Just two days after the Stream API announcement, I had dinner in New York with Sean Parker, who spent a good portion of our time together that night denouncing it. “It’s the greatest strategic gamble the company has ever made and will ever make,” he said in his intense rapid cadence. “Opening the stream to the world has the possibility of breaking the company’s network effect. As a closed network the switching costs are incredibly high and everybody’s forced to play in Facebook’s sandbox. But when you open the stream to the world you open the possibility of better Facebook clients that can process all the same data that Facebook itself can.”
These words were still ringing in my ears a week later when I sat alone with Zuckerberg for a long interview in a corner conference room near his desk in Palo Alto. He didn’t dispute what Parker said, but nonetheless remained unperturbed. He launched into a discussion of the perils that come when companies “build walls around themselves.” “The best thing we can do is kind of move smoothly with the world around us,” he continued, “and to have constant competition, not build walls. To the extent that we think most of the sharing is going to happen outside of Facebook anyway, we really want to encourage it. I can’t guarantee we’ll succeed. I just think that if we don’t do this then eventually we will fail.”
I asked him if he didn’t worry that such conceptual boldness could jeopardize the company’s finances. “It’s only the right argument if you’re trying to build something that has value over decades,” he said. “It’s really important for people to understand that what we’re doing now is just the beginning.” Chamath Palihapitiya, whose job at Facebook is to think about growth, says, “Mark has the most long-term perspective I’ve ever seen. This guy is uber uber uber on the long-term view.” Facebook’s ambitions for Connect and the Stream API remain vast. Says top Facebook designer Aaron Sittig: “If we open things up slowly over time, we could get to total ubiquity.”
The company’s senior managers are consistent in saying that Facebook will evolve beyond being just a “site.” Its services will be available widely. It will become a storehouse for information, like a bank, but also a clearinghouse and transit point, like the post office or the telephone company. It could become nothing more than an identity registry and a hub for conveying data between different people. But that could be a very powerful position in the business ecosystem.
Some managers say Facebook on the Internet could ultimately become like an Intel chip inside a PC—something you use but seldom think about. And Matt Cohler, departed from Facebook but still deeply involved, says, “In five years there won’t be a distinction between being on and off Facebook. It will be something that goes with you wherever you are communicating with people.”
Think of it like having a piece of software that in effect contains your friends—or at least a persistent and potentially live connection to any of them. That “software” will allow you to stay abreast of whatever they do, and tell them whatever you want about yourself. Anytime we are doing anything online and have a question we will be able to turn to our friends. We may be able to converse with them in real time as well, through chat, voice, or video.
This experience will increasingly go with us as we traverse the real world as well, since most people will carry devices with an always-on connection to the Internet. Facebook’s iPhone, BlackBerry, and Google Android applications as well as those on other mobile phones are already used by more than 100 million users worldwide. In some countries this is already the primary way people use Facebook. In the future, the main way people will use Facebook will be on a mobile device.
Here’s a possible scenario: Imagine you’re at a football game and your mobile device shows you which of your friends are also in the stadium—perhaps even where they’re sitting. Maybe it could tell you who in your section of the stands has attended exactly the same games as you in the past. Or who is a fan of the same teams as you. This may seem cool to many users. To others it may feel Orwellian.
Shopping is another arena that could be transformed. Wouldn’t you want to know, whenever you were considering an expensive purchase like a car or a refrigerator or a camera, exactly which of your friends had purchased—or maybe just considered—the same purchase? Some developer will probably figure out how to get Facebook to tell you that. It will also have to ensure that all that information flies around only with the user’s consent.
Facebook might even begin to function as a sort of auxiliary memory. As you walk down a street you could query your profile to learn when you were last there, and with whom. Or a location-aware mobile device could alert you to the proximity of people you’ve interacted with on Facebook, and remind you how. The software could even start to make elementary decisions on your behalf. Platform marketer Ethan Beard says you will probably be able to simply tell your TiVo to record whatever shows your friends are recording. And here’s a scenario he suggests: “Imagine I can get in my car and just say, ‘I want to go to David Kirkpatrick’s house.’ It knows who I am and can go inside Facebook, find out where David lives, and direct me there using GPS. Ideas like that are so powerful, how could they not happen?”
In early August 2009, Facebook acquired FriendFeed for about $50 million, by far its largest acquisition. It really was the FriendFeedization of Facebook. Bringing into Facebook both FriendFeed’s technology as well as its ex-Google founders, star coders that they are, was intended to significantly bolster Facebook’s ability to compete with Twitter.
In keeping with Facebook’s more elastic conception of itself, in September it launched Facebook Lite. It was the first true brand extension—to Facebook as Diet Coke is to Coke. Lite is intended for people who use a mobile phone or do not have broadband Internet access or for some other reason need a smaller, less data-intensive window into Facebook that does not consume much bandwidth. It is a stripped-down version of the service without things like videos. As Facebook heads toward 500 million users, Zuckerberg is embracing user segmentation. Facebook has implemented a daunting parade of changes, even as it continues its headlong growth. Zuckerberg was becoming resigned to protests from the relative few so long as more and more people found value in his service. He started saying he couldn’t wait for 2010 so he could stop wearing that damned tie.
17
The Future
“My goal was never to just create a company.”
Mark Zuckerberg is sitting under the beams of an elegant old Swiss restaurant in Davos during the January 2009 World Economic Forum, the celebrated annual gathering of government and industry leaders. To his right is Sheryl Sandberg, and at the other end of the small table is Larry Page, Google’s co-founder. Accel Partners, Facebook’s primary venture capital investor, is hosting an annual Davos gathering for technologists and scientists called the “Nerd’s Dinner.” This year Accel has flown in not one but two American sommeliers to present several varieties of $600-a-bottle California wine. Zuckerberg, who has drunk a couple of glasses, leans forward.
“Larry, do you use Facebook?” he asks.
“No, not really,” Page replies without affect in his high-pitched nasal voice. Zuckerberg seems disappointed.
“Why not?” he persists.
“It’s not really designed for me,” Page answers. Zuckerberg starts to ask him another question, but is deterred by Sandberg.
“Mark! Don’t talk about that in front of David!” she scolds. (That is me, sitting on Zuckerberg’s left.) Sandberg is well-versed in managing journalists.
But in asking such a question so openly of the co-founder of Google, Silicon Valley’s king and Facebook’s rival in many ways, Zuckerberg displays a few facets of his character. He may be a tad naïve, but he is simultaneously fearless, competitive, and supremely confident, even cocky. He is not afraid of Google, though he remains a little obsessed with it. He really wants Page to like Facebook, but he also wants to see what will happen when he asks.
• • •
Zuckerberg will almost certainly continue to rule o
ver Facebook with absolute authority. He wants to rule not only Facebook, but in some sense the evolving communications infrastructure of the planet. Yet he believes that Facebook’s continued success depends on its ability to retain the confidence of its users. As he told users during the vote on the terms of service, he wants to govern Facebook fairly, through an “open and transparent” dialogue. It remains more important to the young CEO to further the honest transparency he believes in and to facilitate more sharing and communicating than to turn Facebook into a profitable business, though he believes he can pursue both goals in tandem.
I once asked Zuckerberg if he ever worried that Facebook could get into financial jeopardy. “Well, there are different levels of jeopardy,” he replied. “Is it sustainable? Will it go out of business? I don’t spend any time worrying about that. It’s fine. Can it be a $10-billion company or something like that? Okay, I think we have a really good chance of getting there.”
Some colleagues say Zuckerberg’s desire to prioritize openness and fairness over profit shows he is good at delaying gratification. Or maybe he’s just so driven that gratification is irrelevant. “He’s always striving to do the next thing,” says an executive who has worked closely with him. “For most people there are plateaus and milestones you hit and it allows you to sit back and celebrate and feel a sense of accomplishment. That doesn’t really exist for Mark.”
Zuckerberg’s pursuit of growth over money does not seem to have diminished Facebook’s financial prospects. Board member Marc Andreessen has as much perspective on these matters as anyone. “Mark has never argued that Facebook will not make a lot of money,” observes Andreessen. “On the financial side really it’s a timing thing. Focusing on anything other than establishing a global franchise is a waste of time.”
Andreessen is among the very small number of people Zuckerberg regularly turns to for advice, so his views count. (“Marc is in a position to say things and have Mark Z. believe it. I don’t think any of the rest of us are,” says David Sze of Greylock Partners, a big Facebook investor.)
Andreessen’s strong advice is to keep investing for growth. He explains himself in a fall 2009 interview in a cushy Silicon Valley hotel lobby, talking so fast it’s lucky I have a recorder. “How much cash has the company burned to date?” he asks. “A few hundred million, right? So how many active users do they have? Three hundred million? So the company has spent a dollar or so per active user and has built a global franchise, a global brand, with real staying power, stickiness, network effects, R&D, competitive advantage, and a whole future roadmap of technology that’s on its way out the door. For a dollar a user? Like, you would do that over and over and over again.
“So, okay, let’s ask the question—What if the potential here is to get to 500 million active users, or a billion active users, or two billion, right? Would you keep spending that dollar to get there? Of course! The answer is—of course! You would. Compare that to the cost of building anything of any similar scale and you’d say you have the bargain of the century.” Andreessen is very tall, and he leans his large, bulbous, shaven head in toward me as his forceful words careen toward what is in his view an irrefutable conclusion. He is difficult to argue with. If you have him on your board he will carry a lot of sway. No matter. He and Zuckerberg agree.
Zuckerberg’s mentors and advisors have evolved as the company has grown, from Eduardo Saverin, his friend who knew something about business, to Sean Parker, who had started companies and knew how to deal with financiers, to Don Graham, who ran one of the country’s largest media companies, and now to Andreessen and Steve Jobs, widely considered the most influential businessman in the world. Zuckerberg admires Jobs and has been spending an increasing amount of time with him.
Facebook’s board has always been small. Thanks to the machinations of Sean Parker in 2004, Zuckerberg has always controlled it. He expects it to support him in his long-term approach to managing the company. When I ask Andreessen what he thinks about Zuckerberg’s control of the company, he blurts out, “Oh, that’s a good thing.” Only very strong founder CEOs, he says, can build big enduring tech companies. He compares Zuckerberg to Bill Gates, Jeff Bezos, and Jobs himself.
Each board member works with Zuckerberg in his own way. Jim Breyer, who joined when Accel invested in 2005, weighs in on organizational structure and hiring. (“Mark always wanted a hacker culture and creative chaos,” says Breyer. “My point to him is you want that around product innovation but not in areas like sales, human resources, or legal.”) Andreessen gets involved in management but also with product design. He feels protective of Zuckerberg, and tries to keep him from making the same mistakes he made as a young entrepreneur. On the other hand, Peter Thiel, appointed when he invested $500,000 in 2004, is less interested in management and talks to Zuckerberg more about long-term corporate strategy and the overall economic environment. Zuckerberg describes their ongoing discussions: “It’s mostly like ‘Raise money now.’ ‘Don’t raise money.’ ‘Keep this money in the bank.’ ‘You should sell the company now.’ ‘You should not sell the company now.’ I listen to him on that.”
Zuckerberg talked about adding Don Graham of the Washington Post Company to the board as far back as 2005, even after Accel outbid Graham to invest in Thefacebook. But both agreed then that the company was still too small. Zuckerberg landed Graham in 2009, finally filling all five board seats (though both Graham and Andreessen serve at his pleasure). Zuckerberg admires Graham’s long-term view of his business as well as the structure of the Washington Post Company that enables it.
In November 2009, Zuckerberg implemented a shareholder arrangement at Facebook similar to that of the Washington Post Company. It assures that he and his allies—all existing shareholders were converted to the new “Class B” stock with the change—will retain control of Facebook after it goes public. Google had created such a structure for its own IPO in August 2004. Afterward, management and directors controlled 61 percent of Google’s voting power through shares that carried ten votes each, while common shares were allotted one vote. Facebook’s new share structure has identical voting provisions. Facebook won’t go public until it reaches at least $1 billion in annual sales, a level it will almost certainly achieve in 2010. But board member Jim Breyer said in January 2010 that the company would definitely not go public this year. When the company goes public will depend on whether Zuckerberg believes that an IPO will benefit the company in other ways, for example by making it more prominent in the ranks of business. He will never do it just because he wants to cash out his own wealth. And once he does take it public, he will face inevitable pressures from Wall Street. It will become considerably harder to maintain his resolute emphasis on his vision of sharing and on growth above short-term revenue.
Zuckerberg owns about 24 percent of Facebook’s stock, worth about $3 billion at the price the stock traded at privately as of early 2010. The second largest block is Accel’s at about 10 percent, plus about 1 percent controlled by Jim Breyer personally (the result of that $1 million he invested back in 2005). Dustin Moskovitz owns about 6 percent. In may 2009 Russia’s Digital Sky Technologies bought 2 percent from the company, about 1.5 percent from miscellaneous employees, and later another 1.5 percent from various holders to make it Facebook’s second-largest outside investor, with about 5 percent. Eduardo Saverin owns 5 percent, Sean Parker about 4 percent, and Peter Thiel around 3 percent (he sold about half his holdings in late 2009, mostly to Digital Sky). Greylock Partners and Meritech Capital Partners each have between 1 percent and 2 percent. Microsoft owns about 1.3 percent, and Hong Kong billionaire Li Ka-shing about .75 percent. Advertising giant The Interpublic Group owns a little less than half a percent, the happy heritage of an ad-and-equity deal in Facebook’s early days. A amall group of current and former employees own a substantial share but less than 1 percent. They include Matt Cohler, Jeff Rothschild, Adam D’Angelo, Chris Hughes, and Owen Van Natta. Others with sizable holdings include Reid Hoffman and Mark Pin
cus, who invested alongside Peter Thiel in the company’s very first financing round, as well as Western Technology Investments (WTI) which loaned the company a total of $3.6 million in its first two years, and invested $25,000 in that same initial round. Employees and outside investors own the remaining 30 percent or so.
Though Digital Sky bought its shares from the company at a price that valued it at $10 billion, it’s hard to say what Facebook is really worth. As recently as late 2008 the so-called fair market value placed on its shares gave it a total value of only about $2.5 billion. This is the price Accel, for instance, placed then on its own Facebook shares for bookkeeping purposes. “I know it will end up a big number someday,” Breyer told me around that time. “So I don’t really care what it is now.” (His Accel VC firm purchased some of the employee shares along with Digital Sky at a valuation of about $7.5 billion in mid-2009.) Breyer’s fellow board member Thiel, however, is not so certain. “The range of what it may be worth from here is extremely big,” he said in an early 2009 interview. “It may be worth a lot more. It may be worth nothing at all.” These guys must have pretty interesting conversations in the boardroom. Thiel also talks about “the incredibly high anxiety levels people have about—is this going to be the most successful thing ever, or is it going to weirdly spiral out?” Even though the company remains private, insiders have begun periodically selling Facebook’s stock on specialty exchanges like SecondMarket and SharesPost, at prices that put the company’s valuation as high as $14 billion by early 2010.
For all his conviction about the inevitability of ever-growing transparency, Zuckerberg remains concerned about a corollary issue—who controls your information. “The world moving towards more transparency could be the trend driving the most change over the next ten or twenty years,” he says, “assuming there’s no massive act of violence or other political disruption. But there’s still a big question about how that happens. When you ask people what they think about transparency, some get a negative picture in their mind—the vision of a surveillance world. You can paint some really dystopian futures. Will the transparency be used to centralize power or to decentralize it? I’m convinced that the trend towards greater transparency is inevitable. But I honestly don’t know how this other piece [whether or not we’ll be subject to constant surveillance] plays out.
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