What Stays in Vegas (10 page)

Shy Data Brokers

For an industry focused on revealing information about others, data brokers are awfully shy. Take Spokeo, one of many data brokers offering services to the public, which long advertised itself as “not your grandma's phone book.”
¹¹
Several graduates of Stanford—where Google's founders had also studied—started the site in 2006 and offered especially detailed dossiers. I wrote cofounder Harrison Tang to ask if I could meet him. Eventually the company invited me to visit its headquarters in Pasadena, California, and confirmed a date. I purchased a plane ticket from Boston. Days before the departure, the company abruptly withdrew the invitation without offering a reason for the change of heart.
¹²

With a nonrefundable ticket to Los Angeles in hand, I tried instead to meet Jeff Tinsley, who founded
MyLife.com
in 2002. His assistant said Tinsley's schedule would not permit a visit at that time
but said we could talk by phone later. He scheduled and then abruptly canceled interviews four times over a period of weeks. Eventually he stopped responding to emails.
¹³
Jim Adler, then the chief privacy officer of the data broker Intelius, did not respond to four emails over a period of many weeks, but he subsequently agreed to speak after we met by chance at a congressional briefing.
¹⁴

PeopleFinder.com
distinguished itself by including a short description of its management team on its website, something few online data brokers did, especially in the earlier years of the industry. The company's website also showed a photo of three men and two women.
¹⁵
The photo looked a little too perfect. A Google image search revealed that PeopleFinders was not, in fact, showing the real people who ran the company but a group of models in a stock photo. Available for just $19 online, the same image appeared on sites such as the Bank of Ireland and the Ontario Real Estate Association. Rob Miller, the Sacramento-based
PeopleFinder.com
founder and CEO, initially said he would review questions by email but then did not respond.

Then there was PeopleSmart, another site that tried to differentiate itself by respecting privacy even while dealing in personal data. The two brothers running the company grappled with the same issue as Caesars: in gathering and using data, what is effective and what is morally appropriate? The company published real photos of its management and actually revealed how commercial data brokers gather information. The company was even willing to reveal some insider secrets to me.

6

Dossiers on (Virtually) Everyone

Seeking Disruptive Ideas

Three and a half years apart in age, the Monahan brothers—Matthew and Brian—grew up in Murphysboro, Illinois, a town of eight thousand people. Their mother worked as a sixth grade teacher; their dad sold mobile classrooms—a type of mobile home used by schools undergoing renovations or unable to afford more permanent structures. The parents encouraged reading and limited TV watching; the Monahans did not own a computer until 1998, when Matthew was in high school.

While at the University of Southern California, Matthew set up an e-books company, where he wrote about how to get into college, how to do well in the SATs, and similar topics. He built his business by advertising on Google and Yahoo. When people looked up words such as “scholarships” or “scholarship tips,” his ads encouraged them to visit his sites
scholarshipsecrets.com
and
collegeshortcuts.com
. Those who clicked on the ad found some basic tips and a pitch to buy his $29 book.

The site made him sound a bit like a carnival pitchman. “When I graduated high school I had won over $130,000 in free scholarship money, aced the SAT and ACT, and had admission offers from Harvard, MIT, Penn, Georgetown, USC, Wake Forest, and several other top-notch institutions,” he told visitors to
collegeshortcuts.com
. “Then I went on to attend the college of my choice—for FREE.”

Even though he was indeed enjoying a free ride in college, Matthew dropped out after two years, in 2004, to focus on being an entrepreneur. A North Carolina company eventually bought his business, and he moved to the company headquarters. He stayed for two years and, with the economy booming, left in 2006 with $1 million in his pocket and a burning desire to create his own Internet business in Silicon Valley. He just wanted to be part of the exciting 2.0 expansion of the web and create a platform of some kind. To prepare for his new life, he changed his first name, which had been Air'n. He found the name too unwieldy; people couldn't spell it, didn't know how to pronounce it, and could not figure out the gender. He went through the formal legal process and became Matthew.

He searched for ideas, and sought out successful businesspeople for advice. Later that year he went to an Internet conference in San Francisco. After a dinner speech by Niklas Zennström, one of the founders of Skype, Matthew queued behind others in the audience to approach him for a quick word of private insight.

“How do you guys come up with these huge disruptive ideas?”

“Just look for things that have yet to be totally digitized, because as things become digital everything changes.”

In May the following year, along with thousands of others, Matthew traveled to Omaha, Nebraska, for the annual meeting of Warren Buffett's company, Berkshire Hathaway. (He did not own the premium A class shares then trading at $93,000, but a few of the company's cheaper class B shares, which were going for about $3,000 each.) He rose at 4 a.m. on the big day anxious to ask a question of the finance guru and his right-hand man, Charlie Munger. On a rainy and windy spring morning, he stopped at a twenty-four-hour Walmart store en route to the convention center to buy an umbrella. As the foul weather tested his patience, he waited in line for hours for the convention center to open. Finally, the doors swung apart and the early birds put down their names to question the Sage of Omaha.

Later that day, with a record crowd of twenty-seven thousand shareholders attending, the predawn maneuvers paid off. Matthew stepped up to the microphone. His voice trembled as the many thousands in the
audience focused on his question. An echo bounced off the back of the hall a second or two later as he spoke, throwing off his concentration.

“I'm twenty-three, I have some resources, I sold a small e-book business, and I'm looking to start a new company. If you were in my shoes, what types of fields would you look into or what types of criteria would you use?”

Buffett started by recommending that Matthew read everything that he could: “You need to fill your mind with various competing thoughts and decide which make sense. Then you have to jump in the water—take a small amount of money and do it.” Buffett, famous for his folksy manner, continued with a salty analogy that made the crowd laugh: “Investing on paper is like reading a romance novel versus doing something else.”
¹

Munger followed up: “Of course, the place to look when you're young is the inefficient markets.”

Buffett then finished up the thought: “You should do well in games with few other players.”

The wise men had spoken. Matthew set his goal: he needed to build a technology-driven business in a large inefficient market. If he did not know exactly what kind of business that might be, he had already settled on where he wanted to be: Silicon Valley, the center of the tech universe, and close to Facebook. In fact, just a week before making the pilgrimage to Omaha, he had signed a lease for an office on the third floor of 101 University Avenue in Palo Alto, immediately north of Stanford University. He wrote out a security deposit of $20,149.50 and agreed to pay more than $10,000 a month for 2,100 square feet of office space. He did not have contacts in Silicon Valley and hoped proximity would help make magic happen. He set the orbit of his life around that office and rented an apartment just four blocks away.

Matthew eventually set his sights on public records and directories. He realized it had the potential to be big, but saw a highly fragmented and inefficient sector. He thought he could improve on what was out there, but found that he had to do far more than just identify an opportunity. He had to build a business from nothing. “It was tough, it
was really tough, because the data industry isn't the easiest to understand as an outsider,” he says.

His brother, Brian, still in college, pitched in from afar and traveled to Palo Alto during his breaks. He studied the search results made public by Google and Yahoo and noticed many people looking up telephone numbers. Yet those searches typically did not lead to helpful results. From that insight, the brothers set up
reversephonedetective.com
.

Having settled on an idea, the brothers needed to get unpublished cell phone numbers. Brian researched companies that aggregated phone numbers and hesitantly called. Surely, he thought, he would have to hop through a lot of hoops to obtain such intimate information. He explained his idea to one company.

“We're building a website where people can do self-service caller ID.”

“Oh, yeah, we can do that. You can give us the number and we can provide you with the results.”

“Seriously, you can do that?”

Brian was surprised that a college kid could get the information so easily. A new business was born. The brothers set up the site in December 2006. The site listed many reasons to reverse search phone numbers, such as finding the source of prank calls, hunting down suspicious numbers on a boyfriend's or girlfriend's phone, looking up a number on a phone bill, or checking out missed calls. They charged $14.95 for the number's owner and address. “Get INSTANT ACCESS to owner information, address history, carrier, connection status, and location details for any phone number,” the site advertised. “Your search is 100% legal and strictly confidential.”

By the time Matthew signed the expensive office lease in Palo Alto, the site was bringing in tens of thousands of dollars in sales a month. Yet very little profit resulted because of the high cost of assembling and marketing the phone numbers. Matthew paid the data provider just $2 per number searched.
²
Yet the main cost came from luring customers via Google ads, the promotional copy that appears in small boxes alongside search results when people look up words and phrases. Companies pay only when Internet users click on the ads, which might
cost 10 or 20 cents for a person's name. The ads appear not only on
Google.com
but on other websites with their own search boxes, such as
The LA Times
and
Wired,
which host Google ads in exchange for a share of the revenue.

Through continuous experimentation, Brian figured out how to generate a Google ad for thousands of different numbers by using just a fragment of a ten-digit phone number, such as the area code and first three digits. This insight was important because at the time Google limited the total number of keywords an advertiser could use. Also Brian had to enter the numbers manually. Even with music or a movie playing in the background in his dorm room, such rote data entry proved mind numbing. In the end, fragments of 75,000 to 100,000 numbers generated ads for millions of phone numbers, a technique rare at that time. “Who owns 303 703 1436?” the
reversephonedetective.com
ad might read. “Find out who owns 303 703 1436 with this Reverse Phone Lookup.”

Brian tried different combinations to see what would work best. How about numbers in a row without spaces? What happens if you add dashes in the phone numbers? He experimented with variation after variation. Testing key words that people might enter into Google allowed the company to shave fractions of pennies off the ad costs. Such tiny amounts added up to real money when placing thousands of ads.

The ads lured many people to
reversephonedetective.com
. Yet almost everyone wanted the information for free. The Monahans typically paid 10 cents per AdWords click, but only one out of a hundred people would actually pay for a lookup, thus adding a cost of $10 per new customer. On top of that, they paid another $1.50 to process the credit card charge and $1 for customer service. By the time they were done, the service left them with about 50 cents' profit for a first-time customer. Repeat visitors would obviously prove much more lucrative.

Valentine's Day Goes Sour

Brian dropped out of Harvard after his sophomore year. Like Facebook founder Mark Zuckerberg, who had left before finishing college three
years earlier, Brian felt ready to take on the world. He abandoned a full scholarship, swapping his elite college dorm room for a couch in his older brother's apartment in Palo Alto, California.

Business developed slowly in the early years. The brothers lived off the $1 million Matthew had earned from his first venture. They spent much of their money on rent—principally the centrally located office and their nearby apartment—and software development. For more than three years they did not even own a car. They focused on work. They also created several other sites. One gave information about classmates. It failed. A website that helped consumers gather telephone numbers and file complaints against telemarketers (
callercomplaints.com
) did not succeed either.

On most days they ventured no further than a triangle between their office across from Stanford University, their apartment four blocks away, and a Whole Foods supermarket. On occasion they made it as far as a few local restaurants. The brothers dedicated all their energy to making the business succeed. They embraced the mantra “Burn the Boats,” a reference to Spanish explorer Hernán Cortés, who destroyed his ships upon landing in Mexico in 1519 to ensure that his men could not retreat from conquering the Aztecs.