How Sean Parker bounced back from being fired to change Facebook's history

Before he convinced Mark Zuckerberg to drop the "the" and signed on as Facebook's first president, Sean Parker helped launch two other big startups: Napster and Plaxo.

Napster is the one you've probably heard of. The music file-sharing network collected tens of millions of users in its first year, but suffered a slow and painful death at the hands of the Recording Industry Association of America on copyright infringement charges.

Parker's other startup, Plaxo, you may not remember.

The online address book service never found its way into technology lore in the way that LiveJournal, MySpace, and other long-gone social networks have. But its other co-founder, Todd Masonis, says Plaxo paved the way for Facebook.

We recently spoke with Masonis on Parker's and Plaxo's influence.

According to a 2010 article in Vanity Fair, Parker created Plaxo as his redemption. In 2001, the same year Napster got the axe, he dreamt up a software that auto-updated users' email address books when one of their contacts moved, changed companies, or got a new phone number. Users could choose to sync their information with friends.

Plaxo removed the hassle of editing a contact entry, so people could stay better connected. "It was the precursor to social networking," Masonis tells Business Insider.

Parker shared his vision with two recently graduated Stanford grads, Todd Masonis and Cameron Ring, a friend from high school. They signed on as co-founders and chief architects and built the product.

Despite a slow start, Plaxo was gaining 10,000 to 12,000 members a day by April of 2004. But it gained a reputation as being obnoxious, thanks to the incessant email-requests sent to web users, prompting them to update their entries in their friends' address books.

With success came trouble. Parker, who often slept on Masonis' couch during Plaxo's rough patches, began showing up to work less. His unreliability gnawed away at the company's investors. "He was more interested in the fun part of [building a] startup," Masonis says. "He had been at Napster where they got to go backstage at concerts and spend money on concert tours."

In 2004, the board fired Parker from his own company, citing his erratic schedule and rumors that he had provided drugs to some employees. Parker called these claims "ludicrous" and "a smear campaign," and accused board member Ram Shriram of scheming to throw him out and strip him of his stock.

Parker slipped into a depression, Masonis says, but it didn't last long. "He got kicked out and then immediately ran into Mark Zuckerberg. That's how it all went down," Masonis laughs.

Parker only lasted as Facebook's president for about a year, although he stayed on for some time after that in an unofficial capacity. But while he was there, he used a lot of what he learned at Plaxo to help shape the social network into the behemoth it is today. For instance:

Parker understood viral marketing. One of the biggest hurdles in creating a social network is that the value only exists for users if their friends are already on it. At Plaxo, Parker conceived of viral marketing campaigns, and had no moral qualms in pinging the hell out of members' contacts until they downloaded the service, too.

By the time Parker linked up with four-month-old Facebook, he had three years' experience figuring out how to get users to join out of the blue.

Parker helped Zuckerberg maintain control of Facebook. At Facebook, Parker negotiated an unusual deal with the company's most powerful shareholders - including cofounder Dustin Moskovitz, Peter Thiel, Accel Partners, and other major firms and investors - so that they ceded their voting rights to Zuckerberg. This corporate structure gives Zuckerberg complete and permanent control of the company he founded, so that he can't be jettisoned the way Plaxo booted Parker.

Parker sought a $3 billion revenge on one of the most esteemed VC firms. In 2004, Zuckerberg began taking meetings with venture capitalists about raising money for his other startup idea, Wirehog, a peer-to-peer file-sharing service that linked with Facebook. Sequoia Capital reached out.

There was bad blood between Parker and the firm. Sequoia's Michael Moritz was Plaxo's first major investor, and three short years later, he supported the board's decision to fire Parker as its president. So when the chance for revenge surfaced, Parker seized it.

Zuckerberg took the meeting with Sequoia, but purposely blew it. He showed up late and wearing pajamas. His PowerPoint deck, titled "The Top Ten Reasons You Should Not Invest," listed off snarky reasons such as "We have no revenue," "We will probably get sued by the music industry," and "Because Sean Parker is involved."

Needless to say, Sequoia did not invest in Wirehog or Facebook.

After Parker left, Plaxo faded from sight. Masonis and Ring, the third co-founder, sold the company to Comcast in 2008 for somewhere between $150 and $170 million, according to TechCrunch. Comcast still operates the service today, but it doesn't have a very high profile.

Meanwhile, the duo used their exit money to open Dandelion Chocolate, a bean-to-bar chocolate-making factory in San Francisco's Mission District.

And Parker continues to be one of the most interesting characters in the startup world. In the last couple of years, he helped Spotify lock down deals with US record labels, launched and quietly shut down the video chat startup Airtime, and donated $24 million to Stanford University School of Medicine to build the Sean N. Parker Center for Allergy Research, dedicated to finding a cure for allergies.

Despite the variety of his entrepreneurial interests, Parker continues to serve as an industry catalyst. He spots potential in other people's fledgling companies and turns them to gold, even if they sometimes turn on him later.