PER UN MONDO SENZA GUERRE: EN — LARRY ROMANOFF: Debunking Elon Musk – Part 9

Debunking Elon Musk – Part 9

Zip2, x.com, PayPal

Elon Musk in 2003. Source

Zip2

This was Elon Musk’s first venture, a searchable business directory, essentially an Internet version of the yellow pages telephone directory with maps included. [1] The company was formed in 1995 with three founders: Elon Musk, Kimball Musk, and Gregory Kouri who provided $6,000 in funding – more than Elon Musk. The record says that most of their startup costs were covered by their father, Errol Musk, who gave them $28,000 to get started. In early 1996, an institutional investor put $3 million in Zip2 in exchange for majority ownership, and Elon Musk was replaced as CEO by an experienced businessman, Richard Sorkin. The company flourished under Sorkin by selling the software as a platform for major news media to develop their own city guides, including a landmark deal with the New York Times. In 1999 Compaq Computer Corp. purchased Zip2 for $307 million, earning Musk about $20 million for his 7% share of the company. [2] The record is silent on the shareholdings of the other two original founders.

Several items are worthy of note. Elon Musk was not the sole founder of the company, was only a minority shareholder at the end, and made no friends during the process. From his earliest days, Elon Musk always (a) wanted things done only his way, and (b) grossly overestimated his own knowledge and ability. As one example, it is a matter of record that Musk’s “programming” of the database was flawed to say the least, and that professional programmers had to be hired to rewrite the code. But true to form, Musk spent late nights reprogramming the professional database code with his original – without ever notifying anyone. When Zip2 became hugely profitable under Sorkin, Musk disagreed with the direction and in 1998 launched a palace revolt that replaced Sorkin with Derek Proudian. That was no benefit to him since the company was sold soon afterward. The success didn’t last. By 2000, the Zip2 brand began a quick descent into obscurity, and was shut down in 2005.

x.com and PayPal

Fortune’s 2007 story coined “PayPal Mafia” and included this picture of the alums who went on to start new ventures and VC firms in Silicon Valley. Source

Elon Musk did not found PayPal, and he was not the sole founder of x.com. In 1998, Max Levchin, Peter Thiel, Luke Nosek, and Ken Howery (among others) founded a company named Confinity, and under this flag developed the online payment system we now know as PayPal.

Elon Musk and Greg Kouri founded X.com in 1999.

A year later, in 1999, with the proceeds from the sale of Zip2, Elon Musk and Greg Kouri founded X.com, which was a kind of online banking business that had nothing to do with PayPal. Musk saw the potential for a digital payment platform, and converted x.com into a service directly competing with Confinity. All the evidence confirms that the Internet funds transfer idea originated much earlier with persons other than Elon Musk. Certainly, others, including Confinity, were in the field before him. I suspect he simply recognised the good idea of Levchin and Thiel, and copied it, albeit with some improvements. And even at that young age, Musk was already displaying his delusionary mental handicap that would plague him for life, stating that his ambition for his little x.com was “to process one trillion transactions.” This was in the year 2000, when no one yet knew what a trillion was.

The two companies (Confinity and X.com) were competing with each other for subscribers, draining each other’s limited funds, doing each other (and themselves) more harm than good, so in March 2000 they decided to merge and combine resources. The new combined company was initially named x.com, with Elon Musk initially its largest shareholder. The company (as PayPal) went public in February 2002, with about 75% of the company controlled by institutional shareholders that included The Vanguard Group, BlackRock, State Street, Comprehensive Financial Management LLC, and Morgan Stanley, and also eBay. Levchin, Thiel, Musk and others collectively owned the remaining 25%, with Musk’s share about 10%. In October 2002, PayPal was “sold” (i.e. transferred) to eBay in a share swap that ‘valued’ PayPal at $1.5 billion. [3] That would have meant Musk’s share was about $150 million, but it wasn’t quite as simple as that, because there was no cash involved and the proceeds could be realised only by dumping eBay shares. [4]

Bill Harris. Source

But there is a bit more to this story, parts that didn’t find their way onto the evening news or into the NYT. Bill Harris, the man who was the CEO of Musk’s firm, X.com, was the person who deftly navigated the complex landscape and negotiated the merger between the two firms. Harris was the CEO of the new company but, true to his sociopathic roots, one of Musk’s first actions after the merger was to force Bill Harris out of the company and take on the CEO post for himself. [5] Removing potential challengers like Bill Harris is a pattern that has existed in Elon Musk’s background from the earliest days, beginning with his Zip2 and continuing to the present.

There were many problems. One of the first, as with his Zip2, Musk insisted on engineers rewriting the codebase his way, again grossly overestimating his own knowledge and ability, and apparently oblivious to the excessive cost. Also, Musk was determined to brand the digital payment system as “X”, [6] [7] which horrified everyone, the Board and executives unanimously adamant that their payment system would be denigrated as a porn platform. But Elon Musk was equally adamant. He fired Harris for refusing to support his X rebranding and – contravening decisions by the Board – instructed the staff to begin re-branding PayPal as “X”, then as “X-PayPal”. Musk was so determined to have everything according to his wishes that he caused “escalating clashes of personality with eBay’s management”, increasing disputes over his “excessive spending which had spiraled into the millions of dollars”, and “behavior regarded as erratic and hostile”. One very serious conflict was that Musk wanted to expand the company’s payment system into what were described as “potentially lucrative markets with shoddy regulations” (use your imagination), a move killed by Max Levchin and Peter Thiel. In the end, it seemed that Elon Musk’s version of PayPal conflicted in almost every way with that of the sane people.

Elon Musk has had a 25-year obsession with the letter “X”. When he began trying to create an online payment system (which was later merged into Confinity and became PayPal), he named the company x.com and attempted to rebrand PayPal as “X”. This created so much opposition that Musk was fired from Confinity, kicked out of the company. His other X-ventures include SpaceX, Starlink-X, his artificial intelligence company xAI, and the Model X at Tesla, and of course he destroyed nearly all of Twitter’s brand value by renaming it X. [8] He even named one of his children “X Æ A-Xii”. There is nothing in any of this to suggest either genius or sanity.

Musk was fired as CEO and ousted from the company in September 2000 and replaced by Thiel. The Washington Post wrote that the Board blamed Musk’s “lack of a cohesive business model” and “technological issues” too great to overcome. The fact was that Musk’s vision diverged so starkly from that of everyone else, and yet he so obsessively, aggressively (and obnoxiously), pushed that vision, that he became an outcast. A strong supplementary cause was the “technological issues” that Musk was causing but had no idea how to resolve. He was clearly out of his depth, and was removed.

Fortune magazine wrote that this was “one of the nastiest coups in Silicon Valley’s long, illustrious history of nasty coups”, [9] but that was never true. The company had very good reasons for ridding themselves of Elon Musk. Had he been permitted to have his way, the technology would have been flawed, the service might never have worked properly, the sale to eBay would never have been consummated, and the company might have become worthless. And in fact, insiders claimed that it was only due to the board’s decision to rid themselves of Musk, that eBay – a major stockholder at the time – eventually bought it out. Thus, contrary to the common narrative promulgated by seemingly everyone, Elon Musk was neither a founder nor a co-founder of PayPal.

This is essentially the same story as occurred with his Zip2 enterprise: if Musk had prevailed in his efforts, the technology would have been flawed, the service might never have worked properly, the sales to the news agencies (and the large revenue stream) would never have materialised, the sale to Compaq would never have been consummated, and the company might have become worthless. And Elon Musk would never have received the $20 million that got him insinuated into PayPal. With both Zip2 and PayPal, Elon Musk was rescued from his own stupidity by wiser men who had more control. Unfortunately, this would not always be the case, as you will see.

Next Essay: Hyperloop and The Boring Company

Mr. Romanoff’s writing has been translated into 34 languages and his articles posted on more than 150 foreign-language news and politics websites in more than 30 countries, as well as more than 100 English language platforms. Larry Romanoff is a retired management consultant and businessman. He has held senior executive positions in international consulting firms, and owned an international import-export business. He has been a visiting professor at Shanghai’s Fudan University, presenting case studies in international affairs to senior EMBA classes. Mr. Romanoff lives in Shanghai and is currently writing a series of ten books generally related to China and the West. He is one of the contributing authors to Cynthia McKinney’s new anthology ‘When China Sneezes’. (Chap. 2 — Dealing with Demons).

His full archive can be seen at

https://www.bluemoonofshanghai.com/ + https://www.moonofshanghai.com/

He can be contacted at: 2186604556@qq.com

NOTES

[1] Zip2

https://www.britannica.com/money/Zip2

[2] The Story of Elon Musk’s First Company

https://www.sitebuilderreport.com/origin-stories/elon-musk

[3] PayPal

https://www.britannica.com/money/PayPal

[4] eBay buys PayPal for $1.5B

https://money.cnn.com/2002/07/08/news/deals/ebay_paypal/index.htm

[5] Elon Musk’s 25-year obsession with ‘X’ explains what he did to Twitter

https://mashable.com/article/musk-x-twitter-paypal

[6] 25-year obsession with the letter “X”.

https://mashable.com/article/musk-x-twitter-paypal

[7] The last time Elon Musk tried to make his ‘X’ company happen it failed miserably

https://fortune.com/2023/07/26/elon-musk-second-try-twitter-x-dot-com-paypal/?showAdminBar=true

[8] Elon Musk’s 25-year obsession with ‘X’ explains what he did to Twitter

https://mashable.com/article/musk-x-twitter-paypal

[9] The last time Elon Musk tried to make his ‘X’ company happen it failed miserably

https://fortune.com/2023/07/26/elon-musk-second-try-twitter-x-dot-com-paypal/?showAdminBar=true

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