The Amazing Money Machine

How Silicon Valley made Barack Obama this year’s hottest start-up

What ultimately transformed the presidential race—what swept Obama past his rivals to dizzying new levels of campaign wealth—was not the money that poured in from Silicon Valley but the technology and the ethos.

The campaign’s focal point is My.BarackObama.com, which has made better use of technology than its rivals since the beginning. As a consequence of this fact and the general enthusiasm over the candidate, Obama’s Chicago-based staff is constantly besieged by suitors offering the latest applications, services, software, and widgets. Since many are based in Silicon Valley, Spinner volunteered his services as a talent scout.

To understand how Obama’s war chest has grown so rapidly, it helps to think of his Web site as an extension of the social-networking boom that has consumed Silicon Valley over the past few years. The purpose of social networking is to connect friends and share information, its animating idea being that people will do this more readily and comfortably when the information comes to them from a friend rather than from a newspaper or expert or similarly distant authority they don’t know and trust. The success of social-networking sites like Facebook and MySpace and, later, professional networking sites like LinkedIn all but ensured that someday the concept would find its way into campaigning. A precursor, Meetup.com, helped supporters of Howard Dean organize gatherings during the last Democratic primary season, but compared with today’s sites, it was a blunt instrument.

Obama’s campaign moved first. Staffers credit the candidate himself with recognizing the importance of this new tool and claim that his years as a community organizer in Chicago allowed him to see its usefulness. Another view is that he benefited greatly from encouraging a culture of innovation and lucked out in the personnel department, with his own pair of 20-something wizards. Joe Rospars, a veteran of Dean’s campaign who had gone on to found an Internet fund-raising company, signed on as Obama’s new-media director. And Chris Hughes, a co-founder of Facebook, took a sabbatical from the company and came to Chicago to work on the campaign full-time.

When My.BarackObama.com launched, at the start of the campaign, its lineage was clear. The site is a social-networking hub centered on the candidate and designed to give users a practically unlimited array of ways to participate in the campaign. You can register to vote or start your own affinity group, with a listserv for your friends. You can download an Obama news widget to stay current, or another one (which Spinner found) that scrolls Obama’s biography, with pictures, in an endless loop. You can click a “Make Calls” button, receive a list of phone numbers, and spread the good news to voters across the country, right there in your home. You can get text-message updates on your mobile phone and choose from among 12 Obama-themed ring tones, so that each time Mom calls you will hear Barack Obama cry “Yes we can!” and be reminded that Mom should register to vote, too.

“We’ve tried to bring two principles to this campaign,” Rospars told me. “One is lowering the barriers to entry and making it as easy as possible for folks who come to our Web site. The other is raising the expectation of what it means to be a supporter. It’s not enough to have a bumper sticker. We want you to give five dollars, make some calls, host an event. If you look at the messages we send to people over time, there’s a presumption that they will organize.”

The true killer app on My.BarackObama.com is the suite of fund-raising tools. You can, of course, click on a button and make a donation, or you can sign up for the subscription model, as thousands already have, and donate a little every month. You can set up your own page, establish your target number, pound your friends into submission with e-mails to pony up, and watch your personal fund-raising “thermometer” rise. “The idea,” Rospars says, “is to give them the tools and have them go out and do all this on their own.” The organizing principle behind Obama’s Web site, in other words, is the approach Mark Gorenberg used with such success—only scaled to such a degree that it has created an army of more than a million donors and raisers. The Clinton campaign belatedly sought to mimic Obama’s Internet success, and has raised what in any other context would be considered significant money online—but nothing like Obama’s totals, in dollars or donors. John McCain’s online fund-raising has been abysmal.

The social-networking model provided Obama with something that insurgents before him, from Gary Hart to McCain, always lacked: a means of capturing excitement and translating it into money. In the 2004 primary, Howard Dean raised $27 million online. Obama is fast approaching $200 million.

At a critical point in the race, this money had a dispositive effect. After “Super Tuesday,” on February 5, Clinton’s campaign ran out of money—a scenario that would have been unimaginable a year earlier. Obama, flush with cash, proceeded to win the next 11 contests, all but putting the nomination out of Clinton’s reach.

“What’s amazing,” says Peter Leyden of the New Politics Institute, “is that Hillary built the best campaign that has ever been done in Democratic politics on the old model—she raised more money than anyone before her, she locked down all the party stalwarts, she assembled an all-star team of consultants, and she really mastered this top-down, command-and-control type of outfit. And yet, she’s getting beaten by this political start-up that is essentially a totally different model of the new politics.”

Before leaving Silicon Valley, I stopped by the local Obama headquarters. It was a Friday morning in early March, and the circus had passed through town more than a month earlier, after Obama lost the California primary by nine points. Yet his headquarters was not only open but jammed with volunteers. Soon after I arrived, everyone gathered around a speakerphone, and Obama himself, between votes on the Senate floor, gave a brief hortatory speech telling volunteers to call wavering Edwards delegates in Iowa before the county conventions that Saturday (they took place two months after the presidential caucuses). Afterward, people headed off to rows of computers, put on telephone headsets, and began punching up phone numbers on the Web site, ringing a desk bell after every successful call. The next day, Obama gained nine delegates, including a Clinton delegate.

The most striking thing about all this was that the headquarters is entirely self-sufficient—not a dime has come from the Obama campaign. Instead, everything from the computers to the telephones to the doughnuts and coffee—even the building’s rent and utilities—is user-generated, arranged and paid for by local volunteers. It is one of several such examples across the country, and no other campaign has put together anything that can match this level of self-sufficiency.

The alchemy of social networking and the presidential race has given Obama claim to some of the most fabulous numbers in politics: 750,000 active volunteers, 8,000 affinity groups, and 30,000 events. But the most important number, and the clue to how Obama’s machine has transformed the contours of politics, is the number of people who have contributed to his campaign—particularly the flood of small donors. Much of Clinton’s haul, and McCain’s, too, has come from the sort of people accustomed to being wooed in the living room, and Obama initially relied on them, too. But while his rivals continued to depend on big givers, Obama gained more and more small donors, until they finally eclipsed the big ones altogether. In February, the Obama campaign reported that 94 percent of their donations came in increments of $200 or less, versus 26 percent for Clinton and 13 percent for McCain. Obama’s claim of 1,276,000 donors through March is so large that Clinton doesn’t bother to compete; she stopped regularly providing her own number last year.

“If the typical Gore event was 20 people in a living room writing six-figure checks,” Gorenberg told me, “and the Kerry event was 2,000 people in a hotel ballroom writing four-figure checks, this year for Obama we have stadium rallies of 20,000 people who pay absolutely nothing, and then go home and contribute a few dollars online.” Obama himself shrewdly capitalizes on both the turnout and the connectivity of his stadium crowds by routinely asking them to hold up their cell phones and punch in a five-digit number to text their contact information to the campaign—to win their commitment right there on the spot.

It’s possible to track the network effects in the growing fund-raising numbers that seem to arrive in ever larger denominations: $25 million … $30 million … $35 million … in February, the staggering $55 million—nearly $2 million a day.

In a sense, Obama represents a triumph of campaign-finance reform. He has not, of course, gotten the money out of politics, as many proponents of reform may have wished, and he will likely forgo public financing if he becomes the nominee. But he has realized the reformers’ other big goal of ending the system whereby a handful of rich donors control the political process. He has done this not by limiting money but by adding much, much more of it—democratizing the system by flooding it with so many new contributors that their combined effect dilutes the old guard to the point that it scarcely poses any threat. Goren­berg says he’s still often asked who the biggest fund-raisers are. He replies that it is no longer possible to tell. “Any one of them could wind up being huge,” he says, “because it no longer matters how big a check you can write; it matters how motivated you are to reach out to others.”

There is some irony in the fact that the architect of the most recent campaign-finance law also happens to be the Republican presidential nominee. John McCain likely views all that has happened with considerable trepidation. Contrary to the widespread assumption at the time the McCain-Feingold Act became law (The Atlantic published an article on the legislation titled “The Democratic Party Suicide Bill”), it has not hurt the Democratic Party. Neither has it clearly benefited Republicans; McCain in particular has little to show for it. He raised $15 million in March, only $4 million of it over the Internet. His small-donor base is virtually nonexistent. When challenged about his staunch support for the Iraq War, McCain likes to say that he’d be willing to sacrifice the White House for principle. Nobody asks about campaign-finance reform. But that, and not Iraq, may wind up being the principled stand that does him in.

Meanwhile, the Obama machine rolls on, to the delight of its early stakeholders. “They’ve gone from zero to 700 employees in a year and raised $200 million,” Steve Spinner says of the campaign. “That’s a super-high-growth, fast-charging operation.”

It’s also one whose growth curve is coming into sharper focus. The Obama campaign has not yet assumed a place in Silicon Valley lore alongside Apple, Google, and Facebook. But a few more months could change that. The hottest start-up in the Valley right now won’t make anybody rich, but it might put the next president in the White House.

Joshua Green is an Atlantic senior editor.
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Joshua Green is a former senior editor at The Atlantic.

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