Now that Microsoft was no longer an obstacle to Facebook selling ads on its own site, Zuckerberg and company lost no time launching a new sort of ad on the service. Only two weeks after closing the Microsoft deal, Facebook hosted its first-ever big event for the advertising community in New York on November 6. The announcement had several parts. Any commercial entity could now create a “page” on Facebook for free, which would have many of the characteristics of an individual’s profile, including the ability to host applications. The “sponsored page” model had outlived its usefulness. The company’s strategy was to get as many companies into its system as possible, on the presumption that once they were operating there they would find cause to advertise or otherwise spend money, even if their page itself were free.
A user could become a “fan” of one of these pages rather than a “friend,” as they did with an individual. Activities of users on these new commercial pages would be broadcast to their Facebook friends’ News Feeds. (I soon became a fan of the New York Times page, for example, and my friends saw an announcement of that in their News Feeds.) Barely mentioned was the fact that a service called Beacon would also enable forty-four companies, and more later, to extend a similar alert system onto their external websites. Activity on these external websites could go into friends’ Facebook News Feeds as well.
The meat of the Facebook Ads announcement, at least in the minds of those who planned it, was that Facebook would launch a new kind of self-service advertising that enabled any company, even a tiny one or an individual, to go online and design and purchase an ad on Facebook that they could target very exactly to their intended audience. In effect, the kind of custom targeting that Moskovitz had pioneered three years earlier—for example, when Interscope Records targeted ads for Gwen Stefani’s “Hollaback Girl” to cheerleaders—was now coming to the mass market. One assumption was that the owners of the new pages would be heavy users of these ads as a way to promote their presence on Facebook. Another component of the new self-service ads was what the company called “Social Ads,” which would pair a paid commercial message with a Facebook user’s endorsement.
At the announcement Zuckerberg attracted considerable attention—and derision—with his grandiose introduction. It was the first time he had ever given a big promotional talk outside the confines of Silicon Valley. Hearing him speak, you might think he had gone almost overnight from despising ads to wanting to own the worldwide ad industry. “Once every hundred years,” he began, “media changes. The last hundred years have been defined by the mass media. In the next hundred years, information won’t be just pushed out to people. It will be shared among the millions of connections people have… Nothing influences people more than a recommendation from a trusted friend… A trusted referral is the Holy Grail of advertising.” Unfortunately, since Facebook’s original intention was to promote the new self-service ads, which were more about making targeting available to the masses than about trusted recommendations, Zuckerberg’s intro was misleading to begin with.
The feature that would come to define Facebook Ads, and to turn November 6 into a day of infamy, was Beacon and the way it worked outside Facebook’s walls. Beacon was a poorly designed alert service. It wasn’t even an advertising product, since it generated no revenue. It was built by Facebook’s platform team, not the ad group. But while it was intended for activities like playing a game or adding a recipe to an online recipe box, it also could be used to announce purchases you made on partner sites. And Facebook had lined up a bunch of commercial partners for it. If you, say, rented a movie at Netflix, bought a pair of shoes at Zappos.com or a movie ticket on Fandango, you could give the website permission to broadcast that fact to your friends back in Facebook via an item into your News Feed. But Beacon was a last-minute add-on to the Ads launch and had barely been tested with users. Its implications were overlooked by Zuckerberg and his executives in days leading up to the launch.
And it had a major design flaw. When you, say, bought your shoes at Zappos, you weren’t asked to explicitly approve sending that fact to your friends inside Facebook. Instead, you were shown a little drop-down menu that asked if you wanted to not send the information. If you didn’t proactively stop the alert, it would proceed. In Web lingo, that’s called “opt-out” rather than “opt-in.” And the opt-out menu only displayed for a few seconds before disappearing. Many users seemed to miss it altogether.
After the launch, stories began emerging in the press of users who had unintentionally launched word of their commercial actions back into Facebook with unfortunate consequences. One Massachusetts man bought a ring, whereupon an item appeared in his wife’s News Feed: “Sean Lane bought 14k White Gold 1/5 ct Diamond Eternity Flower Ring from overstock.com.” Within two hours Lane’s surprised wife, Shannon, sent him an instant message: “Who is this ring for?” In fact it was to be her surprise Christmas present, according to a story in the Washington Post. Lane told the Post that he was “crestfallen” that his surprise was spoiled (and also possibly that Shannon’s News Feed item linked to an Overstock Web page showing he got 51 percent off). Another relationship was disrupted when a New York man’s girlfriend saw he had purchased a ticket on Fandango to a movie he was scheduled to see with her the following week. A number of users who did lots of shopping at Beacon-affiliated sites found that the entire contents of their Christmas gift list had been published to friends in Facebook.
Beacon felt invasive, and misused personal information. It seemed to many that Facebook wanted to hijack data about its users in order to make a buck. After things started going wrong, many in the press looked back to Zuckerberg’s hubris at the introduction as a sort of explanation—Facebook was all about power, and Zuckerberg didn’t care what happened to his users. This was a fundamental misreading of the young CEO, but Facebook had become so large so fast that journalists were only beginning to understand it.
The backlash built quickly. As with any Facebook controversy, the viral distribution tools of Facebook itself were well used against it. The liberal political group MoveOn.org stepped in to lead the Beacon protest. It took out ads on Facebook (using the new self-service tool) that asked, “Is Facebook Invading Your Privacy?” It invited users to join a protest group, and 68,000 did. In reality the percentage of users protesting was relatively tiny—0.1 percent versus over 10 percent at the height of the News Feed fracas. But MoveOn got a lot of attention. It and other activist groups were also filing formal complaints with the Federal Trade Commission. Some were preparing lawsuits.
And now whatever happened at Facebook was big news. It had 57 million users and Microsoft’s money behind it. The press wanted Zuckerberg to apologize and turn off Beacon. Many writers argued that Facebook’s stunning new valuation had made it suddenly, desperately eager to prove it could be profitable. One story that indicates how far Facebook’s image had fallen was written by Fortune’s Josh Quittner. Titled “RIP Facebook?” it argued the company was “coming undone.” Quittner compared twenty-three-year-old Zuckerberg’s rash decision making in the Beacon episode to “watching an unattended child play with a pack of matches in a wooden house.”
Beacon was the worst and most damaging controversy Facebook has ever faced, for several reasons. First, unlike with the News Feed, the company made a serious product design mistake. Beacon really did result in data being misused. It thus violated Zuckerberg’s principles about the importance of privacy and user control of information. But the damage was compounded because for more than three weeks Zuckerberg did nothing to respond to the complaints. As his silence continued, the controversy grew angrier. He was watching user statistics as he always did and saw that Beacon was not affecting behavior inside the service. But that fact belied the genuinely painful experiences of a small number of users as well as the legitimate outrage of the press.
There is an edge of sanctimony to Zuckerberg that at times like this can serve him poorly. But the irony was that he had endlessly resisted, up until now, anything tha
t resembled an intrusive ad or message on Facebook. Here was someone who had said for years that he wanted to do what best served his users, now suddenly acting as if he knew better than they did.
Now, in retrospect, Zuckerberg acknowledges he’d become cocky. “We didn’t react quickly enough,” he says ruefully, “because we were just so used to people complaining about things and then us eventually being right. We were like ‘Hey, whatever, they’ll eventually get over it.’ Then it was like ‘Hey, no, we actually messed this one up.’”
Finally, on November 29, more than three weeks after Beacon debuted, Facebook redesigned it to be a fully opt-in system. No message about you would now be sent without your explicit permission. MoveOn issued a cautious victory statement. Then a week later, Zuckerberg made his first public statement on the mess, with a deeply contrite blog post on Facebook’s site titled “Thoughts on Beacon.”
“We’ve made a lot of mistakes building this feature, but we’ve made even more with how we’ve handled them,” he began. “We simply did a bad job with this release, and I apologize for it… We took too long to decide on the right solution… Facebook has succeeded so far in part because it gives people control over what and how they share information… In order to be a good feature, Beacon also needs to do the same.” He also announced that Facebook was now making it possible to turn off Beacon completely, something MoveOn had asked for.
Beacon put a black eye on Facebook that still hasn’t fully disappeared. Internally, the Facebook Ads launch was dubbed beforehand with the project name “Pandemic.” It really did turn into a disease that was hard to wipe out—a disease of negative perception that lingered long after the product was modified. Membership growth slowed discernibly in the aftermath of all the negative press coverage, though it picked up again by early 2008. Dan Rose, the former Amazon executive who heads marketing for Facebook’s advertising efforts and was deeply involved in the Facebook Ads launch, says the controversy was “devastating” for the company. “By the time we fixed Beacon, the meme was already out there that people didn’t control the way their information flowed,” he says. “We just really screwed it up. It took a long time for our brand to grow past that.”
But Beacon did illuminate where Facebook hoped to go in the future—to become a social hub where information about your behavior across the Web was aggregated for friends to see. If you buy something or make a comment on a blog or indicate you like something, Facebook’s goal is that eventually it should be possible to let your friends in Facebook know that. In fact, the Beacon program didn’t end until late 2009, along with the settlement of a lawsuit about it. Meanwhile, objections to it had died away. Zuckerberg now says he may have simply launched Beacon too soon: “One of the things that was bad about Beacon was that people just weren’t ready yet to share their information off of Facebook.” The company in 2008 launched a much more widely deployed technology called Facebook Connect for people to share what they do at partner websites. There has been virtually no protest, largely because Connect gives users sufficient control over the information about them that it sends to their friends.
Shortly after the Beacon frenzy died down, board member Jim Breyer had a stern conversation with Zuckerberg. “We blew it,” he said. “We should have apologized right away. This, to me, Mark, is an example of why it’s so important for us to get a new chief operating officer into the company.” Owen Van Natta was a great deal guy, unsurpassed at business development, but not the firm, steady, second hand on the tiller that Breyer thought a company with a still-learning twenty-three-year-old CEO needed. And the company also needed someone well-versed in the complexities of the online advertising business. Zuckerberg took a couple of weeks to think about it, then told Breyer he agreed. He would tell Van Natta of their decision in early January and begin a search.
At a Christmas party in mid-December, Zuckerberg got into a conversation with Sheryl Sandberg. She was a senior executive at Google who had built the search company’s self-service ad business into one of the economic powerhouses of the Web. The two of them ended up standing in a corner for over an hour as Zuckerberg queried her about how to manage a growing tech organization. They agreed to get together sometime for dinner.
In the meantime, after a difficult conversation with Van Natta, Zuckerberg began meeting potential candidates for the COO job. One of them was Dan Rosensweig, the former chief operating officer at Yahoo who had only a little more than a year earlier avidly pursued the purchase of Facebook with Yahoo CEO Terry Semel, and who with his wife had hosted the party where Zuckerberg met Sandberg. Another was Jeff Weiner, another top Yahoo executive widely known for his judgment and managerial smarts.
Sandberg, who had been at Google since 2001 and made many millions from her stock options there, had decided she was ready to leave. She had already been offered a great job at a big East Coast media company, and was mulling it seriously. She spent an afternoon talking to Roger McNamee, an industry sage and one of Silicon Valley’s best-known investors. She wanted his advice about the media job. “It’s a really good idea. You should do this,” McNamee told her, then hesitated. “But what you really should do is go work with Mark Zuckerberg at Facebook.” McNamee had been informally advising Zuckerberg and knew he was looking for a new COO. Sandberg and Zuckerberg had coincidentally been emailing about a dinner the following week. Sandberg hadn’t thought of it as a recruiting dinner, though Zuckerberg’s aide-de-camp and in-house recruiter Cohler had talked to her repeatedly for over a year about Facebook. “When are you coming to work with us?” he asked every time he saw her.
By the time Sandberg arrived at the quiet little Silicon Valley restaurant, McNamee had spoken to Zuckerberg and made a case for Sandberg. At dinner the two talked and talked. The restaurant closed at 10 P.M., then Zuckerberg went back to Sandberg’s home to keep talking. She’s the mother of two small children and she usually goes to bed by 9:30 P.M. By midnight she had to kick him out so she could sleep.
Dinners like that continued. Zuckerberg was in no hurry. He wanted to get to know this person whom he might be working with for the next ten to twenty years. This time he wanted to hire somebody for the long haul. Sandberg says the meetings with Zuckerberg, which he estimates took a total of fifty hours, were “endless.” “He never left!” she says in an interview. “Put that in your book. He just would not leave my house.”
Sandberg is an elegant, slightly hyper, light-spirited forty-year-old with a round face whose bobbed black hair reaches just past her shoulders. Prior to her six years at Google she served in the powerful role of chief of staff to Lawrence Summers when he was secretary of the Treasury in the Clinton administration. She met him as a student at Harvard—yes, that school again—where she majored in economics. She wrote her thesis on the economic factors that lead women to remain in situations where they are abused by their husbands. (Zuckerberg has always sought to hire academic stars, despite having dropped out himself.) She speaks at an astonishingly rapid pace, yet without omitting inflection, in a kind of musical torrent of words. She’s stylishly dressed when I come to see her, in new knee-high black Prada boots with black slacks and a cashmere sweater, and her polish contrasts dramatically with Zuckerberg’s plainness—and with just about everybody else at Facebook.
Sandberg was eager to keep these meetings secret from others in the close-knit Silicon Valley community. One time she and her husband, Dave Goldberg, a top Yahoo employee, joined Zuckerberg and his girlfriend, Priscilla Chan, for dinner at an obscure restaurant near the San Francisco airport where no one would recognize them.
Zuckerberg asked a lot of questions, and Sandberg replied in kind. The topics they covered in their discussions ranged from where Facebook would be in five years to Sandberg’s experiences in government to theories of management to personal history. He was vetting her, but she needed to be convinced as well. Shortly before they started meeting, the Harvard-oriented magazine 02138 had published a long exposé about the convoluted campus origins
of Facebook. It accepted the Winkelvoss arguments at face value and suggested Zuckerberg was probably an intellectual thief. “We’ll never know what really happened in the Harvard dorms four years ago,” the article concluded. “The question remains: Whose idea was it?” Sandberg was concerned when she read it and queried her friend McNamee, who assured her of Zuckerberg’s honesty.
Late in January both of them were heading to the World Economic Forum in Davos, Switzerland. Sandberg invited Zuckerberg to join her for the flight from San Francisco to Zurich on Google One, as the 767 owned by its co-founders Larry Page and Sergei Brin is known. The two talked conspiratorially the entire flight, a fact not unnoticed by some of her Google colleagues.
As the discussions got more serious, Sandberg called her good friend Don Graham at the Washington Post Co. to ask his opinion of Zuckerberg and Facebook. Graham had been among the many who tried to hire her in 2000 when she left the Treasury Department. (Others included the New York Times Company and the nonprofit AIDS Vaccine Initiative.) It turned out that Zuckerberg had also called Graham to ask about her. The Post CEO gave them both strong endorsements. “What a sensational hire that was. Wow,” says Graham now about Sandberg at Facebook.
Jim Breyer also spoke at length with Sandberg and with others who were in contention for the COO job. She was one of the few who didn’t say, one way or another, that she would like to keep open the possibility of being Facebook’s CEO some day. That was a deal breaker. “Mark’s our long-term CEO,” says board member Breyer. “We were looking for a great business partner who was comfortable with that.”
The Facebook Effect Page 29