1971 • South Africa
Elon Musk was a multi-millionaire by the time he reached the age of thirty-one thanks to his creation of the company that became PayPal, the popular money-transfer service for Web consumers. Musk has become one of a new breed of what the New York Times called "thrillionaires," or a class of former high-tech entrepreneurs who are using their newfound wealth to help turn science-fiction dreams into reality. Musk is the founder of Space Exploration Technologies, or SpaceX, a company based in El Segundo, California. In 2005 SpaceX was busy building the Falcon rocket, which he hoped could some day make both space tourism and a colony on the planet Mars realistic goals for humankind.
Sells homemade video game
Musk is a native of South Africa, born in 1971 to parents who later divorced. His father was an engineer and his mother—originally from Canada—was a nutritionist. Musk was fascinated by science fiction and computers in his adolescent years. When he was twelve, he wrote the code for his own video game and actually sold it to a company. In his late teens, he immigrated to Canada in order to avoid the required military service for white males in South Africa. It was still the era of apartheid, the South African legal system that denied political and economic rights to the country's majority-black native population. Musk was uninterested in serving in the army, which was engaged at the time in a battle to stamp out a black nationalist movement. Thanks to his mother's Canadian ties, he was able to enroll at Queen's University in Kingston, one of Ontario's top schools.
Musk had planned on a career in business, and he worked at a Canadian bank one summer as a college intern. This was his only real job before he became an Internet entrepreneur. Midway through his undergraduate education, he transferred to the University of Pennsylvania, where he earned a bachelor's degree in economics and a second bachelor's in physics a year later. From there, he won admission to the prestigious doctoral program at Stanford University in California, where he planned to concentrate on a Ph.D. in energy physics. He moved to California just as the Internet boom was starting in 1995, and he decided he wanted to be in on it, too. He dropped out of Stanford after just two days in order to start his first company, Zip2 Corporation. This was an online city guide aimed at the newspaper publishing business, and Musk was able to land contracts with both the New York Times and the Chicago Tribune to provide content for their new online sites.
"Failure is an option here. If things are not failing, you are not innovating enough."
Musk was just twenty-four when he started the company, and he devoted all of his energies to see it succeed. At one point, he lived in the same rented office that served as his company's headquarters, sleeping on a futon couch and showering at the local YMCA, which "was cheaper than renting an apartment," he explained in an interview with Roger Eglin of the Sunday Times of London. Still, the company struggled to fulfill its contracts and meet the payroll and other costs, and he looked for outside financing. Eventually a group of venture capitalists, investors who provide start-up money to new businesses, financed Zip2 with $3.6 million, but he gave up majority control of the company in exchange.
Starts online bank
In the end, Musk's decision was a smart one. In February 1999 Compaq Computer Corporation bought Zip2 for $307 million in cash, which was one of the largest cash deals in the Internet business sector at the time. Out of that amount, Musk was paid $22 million for his 7 percent share, which made him a millionaire at twenty-eight. In 1999, he used $10 million of it to start another company, which he called X.com. This was an online bank with grand plans to become a full-range provider of financial services to consumers. The company's one major innovation was figuring out how to securely transfer money using a recipient's e-mail address.
Musk's proven track record from Zip2 helped it gain serious attention and generous investors right away. Two important executives signed on with him: investment banker John Story and Bill Harris, the former chief executive officer of Intuit Corporation, the maker of the best-selling Quicken accounting software as well as TurboTax, a tax-preparation program. Harris was appointed president and chief executive officer of X.com, with Musk serving as company chair. The company received a generous infusion of $25 million in start-up capital from Sequoia Capital, a leading venture-capital firm in California.
X.com went online in December 1999 with a bold offer for new customers: those who opened an online checking account with X.com received a $20 cash card that they could use at an automatic-teller machine (ATM). If they referred a friend, they received a $10 card for each new member who signed up. Within two months, X.com had one hundred thousand customers, which was close to the number reached by its major competitor, Etrade Telebank. But consumer skepticism about the security of online banking was X.com's biggest obstacle to success, and there was a setback when Musk and the other executives had to admit that computer hackers had been able to perform some illegal transfers from traditional bank accounts into X.com accounts. They immediately started a new policy that required customers to submit a canceled check in order to withdraw money, but there were tensions in the office about the future of the company.
In March 2000, X.com bought a company called Confinity, which had started an Internet money-transfer presence called PayPal. PayPal was originally set up to let users of handheld personal digital assistants, or PDAs, transfer money. It had only been in business a few months when X.com acquired it, and Musk believed that its online-transfer technology, which was known as "P2P" for "person-to-person," had a promising future. He and Harris did not agree, and Harris resigned from X.com in May 2000. Five months later, Musk announced that X.com would abandon its original online bank and instead concentrate on turning itself into the leading global payment transfer provider. The X.com name was dropped in favor of PayPal.
PayPal grew enormously through 2001, thanks in part to its presence on eBay, the online auction Web site where person-to-person sales were happening in the hundreds of thousands. When PayPal became a publicly traded company with an initial public offering (IPO) of stock in February 2002, it had an impressive debut on the first day of Wall Street trading. Later that year, eBay bought the company outright for $1.5 billion. At the time, Musk was PayPal's largest shareholder, holding an 11.5 percent stake, and he netted $165 million in valuable eBay stock from the deal.
By then Musk had already moved on to his next venture. In June 2002 he founded SpaceX, or Space Exploration Technologies. He had long been fascinated by the possibility of life on Mars and was a member of the Mars Society, a nonprofit organization that encourages the exploration of the red planet. Filmmaker James Cameron (1954–) is one of several notable Mars Society members. Musk wanted to create a "Mars Oasis," sending an experimental greenhouse to the planet, which in favorable alignment of the planets is about 35 million miles distant from Earth. His oasis would contain a nutrient gel from which specific Mars-environment-friendly plant life could grow. His plan had a cost of $20 million. But then he learned that to send something into space with the standard delivery method, a Delta rocket made by the Boeing Corporation, would add another $50 million to the cost. Musk even tried to buy a rocket from Russia, but realized that dealing with the somewhat suspect international traders who dealt in such underground, or illegal, items was just too risky.
Borrows star Wars name
Musk thought that maybe he might be able to build his own rocket instead. He began contacting innovators and technicians in the American aerospace industry, and he managed to lure some experienced engineers and technical specialists away from companies like Boeing and TRW to come and work for him at SpaceX's headquarters in El Segundo, California. He had a much more difficult time attracting venture capital for this idea, however. "Space is pretty far out of the comfort zone of just about every VC on Earth," he admitted to Matt Marshall of the San Jose Mercury News. Instead, he was forced to put up his own money to build what would become the first reusable rocket in the private sector.
Musk and his new SpaceX team began to build two types of Falcon rockets. The name came from the "Millennium Falcon," the spacecraft in the Star Wars movies. The plan was to build a rocket by using existing technology and at the lowest possible cost. The Falcon I, for example, uses a pintle engine, which dates from the 1960s. It has one fuel injector, while standard rockets used by the U.S. National Aeronautics and Space Administration (NASA) generally use what is known as a "showerhead" design that features several fuel injectors. The company also needed a theodolite, which is used to align rockets, and instead of buying it new, they saved $25,000 by finding one on eBay.
The New "Thrillionaires"
Microsoft co-founder Paul Allen (1953–) is ranked the seventh richest person in the world. Allen has used his wealth to finance SpaceShipOne. This private manned spacecraft, built by aircraft design pioneer Burt Rutan (1943–), was the first of its kind to reach suborbital space twice, which it did in 2004. For this two-time achievement, SpaceShipOne met the conditions of the $10 million Ansari X prize, established by the X Prize Foundation to encourage private entrepreneurship in aerospace.
Doom video game co-creator John Carmack (1970–; see entry) founded a computer game development company called id Software in 1991. He is considered one of the most gifted programmers ever to work in the gaming industry. He was one of the creators of the successful Doom and Quake games, which sold millions in the 1990s and attracted legions of devoted fans. In 2000, Carmack funded a new venture, Armadillo Aerospace in Mesquite, Texas, with the goal of building a manned suborbital spacecraft. It lost its bid to win the Ansari X prize when its vehicles ran into technical problems and crashed in 2004 and 2005.
In 1995, Jeff Bezos (1964–) launched Amazon.com, an online bookseller that became one of the most impressive successes in American business history. With an estimated personal fortune of over $5 billion, Bezos began donating some of his wealth to various philanthropic causes, but he also established an aerospace company. His Blue Origin, like Allen and Carmack's ventures, is also committed to manned suborbital space flight. His project is to be propelled by a mixture of hydrogen peroxide and kerosene and is a vertical-takeoff and landing-vehicle.
There are other, equally expensive costs associated with rocketry. Since Musk's design would be reusable, the company needed to get back the rocket's first stage, which the rocket sheds as it leaves the Earth's atmosphere. The part usually falls into the ocean, according to safety plans, but retrieval at sea is expensive. Companies that contract with NASA charge $250,000 to bring such parts back, but Musk found some ocean-salvage companies that knew how to handle sensitive material. He found one that agreed to do the job for just $60,000. The Falcon does not have a specialty computer on board, which can cost $1 million alone to install and maintain. Instead its computer is a basic one that uses the same technology as an automatic teller machine and costs just $5,000.
Envisions Hondas in space
By building a reliable rocket at an affordable cost, SpaceX hopes to be able to take small satellites into orbit for a fee of around $6 million. This is half the standard rate in the aerospace business to take something into space. The company already had two customers—the U.S. Department of Defense and the government of Malaysia. "Many times we've been asked, 'If you reduce the cost, don't you reduce reliability?' This is completely ridiculous," Musk explained to Fast Company writer Jennifer Reingold. "A Ferrari is a very expensive car. It is not reliable. But I would bet you 1,000–to–1 that if you bought a Honda Civic that that sucker will not break down in the first year of operation. You can have a cheap car that's reliable, and the same applies to rockets."
Musk serves as the chief technology officer of SpaceX. All employees are shareholders, and the company's casual but committed atmosphere is reinforced by the workday presence of Musk's four dogs. He no longer sleeps at the office, however, for he has a home, a wife there, and in the garage a McLaren F1, a $1.2 million car that is the fastest production, or non-customized race car, in the world. He has testified before members of the U.S. Congress on the possibility of commercial human space flight and has also established the Musk Foundation, which is committed to space exploration and the discovery of clean energy sources. The Foundation runs the Musk Mars Desert Observatory telescope in southern Utah, as well as a simulated Mars environment where visitors can experience what life on Mars might be like, including waste-burning toilets. "I think human exploration of space is very important," he told Reingold. "Certainly, from a survival standpoint, the probability of living longer is much greater if we're on more than one planet."
For More Information
Corcoran, Elizabeth. "Something Better than Free." Forbes (February 21, 2000): p. 62b.
Eglin, Roger. "Silicon Valley Shows How to Reach Stars." Sunday Times (London, England) (December 1, 2002): p. 7.
Lubove, Seth. "Way Out There." Forbes (May 12, 2003): p. 138.
Marshall, Matt. "Venture Capital Column." San Jose Mercury News (July 13, 2004).
Ptacek, Megan J. "X.com Scraps Bank Strategy to Focus on PayPal System." American Banker (October 11, 2000): p. 1.
Reingold, Jennifer. "Hondas in Space." Fast Company (February 2005): p. 74.
Schwartz,John."Thrillionaires: The New Space Capitalists." New York Times (June 14, 2005): p. F1.
Wallace, Nora K. "Vandenberg Air Base, Calif., to Launch SpaceX Reusable Rocket in January." Santa Barbara News-Press (October 5, 2003).
The Mars Society.http://www.marssociety.org/ (accessed on August 23, 2005).
Space Exploration Technologies Corporation.http://www.spacex.com/ (accessed on August 23, 2005).
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Elon Musk founded Zip2 Corp., a Web-based city and community guide firm, in 1995 and X.com, a now defunct online financial services provider, in 1999. In February of 1999, Musk sold Zip2 to Compaq Computer Corp. for $305 million; it now helps to power the Alta Vista search engine owned by Compaq. Although he decided to shutter the original X.com banking and investment services operations inOctober of 2000, Musk still plays an integral role in PayPal, the firm X.com merged with shortly after its inception.
In his twenties, Musk earned a degree in physics from the University of Pennsylvania and a degree in business from the Wharton School. After dropping out of the Ph.D. program in energy physics at Stanford University, Musk founded Zip2 at the age of 24. Via agreements with the likes of the Chicago Tribune and the New York Times, his new company began providing both local and national news, entertainment, and related online content to various metropolitan communities. A planned merger with CitySearch fell through in April of 1998. Less than a year later, Musk sold Zip2 to Compaq Computer for $305 million in a deal proclaimed one of the largest Internet-based cash payments to date. Compaq used the customization features of Zip2 to create MyAltaVista, a personalized version its popular Web portal.
Once the deal with Compaq was completed, the young millionaire began pursuing his next venture: X.com. Initially, Musk founded X.com with plans togrow it into a full-scale financial services site that offered everything from checking accounts to insurance and investment options. To help him run his new venture, Musk hired investment banker John Story as executive vice president and Bill Harris—the CEO behind Intuit Corp.'s aggressive Internet push—as president and CEO. Musk appointed himself chairman. Investments from Musk, Harris, and Sequoia Capital totaled $25 million.
Launched in December of 1999, X.com began offering $20 to anyone who opened a free online checking account in an effort to secure its first customers. Musk also put in place a referral program, giving $10 to any member who signed up a new customer. He planned to make money in the same way that traditional lenders did by relying on the interest rate spreads. Within two months of its launch, X.com had secured 100,000 customers, coming close to matching the client base of its largest competitor, Etrade Telebank, which had 130,000 customers. While the firm's growth was impressive relative to its rivals, convincing customers to trust virtual banking proved difficult. This problem was exacerbated when X.com was forced to make public the fact that hackers had been able to illegally transfer funds to its accounts. As a result, the firm began requesting cancelled checks before accepting transfers from outside accounts.
In March of 2000, Musk orchestrated the merger of X.com and PayPal, an online payment services provider that had been operating since late 1999. Successful in the person-to-person (P2P) online payment industry, with nearly 15,000 new clients signing up each day, PayPal began looking to business-to-consumer (B2C) and business-to-business (B2B) markets shortly after the merger was completed. Customers willing to deposit money into an X.com account by electronic fund transfer, credit card transfer, or check were able to make instant payments, via email, to participating PayPal businesses.
Management disputes between Musk and Harris resulted in the resignation of Harris after a short six-month tenure. Musk announced a dramatic shift in focus in October. According to Megan J. Ptacek, a writer for American Banker, Musk decided that "rather than offer a wide range of banking and related services," his firm would "become solely a global payment system." Soon thereafter, X.com changed its name to PayPal. The firm spent the latter half of 2000, as well as most of 2001, focusing on international expansion efforts, as well as on increasing its B2B and B2C operations.
Corcoran, Elizabeth. "Something Better Than Free." Forbes. February 21, 2000.
Perry, Joellen. "Settling Debts Online: A New Tool for E-mailers." U.S. News and World Report. April 17, 2000.
Ptacek, Megan J. "X.com Scraps Bank Strategy to Focus on PayPal System." American Banker. October 11, 2000.
Toonkel, Jessica. "Electronic Commerce: X.com Moving In to B-to-B Online Payments." American Banker. August 9, 2000.
"Zip2 Founder Launches 2nd Firm: Readies Financial Super-site." Computergram International. August 30, 1999.
SEE ALSO: AltaVista Co.; Compaq Computer Corp.; PayPal; X.com
"Musk, Elon." Gale Encyclopedia of E-Commerce. . Encyclopedia.com. (June 22, 2018). http://www.encyclopedia.com/economics/encyclopedias-almanacs-transcripts-and-maps/musk-elon
"Musk, Elon." Gale Encyclopedia of E-Commerce. . Retrieved June 22, 2018 from Encyclopedia.com: http://www.encyclopedia.com/economics/encyclopedias-almanacs-transcripts-and-maps/musk-elon