That's how Lyons tells the story:

For two years I was obsessed with trying to turn a blog into a business. I posted 10 or 20 items a day to my site, The Secret Diary of Steve Jobs, rarely taking a break. I blogged from cabs, using my BlackBerry. I blogged in the middle of the night, having awakened with an idea. I rationalized this insane behavior by telling myself that at the end of this rainbow I would find a huge pot of gold. But reality kept interfering with this fantasy. My first epiphany occurred in August 2007, when The New York Times ran a story revealing my identity, which until then I'd kept secret. On that day more than 500,000 people hit my site-by far the biggest day I'd ever had-and through Google's AdSense program I earned about a hundred bucks. Over the course of that entire month, in which my site was visited by 1.5 million people, I earned a whopping total of $1,039.81. Soon after this I struck an advertising deal that paid better wages. But I never made enough to quit my day job. Eventually I shut down-not for financial reasons, but because Steve Jobs appeared to be in poor health. I walked away feeling burned out and weighing 20 pounds more than when I started. I also came away with a sneaking suspicion that while blogs can do many wonderful things, generating huge amounts of money isn't one of them.

But wait a second: How did Lyons come to be able to relate this tale in the hallowed pages of Newsweek? Oh, right — it surely had more to do with his blog and his brilliantly sarcastic Fake Steve Jobs persona, not the unnoticed pieces he churned out as a senior editor at Forbes. And then there was the book deal which resulted in Option$: The Secret Life of Steve Jobs. Lyons may not have made money directly from his blog, but he had a fair bit of success off of it. Admitting that would ruin a perfectly good column — and call into question his decision to stop blogging.

In August, before the markets started to melt down and with Facebook worth $15 billion on paper, Zuckerberg unveiled a plan to let employees sell a small amount of their shares — no more than $900,000 or 20 percent of their stock holdings, whichever was less. The program, all but unheard of among Valley startups, was meant to appease employees who were agitating for some chance to make money from their shares. It was a revolutionary new way to reward employees, without having to go through an IPO or a sale.

The revolution is over, Zuckerberg told his company today. "I'm writing this note to let you know some bad news," he wrote in an email to all employees at the 800-person social-network startup this afternoon. "Despite a lot of work, we have not been able to finalize a plan for the employee stock sale we announced in August."

Facebook executives had been courting potential buyers for employees' shares since the summer. But as the value of Google tumbled from its high of $700 last year, would-be investors started asking questions about whether Facebook's value, too, had dropped. By last month, they were getting downright nervous.

Microsoft had invested $240 million in the company for a 1.6 percent stake in the company that valued all of Facebook at $15 billion, but that deal came with extras: Microsoft bought preferred shares, which get paid off first if the company's bought, and it also got an advertising deal with Facebook at the same time.

Facebook's common shares, meanwhile, have a value that put the whole company's worth at around $4 billion. Or they did. A source close to potential investors said they wanted to buy shares from employees at a lower valuation, or with guarantees similar to Microsoft's. To reward a small number of employees who had enough shares to benefit from the program, Zuckerberg would have had to give away something for nothing.

It's still a crushing blow to morale at the company that was once Silicon Valley's highest-flying startup. Facebook once had the pick of the world's best and brightest, hiring brilliant kids from college who had gone through school addicted to the social network.

So Zuckerberg's back to the original startup business plan: Make a big bet, and hope it pays off years later with an IPO or a sale. Facebookers will have to make the same bet, too. It's not as exciting as overturning Silicon Valley's financial order. But right now, just drawing a paycheck seems like a lucky thing.

This explains why Yahoos have been fretting more than usual about the stock's plunging price. Yahoo's stock-purchase plan offers employees a 15 percent discount on shares; the price is set periodically based on market prices, and the discount taken off that. Monday was the most recent price-setting date; the company has a one-day waiting period before employees can sell shares. Hence the concerns that the stock not drop 15 percent in two days — which it nearly did, rendering even the instant profit from the discount void.

It's legal for employees to sell after the one-day waiting period, but it's hardly in the spirit of stock-purchase plans. Yahoo's management is in a tough position: They can crack down on the share-flipping by putting in a longer waiting period, which might hurt morale; or they can allow it to continue, and thereby coddle employees who don't have the company's best interests at heart.

What it really illustrates, though, is how the equity culture turns toxic when share prices tumble. The makeup of the human mind sets us up to treasure gains too little and fear losses too much; that means that employees take stock gains for granted, but fume when their options go underwater.

When that happens, taking a company's 15 percent discount on stock and treating it like free money is just barely understandable. Employees should wonder why they ought to be the ones to buy and hold when it hardly seems like their company has a future. And shareholders should wonder why employees like these are getting free money. So much for aligning interests.

(Photo by 42dreams)

The phrase Vesting in Peace, which means you work for stable company increasing in value, and you’re doing as little as possible until your stock options are worth something — just enough to be perceived as functional, but never to the point of exertion.

Klein gets this mostly right, though he fails to note where it most frequently happens: At startups after they're acquired. Most of the original YouTubers, for example, are only at Google because they're still vesting in peace.

(Photo by sfllaw)

Here's what's odd: Pixar is now owned by Disney, which cleared everyone "currently associated" with the company of wrongdoing. That includes Steve Jobs, Pixar's former CEO, now a Disney board member, but leaves Mather out in the cold. So far out that Disney itself hasn't disclosed her legal jeopardy to its own shareholders — the people whose Mather's Pixar backdating most affected.

In the end, Judge Fogel dismissed the suit because it was based on three-year old statements, which Apple successfully argued were too old to consider in court. Fogel did allow room for a Lyons sequel, however, telling plaintiffs they could file the suit again if they could show Apple executives lied after July 30, 2003.

Here's the back story. Marc Bodnick, a cofounder of Elevation Partners, the private-equity firm behind Forbes, where Lyons has a day job, suggested plugged-in matchmaker Brooke Hammerling to make high-level introductions in the Valley. This move, insiders say, confounded Lyons's publisher, Da Capo Press, which had its own PR operation, and momentarily threw plans for the party out of joint. Hammerling vehemently denies there was any friction. Da Capo ended up handling press for Lyons's book tour, and Hammerling and the book publisher threw a joint party at Frisson, the restaurant part-owned by Facebook board member Peter Thiel.

Thiel, alas, didn't show, but San Francisco's tech press corps turned out in droves, and in the case of videoblogger Natali Del Conte, kickass boots. Also crowding the joint: a bevy of Lyons's Forbes colleagues, past and present, and backers from Elevation Partners. Digg board member Brett Bullington no-commented his way through the evening. An unusually buttoned-up Hammerling, when she wasn't schmoozing, was ringing up copies of Options for Lyons to sign.

Fireworks, we thought, were inevitable when Lyons got on stage with Kawasaki, whom he's savaged on his blog. Turns out the worst thing Fake Steve said about Kawasaki was that he was a motorcycle designer, something Kawasaki found amusing. Our promised fireworks turned into kiddy-safe Independence Day sparklers.

Something to know about Dan Lyons: The man is as hilarious in person as in his best blog posts. He's quick, succinct, and dead-on with his observations. He is, as they say in Detroit, "wicked smaht." Also, he has a huge hard-on for Steve Jobs. Like, major mancrush. Lyons describes Jobs as a "son of Zeus born to a mere mortal" and other outrageous claims, which makes it seem like he's taking the piss out of Jobsian worshipers. Not true. Lyons really is an Apple fanboy who believes in the infallibility of His Steveness. Jobs is, to Lyons, "the most interesting person alive."

Which seems like the most boring thing he could say. But here's a secret for you: That awe is what makes the blog work. Lyons clearly venerates Jobs, without which his Fake Steve blog might come across as mean-spirited, not a satirical celebration.

One question kept coming up: How was Lyons treated by people who he slammed in the blog? He admitted to being worried about their reactions, but said that there have been few negative repercussions. He brought up Bike Helmet Girl, an early target for Fake Steve due to her appearance in a photo taken at a Yelp party last year. He initially ran the photo with a derisive caption. "Bikey" wrote in, a correspondence was born, and her character became a recurring figure in the blog. Lyons finally got a chance to meet her at a book signing last week, and spent a good minute in the Fake Steve character, dreamily recounting their meeting. (Lyons never revealed the lingering question about Bike Helmet Girl: Why was she wearing a bike helmet in the first place?)

I asked him about an article he wrote for Forbes, "Attack of the Blogs," a cover story which he railed against anonymous blogging as an abhorrent practice. Has being an anonymous blogger changed his mind about such practices? He admitted that he would like to "get a do-over" and rewrite the story. He likened his attack to writing a story focusing on spam as an example that all email was bad. "Tomorrow, Valleywag will call you a hypocrite," Kawasaki warned him.

Other Fake Steve revelations:

• Someone named "Katie Cotton" — the same name as the head of Apple PR — ordered a number of Fake Steve T-shirts from CafePress. (Brad Stone asked the real Cotton about the purchase. She declined to discuss any clothing purchases.)
• 
  
• The front row was filled with a line of Apple employees, one of whom brought an OS X programming book as light reading during downtime.
• 
  
• Kawasaki asked Lyons and Stone if they thought they would always be known as "Fake Steve" and "the guy who busted Fake Steve," much like Eddie Murphy will always be known as Donkey from Shrek. Lyons and Stone's reactions suggested they thought Kawasaki was nuts — and then started talking about how Donkey wasn't really representative of Eddie Murphy's career.
• 
  
• Brad Stone broke the news that Lyons was Fake Steve while Lyons was on his way to a Maine vacation with his wife, a vacation he had promised would be work- and blog-free. Stone's call to Lyons while he was en route changed all that. During their conversation, it was revealed that Lyons is the father of two-year-old twins. Stone and his wife are expecting twins soon. As their call was ending, Lyons promised Stone that he would buy two voodoo dolls of the twins and poke them at 2 a.m. random nights, to make up for Stone ruining Lyons's vacation.

"This is the highlight of my life — the birth of my children, and meeting Woz," says Lyons, like some pathetic starstruck fanboy. This is the man who called me "Bigglesworth"? I'm wondering who the real pussycat is.

Lyons starts by explaining how he got the "Secret Diary" moniker from the British magazine Private Eye. The whole idea, he explains, was just to learn more about blogging and figure out how tools like Blogger works. The blog spiraled from there.

"I don't know anything about Steve Jobs," Lyons says. "This is as close as I've ever gotten," he adds, pointing to Wozniak. He recounts how he closed down the blog, and a reader actually reposted his archive, which prompted Lyons to continue.

Lyons then makes a gaffe: "I've written a lot of books, which are still available on Amazon.com." The owner of Keplers coughs and glares at him. "Sorry. In a brick-and-mortar store, you never say the 'A' word."

Now Lyons is retelling the story — familiar to our readers — of how Forbes publisher Rich Karlgaard got in on the hunt for Fake Steve Jobs, offering a reward. But Lyons adds this tidbit: Karlgaard sent him an email, unaware of his identity, offering him a column in the magazine. Another email he got came from a partner at Elevation Partners, the private equity firm which owns a large stake in Forbes, offering to invest in the blog.

And the rest is history: Timesman brad Stone's expert outing of Lyons. Lyons then segues to questions. Gizmodo editor Brian Lam asks Lyons if he thinks that Apple had a hand in uncovering his identity, pointing out that Google owns the Blogger service Lyons uses and Google CEO Eric Schmidt — "Squirrel Boy" in Lyons's blog — is on Apple's board. Lyons turns to Wozniak and asks, "Could Apple do that?"

"Yes," Wozniak deadpans.

Lyons then offers to let Wozniak guest-blog on the site. "I'll give you the password," he says.

An audience member asks what Lyons thinks of the real Steve Jobs. "I actually really admire him," says Lyons. "I wouldn't want to work for him, I wouldn't want to live next to him, I wouldn't want to be in his family. What he does requires a hardness that I don't think I could have. I feel affectionate toward him."

Affectionate? I never expected Fake Steve would be such a softy.

Finally I get to ask a question. "When on the blog are you Steve, and when are you Fake Steve?" I ask. It was the best I could come up with, but Lyons runs with it.

"It's this third personality that evolved, something like Triumph the Insult Comic Dog," he explains. "Fake steve is not really like Steve Jobs, and it's not really me. Like EMC. Real Steve would never write about EMC. Or [Robert] Scoble. Once you start thinking about Scoble, you can't get Scoble out of your head. I'm sure Steve Jobs doesn't think about Scoble at all."

Truer words were never spoken. Especially by a fake blogger.

Isn't it just like Woz to show up and try to steal the spotlight from me on my big day? He's like the ex-girlfriend who shows up at the wedding dressed in a really hot sexy red dress, trying to take attention away from the bride. Fair enough. Apple geeks love Woz better than me. Always have. So of course he can't resist showing up on iPhone day to steal some of the love that was supposed to be aimed entirely at me. Plus, and this is really sad, Woz just thrives on the adulation and can't get enough of it. It's almost a sickness, the way he needs it.

• The REAL Fake Steve Jobs Leander Kahney John PaczkowskiOwen Thomas Andy Ihnatko, er, Dan Lyons, comes to town. Apple cofounder Steve Wozniak will introduce him before Lyons reads from his new novel, Options, at Keplers in Menlo Park tonight at 7:30 p.m. [Keplers]
• There's a private wine tasting event for business school alumni at Circa in the Marina. My, that sounds like a bitchin' time, doesn't it? If you can stomach the button-downs and business cards, it starts at 6:30 p.m.
• Photographer Geoff Ellis, husband of BusinessWeek columnist (and certified Valley fox) Sarah Lacy, collects the James D. Phelan Art Award in Photography tonight at SF Cameraworks at 5 p.m. [Facebook]
• Wait, it's November? Really?

Got a to-do that's a must-do? Send it to calendar@valleywag.com. Check out more events on our Google Calendar:

Date: Oct 30, 2007 5:06 PM
Subject: Kepler's
To: fakestevejobs
I will be hosting you at Kepler's Books in Menlo Park CA. this
Thursday. I just wanted you to know I have someone special from Apple
Computer coming to introduce you, and his name is Steve as well.

Omigosh! Oh wait. This is going to be Steve Wozniak, right? Still. We'll be there.

The first lesson: Never ask someone with a liberal-arts degree from UC-Santa Cruz a finance question.

Facebook has a simple answer: restricted stock units. Like stock options, restricted stock vests over time. But unlike options, the employees actually own the shares outright after they're vested, rather than having the right — the "option" — to buy the shares at a set price.

The problem, I suspect, is explaining the new pay scheme to potential hires, especially ones without a Wall Street background. Silicon Valley's entrepreneurial culture was built on stock options. When you say "options" to a new recruit, they don't think about complicated financial derivatives. They think "gold mine." When you start talking about "restricted stock," their eyes glaze over.

One financial type suggested I think of RSUs as options with a strike price of zero. I'm not sure that's quite right, since there are some differences in, for example, tax treatment. (Fidelity has a useful explainer.)

As long as Facebook is as generous with restricted stock as it is with options, employees won't see much of a difference. And at a $15 billion valuation — or even a lower one cooked up by a team of crack accountants — Facebook can afford to give away a lot of stock.

The problem is more one of motivation. Options have a downside: They can go underwater, which renders them worthless. That's a scenario employees are motivated to avoid. But with restricted stock, employees bear less risk. Say an employee gets 1,000 stock options with a strike price of $10. If the stock doubles to $20, they'll buy the shares at $10 and sell them for $20, clearing $10,000. If the stock only goes to $11, then they'll only make $1,000. That's a tenfold difference. If an employee gets 1,000 shares in restricted stock, they'll start off being worth $10,000, and doubling the stock price only doubles their take. Stock options encourage employees to go for the big score.

One could argue, though, that by locking in a $15 billion valuation, Facebook has already gone for the big score. The company is priced for perfection, and that valuation carries a lot of risk. Issuing options at Facebook's new value could very well kill its recruiting efforts. Facebook's founders and early investors have already made out like bandits — on paper, at least. It makes sense for new employees to bear a little less risk.

Besides, as my colleague Nicholas Carlson reminds me, we know the real incentive for working at Facebook. During lunch you get to find out who's looking you up or maybe upload explicit pictures to an unsuspecting user's profile. Beats a dental plan.

(Photo by spcbrass)

Subject: Your Email to Jeff Bezos; Re: Your Order for "Options" Date: October 23, 2007 3:55:34 PM EDT To: jordan@valleywag.com

Dear Mr. Golson,

My name is Jennifer Hanner of Amazon.com's Executive Customer Relations. Jeff Bezos received your e-mail earlier this week and asked that I respond on his behalf.

Your order has now entered the shipping process and as soon as it has shipped, you will be sent an email confirming the date, contents and method of shipment. I apologize for the delay and inconvenience with your order. The delay and miscommunication was caused by a small problem which has been resolved.

Again, please accept our apologies and know that your experience with this order has been unordinary and not truly representative of the quality of service we offer.

If you have any further comments or questions, please feel free to contact me directly at *****@amazon.com.

Thank you for shopping at Amazon.com.

Regards,

Jennifer L. Hanner
Executive Customer Relations
Amazon.com