each other into these meaningful interactions with their friends and family. But what this did was because they're not looking at the qualitative.

They're just looking at the behavior. That's like saying like how long did you, how long was Thanksgiving? How long was that meal? How long was your party? And it's like, well, the party might have gone until 2 a.m. and ended in a fist fight. Everybody got drunk and was fighting over Trump versus Clinton or Biden or, you know, the Afghanistan debacle. You know, that doesn't mean it was mean.

It might have been meaningful, but it also might have been dark and horrible and scarring for life. It really is interesting that, you know, these researchers pinpoint where they believe this started going down. And of course, this is going to dovetail with the January 6th activities to be a little bit neutral here, whatever happened at the Capitol on January 6th. I know some of you feel it was a protest or you feel it was an insurrection. I think for some people, it was a fun day out and a like, you know, protest and, you know, for other people, they brought guns. So, you know, if you bring guns to a protest, I think you're kind of tipping. over into crazy town and maybe insurrection. Maybe it was in fact an insurrection for that group of people while the majority of people there, it was a protest or just a boondoggle and a way

to go and hang out with friends, right? People can go to the same event and have two different experiences. So breaking news just informed that all of Facebook and Instagram is down right now. Brian Krebs, the famous security expert, has confirmed. I'm reading his tweet from moments ago, breaking news. The DNS records that tell systems how to find Facebook and Instagram got withdrawn this morning from the global routing tables. Can you imagine working at Facebook right now when your email no longer works and all your internal Facebook tools fail? We don't know why this change was made. It could have been the result of an internal system-wide change or update that went

awry, it's all speculation at this point why Facebook is in control over its DNS records. DNS, if you don't know, is the domain name system. Maybe they were hacked. That tends to be what happens in these situations. It's either somebody with fat fingers types in the wrong, you know, routing records when they're making a change. And so bad day for Facebook. The stock's also down 5 to 6% on this news. The overall market, I think, is down.

two to three percent. So they're down double the market, which for a leading company and a strong company says something. I don't think, well, let's talk in a minute about what the outcome of all this is. We all know how hard it is to eat healthy when you're grinding on product sprints and trying to meet crazy deadlines. Well, now there's an innovative food company trying to help. Real Good Foods is one of the fastest growing frozen food brands in the U.S. They're making nutritious foods more accessible to improve human health. and they make all the food you love, Mexican, Italian, breakfast sandwiches, pizzas, and more.

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At some point in 2021, I realized, okay, I'm going to have to do this in a systemic way and I have to get out enough that no one can question that this is real. She secretly copied tens of thousands of pages of Facebook internal research. She says evidence shows that the company is lying to the public about making significant progress against hate, violence, and misinformation. One study she found from this year says, we estimate that we may action as little as three to five percent of hate and about six-tenths of one percent of violence and incitement on Facebook, despite being the best in the world at it. Okay. I think that those percentages are a little bit of fun with numbers. I'll be totally honest. No platform is going to be able to police speech. That is just an unrealistic concept here. The problem is Facebook, no.

knows that they're, the bigger issue is Facebook knows the negative impact they're having and the algorithm. You don't expect Verizon or AT&T to be able to police the phone lines and people saying horrible things or coordinating terrorist attacks over the phone. You don't expect signal or Discord or Slack or Telegram to be able to stop what people say on it. How is Facebook Messenger or Facebook boards or Twitter feeds any different? They're not at their core any different. It's just a communication platform. But the algorithm that amps things up and starts the pot, I think, is something they can control, right? So Facebook is not responsible for an individual using hate speech as an example. I think we all agree on that. But is Facebook responsible for

taking the hate speech and amplifying it and knowing it's outraging people? Yeah, it kind of feels like they design the algorithm and they do have control over that. And they are doing it to make more money and to make people engage more. So there's, I think, the line for me is, yeah, you know, like if you, if somebody starts putting Nazi propaganda, racist stuff, xenophobic stuff, whatever hate speech they're putting up there, you could just cancel their account, right? It's a process. And when you find it and it's reported, you just cancel accounts, you ban people, you ban

them for life, suspend accounts. There's a standard process. They're just like if somebody in your community started doing stuff like that. at, you know, somebody in your community decides they want to fly a Nazi flag, like, they're going to have repercussions, and, you know, they're going to get ostracized. They're going to get hate speech, uh, claims against them. And the police are going to show up as opposed to, you know, here, this is the equivalent of like, really amplifying that same behavior. And that is the, the problem for Facebook right now is that they amplify the stuff. One note, I don't know if you noticed this, but when she was showing those documents, Did you notice it look like it was screenshots from a video? Here's a little theory. All that stuff on a corporate account is locked down. You can't take a screenshot.

You can't hit the save button. They have all that stuff in probably some document management platform that you cannot just download it all. If she had downloaded everything, they would know. So they're probably watching that. But if she's reading it as a researcher and every day she reads 100 documents and she set up, What it looks like to me is she set up a camera and focused it on her laptop or a monitor. So she probably set up a monitor. Maybe she duplexed her monitor, right?

She's working on our laptop. She did an external monitor. On that external monitor, she puts a camera on a tripod and records your screen. That's how modern day, that's the modern day way to get around, you know, screen capture and stuff like that. You don't do the screen capture on the obviously document management system. So I just, that was a little interesting rub there. I don't know if any of you else noticed that. So, yeah, I don't think that the statistic is actually super meaningful,

that they only take action on 3 to 5% of hate speech or 0.6% of violence and incitement on their platform because maybe it's not all reported. And if they're the best in the world, I don't know if that that number is, we need to know in that number how many people the hate speech reach. So if somebody says something hateful and it reaches two people, that's a lot different than if somebody says something hateful and reaches two million, you know, like the Alex Joneses of the world and stuff like that being removed from the platform. So I think you have to take the, what is the actual real numbers?

Anytime you see percentages ask for the actual numbers. So three to five percent of hate, are we talking about a million posts a month out of how many posts? And then how many people did they actually reach? I'm guessing this stuff reaches a very small number of people because when somebody with a big following says something hateful, they get bounced from these platforms. We've seen that on Twitter. We've seen that on Facebook. They just get banned for life, including the president of the United States, including Alex

Jones and right down the line, Milo Yanopoulos. They're just banning those people for life. So I think they've actually done a really good job of the major bad actors being removed from the platform. So here we go. Apparently, WhatsApp is down as well. So this seems like a coordinated attack to me. But again, we don't know why these services are down.

but it does seem suspicious that this is happening the day after this giant leak. And Anonymous, the hacking collective tends to dole out their own version of justice. And let's end with the whistleblower talking. And we've invited her, by the way, on the pod. So hopefully she takes that invitation. I'd love to talk to her, Francis. I'd love to have you on the program and go deep on this as opposed to 60 minutes, which I think was maybe a seven or eight minutes of airtime for her.

I'd like to talk to her for 70 minutes and really go deep. So what's her goal? Let's hear from the whistleblower cell. Facebook has demonstrated. They cannot act independently. Facebook over and over again has shown it chooses profit over safety. It is subsidizing. It is paying for its profits with our safety. I'm hoping that this will have had a big enough impact on the world, that they get the fortitude and the motivation to actually go put those regulations into place. That's my hope. All right. There you have it.

again, she seems phenomenally credible. She's worked at the biggest tech companies in the world. She seems highly intelligent. And her motivation seems crystal clear. She's not like some historical person on the left, you know, upset about Trump. She's not somebody historical on the right upset about Trump being banned. She seems like a researcher and a concerned citizen. reminds me a lot of, again, I gave you all an assignment to watch The Insider.

I wonder if any of you watched it, but, you know, this feels very analogous to the tobacco whistleblower. On September 27th, the VP of Global Affairs in Communication at Facebook, Nick Clegg, C-L-E-G, stated he thought the research was leaked by someone who clearly feels they have some points to make in a live stream from the Atlantic, and he was not wrong. The day before the 60 Minutes interview aired, Francis, tweeted, I believe that we can do better. So I'm guessing they knew who she was. And let's play the Nick Clegg response, which I thought was weak. That's what happens when journalism based on leaked material, which is leaked for a particular purpose.

And it's leaked deliberately to try and cast, or often obviously much wider and more complex, and interconnected issues in a particular light. You just lose a lot of context. People who use our services and parents who have teenagers using Instagram, you know, to read headlines saying that Instagram is toxic for your teenager is a pretty, that is a particularly, you know, that is a particularly sort of pungent thing to say. And we just felt it was, it was duty bound to try and provide people with a much more rounded picture.

All right. Nick Kleg is horrible. I'll just say it outright. This person is completely insincere, and I don't care about your British accent and how smart you sound and how dapper you look. Your soldier sold for money. It's a money grab for you, and I hope it was worth it. People's kids are suffering for mental illness. Hate speech is being propagated on the platform, and you're out here defending it instead of really just saying, we can do better. These are the things that are wrong.

We're going to make all of our research public, and we want to have. a really open, honest dialogue. This is a moment, Nick Clegg. I listen, I know you're just a spokesman and they've paid you off. You're probably making, what, $5, $10 million a year? I'm guessing Nick Clegg makes $5, 10 million a year. So over 10 years, I think he'll make $100 million. That's my estimate.

I don't have the facts here, but somebody can look it up or leak it, I guess, to the press. But when you have some politician like this, some press person, and you say, listen, we'll give you $50 million, $100 million in equity and shares over the next decade to defend us. For some people, they'll sell their souls. And this is a soulless person. You can see it when you look at his eyes. You can just tell by looking at Nick Clegg

that he does not care about the impact Facebook is having. Completely insincere responses. Total weasel words the whole time. Zero ownership. And I think he will, at the end of the day, you know, 10, 20 years from now after he spent the money, he's going to look in the mirror and he's going to say, you know what?

I sold my soul. I sold myself for a quick buck and it's shameful, it's disgusting and yeah, I hope that if there is some wrongdoing here that people are held accountable because they could have easily solved this a long time ago and

Zuckerberg since day one and I've been critical of him since the first year of this company you can look back at all the receipts Zuckerberg came into the industry and he made the entire industry hated because he just did not care about anything other than the growth of Facebook. He did not care when gay people were outed on the platform because of the group's product.

He has not cared since the beginning about anything but growth. And when you are obsessed with growth and money and the amount of the stock price, what happens is you get into this collective illusion that you're under attack. You're not under attack. You have not been thoughtful about the scale of this platform and you should be held accountable and I'm glad the researcher and the whistleblower put all this information out here. And I think it's 50-50 for me if this is going to have a dramatic impact on Facebook. Because let's face it, Facebook has been dealing with these issues since the beginning,

and their stock has only gone up. Listen, Facebook stopped growing, but Instagram and other apps we're still growing inside the platform. The good news now is, I think the public is going to look at every behavior that Facebook and Zuckerberg do in the right context. They're going to look at this behavior and say, we should not give this company an inch. And that's a good thing. If the company time after time after time does the wrong thing, then the company should be not allowed to acquire other companies.

And the people who work at Facebook, honestly, like, I have a lot of friends or people who've worked there. They all are, the people who've left are all like, I had enough. It's disgusting. you know, we don't take it seriously. That's basically what the insiders have told me. They're ashamed of their time there. They're ashamed of what it's become.

And so for the people who are working there, you just have to ask yourself, do you have other options? Of course you do. Facebook employees should just quit. Go work at another company that's world positive or that, you know, it's just not so destructive and deliberately skirting the rules and subverting research that says our fellow humans are being damaged by the service. People are adults, though, and they are freely using these services.

So ultimately, it's up to us as individuals to use the services less. I know that's really hard to do because they hit scale. But I am really hoping that other platforms that are more considered come out and that we move off of Facebook. And, you know, that's why I stopped using Facebook mostly. Like, we're streaming this to Facebook, but we know how many people are seeing it. I basically moved a lot of my activity to Twitter, to YouTube. Oh, yeah, nobody's using Facebook. At this point.

All right. So that's enough about Facebook. I do think this is a turning point. I do think this will, we're going to see a lot of resignations over the next year or two from Facebook because people are just don't want to deal with more of this grossness. I do think we will see the stock have a lot of headwinds. And we're seeing that with Apple, you know, stopping Facebook from tracking their users.

I think this will put more momentum into slowing Facebook down. And I think individuals will maybe stop using the platform, you know, on the margins, maybe engaging less, but the talent train will be the key thing. And I've seen this before in other companies. You know, if you can't get great people to work there, you know, you have to bribe them like they did with Nick Clegg. I think Nick Clegg is just there for the money. Why else would you sell your soul like this?

There's a million things Nick Clegg would be doing. I think he did this for the money. It's a money grab. So since the money grab and all likelihood for Nick Clegg, well, if the stock stops going up, it's no longer a money grab. So people who are, you know, greedy like him are just going to leave and, you know, go find another payday. And so that's the problem when you have this kind of headwinds. If the stock stops going up, all those RSUs are underwater or they're not appreciating, people are not going

to stay. So I think the talent drain could be the key issue here for Facebook going forward. Maybe some regulation that will take years to work out and then not being allowed to buy other companies. So these are piling up. And then the privacy issue is piling up. And then there'll be some countries, which we've seen on the margins who are just like, we don't want to deal with Facebook anymore. They press the button and they turn off Facebook. They say, listen, we just don't want you in our country anymore. That's a distinct possibility as well. All right.

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Deal memos are a great way to get really smart, really fast. There's no payment involved. until you decide to invest. That's our crowd.com slash twist to sign up for free. Aussie media has announced they would be shutting down on Friday. So today we talk about that shutdown, but this morning their CEO had a change of heart on NBC's Today Show, which put him on air in what is one of the more deranged,

you know, narcissistic interviews I've ever seen. I mean, this would be like in my mind, like Elizabeth Holmes, and Bernie Madoff doing an interview like the week after they did their perp walk. It's bonkers. So just to give you a brief recap, the New York Times, Ben Smith, who is a media reporter, who came from BuzzFeed, who was involved in a lot of deals. And now he's kind of like a columnist, having formerly been a senior executive. So his position is really murky.

Like the fact that they allow him to use all this previous information he had from his previous life. It would be like some venture capitalist or president of a company that decided to be a columnist and used all the inside information they had to write columns. It's pretty entertaining. Ben Smith is a good read. And so much so, Ben Smith is so conflicted that many times when he publishes a piece, he has to put like a disclaimer paragraph that like, yeah, I was involved in this company. I negotiated with this company. I have a deal with that company. I still own shares in BuzzFeed. I'm trying to clear them.

I'm trying to. I mean, he has conflicted all over the place. which makes it even more entertaining. As we say in the industry, no conflict, no interest. And man, Ben Smith is so conflicted. It's super interesting. The quote from the article about his conflict, which, you know, listen, he's up front about it.

So I think pretty easy to say that he's covered his bases in that regard. Quote, I was an editor-in-chief of BuzzFeed News at the time of the article. Later, I met Mr. Watson when I was peripherally involved in acquisition talks between the companies. In other words, Ben Smith is writing about this company that he was. was involved in, you know, merging with, I guess, or buying. Mr. Watson told the Times he believed that it was unethical for me to write this column under New York Times policy. I can't write about BuzzFeed extensively until I divest stock options in the company, which I left last year. So I guess extensively is the key word in there. But the New York Times, you know, like, I think their ethics

policies are pretty strong about this kind of stuff. But I think they're also becoming a little loosey-goosey as they've picked their side, right? They've just gone full. wokeful, you know, I would say socialist left, you know, social democratic, as opposed to really trying to be unbiased in their approach, right? They literally are hiring journalists to hold tech accountable and they're doing press releases saying, hey, we're going to hold tech accountable. So pretty interesting approach by the New York Times. And it's obviously working to get them more subscribers. So I don't have a problem with it as long as they're up front about it. So last week, there were allegations that Ozzy was inflating their match.

tricks, you know, to pop unders and other, you know, gray hat or black hat tricks. And then they would use those puffed up numbers to raise money. And then, of course, you know that there was an FBI, or there apparently is an FBI investigation into them impersonating a YouTube executive on a call with Goldman to raise $40 million. After the article came out, there was a board investigation that was announced. And Ozzy's most popular, recently hired broadcaster, KDK resigned. It's been like this whole, every day, you know, a couple of shoes drop. And we've just got a pile of shoes right now.

In the Friday news dump, right, always drop your news on Friday. Ozzy announced they were going to wind down operations and shut down. So this is what I said last week. The company's obviously going to go to zero. It's going to shut down. It's always obvious to me because I've seen this movie before. No investors want to touch a company like this. No investors are going to make money.

If they could make money, they would, right? There's just no money to be made when a company is under investigation or by the FBI or Goldman Sachs was defrauded, you know, during a call. Like, it's just these are insurmountable odds. So fast forward to today, Monday. Friday they're shutting down. Carlos Watson went on the Today Show and announced that Ozzy would be staying open, called it a Lazarith moment. So I guess he's kind of saying Jesus is going to resuscitate him and bring him back to life. This is pretty crazy.

And these videos to me, and I hate to play amateur psychologists here, but this is the craziest narcissistic performance I've seen since Elizabeth Holmes. I'll see you on the other side of this 42nd train wreck. Let's start with the status of Ozzy as we sit right now. Reports that the company shut down on Friday. Is that true? Is the company shut down or are you still open for business? You know, we're going to open for business. So we're making news today. This is our Lazarus moment, if you will. This is our Tylenol moment. Last week was traumatic. It was difficult. Heartbreaking in many ways. And at the end of the week, we did suspend operations with a plan to wind down. But as we spent time over the weekend, we talked to advertising partners. We talked to some of our readers, some of our viewers, our listeners. our investors. I think Ozzy is part of this moment. And it's not going to be easy.

But I think what we do with newsletters, what we do with TV shows, original TV shows, podcasts, and more, I think has a place. This is a crazy behavior because he literally is making himself

into a victim here that like, nobody asked you if last week was hard. You guys are involved in clearly criminal behavior of like securities fraud. Like, this is deranged behavior. And you're talking about how hard last week was. I mean, nobody has any sympathy for you.

And then this level of grandiosity of like, we are, this is like important for him to, you know, be out there and defending himself. It really is crazy. This is an absolutely crazy narcissistic person from my professional. opinion of dealing with founders. That's just my professional assessment. I have seen founders who have delusions of grandeur. I have seen people who cannot acknowledge when they're wrong. And then there's like another level. So like you can be delusional. I want I'm the greatest angel investor of all time. I want to be the greatest angel investor in the history of Silicon Valley. like these are grandiose things I've said that I set as a goal for myself.

But it also acknowledged that there's like five angel investors that we all know who have done massively better than me. And I always say like, you know, they're kind of retired. So maybe I have a shot at being number one. Maybe I'll be Mount Rushmore. And then there are people who want to get to Mars or there are people who, you know, want to index the world's data like Google. Like people set stretch goals.

And then there's like this deranged sense of self-importance. Do you get that self-importance? Like nobody cares about Aussie media. Nobody cares of Ozzy exists. The right thing to do here when all this behavior has happened, much of which seems criminal and seems like it would be securities fraud, is to shut the thing down and say, we made mistakes. We're going to put this thing to bed.

You know, and hopefully I'll earn people's trust back. but this is nuts. And this 90-second clip is bonkers. And this is about the YouTube impersonation. Let's talk about this phone call. I mean, did you know that your partner, the co-founder of this company, was going to impersonate a YouTube executive on a call?

Yeah, no. And it's sad and it's difficult. It was wrong. Obviously, they figured it out very quickly. But here's the thing. someone would wonder, perhaps, I mean, you're on a call with Goldman Sachs. You're trying to score $40 million in funding. Why were you not on the call and how did you not have any knowledge of the call? You know, part of the fundraising process, you end up talking to a lot of people,

and I'm not on every call. And there are lots of these reference calls that happen. They, I think, probably ended up talking to three, four, maybe five of our references. They also talked to members of the team. They talked to some of our other investors. And so there are a fair number of things that are involved, and you're not a part of all of them. But over a three-month period of time, I spent a lot of time with him as part of the process. As you know, there could be some serious legal implications with regard to that call. Have you heard from the FBI? Have you heard from law enforcement at this point? I definitely haven't. But here's what I will say. That's a tragic situation. It's horrible.

Nothing good about that at all. I am grateful, though, that Goldman didn't invest because that would have been the worst of all. And several months later, to Goldman's enormous credit, they stepped forward and began a new advertising partnership with us. And so I think part of that was a recognition that as tragic and not okay as that was, that the larger company, Ozzie, has done some pretty special things when it comes to premium content, forward-looking content, and really a diverse set of audiences. This is deranged, man. I don't know, I'm, I'm flummoxed. I am absolutely bewildered at how you could take that level of fraud and then say,

but they didn't add by with us. Therefore, it's okay. And this person seems to have a, and this company and their culture seems to have a problem recognizing, you know, the level of fraud that they were committing, the deceiving of people while selling securities. And if you had committed securities fraud at this level, and would you go on the Today Show?

Who's advising this person? you're going on the Today Show saying, yeah, that was really bad. But I wasn't involved in it because I'm not involved in all the calls. You're the CEO. Your co-founder impersonated a YouTube executive to deceive Goldman Sachs, one of the more sophisticated investors in the world to build them out of $40 million investment. And then you have the audacity to be cavalier and say, well, they did an ad buy? That's so deranged.

And then he's like, and to Goldman's credit, did you just. You notice that part, to Goldman's credit? To Goldman's credit. You tried to defraud Goldman. You're giving them credit for doing an ad buy? You should be falling on the sword. My executive impersonated a YouTube executive and committed security fraud. I would be in a room with attorneys saying, how do we stay out of jail?

And you have the audacity to go on the offense and say they bought ads? dude who is advising you not good NG not good you also notice the part where he says I'm grateful Goldman didn't invest you're grateful again about you and like nobody cares about Ozzie are you grateful that Goldman didn't invest

because you would go to jail if they did because you would have actually consummated and been successful in deceiving them and committing securities fraud is that why you're grateful I mean this interview by the way is terrible. I mean, it feels a little too chummy here, like with the interviewer, they should have gone for the jugular here. I mean, if I'm in that interview, I would have just stopped it right there and said, wait a second. Are you grateful that Goldman didn't invest because you would have been guilty of securities fraud? I would have just asked at that plane. But I mean, of course, this is a Today Show interview. So it's not 60 minutes. And the person probably is not as briefed on securities fraud and lying during the process of raising money. Which, I mean, of course, Which is why I tell every founder I've ever met and anybody who's listening, like, there is no reason to bend the truth. There is no reason to make shit up when you're raising money, when you're running a company and when you're operating in the world. You know, I've seen founders claim that somebody is doing a trial of their software, right? So I'll have people pitch me and they'll say, yeah, we have this company, Google, Facebook, Goldman Sachs, whoever, they're trialing our software. Now, when you say trialing your software, you think that means they're,

trying it, right? You would be trying something in a trial. And literally, they sent a login in, I'm going to make a composite of what I've caught people doing. I say, okay, great, can we talk to the person trialing? We want to understand how long they've been using it or whatever. And then we find out, they just sent some mid-level executive at this big company, a login. The person logged in looked at the software and never used it again. They weren't trialing it. They perused it. That would be like saying, you, have somebody as a customer who walked into your store, looked at your dresses, and then left. And you're like, oh, yeah, this famous person, Kim Kardashian's, you know, a customer.

And it's like, Kim Kardashian walked by your store, peaked inside, looked at the dresses and left, and that's a customer? No. No. That's the kind of lying or, you know, deceiving people that get you in big trouble. And this is a whole different level. All right, here we go. Craig Mavitt asked Watson why anybody would trust him going forward.

Good question. Why would anyone trust Carlos Watson moving forward? Yeah, great question and fair question and heartbreaking question, because I'm used to people trusting me. I'm the son of teachers. You've known me for a number of years. We've interacted in a variety of ways. And I once worked here at NBC as part of the MSNBC family.

I think here's what I would say. Last week, I got some incredibly bad advice. I got advice from some crisis communications folks to go silent. I should not have done that. What ended up over the next week was some half-truths. In some cases, some real things that we did not well and that we should have done better and different. And we will own them.

We'll own them around data, around marketing, around other places. But I wish I had stepped up. I wish I had engaged. And part of my reason of being here with you today is to engage on those things. This is one of the traits of a narcissist, I believe. Just my professional opinion, somebody who's been a founder and a journalist and invest us in company. He's like, this is what I've done my entire career since I was, what, 22 years old, I've been a journalist, entrepreneur, and I'm 50 now, so 28 years doing this. There are some

people who are so narcissistic and crazy that they blame everybody else. And he's literally blaming that he got bad advice from a crisis. No, they're not, they didn't commit securities fraud. They didn't lie and impersonate a YouTube executive on a call with Goldman Sachs. They didn't buy their followers on Instagram. and, you know, they didn't take quotes. This is one of the most deranged things. Their marketing people were taking quotes that Aussie executives were saying and then attributing them to professional news sources, right? So you ever go to a website and says, as seen in the New York Times, the Wall Street Journal, that is like a social proof exercise, right?

And so social proof is important. So if you go and you go to any SaaS software company, you might see, you know, as seen in the New York Times, yada, yada, yada, yada. But when you lie about how you were framed in those, that would be like, I don't know if you guys saw the tweet I did over the weekend. Somebody offered me for 200 bucks to be on a list of the top entrepreneurs on Yahoo Finance and I tweeted it. And I told them like I would pay them $200 to not put me on the list. Did you guys see that tweet I did? you can pay to get yourself featured on a lot of these services and this is deranged behavior when you try to manipulate your own position in the world right like people understand where

you're at and other media companies have been looking at this and laughing at it and as I said on last week's show I was talking to a bunch of journalists at the Code conference and they know like three journalists were talking with me at the poker game we're having a talk they start talking about Aussie media and one of them just says like this was about race straight up like people did not want to be the person who took down a black media executive in the same way people didn't want to take down Elizabeth Holmes because she was a woman which a lot of the press said like we want to give her the benefit of the doubt we really need to have a billionaire tech executive and you know this is this is not my position this is literally what the press said this is the

liberal press said, listen, we can't hold these people accountable because of their gender or race. That's kind of an interesting rub in all of this, which is people were suspending disbelief here. So here's the funny tweet. Sergio Blaza, if that's a real person, says, hey, Jason, this is Sergio from Daxon Media. We are doing an article for Yahoo Finance, 20 entrepreneurs to watch this 2020. The entry fee is just $260. The article include entrepreneurs as. good English. The article will include entrepreneurs as, I think he means such as, as Dan Belzerian,

Grant Cardone, Sarah Blakely, she's legit, Ed Milit, I don't know who that is, among others. Would you be interested? And I just wrote back, I would pay you to not be on the list. Obviously, Sarah Blakely's legit, but oh my God, Grant Cardone and Dan Belzarian, I mean, please. So anyway, I tweeted that. They seem to have gone semi-viral. And I guess Yahoo Finance is on to this. Yahoo Finance last year had tweeted PSA, public service announcement. Yahoo Finance does not accept payment for individuals or companies to be featured in our editorial content. Anyone asking for payment with the promise of being featured in one of our editorial pieces is not acting on our behalf or with the approval of Yahoo Finance.

So anyway, you know how it is with this Forbes fortune contributor network stuff. People can like pay their way onto these sites or run all kinds of great. grifts and scams. You know, we don't have to overthink this. I think some people are grifters and criminals, and it's that simple. Here's another example of how grifty and dishonest and challenged with the truth Watson is. Watson claimed that Sharon Osborne was an investor in Aussie media. after Osborne said she had never met him on NBC, Watson's answer is deranged.

Let's play the clip. What about this Sharon and Ozzy Osbourne? At one point, but you said that they were investors. Sharon Osborne last week on CNBC said she's never met Carlos Watson. So what's true there? So it's true that she hasn't met me. And it's true that as a result of her suing us, so she sued us over the name Ozzy Fest, which is our music and ideas festival.

she had OzFest. The agreement was that we were going to give her shares in the company. And the way I think about it, I think the way a lot of people think about it, if you own shares in a company, you're an investor. Now, she may not have liked that word. And let's be really clear, I'm not going to raise money by telling sophisticated people that Sharon Osborne's an investor. No smart investor is going to say, oh, great, you've got Sharon Osborne. So I think I said that clearly in the case is there. Okay, I'm done. I can't cover the story anymore because this person is such a deranged liar, you can

see that if we're uncovering like a half dozen of these things, there must be add a zero or two to the amount of malfeasance. Whenever you see like six or seven bad behaviors, like aren't there always like a hundred?

I just say add a zero. That's my approach to this. When a person lies six or seven times, I'm just like, at a zero. And that's what we're eventually going to find out. Sharon Osborne, sued Ozzy Fest because they ran Ozzy Fest knowing that Ozzy Osbourne has a similar festival called Ozzy Fest with two Zs. She, I guess, did a settlement with them where they gave her equity.

Then, in absolute opposition to any reality, they then said she was an investor and then tried to trade on her name and her IP a second. time. A second time. They stole her IP with Ozzy Fest. They could have called it the Aussie Media Festival. They didn't have to call it Ozzy Fest. Just call it the Aussie Media Festival. Now consumers are not going to be confused, right? And you're being respectful of another person's trademark. After they get caught with their hand in the cookie jar, they get smacked. They take their hand out of the cookie jar. Everybody moves on. And then they're like, I'm going to go get some more cookies. They get caught again.

And this guy's got the audacity then. After being caught with his hand in the cookie jar again? To say, to then blame Sharon Osborne and be like, well, I mean, I would never raise money. I mean, who's going to invest in my company because of Sharra Osborne? You just said she was an investor. And you just came up with your rationale for calling her investor. Remember I talked about this concept of securities fraud before? This is another example of securities fraud.

if somebody invested in Aussie media because they said, oh, Sharon Osborne seems pretty savvy. And she is. I mean, she's a shrewd business person. Like, seriously shrewd business person. She took Ozzy Osbourne, Black Sabbath, heavy metal. And I mean, and she created massive wealth based on managing him. And he couldn't manage his way like, you know, to lunch, I don't think. Like, Ozzy Osbourne's a madman, right?

That's the whole, that's the whole story there. I mean, that's like his best quality is that he's like insane and awesome. But she was the brains behind the operation. Everybody knows that. You just do a Google search. And then she also created the view and made that prominent. Like, this is a savvy, savvy, savvy person. Somebody might invest based on her being evolved,

just like they might invest based on Lauren Powell Jobs being involved because she's Steve Jobs' widow and she's worth billions of dollars and Emerson Collectives, interesting. I think they own the Atlantic. They've done a bunch of interesting investments. That's the whole name of the game in social proof. You collect investors high profile ones. I've been through this myself.

And people will make investments on previous investors' names. If you see a Sequoia company, you have an opportunity to invest. People in the Valley are like, if I could buy 1% of the company, if Sequoia or Bill Gurley or Chamath or Sachs are investing, that's a snap decision for a lot of people. They invest based on other people's social proof. Another example of explicit securities fraud if it's true. And it seems like he's admitting it's true.

Because he's saying, well, I consider an investor if we did a settlement and I gave her shares. If you own shares in a company, that doesn't mean you're an investor. If I'm an employee or an advisor and you gave me shares, I'm not an investor in the company. I'm a shareholder. We have another term for that. This is a highly educated person who speaks incredibly well and actually is almost too smart. Doesn't he seem too smart that he can like try to. He seems like one of those debate club kids who just can debate any issue and try to spin it into a reality distortion that makes them seem like they're the victim.

I mean, this would be as if Elizabeth Holmes tried to defend herself. Elizabeth Holmes was smart enough to shut the heck up. This person is so dumb or narcissistic and deranged that they can't shut up. They can't shut up. And he's literally giving evidence and he's sitting for a deposition for the SEC without knowing it. This is all going to be admissible, dude. This is all going into your case file. So dumb.

I don't even know where to wrap on this because it's so deranged. You have to stop. I'm getting way too heated about this. I can't deal with all the crime and fraud going on in the industry. It's making me mental. All right, interesting tweet from Edward Snowden. Imagine if Facebook's infrastructure team decided now was the moment to go on strike. It would be historic.

And somebody replied, we don't need to turn Facebook back on. Everyone on the infrastructure group could just quit and do nothing. I want to believe in that world. That's pretty interesting as a conspiracy theory. That would be the ultimate, you know, FU on the way out the door if the actual infrastructure team was like, yeah, let's just sell the domain name to Russian hackers and get out of here. So crazy. All right. We'll see you tomorrow when we have some great startup basics.

If you want to meet the producers and hang out with them, go to this week in startups.com slash slack and in the general channel you will find producer Rachel, producer Justin, and producer Nick, they're there to interact with you. Give us your show ideas. Tell us what you want more about. Post your comments on the YouTube channel, YouTube.com slash this weekend and give us feedback. Let's have intelligent discussions in the Slack and on the YouTube channel. And congratulations to today's winner.

of the Peking Duck from my favorite Peking Duck in New York, Decoy, which is part of Red Farm in the West Village. I'm going to send you one of our Nody Gang members, that Peking Duck directly from Dequy using Go Belly, which is not a sponsor of this podcast, but maybe someday they will be. All right, we'll see you tomorrow.