The Facebook Effect Part 10

"We will never again sell banner ads," says Rose. "Engagement ads leverage the power of the Internet to enable the marketer to have a dialogue with the audience. That's very different from traditional banner ads on the Web. Those do what advertisers have done on TV and in print for fifty years-intentionally disrupt the experience you are having." Meanwhile, Microsoft continued to sell such banners for Facebook. They generated about $50 million in 2009, but the deal ended in early 2010, with Microsoft getting more involved in Facebook search in exchange.

But while the company has put great energy into developing and refining engagement ads and carefully managing its relationship with Microsoft, the lion's share of its ad revenue is coming from a third source: self-service ads that smaller advertisers purchase right on Facebook's site, using a credit card. Anyone can buy them, but these ads are typically purchased by local businesses.

Facebook gives advertisers more targeting options than most websites because people overtly and willingly put there a tremendous amount of information about themselves. They also spend a lot of time and do a wide variety of activities there, which creates opportunities to present people with ads. If on Google you buy an ad that displays when someone types "digital cameras," on Facebook you display a similar ad to married men in California who have young children but who haven't posted any photographs.

For all the importance of advertising, even in the Sandberg sessions there was another category of revenue that many believed will become quite large over time. Rose calls it "consumer monetization," meaning users pay Facebook directly for something, just as they already pay lots of money to play various games and other applications inside the service. Facebook was already selling things like virtual birthday cakes for a dollar, but there are many other ways Facebook could get money from its users. For example, there might be fees associated with a currency that people could use to buy and sell things across Facebook, especially in games. The company is testing such a system already. On other social networks around the world there is a healthy market in virtual decorations and virtual statements between friends. Sandberg says she believes that ultimately 2030 percent of Facebook's revenues will come through the sale of virtual goods or the operation of an on-site currency. Virtual goods sales totaled an estimated $30 million in 2009.

In early 2010 Facebook began putting renewed emphasis on "Facebook credits," which users purchase from the company and then use mostly in games, to buy virtual goods. When a user spends the credit, Facebook keeps 30 percent of its value. Some games have begun using only this form of payment, replacing a plethora of third-party payment options that prevailed before. Justin Smith, who runs Inside Network, the leading analysis firm for Facebook commerce, says he believes such credits will become a major part of Facebook's future. "The idea," he says, "is that Facebook will be able to enable new kinds of revenue growth because users will be more comfortable paying Facebook than a third party." Smith even believes it possible that the company could eventually allow users to use Facebook credits for purchases across the Internet. Even a small cut of such a system might become a significant source of revenue. Zuckerberg, however, says the company work on credits thus far has been primarily to make life easier for application developers on Facebook's platform. "Our intention is not to be profiting off of this anytime soon," he says. "Over time, if it becomes a widely used thing, it could be a good business."

Facebook now sits squarely at the center of a fundamental realignment of capitalism. Mark Zuckerberg, as a man of his generation, has understood this intuitively since he launched Facebook at Harvard. Marketing cannot be about companies shoving advertising in people's faces, not because it's wrong but because it doesn't work anymore. The word advertising advertising is no longer really the right word for what's going on at Facebook. It is merely a useful shorthand, as in the Sandberg sessions, to refer to a process in which companies spend money to get people more interested in their products. is no longer really the right word for what's going on at Facebook. It is merely a useful shorthand, as in the Sandberg sessions, to refer to a process in which companies spend money to get people more interested in their products.

But marketers can no longer control the conversation. It first became evident that consumers were becoming publishers when blogs emerged in 2001 and 2002. The audience was starting to create the media. Now Facebook is enabling that trend to broaden to even the least tech-savvy "consumer." Users get their own home pages and the tools to send messages and create and forward content. Much of that content is about commercial products and services. Anyone can also now create a Facebook page for any purpose.

Consumer spending is the engine that drives every modern economy. But "the consumer" no longer just consumes, as Facebook makes evident. Increasingly the people are in control.

"Brands are already on Facebook whether they like it or not," says Tom Bedecarre, who heads San Francisco's AKQA, the largest independent digital advertising agency, and an ardent fan of Facebook. "Whatever people hate or love they will start groups or pages about, and post messages about." One marketing tool often used by Facebook ad sales boss Mike Murphy is to search Facebook's database when he's trying to sell ads to a company, so he can demonstrate how enmeshed it already is on Facebook. For a well-known company like McDonald's, for instance, the number of mentions is in the millions.

Some companies make ill-fated attempts to squash consumer sentiment. Canadian coffee-shop chain Tim Hortons responded to Facebook groups that criticized the company by having lawyers send members cease-and-desist letters. That had little effect. No lawyer can prevent someone on Facebook from criticizing or insulting a brand or product. As Randall Rothenberg, president of the trade group Interactive Advertising Bureau, puts it, "Conversations cannot be controlled. They can only be joined."

Rather than interrupting the conversation, the companies formerly known as advertisers now have to figure out how to create the conversation on Facebook, or to be part of it. Successful ones help users connect to each other and communicate. "It's a new kind of exchange of value for marketers," says Bedecarre. "I'll give you value and you'll have a better feeling."

Mazda asked fans of its Facebook page to help it design a car for 2018. Design students from all over the world contributed ideas. Ben & Jerry's ice cream let people tell the company what its next flavor ought to be. Each time those Mazda or Ben & Jerry's fans write something on those pages, a message is posted on their profile that goes into friends' News Feeds. Consumers are sending messages to their friends that benefit the marketer. That's how the flavor program, developed by marketing firm Edelman Digital, enabled Ben & Jerry's to increase its fans from 300,000 to a million in just six weeks. The campaign in both cases began with engagement ads on Facebook's home page.

Facebook users often get something concrete as they're being marketed to. In effect they are receiving some of the compensation that would otherwise have gone to a TV station or newspaper in the past. Starbucks has given away coupons for free cups of coffee. Ben & Jerry's has given away ice-cream cones. Giveaways have worked for marketers seeking to reach business customers, as well. AKQA helped client Visa create the Visa Business Network for small businesses on Facebook. Visa gave each company that signed up $100 worth of Facebook advertising. Several hundred thousand did.

Some consumer-oriented companies now put less emphasis on their website and more on their Facebook page, where they can host a wide variety of Facebook applications and where actions of fans get virally projected to their friends. Vitamin Water, for example, has begun to direct consumers to from its TV ads and from banners placed elsewhere around the Web. Gap displays the address of its Facebook page on billboards.

The relationship between people and companies will continue to evolve rapidly on Facebook, and will most likely yield some startling developments. There's growing evidence that by enlisting consumers into the very process of conceiving, designing, and even building a product, companies can reduce their costs, create products people want, and engender customer loyalty. Facebook can be seen as a giant collaborative network. It is the perfect platform for such innovation. The competitions from Ben & Jerry's and Mazda pointed the way, but in 2009 a small film company called Mass Animation, working closely with Facebook staffers, took the idea considerably further.

It produced an animated film created by the users of Facebook. The five-minute film, titled Live Music, Live Music, includes segments contributed by fifty-one different people from seventeen countries, including Kazakhstan and Colombia. includes segments contributed by fifty-one different people from seventeen countries, including Kazakhstan and Colombia. Some were as young as fourteen Some were as young as fourteen. Mass Animation created a storyline, soundtrack, and first scene, which established the film's graphic style. Its Facebook page attracted 57,000 members Its Facebook page attracted 57,000 members, 17,000 of whom downloaded special software. Members of the page voted to determine which segments should be included in the film. Winning contributors received $500 and acknowledgment in the film, which Sony distributed to theaters in late 2009 as the opener for an animated feature. "Social networking is becoming social production," says Don Tapscott, an author who wrote both Wikinomics, Wikinomics, about new forms of business collaboration, and about new forms of business collaboration, and Grown Up Digital, Grown Up Digital, about young people and technology. "This is not just about friendships. This is changing the way we orchestrate capabilities in society to innovate, and to create goods and services." about young people and technology. "This is not just about friendships. This is changing the way we orchestrate capabilities in society to innovate, and to create goods and services."

Facebook is the most targetable medium in history. Advertisers want to show their ads to the people who are most likely to respond. On the Net, until Facebook came along they had to hire services to laboriously and expensively follow users' digital footprints across the Internet, attempting to infer their gender, age, and interests by where they visited and what they clicked on. But on Facebook users are forthcoming with accurate data about themselves, because they are confident the only people who will look at it are those they approve as their friends. "Facebook has the richest data set by a mile," says Josh James, CEO of Omniture, a big Internet ad-targeting service that works with Facebook. "It is the first place where consumers have ever said, 'Here's who I am and it's okay for you to use it.'" Sandberg says, "We have better information than anyone else. We know gender, age, location, and it's real data as opposed to the stuff other people infer." The inferential targeting used by advertisers on the rest of the Web is frequently wrong, she says.

Users on Facebook do volunteer vast amounts of data about themselves, and then generate even more through their behavior on the site, by interacting with other users, on groups and with pages. Facebook tracks all this in its database and uses it to place advertisements. Facebook's policy is not to look at any individual's data except to ensure it does not violate the service's rules. It says it never shares the actual data with advertisers. Facebook just lets advertisers use the aggregated data to select from a vast menu of parameters to target ads at precisely the type of person they are trying to reach.

Anybody can pick through endless combinations on Facebook's self-service ad page. You can show your ad only to married women aged thirty-five and up who live in northern Ohio. Or display an ad only to employees of one company in a certain city on a certain day. (Employers aiming to cherry-pick people from a competitor do this all the time.) Customers for Facebook's more expensive engagement ads can select from even more detailed choices-women who are parents, talk about diapers, listen to Coldplay and live in cities, for example. "That targeting pure and simple is the driver of what we're able to do today, and why we're growing," says Facebook's Rose.

I am a baby boomer and list many musicians I like on my profile. So I frequently see an ad on Facebook for a USB turntable that converts old vinyl records to digital MP3 files. The advertiser targets music lovers my age because we're likely to own a lot of records.

The knowledge Facebook has about its users enables it to help advertisers with market research. Say a company is deciding what music to use in a TV ad. Facebook can survey the profiles of all the people who are fans of that advertiser's page and report what music they are most likely to listen to. If you buy an engagement ad, Facebook can tell you the exact demographic breakdown of the users who clicked on it. "I can tell an advertiser, for example, that while it thought its audience was eighteen-to-twenty-four-year-old women, they are actually nineteen-to-thirty-eight-year-old men," says Facebook ad boss Mike Murphy, "and they like football and these are their three favorite movies. If you want to reach these guys, here are their favorite TV shows. You can build your entire media campaign around the data we provide you. It's an asset you couldn't buy anywhere else on the planet." Now the company is working with a service called Nielsen Homescan to correlate data Nielsen collects about product purchases in thousands of American homes with the Facebook behavior of those residents. Advertisers will be able to see which ads Facebook users saw and which products they bought. That sort of data has existed for a long time for television. If Facebook can demonstrate it is at least as effective, advertisers will become more eager to be there.

Facebook's ability to marshal all that user-reported data makes some believe it can make a lot of money. "Facebook has the opportunity that Google only wishes it had-the ability to build a credible proposition for the largest brand advertisers," says Alan Gould, who runs ad-measurement firm Nielsen IAG. "Now Steve Ballmer's valuation doesn't look so silly." "I believe Facebook is going to fundamentally change marketing and become a monster business," says Mike Lazerow, CEO of Buddy Media, which builds promotional Facebook applications and pages for companies. "When you combine four hundred million people with data about not only where they live, but who their friends are, what they're interested in, and what they do online-Facebook potentially has the Internet genome project."

So far there has been little resistance among Facebook's users to using their data to target ads to them. But it could be where the privacy challenge becomes greatest. It's easy to imagine how some error of targeting or other clumsiness could lead to a major ad backlash that sullies the company's reputation.

Not that there haven't been problems. In this world of marketing centered on the likes and dislikes of actual people, the biggest danger so far has been that users would appear to endorse or to initiate the transmission of messages that they actually disapprove. One man named Peter Smith from Lynchburg, Virginia, noticed in July 2009 a Facebook ad reading "Hey Peter-Hot singles are waiting for you!!" Next to it was a photo of an attractive, smiling woman-who happened to be his wife. It turned out Cheryl Smith played games on Facebook. She had given a game permission to access her data, through the opaque process Facebook uses to connect users to applications. The game company used a third-party network, which displayed ads inside the game.

Apparently the ad network appropriated her picture from inside the game and affixed it to the dating ad. The ad network that stole the picture was violating Facebook's rules and was banned. Facebook subsequently clarified its advertising guidelines to make clear that such sharing of user data is not allowed. But as people interact with applications and use Facebook in a larger variety of ways it has become increasingly harder for the company to police how user data is handled. More mistakes are bound to happen.

In the months after Sandberg arrived at Facebook, the company's leadership went through a fundamental realignment. There was a string of departures. Owen Van Natta was the first to go, not surprisingly. It was obvious that no matter what happened, with Sandberg's arrival he wasn't going to get a shot at CEO. Within a year Van Natta became CEO of MySpace (though he lasted there less than a year).

As Sandberg settled in and refocused Facebook on its fundamental opportunity in advertising, Zuckerberg's founding team-the young posse who had helped him create Facebook-also began to disperse. Matt Cohler, his "consigliere" since early 2005, left to join prestigious Benchmark Capital and become a venture capitalist, something he says he'd always wanted to do. He remains close to Zuckerberg. Adam D'Angelo, Zuckerberg's Exeter chum who has come and gone from Facebook several times, left again to start a new company called Quora, and took top engineer Charlie Cheever with him.

But most striking was the departure of Dustin Moskovitz, Zuckerberg's right-hand man since the very beginning, and still one of the company's largest shareholders, with about 6 percent of the stock. Moskovitz, like D'Angelo, remains close to Zuckerberg. Moskovitz left to start his own Internet software company called Asana, an idea he'd been mulling for a long time. He aims to build Facebook-connected online productivity software for businesses, competing with Google Docs and Microsoft Office, among others. It's a big and ambitious vision. He says he thought for a long time about whether he could stay at Facebook while pursuing this new idea, but concluded it would be a distraction for the company.

The influence Moskovitz wielded as the self-taught roommate-turned-CTO inevitably waned as the company passed one thousand employees and everything became more professional. There was a long time when he jointly controlled the direction of the company. But as it grew, Zuckerberg's authority grew along with it, and Moskovitz's diminished. Despite his large stockholdings he cannot have the impact he once did. "There are just disagreements about the direction the company goes in," says one friend of both men, "and when you've got someone who has sole authority, those disagreements are irreconcilable." It also made sense for Moskovitz to start Asana outside the company because Zuckerberg has repeatedly shown he has little interest in adding features that make Facebook more useful in the workplace.

In each case, Zuckerberg's close friends-and they all still call themselves that-say they didn't leave because of any fundamental conflict with Mark. D'Angelo says he is just not suited for large organizations where compromise is constantly required. He says he remains very attached to Facebook but got frustrated with the bureaucracy he had to deal with every day. Zuckerberg "just has a lot more tolerance for that than someone who doesn't feel like it's their company," D'Angelo says.

Chris Hughes, the other co-founder, who had left the company earlier, is more blunt. He thinks Zuckerberg's friends, most of whom he's in touch with, have left in part because, like him, they got fed up. "Working with Mark is very challenging," says Hughes. "You're never sure if what you're doing is something he likes or he doesn't like. It's so much better to be friends with Mark than to work with him."

The CEO is a tad melancholy about the departure of his boys. He says he was upset when Moskovitz first told him he wanted to go, a year before he actually left. By the time it happened Zuckerberg was resigned to it. As for Cohler and D'Angelo, Zuckerberg says, "I wish we'd been able to figure out a way to continue finding them roles."

Bringing in Sandberg as number two had little to do with this posse heading for the hills, but Moskovitz, for one, hasn't signed on to the enthusiastic consensus that emerged from the Sandberg sessions. He responds with typical directness when I ask him about Sandberg's impact on Facebook. "Positive overall for sure," he starts out. Then he continues, equivocating. "It's hard for me to be too positive, because I do feel like her role is in conflict with what I think the natural course of the company is. At the same time, I very much understand. But I am a huge believer in investing as much as possible into the product, do as little as possible to provide friction against more people joining or not liking the experience as much. And that can often be in direct conflict with the amount of advertising on the page, which is her job responsibility." He says it's good that she clarified how ads would work on Facebook, but adds, "I see that as just like a necessary evil, almost." Then he backs off a bit and concedes, "It's probably the right balance now."

Despite the consensus that Facebook's business is advertising, Zuckerberg continues regularly to declare that growing Facebook's user base remains more important than monetizing it. And both Moskovitz and D'Angelo continue adamantly to agree with him. "You can make a dollar off a user today," says Moskovitz, "but if you can get them to invite ten friends, then you'll make eleven dollars. Facebook's growth is so exponential that it's really hard to say this is the point at which you start compromising." D'Angelo also shows little enthusiasm for emphasizing ads now. "I'm on the growth side, personally," he says. "I mean, if you think Facebook is going to be around for a long time, which I do, and you take this approach that we need to get this thing to be everywhere and get the whole world using it, then to me it's obvious you will make a lot of money off of a product that the whole world is using every day."

Zuckerberg's top anti-ad, pro-growth allies have retreated, but he remains deeply committed to the long-term view. "It's really important for people to understand that what we're doing now is just the beginning," he says. "The companies that succeed and have the best impact and are able to outcompete everyone else are the ones that have the longest time horizon." Board member Peter Thiel has always been another strong believer in the need to continually emphasize growth. Even at some points in the company's history when Zuckerberg was focusing on other matters, Thiel repeated his steady refrain: "Grow the user base. Grow the user base."

Mike Murphy, Facebook veteran and hard-charging sales guy, concedes there has been ongoing tension over whether revenue mattered as much as growth, and that it drove him crazy after he arrived in early 2006. "My level of frustration has decreased dramatically," he says now. "Mark has never missed a commitment he's made about resources he would give us." The company has about 260 people devoted exclusively to ad sales. Before Sandberg arrived, Facebook only had sales offices in Palo Alto, New York, and London, but in the year following the Sandberg sessions it opened offices in Atlanta, Detroit, Chicago, Dallas, Dublin, Los Angeles, Madrid, Milan, Paris, Sydney, Stockholm, Toronto, and Washington. Shortly the company plans to add more in Boston, Germany, Hong Kong, India, and Japan. Its international headquarters is in Dublin.

Sandberg says that a focus on growth does not conflict with a mandate to raise revenues. "Our goals are, in order: How much does the world share information? Then, of equal importance, How many users do we have? And revenue. Those are all really really important drivers of the whole mission. But you can't do one without the other."

The ad industry is shifting its focus toward Facebook. The number of advertisers using its self-service online ads tripled from 2008 to 2009. A 2009 study by the Association of National Advertisers found that 66 percent of all marketers now use social media in some way, compared to only 20 percent in 2007. Today that mostly means Facebook. The vast majority of the biggest advertisers in the United States have begun advertising there. Big clients include PepsiCo, Procter & Gamble, Sears, and Unilever. And Facebook users are embracing the growing commercial presence on the site. Pages had about 5.3 billion fans Pages had about 5.3 billion fans as of February 2010 and as of February 2010 and about twenty million users become new fans about twenty million users become new fans of Pages every day. Pages with more than 3 million fans include Coca-Cola, Disney, Nutella, Skittles, Starbucks, and YouTube. of Pages every day. Pages with more than 3 million fans include Coca-Cola, Disney, Nutella, Skittles, Starbucks, and YouTube.

The mood inside the company about Facebook's financial prospects is bright. Marc Andreessen, whom Zuckerberg asked to join the company's board of directors in early 2008 (to fill one of the empty seats), cannot say enough about how big Facebook's business can be. "Facebook has a springboard to monetization that is as clear as anything I've ever seen," he says. "Like night follows day. With TV, radio, magazines, and newspaper revenues dropping, there's $200 billion of ad spending up for grabs. That money has to go online. And Facebook's just going to have all this data as a consequence of all the user activity, and it's going to be able to target against that." Television became the recipient of the lion't share of ad dollars because that's where consumer attention was focused. If that attention is slowly shifting to a new medium, as the data suggests, so will the money.

Sandberg was surprised that Facebook's business did so well during the recent economic downturn. In the fall of 2008 the company significantly reduced its goals for growth and cut planned spending. "The world looked like it was melting down, and I was nervous," says Sandberg. It seemed inevitable the global recession would hurt Facebook. It didn't. In an interview in mid-2009, she said, "Our ad rates are basically holding, in an era when everyone else is dramatically decreasing theirs. We're just doing better and better and better." The measurement firm comScore reports that U.S. online advertising is moving to social networks-they now garner 23 percent of total ads-and that Facebook displayed 53 billion ads in December 2009, or 14 percent of all online ads.

Sandberg's efforts to bring clarity to Facebook's business model are paying off. She has found her place in this youthful culture. Other top managers both on and off the record express admiration for how well she runs the organization, interacts with people, and gets things done. Now Facebook's numbers are rising rapidly. While Facebook does not disclose its financials, overall revenues were, according to well-informed sources, more than $550 million for 2009-up from less than $300 million in 2008. That represents a stunning growth rate of almost 100 percent. The same sources say that the company could exceed $1 billion in revenue in 2010.

Facebook's improving numbers are fueled especially by its highly targeted online self-service ads, sold mostly to smaller advertisers, for all the efforts devoted to larger advertisers are still the lion's share of revenue. Between $300 million and $400 million came from those in 2009. While the prices Facebook can charge for such ads remain very low on average, the company displays so many of them that it is becoming an increasingly good business. Says one well-informed company insider: "People dramatically underestimate the impact on our revenue of two interrelated factors-the growth in the number of users and the growth in usage." Research firm comScore calculated in late 2009 that the average Facebook user in the U.S.-and there are almost 110 million of them-spends six hours per month on the service.

The next largest category is engagement ads and other brand advertising sold directly by Facebook, which probably amounted to about $100 million. Ads sold by Microsoft represent another chunk-more than $50 million. Finally, virtual goods and other miscellaneous revenue accounts for between $30 million and $50 million.

"There has been this myth that everyone's waiting for our revenue model," says Sandberg. "But we have the revenue model. The revenue model is advertising. This is the business we're in, and it's working." Few at Facebook disagree with her now.


Facebook and the World.

"Making the world more open is not an overnight thing."

Mark Zuckerberg is in a large van on the campus of the prestigious University of Navarra in Pamplona, Spain. It's October 2008 and he's just finished speaking for an hour in the school's largest lecture hall. The hall seats only about four hundred, but at least six hundred students had crammed inside. Before the van can move, a crowd gathers, all of them waving frantically and straining to catch Zuckerberg's eye. As the van pulls away, a group of five or six girls runs ahead. When he gets out at his next destination, the president's office-the girls are there again. Zuckerberg amenably agrees to pose with them for a photo (to be posted on Facebook, of course). Then the group dissolves into elated giggles, still casting sidelong glances, not believing their good fortune. "You're a rock star now," says Anikka Fragodt, Zuckerberg's trusted personal assistant (since February 2006), who with three other Facebook employees (and me) has joined him for a promotional swing through Europe.

An epochal change on the Internet was announced in March 2009 by the Nielsen Company research firm. Time spent on social networks by Internet users worldwide had for the first time exceeded the amount of time Internet users spent on email. A new form of communication had gone mainstream. Total time spent on social networks grew a healthy 63 percent in 2008 around the world. Facebook, however, was in another league. It outdistanced every other service Nielsen measured. Time spent on Facebook had increased 566 percent in a year, to 20.5 billion minutes.

The scale of Facebook's global growth in recent years is difficult to grasp. From the moment it opened to nonstudent users in fall 2006, English-speakers around the world began to stream on board. In early 2008, Facebook inaugurated a novel translation project, and by the end of 2008 it could be used in thirty-five languages. But even then, with the internationalization project still in its early phases, 70 percent of Facebook's then 145 million active users were already outside the United States. Nielsen calculated at that point that fully 30 percent of the world's Internet users were on Facebook, up from 11.1 percent a year earlier. The only service with more users is Google.

The company's own expectations continue to be surpassed. Its ambitious confidential internal goal at the beginning of 2009 was to reach 275 million active users by the end of that year. Few at the company thought it attainable. But it reached the goal by August and by the end of the year had more than 350 million users and was growing about a million new users per day in 180 countries.

Improbable statistics continue accumulating. In seventeen countries around the world, more than 30 percent of all citizens-not Internet users but citizens-are on Facebook, according to the Facebook Global Monitor. They include Norway (46 percent), Canada (42 percent), Hong Kong (40.5 percent), the United Kingdom (40 percent), Chile (35 percent), Israel (32.5 percent), Qatar (32 percent), and the Bahamas (30.5 percent). In tiny Iceland, 53 percent of people are on the service. Facebook is the number-one social network in Brunei, Cambodia, Malaysia, and Singapore, among other countries. It surpassed MySpace in global visitors in May 2008, according to comScore. And in mid-2008 the word Facebook Facebook passed passed sex sex in frequency as a search term on Google worldwide. in frequency as a search term on Google worldwide.

It's been a joke around the Facebook offices for years that the company seeks "total domination." But the reason it's funny is that it evokes a surprising truth. Zuckerberg realized a long time ago that most users are not going to take the time to create multiple profiles for themselves on multiple social networks. He also knew from his endless bull sessions at Harvard and in Palo Alto about "network effects" that once consolidation begins on a communications platform it can accelerate and become a winner-take-all market. People will join and use the communications tool that the largest number of other people already use. He therefore made it a goal to create a tool not for the United States but for the world. The objective was to overwhelm all other social networks wherever they are-to win their users and become the de facto standard. In his view it was either that or disappear.

Other social networks have more users than Facebook in a number of key countries, including Brazil, China, Japan, Korea, Russia, and a few other places. In most of those countries a local player commands the market. For Zuckerberg it is a strategic imperative to whittle away at the dominance of these services. As Zuckerberg told a Madrid audience on his Spanish trip, "Making the world more open is not an overnight thing. It's a ten-to-fifteen-year thing."

But how did Facebook get so big so fast? It wasn't long after he moved to California that Zuckerberg began thinking about Facebook's potential to be a global phenomenon. Influenced by the ambitious Sean Parker, Zuckerberg began to think that if he managed his service well it could grow into an international colossus. He did a lot of things right that set the groundwork for the vast global growth that followed. For one thing, Zuckerberg kept Facebook's interface simple, clean, and uncluttered. Like Google, an elementary look successfully masked an enormously complex set of technologies behind the curtain and made a wide variety of people feel welcome. At one of his stops in Spain, Zuckerberg summarized his international strategy: "It's just to build the best, simplest product that lets people share information as easily as they can."

Facebook also has a fundamental characteristic that has proven key to its appeal in country after country-you only see friends there. It is Facebook's identity-based nature that differentiated it from the beginning from most other social networks and enabled it to become a unique global phenomenon. Around the world this is the least American-feeling of American services. Italy's Facebook-using hordes, for example, could grow to many millions without often seeing anyone who wasn't Italian. The values, interests, tone, and behavior that users in Turkey or Chile or the Philippines experience inside Facebook are the same ones they are familiar with every day in the offline world.

And, critically, the language people speak on Facebook is increasingly the one they speak offline as well. The translation tool Facebook made available after early 2008 was among the company's greatest product innovations and had huge impact on its global growth. By early 2010 Facebook operated in seventy-five languages, representing 98 percent of the world's population.

Facebook's translation tool adopted a novel approach that took advantage of the rabid enthusiasm of users around the world. Rather than ask its own employees or contractors to spend precious years translating the site's three hundred thousand words and phrases into numerous other languages, Facebook turned the task over to the crowd and found an enormous amount of wisdom there.

To create a version in each new language, Facebook's software presents users with the list of words to be translated. Anyone, while using the site, can tackle the Spanish or German or Swahili or Tagalog translation for just one word or as many as they choose. Each word is translated by many users. Then the software asks speakers of that language to vote on the best word or phrase to fill each slot.

The tool was first used for Spanish in January 2008, since Facebook at that point already had 2.8 million users in Spanish-speaking countries using it in English. Within four weeks, 1,500 Spanish speakers from around the world had created a full version. Facebook engineers just plugged in their conclusions and the Spanish Facebook launched on February 11. Next up was German. That took 2,000 people two weeks and began operating on March 3. The French version was completed by 4,000 users in less than two days. Adding new languages now costs Facebook virtually nothing. Users decided the idiosyncratic Facebookism poke poke should become should become dar un toque dar un toque in Spanish, in Spanish, anklopfen anklopfen in German, and in German, and envoyer un poke envoyer un poke in French. in French.

This is one project Zuckerberg didn't oversee. "I'm proud that I wasn't even involved," he said around the time the translator launched. "This is what you hope for when you're building an organization, right? That there will be people who will just build things that fit so well with the values of the company without you even having to say anything."

Facebook's platform strategy of letting outsiders build whatever applications they want on its platform also substantially benefited its international expansion. In July 2008 the company let developers start using the translation software for Facebook applications, so those too could be available in any language. By the fall of 2008, when Zuckerberg went to Spain, there were already over six thousand applications available in Spanish. Facebook in Spain-or Chile or Colombia-felt much like a Spanish service to its users there. Eight months after the debut of the translated version, Facebook's Spanish-speaking population had more than quadrupled to 12 million. "We think we can get as much as thirty-to-forty percent of the population using it," Zuckerberg told reporters in Madrid. (Spain alone has 46 million people.) There's almost a moral component to Zuckerberg's globalization quest. In the packed, sweltering hall in Navarra he says Facebook is "for all people of all ages around the world." Giving people more information about people around them "should create more empathy." In this attribution to Facebook of a power to help people better understand one another, Zuckerberg has a surprising ally-his mentor and board member Peter Thiel. The hedge fund manager and venture capitalist thinks Facebook is a key tool for a world necessarily becoming much smaller. "People in a globalized world are going to be in closer proximity to each other," he explains. "The key value in my mind will be more tolerance. What I like about the Facebook model is it's centered on real human beings and it enables them to become friends with other people and build relationships not only in the context they're already in, but in contexts outside of that as well. Globalization doesn't necessarily mean you are friends with everybody in the world. But it somehow means that you're open to a lot more people in a lot more contexts than you would have been before." At another session in Spain, Zuckerberg answered a reporter's question about why Facebook succeeded by saying, "If you give people a better way to share information it will change people's lives."

But Zuckerberg's Facebook is resolutely American, even if it may not always seem so to its international users. Facebook's Americanness is revealed not because some Azerbaijan teenager meets a kid from Oklahoma, but by its intrinsic assumptions about how people ought to behave. Zuckerberg's values reflect the liberties of American discourse. Facebook carries those values around the world, and that's having both positive and negative effects.

In the United States, people take a certain amount of transparency and freedom of speech for granted, but it comes at great cost in some other cultures. When a father in Saudi Arabia caught his daughter interacting with men on Facebook, he killed her. Users in the United Arab Emirates created protest groups with names like "Gulf Air Sucks," and "Boycott Dubai's Dolphinariums." That was apparently within the bounds, but when groups there grew to include "Lesbians in Dubai," when groups there grew to include "Lesbians in Dubai," with 138 members, the government attempted to ban Facebook altogether. with 138 members, the government attempted to ban Facebook altogether.

Governments around the world are struggling to figure out how to handle Facebook's users when they take advantage of its freedoms. After Italian Facebook groups emerged After Italian Facebook groups emerged praising imprisoned mafia bosses, a senator there introduced a bill that would force websites to take down content that "incites or justifies" criminal behavior. It did not pass. (Facebook's own policies are more specific. It takes down content that advocates hate, violence, or breaking the law.) praising imprisoned mafia bosses, a senator there introduced a bill that would force websites to take down content that "incites or justifies" criminal behavior. It did not pass. (Facebook's own policies are more specific. It takes down content that advocates hate, violence, or breaking the law.) In the West Bank, protesters directed their wrath at Facebook itself and drew it into delicate matters of international politics. Jewish settlers in the occupied territory were outraged that Facebook required them to say they lived in Palestine. A group called "It's not Palestine, it's Israel" quickly acquired 13,800 members in March 2008. After a few days Facebook agreed to let residents of certain large settlements say they lived in Israel. Meanwhile, a group called "All Palestinians on Facebook" Meanwhile, a group called "All Palestinians on Facebook" grew to 8,800 by complaining, among other things, that Palestinians living in East Jerusalem were forced by Facebook to say they lived in Israel, even though that country's annexation of East Jerusalem has not been internationally accepted. Now Facebook users in the West Bank can say they live in either Israel or Palestine. grew to 8,800 by complaining, among other things, that Palestinians living in East Jerusalem were forced by Facebook to say they lived in Israel, even though that country's annexation of East Jerusalem has not been internationally accepted. Now Facebook users in the West Bank can say they live in either Israel or Palestine.

American values of transparency may not always translate well, but people in many cultures are embracing fuller disclosure about themselves. In the Philippines, it has become routine for middle-class people to post photos of their April and May summer vacations to Facebook, and to keep friends apprised about these trips with status updates. By late 2008, interacting on Facebook was so popular in Italy that Poste Italiane, the national postal service, started blocking access in its offices. (Employees of the city of Naples (Employees of the city of Naples, however, were officially allowed to access Facebook for up to one hour per day.) Cultural differences seem not to deter people in various countries from finding compelling uses for the service. Danish prime minister Anders Fogh Rasmussen had 12,000 supporters on his Facebook page in April 2008 and responded personally to every comment. Then he decided to set up a group jog with young people he met there. An aide called it a great way to connect An aide called it a great way to connect with ordinary voters. with ordinary voters. Obscure Colombian rock bands Obscure Colombian rock bands like Koyi K Utho, which plays heavy-metal music inspired by Japanese anime cartoons, found an audience on Facebook to promote concerts and albums. like Koyi K Utho, which plays heavy-metal music inspired by Japanese anime cartoons, found an audience on Facebook to promote concerts and albums.

One aspect of Facebook's Americanness was an advantage, especially in its early years among students outside the United States. Its academic roots at Harvard and the Ivy League made it seem even more appealing. "I've heard people at Facebook say they worried that it made them seem elitist, but in fact many kids around the world put those schools up on a pedestal," says Jared Cohen, author of Children of Jihad, Children of Jihad, an account of how youth in the Middle East view culture and technology. As early as mid-2007, Facebook was being used by 20,000 English-speaking Egyptians, for example, mostly privileged, Western-oriented college students and recent graduates. " an account of how youth in the Middle East view culture and technology. As early as mid-2007, Facebook was being used by 20,000 English-speaking Egyptians, for example, mostly privileged, Western-oriented college students and recent graduates. "I log in three hours a day, more or less, and usually at night, too," Sherry El-Maayirgy, a Cairo marketing executive, told the English-language magazine Egypt Today Egypt Today in May 2007. "It is really an amazing place to meet new people and catch up with old friends who have drifted away." Much of the online behavior was libertine. A local group called "If this group reaches 1,000 members, my girlfriend will sleep with me" garnered supportive comments, according to the magazine. And beauty contests proliferated, such as one for "The hottest girl at the American University of Cairo." in May 2007. "It is really an amazing place to meet new people and catch up with old friends who have drifted away." Much of the online behavior was libertine. A local group called "If this group reaches 1,000 members, my girlfriend will sleep with me" garnered supportive comments, according to the magazine. And beauty contests proliferated, such as one for "The hottest girl at the American University of Cairo."

Facebook's growth around the world belies the frequent American misperception that it is a site primarily for young people. While in the United States many adults still spurn the service or quickly tire of it, in most other countries it's used by people of all ages. Facebook's greatest global increase in 2008 came from people ages thirty-five-to-forty-nine, according to Nielsen. That group now constitutes about a third of Facebook's users. "Internationally...Facebook is perceived as mainstream "Internationally...Facebook is perceived as mainstream and MySpace as being more focused around a younger demographic," says the Nielsen Company in a report on global social networking. Facebook seems to mirror real-world conditions. Women account for more than half of Facebook's ranks all over the world-except in certain countries in the Middle East and Africa where their rights are severely curtailed. and MySpace as being more focused around a younger demographic," says the Nielsen Company in a report on global social networking. Facebook seems to mirror real-world conditions. Women account for more than half of Facebook's ranks all over the world-except in certain countries in the Middle East and Africa where their rights are severely curtailed.

In some countries Facebook's empowerment of the individual may feel even more important than elsewhere. Educated young people in the Middle East are often passionate and active Facebook users. "Kids there have some of the most intricate profiles," says Cohen. "These are repressive countries, with little outlet for expression, so people can feel more real online than they are in real life." Facebook can become a way to assert one's right to be oneself. In both Turkey and Chile, Facebook is so ubiquitous in many educated circles that not to be on it is tantamount to self-ostracism. One reason may be that in both countries not long ago, to oppose the government could lead you to disappear forever.

Facebook continues to face potent rivals. MySpace is really not one of them, having shifted its strategy under the leadership of Owen Van Natta, Zuckerberg's former chief operating officer. MySpace now emphasizes its role as a portal for music and entertainment. More worrisome are social networks that dominate in one country or region. In Japan, leading social network Mixi offers a sophisticated service that works as well on cell phones as on PCs. It specializes in games.

Orkut still leads by a large margin in Brazil. It also led for a long time in India, though Facebook surpassed it in popularity in late 2009, according to the Alexa Internet data service. Orkut's peculiar success in these two markets has led to a surprising new sort of Indian pilgrimage-young Indian men trek by plane to Brazil to see women they met on Orkut. In India, Facebook has now introduced versions not only in Hindi, the largest language, but also Bengali, Malayalam, Punjabi, Tamil, and Telugu.

Displacing Orkut in Brazil may turn out to be its ultimate popularity contest, but in the meantime Facebook faces tough battles elsewhere. In Germany, Spain, Russia, and China, local entrepreneurs created student-focused networks modeled explicitly after Facebook once its U.S. popularity became apparent in 2004 and 2005. While Facebook has now surpassed its clone rival Tuenti in Spain, domestic imitators in China, Germany, and Russia still command dramatically more users.

The hapless Friendster, essentially ignored in the United States, was until recently Facebook's big obstacle in Southeast Asia, where 90 percent of Friendster's 105 million users were located as of mid-2009. But by late 2009 Facebook had trounced it there and was the number-one website of any type in Indonesia, Malaysia, and the Philippines, Friendster's three biggest countries.

China's largest domestic Facebook clone, Xiaonei (the name means "in the school"), got a big boost in 2008 when Japan's Softbank Venture Capital invested $430 million in its parent company. It then renamed itself Renren, meaning "everyone," to broaden its appeal. Meanwhile, since June 4, 2009, the twentieth anniversary of the Tiananmen Square massacre, Facebook has been completely blocked in China by the government.

Part of Facebook's arsenal against Renren (and Friendster) is Facebook's close partnership with Hong Kong billionaire Li Ka-shing. Among the many companies this mogul controls is Hutchison Whampoa, a major provider of mobile telephone services across southern Asia. Hutchison has already released a special "Facebook phone" for the region. Social networks are used most commonly on mobile phones in countries like India and Indonesia, so Facebook is creating partnerships with local mobile operators. It has also released a so-called lite version that gives users the basics (without video, chat, and some other features) but requires little bandwidth. It can be used on mobile phones or where Internet access would otherwise be inadequate.

Facebook is just beginning to model itself to suit the preferences of users in one country. For example, in Germany, Facebook has a deal with the dominant local email provider to make it easier to register and connect with the friends in your email address book. In Japan the site will soon make it easier to blog and to operate on mobile phones. Executives are thinking of ways to accommodate the reluctance of Japanese to operate openly online using their real names, even though that will remain the way to use Facebook.

Facebook has exploded across Asia in the last year or so, but for different reasons in each country. In Indonesia, Friendster had been the dominant local social network, but as Internet usage shifted to mobile phones, Friendster didn't have a good mobile app. Facebook did, and burgeoned. In Taiwan, Facebook usage-mostly on PCs-soared in 2009 for one reason: the Farmville game from Zynga. Playing it became almost a national obsession, and many joined Facebook simply to do so. It grew from almost nothing to 5.6 million people, or 26 percent of the population in the year ended February 2010. In Malaysia Facebook took off among the influential Chinese minority, while those of Malay ancestry tended to stay on Friendster. As of February 2010 Facebook was growing 10 percent per month in Malaysia, according to the Facebook Global Monitor. What makes this growth more impressive is that it occurred without the investment spent by earlier American Internet companies, says Hong Kongbased social media expert Tom Crampton of Ogilvy Public Relations. "Facebook's romp across Asia is an amazing story that breaks all the rules of internationalization," he says. "When Yahoo entered Asia it sent huge teams to each country."

Scale itself is a growing advantage for Facebook. Sophisticated social networking features cost money to develop. But every line of software code on Facebook can be used by far more people than a comparable line of code on any other service. It is no longer possible as it once was for rivals simply to steal the Facebook software they want. So on a per-user basis Facebook costs less to run, and less to improve. That could prove over time to be a daunting advantage against its rivals.

The strength of regional competitors outside the United States is the biggest reason why Zuckerberg says that near-term growth is more important for Facebook than profit. He's not a worrier, but if he worries about one thing it's that nationalism and insular local cultures will allow services like Renren and Orkut to keep Facebook down. A couple of days before I joined him in Madrid A couple of days before I joined him in Madrid, he gave an interview in Germany in which he said bluntly that "growth is primary, revenue is secondary." The statement was immediately criticized online as naive, and everywhere I went with Zuckerberg he was hounded about it by bloggers and press.

The only reason Zuckerberg is willing to endure the discomforts of a multiweek European road show is that he feels so passionately about the need for Facebook to grow internationally. He would prefer not to stand up and talk to crowds. But if that's what it takes, he'll do it. As he walks into a meeting in Madrid with a group of local entrepreneurs, his host welcomes him saying, "There is great expectation for your visit!" "That's unfortunate," Zuckerberg deadpans in a serious-sounding voice, as his staff cringes.

He's on the road with a purpose, but he does it in his own way, sometimes to his detriment. The trip wears on him. He was up doing email and instant messaging the previous night until four. Back in the van, his assistant Anikka Fragodt says he should take a nap. He doesn't think that would help. Anyway, he hates to remove his contact lenses. At the next stop, Madrid's University of Comillas, he is greeted by two deans. One of them holds out a soccer jersey with the university's logo on it. Zuckerberg refuses to put it on. "This is what I always wear," he says of his black North Face fleece jacket, T-shirt, jeans, and running shoes. At Navarra a few days later, the lecture hall gets oppressively hot. He tells the crowd he is "burning up" and moves toward an onstage fan. But he does not remove his fleece jacket. Later he confesses he almost fainted shortly before going onstage.

In May 2009, Zuckerberg gained yet another powerful ally for internationalization when the Moscow-based Digital Sky Technologies spent $200 million for a small chunk of Facebook. Digital Sky, a holding company that invests exclusively in Internet companies, is the primary owner of Russian Facebook clone VKontakte ("In contact"). That, in fact, is what emboldened Managing Director Yuri Milner to make the investment. VKontakte is by far the largest social network in Russia, with a penetration of domestic Internet users beyond 50 percent, and is soundly profitable, according to Milner. Much of its sales come from virtual goods. VKontakte yields revenue more than five times what Facebook gets per user (which is less than $2 per year). "What we see," says Milner, "is that when the market is mature you can really make a lot of money on a per-user basis. If Facebook can achieve what we're seeing in Russia, that's really pretty good."

Milner's confidence that Facebook will eventually be profitable at a gigantic scale is what emboldened him to invest at a price that valued the company at $10 billion. Big as that is, it's considerably less than the $15 billion valuation that Microsoft and Li Ka-shing accepted in October 2007. Doubts lingered about Facebook's ability to be a business, and financial markets had cratered since the Microsoft deal. But Digital Sky's enthusiasm was such that not only did it buy stock from Facebook, Milner is also spending as much as $300 million more buying stock from employees and outside investors. Milner says his commitment to Facebook is long-term and that he may not sell his shares even at its initial public offering of stock, when investors frequently cash out.

Facebook's burgeoning global expansion presents challenges both technical and managerial for Zuckerberg. For one thing, Facebook's only two data centers remain in the United States and everything users around the world see on Facebook emanates from there. It can take a long time for Facebook pages to load on distant screens. That makes it even more amazing that Facebook has developed such a gigantic overseas user base. The company will have to build several very expensive additional server farms. Though it has begun opening offices, a substantial business infrastructure has to follow as well. The company has established an international headquarters in Dublin and sales offices around the world, with more to come.

Then there's the complexity of ensuring that those hundreds of millions of users and tens of thousands of application developers around the world adhere to Facebook's rules, no matter their language. For example, Facebook didn't notice that groups were talking freely in Arabic about "pig Jews" until Israeli activists pointed it out. The groups were shut down for violating Facebook's prohibition against hate speech. But it's an open question how Facebook will monitor, for example, hate groups in languages like Tamil (Tamil guerrillas waged civil war in Sri Lanka for over thirty years). So far the company is content to let users do the monitoring themselves, much as they did translation.

A provocative signal about Facebook's future arose in Indonesia in mid-2009. With 8.5 million users at that time, it had become the country's most popular Internet site. Facebook's popularity led seven hundred of the Muslim nation's imams to rule on its acceptability at a two-day meeting. "The clerics think it is necessary "The clerics think it is necessary to set an edict on virtual networking, because this online relationship could lead to lust, which is forbidden in Islam," said a spokesman for the clerics as the meeting got under way. In their nonbinding ruling the imams said, "Facebook is forbidden" if it is used for gossiping, flirting, spreading lies, asking intimate questions, or vulgar behavior. However, overall the clerics came out surprisingly upbeat. Not only could Facebook "erase time and space constraints," they noted approvingly, but it could make it easier for couples to learn whether they are compatible before they get married. By February 2010 more than 17 million Indonesians used Facebook. to set an edict on virtual networking, because this online relationship could lead to lust, which is forbidden in Islam," said a spokesman for the clerics as the meeting got under way. In their nonbinding ruling the imams said, "Facebook is forbidden" if it is used for gossiping, flirting, spreading lies, asking intimate questions, or vulgar behavior. However, overall the clerics came out surprisingly upbeat. Not only could Facebook "erase time and space constraints," they noted approvingly, but it could make it easier for couples to learn whether they are compatible before they get married. By February 2010 more than 17 million Indonesians used Facebook.


Changing Our Institutions.

"Are you familiar with the concept of a gift economy?"

One night over dinner I asked Mark Zuckerberg about Facebook's effects on society-especially politics, government, media, and business. He responded by talking about the potlatch. That's a traditional celebration and feast of native peoples on the northwest coast of North America. Each celebrant contributes what food and goods they can, and anyone takes what they want. The highest status goes to those who give the most away.

"Are you familiar with the concept of a gift economy?" Zuckerberg asks. "It's an interesting alternative to the market economy in a lot of less developed cultures. I'll contribute something and give it to someone, and then out of obligation or generosity that person will give something back to me. The whole culture works on this framework of mutual giving. The thing that binds those communities together and makes the potlatch work is the fact that the community is small enough that people can see each other's contributions. But once one of those societies gets past a certain point in size the system breaks down. People can no longer see everything that's going on, and you get freeloaders."

Zuckerberg says Facebook and other forces on the Internet now create sufficient transparency for gift economies to operate at a large scale. "When there's more openness, with everyone being able to express their opinion very quickly, more of the economy starts to operate like a gift economy. It puts the onus on companies and organizations to be more good, and more trustworthy." All this transparency and sharing and giving has implications, in his opinion, that go deep into society. "It's really changing the way that governments work," he says. "A more transparent world creates a better-governed world and a fairer world." This is, for him, a core belief.

While many would surely question Zuckerberg's idealistic notion that a more transparent world will necessarily be better governed and fairer, it's worth examining some of the effects the service is having. Zuckerberg essentially argues that any individual's public expression on Facebook is a sort of "gift" to others. That has different manifestations depending on what kind of expression it is. In the most humdrum of exchanges, when one high school student writes on another's wall, "LOL that was a funny comment," it is merely the gift of being ourselves in front of others, of including our friends in our lives. That's hardly anything new. It's just happening in a new electronic neighborhood.

When it comes to political activism, Facebook offers a more fundamentally altered landscape. In most cases we are irrevocably identified by our names there. When we say something on a political subject we are exposing our views. Others will not necessarily share them. The "gift," so to speak, is what we do for others when we put our ideas out there and make ourselves vulnerable to criticism, which can easily on Facebook be directed at us under our real names. In Zuckerberg's view, you are in essence making a gift into this free-sharing economy of ideas if you comment on Facebook about, for example, President Obama's health-care reform efforts. Think of it as a gift of opinion into the polity, a gift of ideas that may ultimately strengthen the polity.

Chapter end

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