148 - This is How Crypto Fixes the Internet | Antonio García Martínez

foreign welcome to bankless where we explore the frontier of Internet money and internet Finance this is how to get started how to get better how to front run the opportunity this is Ryan Sean Adams I'm here with David Hoffman and we're here to help you become more bankless Antonio Garcia Martinez is on the podcast and this guy has been around the block Facebook Twitter Apple he's seen it all he knows the internet we talk about his journey why the internet's boring and

why it's broken and how to fix it a few things to look for in today's episode number one he actually defines what an internet ad is it was surprisingly useful to me a unit of your attention sold at the highest bidder we get into that definition what it means he also says for the good and the bad advertisers were the ones who paid for the internet we talk about the flaws and also the benefits we also talk about why Antonio thinks nft drops are actually ads lastly we talk about attribution and how attribution on web3 can help us win

again big Silicon Valley and the big Banks David uh Antonio's just a lot of fun to talk to he's kind of a a straight shooter tells it like it is uh yeah what were your takes going into this episode yeah Antonio I think he's going to be able to tell the story of the complete trajectory hopefully of uh the ad-based models of web 2 as it goes into web 3 and of course how hopefully again web3 doesn't just take the same same uh ad models of web 2 but it gives it its own

native spin right like how the ad based model of web 2 is going to change yet still achieve some of the same goals that ads do in web3 and I think rather than just like poo pooing on ads in general Antonio and in this podcast really gives a pretty uh clear uh and clear and sober idea of what an ad is why ads are actually good the take that ads actually paved the way for the internet to be adopted I thought was a pretty good one uh and and then also then later it comes to become extractive and bad and evil and and then he of

course is uh starting this company called spindle which he thinks can help create the ad model of web3 that is hopefully a way that's non-extractive that is enabling of users um but his uh his history is insane Ryan as you know uh worked on Facebook before the Facebook ad exchange uh was in existence helped build the Facebook ad exchange and so he saw the before and after of what we now know of modern Facebook uh he also started an ad company sold it to Twitter he's been around Silicon Valley uh and so I think

uh in the future as this web 3 world gets built out Antonio himself will have seen the complete like trajectory of ads on the internet and I think this is really just going to be the lesson that bankless listeners take away today is the ad model is going to still exist in web3 and it's going to be different and hopefully better if we do it right one one thing we also talk about is privacy if you're curious about that and back and forth on that um he has some interesting opinions on that so uh look out for that and by the way David when

you were talking about that I noticed it's about four or five times you said the word hopefully I want to talk about you more about that word hopefully but we'll save that for the debrief the debrief of course is the episode that David and I record right after the episode so literally what we're about to go do where we give you our raw and unfiltered thoughts it's available for for all premium subscribers if you want to upgrade get the premium RSS feed you can do so there's a link in the show notes as always to do that now we're going to get right to our episode with Antonio but before we do we want to tell

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list Nation we are super excited to introduce you to Antonio Garcia Martinez he is a tech entrepreneur he was early at Facebook also at Twitter he knows social media he knows its flaws he knows the effect of social media on society and the major effect it's had on his life he's going to tell us what it's been like to be in the belly of the Beast what he's learned and why he is in crypto as a result Antonio welcome bankless it's great to have you thanks Ryan thanks David uh how are you doing man you just came back from Miami I

think little trip out there um I'm a little tanned yeah yeah I hope you enjoyed yourselves because uh you know you've had um an exciting life I would say as we look through this bio and David why don't you just tee up Antonio's bio for uh bankless listeners who haven't run across uh who Antonio is yeah and uh Antonio I think you're going to fit in very well in this podcast because of you are very extremely multi-disciplinary so uh started at Goldman Sachs pre-2008 uh moved into a y combinator startup ad

grok which you sold to Twitter in 2011. uh then you started working at Facebook in that same year uh director of Facebook's ad exchange which is a point in this podcast that we are going to dive into definitely uh left Facebook in 2013 to write a book uh you wrote this book called chaos monkeys obscene fortune and random failure in Silicon Valley talking about a lot of your experiences uh and then you also uh had a brief stint at Apple in 2021 and you're now at spindle which is a web 3

attestation platform which I believe takes a lot of your the lessons that you've learned in in Silicon Valley working on the Facebook ad exchange but now now that we have this new blockchain platform uh taking a web 3 stance towards some of the lessons that you've learned uh in Silicon Valley Antonio how do you like that for a description of uh all the places that you've been in the world uh you included all the good stuff and excluded all the bad stuff um which is great or you did include some good stuff too there's there are some weird detours in there including living in an off-grid yurt and uh you

know moving to Europe and a few other things but uh yeah you mostly you got the trajectory right yes thanks so Antonio uh it's it's a hard question to ask because you've been to so many places I this this podcast I think we're going to talk a lot about Facebook and the Facebook ad exchange because I think that is uh your time at Facebook straddled that uh so you were at Facebook pre-add exchange and post ad exchange and so we want to talk about how did that era of Facebook which you had involvement in change the direction of the company and but also change the direction of the internet and the you

know this place that we go to the Internet how did that change wow and then and then we also want to pick your brain about out perhaps what you see as a trajectory learning what you've learned at Facebook and Twitter and just being Silicon Valley uh how that's going to go forward if with blockchain and how the whole blockchain uh role uh changes the game of the internet does that sound good yeah definitely did thanks for pumping me up I I should mention it was a group effort at Facebook but it's true that I was there at the formative time where the four the five or six products that made Facebook were shipped so that was a fascinating thing to see but yeah so let's start this story at adbrock can

you talk about the inspiration for agrock and where that came from and what agrock did yeah it's funny I mean this is like total Deja Vu so I'm right now in in San Francisco across from South Park address office was like two blocks that way right and I remember living like the web 2 boom which like this used to be the pulsing heart of like consumer internet web 2 10 years ago now it's pretty empty um there's a reason why I couldn't afford this office um but yeah adbrock was basically so one step in there I went from Goldman which is basically pricing and trading credit derivatives that whole blow up in 2008. I joined an ad tech company that was my

first exposure to ad tech company run by sociopath it wasn't amazing they had they had very good recruiting so I met two co-founders and like literally the last day of the deadline we applied to YC back when YC was still kind of somewhat somewhat of a niche thing um in the sense that um you know it was only 35 companies Paul still ran the show Etc and we managed to get in we oddly managed to get in with basically no product um and the idea there one of the great unsolved problems at the time and again this is ancient history but it sounds like you want to stroll down memory lane so let's do it

um you know Google AdWords right the little ads that you see on the right like when you in case you don't know and there's a whole Riff on this in chaos monkeys like if you enter a query that unleashes a whole wave of computation to match a set of ads that targeted that query right and those queries literally have prices to them so for a while for a while there's there's this form of lung cancer called mesothelioma that asbestos workers got after the 40s that I think now you can no longer bid on it because it's a little bit squeezy but back in the day you clicked on anything with mesothelioma somebody paid 100 bucks for

that click right and yeah yeah and well like some kind of a an attorney or something yeah yeah yeah this is personal injury attorneys who are in class action suits against whoever or had the asbestos my ambulance Chaser type you know exactly exactly exactly um but the cool thing is that you've got like a piece of human thought and attention which is oh do I have mesothelioma that gets auctioned and sold off like a can of tomatoes or like a a share of Google right in an open market and then it all happens billions of times a day right so the Google thing

was one of the first examples of her going at internet history and this is way before my time in the ad Tech space wait wait that's an interesting model like a piece of human attention yeah it's auctioned and sold off to the highest bidder that is wild I've never thought about it in those terms but that's exactly what it is a Quantum of human attention is being sold and that that's it's not just on search every literally every every app you open every time you load Facebook ever like in the case of of programmatic exchanges literally requests go out and say Obviously pseudonymously but this human is here what do you know about them all

these databases spit into gear machine learning models all the rest of it they return with a bid and a piece of AD creative somebody wins the auction and boom and then it happens billions and billions times a day and the winner doesn't actually care necessarily about the well-being of the human who's behind the attention that it's receiving it just cares about the ROI and so am I going to make more money on this human's attention than it cost me to purchase it yes I mean this is not a Utopia The Advertiser is not trying to improve your

mental health um but the reason why advertising exists right advertising is a weird thing right it's not like I make a thing and then sell it it's like this weird triangle trade right advertising exists when some other party is willing to pay more money to the provider of the service then I'm willing to pay for the service right if that inequality holds someone's willing to pay to reach me through that service more than I'm willing to pay for the service then some form of advertising must exist which is why I think it will end up existing in web 3 as well but this is why like you know the sort of cynical statement that ad tech people

say after the fifth drink at the conference is well you know we pay for the internet which is true they paid for much of web 2 which doesn't mean it's not to say that it has to be that way going forward I think web3 is going to have way more interesting monetization models but if you if you if you expand the definition of ads widely enough you're already seeing it happen in web3 an nft drop is an ad basically right it's a piece of targeted media that's where having user action we're skipping ahead I don't want to get too off the topic David well I I love the the deconstruction that you just did and I want to just emphasize that a little bit advertising happens when somebody it's

more economically viable for somebody to access the attention of the user than the user is willing to pay for the service that they are entering that's that's pretty cool uh that is an I love that definition I feel like that's pretty close to the medal of what a definition for advertising is um uh and then and then the other the other calculator the other thing that you said is that that um advertisers paid for the internet can you just unpack that a little bit elaborate on that just Riff on that for a little bit I mean so let's think about

it I mean I'm not even a Facebook user anymore but how much how much money does Facebook make off the average user that metrics what's known as arpu average revenue per user it doesn't get used in web 3 at all it should it should get used more part of spindle's point is helping you calculate that thing but basically what it means is how how much money am I making off that user um over some set period of time that our poo for Facebook I haven't looked at the numbers recently but it's north of 100 bucks right like ask yourselves this would you pay 100 bucks for Instagram or would you pay 100 bucks for WhatsApp you probably extract more than 100 of value but would you necessarily pay for it eh

probably not like like per year internet yeah yeah per year yeah exactly I mean we probably would because we're in media like I paid more than 100 bucks like if anything the Eight dollar blue check from Elon is like cheap compared to its actual value right but for for the average user for the three plus billion people that use Facebook it's a lot of money right they're not going to pay it and and note also that a network obviously has Network effects right Facebook is worth something because there's three billion people on it right if it had half as many people it's not worth half as much it's worth a quarter as much right this is known as metcal's

law that the value of a network was roughly as the square of the number of people in it I mean it's a rule of thumb it's not exact obviously but in in a state where you have Network effects and you have a mass consumer product advertising almost has to play a role because the what you'd lose in growth if you actually put up a paywall in front of Facebook um would be extraordinarily expensive if every marginal user is is actually you know exponentially important that's interesting because it's it's a double-edged sword advertisers paid for the internet is interesting because for for the good and the bad right but a

tremendous amount of good has been created yeah and and now not just a first order of like oh look we have Instagram we wouldn't have otherwise there's also second order effects like look at it's funny that um I did some pieces back in the early days of wired I'm not the only one to observe it um this period this like 80 to 90 year period of like somewhat objective both sides journalism where there's fact check talking like I mean now I think things are getting more partisan but at least in theory unlike much of Europe or other parts of the world a newspaper kind of tries to get it right and show both sides in the United States why was that I mean it was partially for

ideological reasons right but if you go back and read The Works of uh Walter Lipman he was an early intellectual that founded the first adjournalism schools he wrote a book called public opinion it was partially ideological because the Press had gotten World War One very wrong right but it was partially also a commercial decision Macy's basically needed the most reach possible to run its ads right and so the New York Times of the world New York Times actually started as an as a as a publication that was not overtly partisan right a newspaper in the 19th century was like the Press Democrat it was literally the Democratic paper like the Democratic party's paper in that town and if you

remember that party you subscribed to that paper and if you're part of the GOP you you read something else altogether right and that's just the way journalism worked until about the beginning of the 20th century and so journalism gave us this sort of golden period of relatively somewhat objective and nonpartisan media and so if you switch to a subscription model which everything is going to by the way whether it be safe stack or the New York Times now makes an enormous amount of money from its digital subscriptions right well at the end of the day the customer gets what it wants and the customer used to want non-partisan agreeable media and now the customer wants its own views reflected

back at them because the customer is the reader and again like that's not necessarily an unalloyed good that suddenly readers are getting what they want all the time right um so there's like a second order effect here as well which is advertising supported media has to be within certain rules because at some point advertisers will bail right if the media is too extreme they're just going to walk away right um so yeah the the to lean into the whole advertisers paid for the internet I I want to unpack keep on going down that that rabbit hole because that's fascinating uh and and I want to just like illustrate this I think in this way

where like imagine all of the the apps that we use on the internet that got us on the internet like it was Facebook for me back when I was in like Middle School uh perhaps also read it uh imagine if we had to pay as a user to access all of those things how much less would the internet be adopted if that was the case like orders of magnitude like the internet would like the advertising model probably was a lubricant for the adoption of the internet I think that's what you really mean when you say yeah advertisers paid for the growth of the

internet one of the one a theme in previous Bank was podcast Antonio that we talked about with um uh Mark Andreessen and Chris Dixon and a few others is that the fact that native payments in the internet wasn't uh a thing until crypto uh was one of the main reasons why the current business models of the internet is what it is we're advertising is the only way to do it because that's how it paid for but I I think with what you're saying that actually kind of argues against that where uh no like just if we had native

money in the internet even before the advertising model we probably still would have had the advertising model because because of the free lubricant that is the onboarding of everyone because everyone's free I feel like that's a fair take yeah yeah I mean I I agree with Chris Dixon and Mark about like 99 of reality so I don't want to like overtly contradict them but I do think and I do think the fact that there's like magic internet money that's programmable money and that web3 can Financial can financialize itself is very interesting and unique that said I don't totally buy the story that now because we we have native internet money

so there's subscription models that are available that weren't before I have been hearing about micropayments solving the publisher problem for like 15 years right we've had micro payments before we've had startups that do this before it's not about even though obviously stuff on chain is better than some of the Fiat stuff it's it's really it's the emotional decision cost of like do I want to pay 25 cents for this article all the time people just don't think about it that way it's like it's like a mental toll even if you made it like a one-click thing humans just don't think about media that way and I that that said I do think the blockchain makes other business models viable that weren't viable before but I don't think

just making subscriptions easier is kind of good enough to change the dominant business model the internet no sure so Antonio that's a little bit about ad grok and I I want to bring kind of the the next place that you visited in your in your journey which is uh Facebook into the story because for all of the good and I think for the first like uh I don't know the birth of of web one and web 2 um all of this advertisers paying for the internet thing we only saw the upside right we only saw the benefit it we only saw more and more people getting

connected and I remember back in the day when Facebook was like a Beacon of Hope it's the social graph it's how we bring world peace and connect everyone together it's not like you worked at Facebook okay but like I heard it and like I believed a portion of it I remember kind of my first time logging into Facebook and it was just a magical experience because everyone is here like isn't this amazing this is what the internet can do that wasn't even that wasn't possible in web web one so that's all of the good but um as we said it's also a double-edged sword so advertisers

paid for the internet but also advertisers paid for the internet right like there's another there's a problem with that and we started to see I think the the negative effects of that over maybe the last 10 years but but tell us about how your experience with with Facebook fed into that story kind of what you saw and maybe some of the the negative side of this attention-based economy that we created on the internet yeah yeah I mean yeah so that we should distinguish those different types of advertising right the rise of what I think broadly you'd call

programmatic advertising was something that changed the course of human history I think I can I can get out and it's and it's a bigger story than just Facebook I mean it had impacted Facebook because I was one of the people that helped bring it to Facebook but it's a bigger story what do I mean by that so again let's let's go back into the midst of time a lot of internet monetization or the ad system was was very skeuomorphic to use acrystics in term of what the newspaper business was like you know if you look at you know display ad on the right hand side of an online publication it looks like a newspaper ad that that's intentional because that's what it was modeling in fact literally the first

display ad was in a in a what was then called hotwired now called Wired Magazine and it was built out as if it was a print ad because they had no other model that and you still have terminologies like insertion order that comes from the printage because they would insert an ad into the the print of a thing that's still refer the i o is still how you buy an ad um in any case so that was the ad World in which you had the New York Times or wired with the sales force go to an Advertiser and say hey we don't have much tracking or attribution like we don't know how well the ads going to perform but we're just going to charge you for the medium by the way we own the audience right if you want to address techies in the mid-auts right you

basically have to buy an ad and wired.com there's nowhere else to actually Target those users so what did programmatic advertising do and this is where I wish I could take the camera to our whiteboard wall because I would walk you through schematics but basically how it worked is rather than wired or New York Times saying here we have a captive audience like pay up right pay us 30 per thousand ads which is kind of a lot of money um you had somebody like Facebook or somebody like the Google display Market you know uh you know ad exchange saying you know what how about we actually track individual users when they come to

your website right so if if you're an e-commerce guy a user is going to come to you you're going to cookie the user you're going to fire a bunch of pixels to a bunch of other sites and then you can actually Target that user in all sorts of different places right if you're if you've got a techie user that comes to your blog or comes to your Gadget store I can Target them anywhere I don't have to pay 30 per thousand ads at wired I can Target them anywhere throughout the internet right and so what you've done is you've unbundled the audience from the publisher and the publisher here is just the person who produces the media whether it's wired.com Facebook wherever they're all Publishers in the ad Tech

sort of imagining of this right decoupling the audience from and breaking it out of the publisher is what basically wrecked the mainstream media right that's why New York Times has managed to transition to subscriptions but local news is basically dead because all they would do is sell ads against what was a captive audience which was the local market but again if that audience has been decoupled like you the publisher no longer owned this actually the ad exchange and ultimately the first party data The Advertiser has owns it then that just changes the whole Dynamics never mind that Facebook is actually upstreamed to use a Larry David

term the actual media right because a lot of the inbound that went to a New York Times or whatever else actually came from Facebook so you could run the ad Au rip out the audience like the New York Times audience is no longer magical I can find them on Facebook too and by the way they're actually they spend more time on face with the new on the New York Times right that was the death blow of like conventional ad Service Media um and so that that programmatic ads technology changed everything right really and that is fascinating and like I think I think a lot of people would say wrecked it in a good way because now now it now it allows it maybe that's another double-edged sword but now it

allows anybody body to kind of create a platform and it disrupts the gatekeeping media that sort of were The Gatekeepers of of Truth and The Gatekeepers on what you see and what you hear and all of these things and it opens this out it it democratizes the internet this is very much the web 2 Vision still and still feels like it's a good thing I mean I think so I agree with you but depends how you feel about the New York Times there's there are some who still yearn for the days of of your in which

you had a human editor deciding what Americans read every day not everyone looks uh well upon the you know the algorithm as if that's a problem or whatever I I it depends how you look at it um but yeah I mean the problem I think with the Facebook model right is that is again what Chris Dixon calls the take rate the problem with Facebook like yes you've democratized things you can run a Facebook page that would have a level of reach that it wouldn't before but Facebook sits there and takes all the cash off the table right Facebook kind of does sit there and intermediate the ad spend in a huge way and you know if

web3 has any promise it's pushing the value to the edges to the users to the brands to the creators it's not having some like vampire squid sitting in the middle of it right hoovering up 70 cents of every dollar that goes through the system which is more or less how it works now so that that that's the yeah that's a bigger downside I would say so Facebook as as the intermediary between uh users and advertisers there I would assume that when we talk about their take rate uh that they are approaching as much they're trying to capture as much value as possible because they're a business that's what they do uh and so basically they're eking out all the

value that advertisers are getting from reaching Their audience they're paying there's some like profitability there but then Facebook is probably collapsing that profitability up to approach like zero percent of like a value to advertisers because is that is that a fair take or is that not right well let's get a little technical you're not talking attack until you have a bunch of three letter acronyms in the mix so let's include some three letter acronyms which might be educational um so there's some key Concepts when it comes to advertising and they're not even that complicated but things like customer acquisition costs right so CAC or like lifetime value LTV and CAC is

like what does it cost me to get that user to come in the door and become a paid user it can be it could be an ad or it could be by the way running a Discord Community like Zynga back in the battle days of Farmville used to run communities as well right that's a form of marketing you don't pay for it as paid media but it's it costs you something because you have a community manager so how much does it cost you to bring a user door and then you know to be blunt how well can you monetize them going forward what is their LT because somebody they're going to churn out so how much money do they spend over what time period right so if you're a business and you're advertising trying to have growth your LTV has to be higher than your CAC right if that is if that

ratio is above one you're happy if it's below it isn't um and that that like looking at it from very mercenary point of view every company is a marketing company that has a side hustle which is how they drive usage on the funnel but for example Uber was profitable I think for the first quarter this year their LTV was not better than their CAC for 15 years right that number was less than one and that and that that's what basically you know and of course they had to tie that over with speculative Capital don't even ask me what that ratio looks like in web 3 right there but of course if money is free cracks are zero who cares right I can just invent this this token and give

it to users to use my product of course I think those days are over um and I think people have to start looking very seriously at what their caps are um but it's not quite true that Facebook can just squeeze the market right because if if if my acquisition costs get too high I have to either pass the savings on to the user right but maybe there's an open market in which I don't have pricing power and then Facebook gets screwed I just stopped spending money on Facebook Facebook has competition by the way I can also spend on Google Now I can spend on Apple there's the open web right Facebook isn't the only game in town anymore and so they can't quite do it arbitrarily right you said um every company is a

marketing company that has a side gig yeah I love how meta that is basically what you're saying is like uh Uber's Uber's side gig is moving people around uh you know Apple side gig is making iPhones why is why is an advertising uh why is every company an advertising company can you unpack that a little bit because if because if you sit there and talk to their marketing teams that's how that's how they view the world right what's called the marketing funnel right like oh the user comes in here season ad sees a tweet installs the app goes into the app spends money and then churns out that's like that's what's that's the

central metaphor of marketing right that is what determines the success or failure of your business and if you talk to the marketing teams like I used to talk to the gaming marketing teams at face stuff back in the day they've tried out the PM they talked to the at the quarterly Business Review they knew their customer acquisition costs out to four decimals right like Zynga back in the day it all it was was a quantitative exercise in funnel Dynamics and then it would just have Studios pumping out games for the sake of running and and to be honest every web 2 game basically followed that model and and and web 3 games if they're going to be successful we'll need growth teams whose mentality

is that right yeah that's absolutely fascinating uh Antonio can you um take the listeners and me and Ryan into your shoes during your time at Facebook Okay ad exchange during ad exchange post ad exchange like what was the culture of Facebook like did they underst did Facebook as a company understand the trajectory of where they were going when they were making yeah can you just like tell that story a little bit yeah sure um yeah it's from what I understand I still have friends there it's it's a very different company than it is now um I joined I guess it was Employee 2000

or so um and then in terms of actual engineer it's probably eight or nine hundred they only had 25 product managers for the entire company we would fill like a small conference room I was a product manager officially and I was the first product manager on the on the ads targeting product they never had like a formal roadmap the engineers would just ship whatever random thing ads was kind of a ghetto like you know zuckin is S1 which is the IPO document said you know we don't build services to make money we make money to build services and that was kind of true ads has never really been a Focus right it was this necessary evil we were in like a crappy part of the building our desks were shitty the

carpets were stained we were not in the nice part of the building or any of that stuff and the ad system to be blunt didn't work I remember the first thing I did is I logged into the main dashboard that only we could see because it was pre-ipo and you know the cpms were like 17 cents CPM again another acronym cost per Mill it's cost per thousand Impressions especially the cost per square foot of media inventory it's how every publisher thinks of itself like every time I have a thousand experiences how much money do I make right that's that's that is like the basic number that every publisher needs to know if they don't know it they need to get an

attribution system and figure it out because they're not they're not you know playing you know a real monetization game so I you know logged in at 17 cents and it's just like my boss has like come up with a targeting roadmap we've never had one best of luck and um you know we tried basically using there's so many things kind of wrong with the way I think the public receives Facebook so I might attack them one after another in a very MythBusters fashion one is that like your Facebook data is so valuable it is in in some very high level and second order ways but in the very simplistic way of oh they're going to Target the thing I did on Facebook no it