25.06.

14 17:44 A Facebook of the Future: Mark Zuckerberg and Sheryl Sandberg Show Us Their New Content, New Algorithms, and New Alliances | Vanity Fair
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May 2013
Facebook Leans In
O
By Kurt Eichenwald
Ever since Facebooks ballyhooed, bungled I.P.O., its share price has languished, with Wall
Street asking when the social-media giant is going to grow up and make money. From
confidential reports, visits to the companys sprawling campus, and interviews with its
press-shy founder and C.E.O., Mark Zuckerberg, and C.O.O. Sheryl Sandberg, Kurt
Eichenwald pieces together the largely unnoticed shift in Facebook strategy: new content,
new algorithms, and new alliances, combined to power a marketing model that could have
the rest of the world scrambling to catch up.
PHOTOGRAPH BY KIMIHIRO HOSHINO/AFP/GETTY IMAGES.
LETS CONNECT Facebook C.E.O. Mark Zuckerberg at the companys 2011 f8 developer conference, in San Francisco.
n January 15, inside Building 15 at the sprawling Facebook campus in Menlo
Park, California, about 100 reporters, employees, and hangers-on packed a
makeshift auditorium awaiting the arrival of Mark Zuckerberg, founder and
C.E.O. of the social-media giant. Along the walls, enormous signs blared out
slogans like WHAT WOULD YOU DO IF YOU WERENT AFRAID?messages of encouragement aimed
at the companys employees, but ones that would probably have been better targeted at its
shareholders.
By any measure, Facebook investors had plenty of reasons to be a disappointed lot. The
stock offering in May 2012 had been an infamous debacle, with the share price collapsing
over the summer, so that the earliest buyers of Facebook shares had lost almost half their
investment in three months.
But as the crowds gathered in Building 15, Facebook shareholders had cause to believe
things were looking up. Rumors had bounced around Wall Street that, at this event,
Zuckerberg would announce an acquisition, the development of a smartphone, or some
other major change that might make investors cheer.
business
POLI TI CS BUSI NESS CULTURE HOLLYWOOD STYLE SOCI ETY BLOGS PHOTOS VI DEO I NSI DE THE I SSUE VF AGENDA
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T
Finally, the soft rock music that was being pumped into the room went silent, and the
Facebook C.E.O. casually emerged, dressed in a black hoodie, blue jeans, and sneakers.
Hey, he said to the assembled crowd in a low-key opening that seemed at odds with the
usual formalities and ballyhoo that flavor most corporate announcements. And then he
revealed the big secret: Facebook was adding a new feature to its service, allowing users to
search for content from those who had agreed to share information as friends. The
product, called Graph Search, was still very much in the early stages, he explained, and the
release would be quite limited. This is one of the coolest things that I think that weve
done in a while, he said.
Wall Street didnt agree. From the second Zuckerberg opened his mouth, Facebook shares
fell. The investor consternation was almost palpablea new feature? One still in
development? Where was the smartphone, or the buyout, or the Google-type search
engine, or anything that would boost the stock price? An incredulous reporter asked the
obvious question: How would Facebook make money off of this thing? Maybe, Zuckerberg
calmly replied, Graph Search would be a business someday, but, for now, he and his
engineers were focused on just providing something new for Facebook users.
And with that, the anticlimactic meeting drew to a close.
But the eye rolling and chortling that greeted the seemingly innocuous announcement was
misplaced. Indeed, Zuckerbergs disclosure was a piece of a much broader strategy, one
that in large part was developed, mostly unnoticed, in the few months after the company
went public. I spend almost all of my time on the products that we build, Zuckerberg told
me in a rare interview. The Facebook of oldwell, of a year agois almost irrelevant to the
company that exists today, which not only is set to change the world of social networking,
but could herald the biggest transformation in American advertising since the advent of
television.
That is my conclusion from months of interviews with Facebook ad clients, investors, the
companys senior management and other key executives, as well as reviews of reams of
data, including confidential reports. What emerges is a portrait of a widely misunderstood
company that has quietly been pioneering a marketing business model unlike any other in
Silicon Valleyor, for that matter, Madison Avenue.
Since the offering, Facebook has developed new targeting techniques, giving advertisers an
unprecedented ability to reach only the potential audiences they wanttruck buyers who
havent made a purchase in seven years, gamers who have attained Level Seven in some
online war simulation, wine connoisseurs who consume an average of four bottles a
month. And they can track down potential buyers at any point along the purchasing path
for example, Facebook users who had checked prices for traveling to Hawaii without
finishing their orderand hit them with an ad urging them to pull the trigger on buying.
o make it all work, Facebook has to lure its more than one billion users back to
keep using the service on a consistent basis. So, like television networks seeking
the best programming to bring in the largest audiences (in turn, attracting
advertising dollars), Facebook has been developing new content and products,
such as Graph Search, which Zuckerberg and his team believe will keep its members
coming back to the service where both their friendsand Facebooks advertiserscan
reach them.
Moreover, the company has created a computer framework that allows it to constantly
revise the Facebook site. At any time of day, hundreds of different versions of Facebook
are running on the Internetwith a changed color here, a moved button thereand the
user response to each variation is measured. And the same is done with advertising.
Through what executives call A/B tests, a company can run different ads at the same time,
have Facebook engineers measure the response, then ditch whichever ones had less of an
impact.
The results from these strategies are already showing up in Facebooks financial
performance. Revenuesthe key metric for most newly public technology companies
jumped 37 percent in 2012, from $3.7 billion in the previous year to $5 billion. While
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I
Facebook posted positive earnings, with pre-tax profits of only $494 million last year
against $1.7 billion in 2011, it spent $1.4 billion on research and developmentmore than
triple what it spent on R&D in 2011. Those are the kinds of expenses that hold the promise
of future growth.
None of this means that Facebook is out of the woods yet. While two-thirds of adults
online are Facebook users, a recent poll by the Pew Research Center found that 27 percent
of them planned to spend less time on the site in 2013. Its rate of revenue growth has
slowed every year since 2009; moreover, the magnitude of the pop in revenues last year
will be hard to replicate, since the 2012 numbers included money coming in from
advertising programs that werent available in 2011. And advertising poses the risk of
driving away users unwilling to endure it in exchange for using a free service.
But those are neither exceptional nor insurmountable hurdles, as far as many of the
worlds most influential companies are concerned, and they believe Facebookas a new
advertising medium requiring marketers to develop new skill setsis here to stay. I kind
of scratch my head a bit when I hear a lot of the conversation thats going on in the
industry these days, questioning whether entire social-media platforms like Facebook
work or dont work in regards to advertising, says Tom Buday, head of marketing at
Nestl S.A. We know this is working well.
young mans game
t could well have been one of the strangest moments at a corporate board meeting.
In the summer of 2009, Facebook directors gathered in a large conference room at
the headquarters to hear updates about the companys finances and business plans.
As the meeting wrapped up, one board member called out that Facebook had hit a
momentous occasion, one that had gone unnoticed: Mark Zuckerberg had just turned 25.
The directors found the moment surreal; they all knew the improbable story of Facebooks
beginnings, but still marveled at how someone as young as Zuckerberg had risen to such
prominence so fast by building a company that had basically started six years earlier as a
joke.
As anyone who saw the 2010 movie The Social Network knows, Facebook began when
Zuckerberg was a sophomore at Harvard, living with three other students in Suite H33 on
the third floor at Kirkland House, where they often bandied about ideas for programming
proj ects. One Zuckerberg conceived of was a doozy. He called it Facemash, a cheeky Web
site that used photographs of students maintained by each of nine Harvard residential
houses in collections known as facebooks.
The purpose of Facemash was somewhat cruel: to let students rate the looks of their
classmates, and it didnt last long. Students complained that it was both sexist and racist;
worse, Zuckerberg had obtained the facebooks without permission, hacking into the
computer networks of the various houses. Still, he had created something people wanted
to see; on that first day, about 450 Harvard students visited Facemash, comparing some
22,000 pairs of photos.
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