The Intellectual Force behind Web 2.0

Peter Thiel, an undergraduate philosophy major at Stanford, founded The Stanford Review newspaper in 1987. Five years later, Thiel graduated from Stanford Law School. In another 10 years he would become the CEO of one of the most successful money transfer websites in the world.

Thiel, along with Max Levchin, Ken Howery, and Luke Nosek, founded PayPal, the e-commerce money transfer company that eventually became eBay’s main e-commerce platform. During its short existence as an independent company, PayPal attracted many Stanford Review alumni who served in high-level positions at the new startup.

But shortly after going public, Thiel and his co-founders sold PayPal to eBay for $1.6 billion. While the original PayPal leadership team split up, their entrepreneurial and intellectual spirit lived on and served as the genesis of the Web 2.0 revolution.

Today, the group is known as the “PayPal Mafia.” Silicon Valley mainstays like YouTube, Geni.com, LinkedIn, Yelp, and even Facebook can all trace parts of their lineage back to this group. The group’s success comes largely from its innovative approach to business, an approach already apparent in the early days of the Stanford Review.

The Review Days

PayPal mafia member and former Stanford Review editor-in-chief Aman Verjee recounted the intellectual atmosphere of the early Review. After arriving at Stanford, Thiel found a “culturally liberal ethos that he just didn’t like and didn’t think was correct,” Verjee said.

The Review’s content of the first few years contained “more of a conservative zeal,” according to Verjee. Today, Thiel is called a “contrarian” in the way he invests money and runs his businesses, and Verjee thinks that same label was evident in the late 80s as well.

Both Thiel and David Sacks, COO of PayPal and editor-in-chief of the Stanford Review, describe their intellectual philosophies in college as “libertarian.”

“[Thiel] characterized the Review as an alternative voice newspaper and so that was, I think, the reason for being contrarian,” Verjee stated. But he also noted the nuances of political thought existent in the Review’s early members, saying, “In general all of those guys, especially Peter, and David Sacks, were more on the libertarian side, and so was I.”

During the 1990s, Sacks, Thiel, and Verjee tried to push the university curriculum to the fore of campus discussion. Verjee, editor-in-chief in late 1994 and early 1995, said he focused on “the rigor with which people were being held accountable to academic standards. There has been…a relaxation of academic standards at Stanford from probably the mid to late 80s into the early 2000s.”

But Verjee does not believe the Review’s efforts to highlight a lack of rigor in the curriculum had much impact. Perhaps more successful was the other curriculum focus that the Review advocated for during this time.

Sacks and Thiel specifically focused on the content of the curriculum. Thiel founded the Review in a time when multiculturalism was nearly the only focus of the undergraduate core curriculum, something of which both Thiel and Sacks disapproved. Thiel commented, “We thought it was important to give the other side of the debate a fair hearing.”

In 1995, they attempted to do so by jointly writing a book called The Diversity Myth: “Multiculturalism” and the Politics of Intolerance at Stanford. They write of multiculturalism in the introduction: “multiculturalism caused Stanford to resemble less a great university than a Third World Country, with corrupt ideologues and unhappy underlings.”

For Sacks the multiculturalism debate was part of a bigger issue involving excessive political correctness.

Allegations of über-political correctness entered the legal realm in the mid-90s when the libertarian Verjee joined Robert Corry in suing Stanford University over restrictions on student’s free speech. The legal action stemmed from issues surrounding a speech code that restricted students from insulting each other based on just six different classes.

When Keith Rabois, future executive vice president of Business Development and Policy at PayPal, used an insult that fell under one of the protected classes, he came under threat of university disciplinary actions. While Verjee emphasized that he “didn’t necessarily agree with Keith or his approach or how he pushed the edges of this,” he believed that “in a market place of free ideas you can’t put restrictions on how people express themselves.”

In the county court complaint the plaintiffs argued that the speech code restricted speech that is normally protected by the first amendment and by California educational codes. Verjee, Corry, and the other plaintiffs eventually won the case.

When asked if he thinks the Review found success in pointing out instances of excessive political correctness, Sacks responded, “I think so because we pointed out so many excesses, that I think the university was forced to moderate a little bit… I certainly think it made the outside world much more aware of what was happening at Stanford.”

The Review Goes to PayPal

While not all of the early PayPal team came from the Review, a significant number did. Verjee, Sacks, and early member Joe Lonsdale each have their own slightly nuanced view of PayPal’s success.

Verjee traces the contrarian intellectual thought that existed in the Review into the offices of PayPal.  After graduating from Stanford, Verjee worked for a few years at Lehman brothers before receiving his MBA/JD from Harvard University. In 2001, he joined PayPal, right before it went public.

“There was this willingness to challenge the way things were done, to challenge the prevailing wisdom,” Verjee described. “We could have taken an attitude that we would obey all of the laws, as written, and be very conservative, in our interpretation of the laws, and if we had done that…we would have missed out on lots of opportunities.”

By contrasting the hiring strategies of PayPal and other large firms, Verjee pointed to a major difference in philosophy. Many of the employees at PayPal were people who Peter Thiel already knew. They may not have been industry veterans, but Thiel knew their work ethics and had their loyalty.

Also, according to Verjee, because their product was entering new territory, PayPal had to take risks in how it interpreted laws relating to money transfer. They were bold in choosing how to let people fund their accounts and how to let people transfer money.

But PayPal was not a rogue firm. Naturally, the government was concerned about the implications for money laundering that certainly would be present with PayPal’s structure. But the PayPal team explained their concept to the government and worked with them in developing creative new ways to collect information from people and to comply with anti-money laundering laws.

For Verjee, this creative approach was “also something I saw very early on in the Review…a willingness to be challenging, pushing boundaries, but also [to] work with the authorities or with the university as much as you could in order to…come up with a collaborative solution.”

On the other hand, for Sacks a prevailing world-view was not necessarily the determining factor in PayPal’s success. He called Thiel’s “vision that PayPal could be this global monetary system…a very libertarian vision,” but noted that “when you’re building the product, you know, these high level principles don’t really come into play.”

“I think that maybe the philosophy plays into the vision,” he stated, “but when you actually try to execute the vision in terms of a product, you’re just thinking about, ‘How do I get this thing to work?’”

Joe Lonsdale, founder of Palantir, former Review editor-in-chief, and early PayPal intern, stated, “The whole company culture…was a little bit contrarian, which I think that is a very healthy thing for a start-up.”

He also noted, “There were some sort of radical people in power.” For Lonsdale, one of these was David Sacks, who reportedly at one time contemplated giving everyone an IQ test. But Lonsdale qualified, “It was clear that they were extremely competent guys who thought about things differently.”

Lonsdale thinks much of the PayPal Mafia’s success comes from their “outsider” approach. He explained, “If you look at the history of civilizations, there is this cycle that occurs consistently where the inside becomes institutionalized and the incentives become misaligned against growth and innovation…and what happens is that the outside is still more dynamic and still growing in a lot of ways, and so the outsiders will come in and create things and build things and fix things.”

Thiel summarized PayPal’s intellectual philosophy as “not accepting the world as it is found,” and having “a confidence that it might be changed.”

Fueling and Driving the Web 2.0 Revolution

After the sale of PayPal, most of the original executives left and started their own ventures. Many of these ventures also found success, and according to Verjee, much of it came from the same intellectual underpinnings that made the Review and PayPal so successful.

“It’s very rare for people to have strong views they’ll stand behind that are largely different than the mainstream,” Lonsdale stated.

Thiel went on to create Clarium Capital, an investment management and hedge fund company, where Lonsdale worked for a while. “I think [Peter Thiel] did a good job with Clarium,” Lonsdale stated, “and he was definitely focusing on global macro [strategy] at a time when it was not popular to focus on global macro.”

“Peter himself has succeeded, when he has embraced the fact that he’s an outsider. And I think he has not done as well when he hasn’t embraced the fact that he is an outsider,” Lonsdale said.

Thiel, who also founded the Founders Fund, holds a 5.2% stake in PayPal, worth an estimated $1.7 billion. In discussing his recent investments, he recently told the Wall Street Journal, “The angel-VC thing feels very crowded. As an investor we always want to be fundamentally contrarian.”

What he calls the “hard tech space” is the new area that his venture capital firm is mostly looking into. These are companies dealing with things, according to Thiel, like “space, robotics, artificial intelligence, [and] next-gen biotech.”

Both Lonsdale and Thiel are also involved with the Seasteading Institute, whose purpose is “to establish permanent, autonomous ocean communities to enable experimentation and innovation with diverse social, political, and legal systems.” The Institute hopes to provide people with the opportunity to live in high-tech, sea-based communities that allow the citizens to choose their own form of government.

Looking to companies in the Web 2.0 revolution, like LinkedIn or YouTube, Verjee noted that these firms created “a marketplace where a whole bunch of people can come together and interact…in a kind of low-friction kind of way.” Belief in free markets drove much of the design behind social networking.

“[W]hen companies try to restrict the way that people interact, they often end up doing [customers] a disservice and limiting the network,” Verjee continued. “YouTube, Facebook – they thrive on being open marketplaces.”

The PayPal Mafia’s mark on the world will likely expand far beyond just the Web 2.0 revolution. It will be one of a lasting intellectual legacy and new ways of approaching world problems.