The Facebook Effect

  In January 2006, Facebook hired four former computer science teaching assistants from the Harvard classes of ’03 and ’04: three worked at Microsoft and one at Amazon.com. One—Charlie Cheever, from Microsoft—Zuckerberg thought of as a kindred spirit because Cheever had been brought before Harvard’s Administrative Board for downloading student information into a database. Cheever let a few friends search through his program to find out who roomed with whom, or which dormitory that cute girl lived in. It was an escapade not unlike Zuckerberg’s with Facemash, but a year earlier.

  This influx of programming hotshots immediately brought a new rigor and focus to Facebook’s engineering. Not only were they young enough to understand the ethos of openness and transparency that was at the heart of the company’s values, but they had several years of experience at the best software companies under their belt. They expected nothing less than to participate in groundbreaking Internet innovation.

  8

  The CEO

  “You’d better take CEO lessons!”

  As Facebook kept evolving—and growing faster with every change—the established powers of the technology and media world began paying ever closer attention. This appeared to be the kind of irresistible consumer website every executive had dreamed of owning since the Internet took off in the mid-1990s. Mark Zuckerberg suddenly had a lot of new older, well-dressed friends from Los Angeles and the East Coast.

  But he didn’t think like the CEO of an established technology or media company. He barely gave a thought to profit and was still ambivalent about advertising. This wasn’t easy for his newfound suitors to understand. One senior executive from a tech company recalls a frustrating visit during that time with Zuckerberg, who seemed uninterested in increasing the company’s revenue. “He didn’t know what he didn’t know,” he says. “But when he opened his mouth he was very direct, very smart, and he was very focused on Facebook as a social tool, to the point of naïveté. It sounded just too altruistic at the time. So I asked him, ‘Is it a social tool as a tactic to get to the next point?’ And he says, ‘No, all I really care about is doing this social tool.’ So I thought, ‘Either this guy is being very strategic and not telling me what his next thing is, or he’s just got his sandbox and he’s playing in it.’ I couldn’t figure it out.”

  Viacom’s MTV subsidiary had identified Facebook as a natural partner back in early 2005 when strategy boss Denmark West had vainly proffered the idea of a $75 million acquisition. A few months after that overture was rejected, MTV almost succeeded in buying MySpace, only to have it snatched away by News Corp. in July. Viacom’s octogenarian CEO, Sumner Redstone, was enraged that archrival Murdoch had stolen his prize. By the fall of 2005, MTV’s interest in Facebook was stronger than ever. After all, West and others reasoned, there was so much overlap between the two companies’ audiences that Facebook could be MTV’s digital strategy.

  West called Cohler, who told him that Zuckerberg only wanted to have CEO-level conversations. If Viacom CEO Tom Freston would participate, Zuckerberg would come for a meeting. It was quickly arranged. Cohler and Zuckerberg flew to New York to meet with Freston and MTV Networks CEO Judy McGrath. Freston, solicitously, explained that there seemed great synergy between MTV and Facebook because of how much their audiences overlapped. He said he’d love to find a way to work together. He suggested, for example, that Viacom could help Facebook develop content for its growing audience. “We think of ourselves as a utility,” Zuckerberg replied brusquely, dismissing the idea. Viacom, Freston continued, could also assist Facebook in extending its reach into an older audience. “I’m pretty much focused on high school and college,” answered Zuckerberg. Why the two had flown all the way to New York somewhat mystified the Viacom executives. “It was a no-thank-you meeting,” says one Viacom attendee. But Viacom did not give up.

  In early November 2005, Michael Wolf, a longtime media industry consultant at McKinsey & Company, joined MTV as president, reporting to McGrath. He almost immediately took on the task of cultivating Zuckerberg.

  Whenever MTV held a focus group among the college students who were its core demographic audience, they talked incessantly about Facebook. It gave Viacom a unique and early window into the power of this phenomenon. Viacom executives fretted that this new form of media might upstage them, and they wanted to get a foot in. Freston and his executives at MTV were also worried that News Corp.’s Fox networks were going to use their new ownership of MySpace to gain an advantage with TV advertisers. It seemed likely that a new kind of package deal including both social network and television components could soon emerge, at least for programming aimed at young people.

  Wolf flew out to Palo Alto to visit Zuckerberg in his office. The Facebook CEO was in T-shirt and shorts, wearing his trademark rubber Adidas sandals. These had become so notorious that as Wolf arrived, an assistant was nailing one of the old worn-out sandals to a board. It was going to be given to one of Facebook’s programmers as an award. Wolf considered himself to be cultivating Zuckerberg, and merely wanted with this meeting to start a cordial dialogue, but he did ask whether the CEO was thinking about selling the company. “I don’t want to sell,” Zuckerberg replied. “What kind of number might make you interested anyway?” Wolf asked. “I think it’s worth at least $2 billion,” said the kid who had launched Facebook in his dorm room twenty months earlier.

  Shortly before this, an aggressive thirty-five-year-old dealmaker from Amazon.com named Owen Van Natta had joined Facebook as vice president of business development. The upbeat veteran executive was hungry for impact and authority, and had an enormous amount of energy. After only five weeks Zuckerberg promoted him to chief operating officer. Van Natta created Facebook’s first strategic plan and immediately started bringing some order to what remained a chaotic and ragtag operation. The new COO wasn’t shy about exercising his authority, and fired a number of engineers and other employees who had been recruited pell-mell earlier in the year. But Van Natta’s greatest skill, honed at Amazon, was in negotiating deals. He would soon get a chance to prove himself.

  Van Natta was annoyed that MTV’s Wolf had figured out that the best way to reach Zuckerberg was by instant-messaging him and had thus been able to make an appointment directly with the CEO. Van Natta told Wolf in the future to go through him instead. Wolf ignored the instructions. Instead he periodically IM’d Zuckerberg to say that he planned to be in Palo Alto—whether or not it was true—and suggest a dinner. If Zuckerberg agreed, he’d fly out.

  Wolf was only one of many top media and technology executives pursuing Zuckerberg. Facebook was hot. The office and the University Cafe down the block—the favored rendezvous—became a parade of big names. “The guys from NBC are coming by this afternoon.” “When is that meeting with Microsoft?” “Peter Chernin is here!” (He was Murdoch’s top deputy at News Corp.) “Did you hear that Zuck met with Dan Rosensweig from Yahoo?” There were meetings about a deal with AOL, which owned the AIM instant-messaging system that Zuckerberg (and most of Facebook’s users) used every day. For a while discussions centered on whether there was a way to build a special version of AIM for Facebook. Finally the companies struck a deal that enabled AIM members to invite their IM buddies to join Facebook. It quickly became a major source of referrals.

  There was a lot of grumbling about all the Zuckerberg meetings, especially among the growing number of not-twenty-one-year-old executives whom recruiter Reed was helping hire. It appeared to many of these guys (they were almost all men) that Zuckerberg was willing to talk to anybody anytime about anything, especially if that person was a CEO. What did all these meetings mean? Was Zuck about to sell the company? Will we become part of Viacom or Yahoo or News Corp.? Are we all going to get rich? And for the younger, more idealistic ones—is this the end of the Facebook miracle? They sometimes wistfully discussed whether they ought to be looking for a new CEO.

  Zuckerberg wasn’t bothering to explain his thinking. He thought of these meetings as a learning process and di
dn’t feel he had much to explain to the staff. After all, he had no intention of selling his company. And ironically, part of the problem stemmed from his good manners. He readily agreed, out of both curiosity and politeness, to meet with the honchos who came calling. And he listened politely, if impassively, during the day when Van Natta and the other older staffers were bending his ear. But late at night he continued to huddle more honestly with confreres Cohler, D’Angelo, Moskovitz, and frequently still with Parker. But so circumspect is Zuckerberg that sometimes they too were in the dark about his ultimate intentions. And everybody was painfully aware that he was in complete control of the company’s destiny.

  Reed was getting frustrated. She had helped bring in most of the older men who were feeling sidelined and who were now getting worried. She was proud of the quality of the team she’d helped assemble but saw the staff being overwhelmed with what she calls “dorm-room misinformation.” Sean Parker may not have been an ideal company president, but he was pretty good at communicating. After Parker left, Zuckerberg gained more authority, but he didn’t necessarily want it. Reed had never gotten along with Parker, but it was almost worse without him. Communication seemed to be completely breaking down.

  Politics were also getting heavy. Doug Hirsch, Facebook’s vice president for product and a Yahoo veteran, was offending some of the other executives, many of them also newly hired. They thought he was trying to lead talks with the many companies that wanted various kinds of deals. Why was he not just sticking to product issues, they complained? Part of the reason was simply that Hirsch already knew many of the players from his Yahoo days. They would call him up and suggest exploratory meetings. Hirsch wasn’t getting along very well with Zuckerberg, either. Hirsch was hired because so many people had told Zuckerberg that he needed someone else to head product development so he could focus on corporate matters. The CEO had been ambivalent all along about hiring someone as VP for product, since he considered that his own bailiwick. “Doug kind of felt he was there to be adult supervision,” says Cohler, “and that was certainly not what any of us were thinking when we hired him.” Hirsch himself says that some of the people he spoke to before he was hired had led him to believe he might eventually be a candidate to become CEO.

  Reed had become a close observer of all the unhappiness, partly because she had one of the only private offices at the company, which she needed for candidate interviews. A copy machine had been moved out of an oversize closet and she had installed a noren Japanese door curtain for privacy. Next to her desk was a large sculpture of the Hindu god Ganesh, the remover of obstacles. But Ganesh didn’t appear to be working. Many employees came to her office to gripe. Zuckerberg wouldn’t listen, they said. Zuckerberg should be replaced. Zuckerberg didn’t know what he wanted to do with the company.

  Finally, Reed reached the end of her rope. “The morale of the executives was imploding,” says Reed. “The rumor mill was churning, and Mark wasn’t communicating with anybody about what was really happening. The team was almost ready to mutiny.” Zuckerberg was on the East Coast at one of his many meetings. She decided to intercept him before he went back to the office. She instant-messaged him, asking to meet on his way home from the San Francisco airport. But his plane was delayed, and they didn’t finally get together until 2:30 A.M. Reed came down from her home in Marin County, over the Golden Gate Bridge, and they converged in downtown San Francisco. Zuckerberg arrived in a stretch limo, which somebody had mistakenly ordered for him.

  They sat in the neon glow of an all-night diner. Reed unleashed her frustration. “Mark—we’ve pulled together a team of thoroughbreds but they’re locked in their stalls. Nobody knows what’s going on. If you want to sell your company, then stop dicking around and say you want a billion dollars. Owen can go and get that offer. If it’s two billion, say that. If you don’t want to sell, then say that!”

  “I don’t want to sell the company,” Zuckerberg answered, in his typical unflappable manner.

  “Then stop taking all these meetings with Viacom and Time Warner and News Corp.! You’re sending the wrong message.” Then she unleashed her final barrage. “You’d better take CEO lessons, or this isn’t going to work out for you!”

  “So now you’re finally being straight with me,” Zuckerberg replied, turning more animated. “This is the first time I feel like you’re telling me what you really think.”

  He had defanged her. She could no longer be angry. He actually was listening.

  Over the next few weeks, Reed noticed a distinct change in Zuckerberg. For one thing, he did agree to start seeing an executive coach to get lessons on how to be an effective leader. He started having more one-on-one meetings with his senior executives. The week after the confrontation he called the entire staff together for Facebook’s first “all-hands” meeting. He was feeling sick so he conducted the entire meeting sitting cross-legged on the floor.

  Zuckerberg took the executive team to an off-site meeting where they could talk about goals and establish better communication channels. When Moskovitz heard about this he was dubious. “Do I have to fall back into people’s hands so they catch me or something?” he said. “Because I’m not doing that shit.”

  Zuckerberg started doing a better job explaining where he thought the company was going. He wanted to make Facebook into a major force on the Internet, and not see it taken over by someone else, he repeated endlessly. He was getting better at explaining his priorities to his staff. His presentations included the simplest of slides—sometimes with just one bullet point, like “Company goal: grow site usage.” The team was mollified. Reed cheered up.

  Zuckerberg called Doug Hirsch into his office and they agreed it wasn’t working. Hirsch wasn’t officially fired, but it made no sense to stay. He’d been at the company four months. Zuckerberg had chafed at some of Hirsch’s product initiatives, and they disagreed about some key projects Zuckerberg was planning. Hirsch was also aggressively coming up with ways to use Facebook’s product to create more revenue, which in most companies would be routine. But in this one, back then, it was near apostasy. And there was talk among employees about unauthorized meetings he had supposedly had with solicitous companies like Google. To this day, many of Zuckerberg’s young allies insist that Hirsch “was trying to secretly sell the company.” But of course he couldn’t have done that.

  From the perspective of Moskovitz, who observed it all up close, this was just another example of a repeating pattern. “It’s the same story with many of the executives,” he says matter-of-factly. “Mark wanted to build the product out and focus on revenue as late as possible. And they wanted to make sure they had a business.”

  Reed brought needed structure to Facebook’s management, but very few of the staffers she hired worked out in the long run. Hirsch was just the first of many who left within a year. Those in Zuckerberg’s circle blamed her for bringing in people who didn’t appreciate Facebook’s unique mission and culture. Some of these stalwarts—the ones who survived—took to calling Zuckerberg’s new executive coach “Wormtongue,” after an evil adviser to the king in Tolkien’s Lord of the Rings. Criticism was coming from the outside as well. Tech industry bloggers pointed to Facebook’s revolving-door management and said it suggested internal chaos. But Zuckerberg’s adviser Marc Andreessen gives the CEO credit for being decisive about making changes when people weren’t working. There’s no way, Andreessen says, that a fast-growing company can consistently make the right hiring decisions. Better to quickly remedy the inevitable wrong ones.

  Zuckerberg preferred working with people his own age. He believed they were superior programmers, for one thing. Sometime later, at a small conference, he showed his stripes in talking to a bunch of other entrepreneurs. “I want to stress the importance of being young and technical,” he said, according to the VentureBeat blog. “Young people are just smarter. Why are most chess masters under 30?” You can imagine how reading that made the growing number of Facebook executives in their thirties and
forties feel.

  Even as he was trying to learn better how to exert authority and manage his troops, Zuckerberg wasn’t managing his own health very well. Or maybe the stress of Facebook was finally getting to him. He began fainting regularly, in the office and elsewhere, sometimes in the middle of a meeting or while he was sitting at his computer. His friends told him he should get more sleep and actually eat regular meals.

  At a Fortune magazine dinner in early December 2005 that I hosted as the program director of a tech-centric conference called Brainstorm, I asked everyone at the large table to briefly talk about what was most on their minds. When his turn came, Jeremy Philips, a top strategist at News Corp. and close adviser to Rupert Murdoch, said how pleased his company was to have bought MySpace and mentioned that Facebook also seemed very interesting.

  Viacom’s Michael Wolf left the dinner in a panic. “Oh my God, they’re talking to Facebook,” he fretted. Viacom chairman Sumner Redstone would hit the roof if he lost out to Murdoch yet again. Wolf immediately called Zuckerberg and asked him point-blank if Facebook was considering selling to News Corp. Zuckerberg conceded that the two companies had talked, but said that he thought News Corp. was too Hollywood, and in any case media companies like that didn’t understand technology ones like Facebook. Wolf didn’t take the message as it was probably intended—to suggest that Viacom was also not appealing to Zuckerberg.

  In mid-December, Wolf got in touch with a better offer than a meal at a local restaurant. He was planning to be in San Francisco with the Viacom corporate jet, he claimed. Would Mark like a ride back to New York for the holidays?

  Zuckerberg took Wolf’s bait. Since Viacom’s corporate planes were in fact unavailable, Wolf chartered an unmarked, top-of-the-line Gulfstream G5 for the trip from San Francisco airport to Westchester County Airport, near Zuckerberg’s parents’ home in Dobbs Ferry, New York. Wolf flew out that morning from New York on American Airlines. The MTV executive was waiting aboard the G5 as if it were the most normal thing in the world when Zuckerberg arrived, late, about 5:30 P.M. Then, as Wolf had shrewdly planned, they spent five uninterrupted hours together aboard the plane. He was resolved to find a way for Viacom to buy Facebook.