[Corp. Watch] As Facebook approaches ubiquity, corporations are using it to further entrench theirs

[Corporation Watch]

How Facebook is Taking Over Our Lives

  President Obama used it to get elected, Dell plans to recruit new
  hires with it, and Microsoft's new operating system borrows from
  it -- Can CEO Mark Zuckerberg make those connections pay off?

By Jessi Hempel

(Fortune, Feb. 17) -- Facebook held no appeal for Peter Lichtenstein.  
The New Paltz, N.Y., resident had checked out so-called social  
networking sites before, and he wasn't impressed. ("MySpace," he  
recalls, "was ridiculous.")

	A chiropractor and acupuncturist, Lichtenstein was already a member  
of a few professional web-based user groups. The last thing he needed  
was another message box to check.

	Then a buddy posted a link to photos from a trip to Thailand and  
India on his Facebook page and flatly refused to distribute them any  
other way. The friend's assumption: Duh -- everyone's on Facebook.

	And so Lichtenstein, 57, recently became an official member of the  
Facebook army, 175 million strong and, Facebook says, growing at the  
astounding rate of about five million new users a week, making it a  
rare bright spot in a dismal economy.

	If Facebook were a country, it would have a population nearly as  
large as Brazil's. It even edges out the U.S. television audience for  
Super Bowl XLIII, which drew a record-setting 152 million eyeballs.

	But these days the folks fervently updating their Facebook pages  
aren't just tech-savvy kids: The college and post-college crowd the  
site originally aimed to serve (18- to 24-year-olds) now makes up less  
than a quarter of users.

	The newest members -- the ones behind Facebook's accelerating growth  
rate -- are more, ahem, mature types like Lichtenstein, who never  
thought they'd have the time or inclination to "over-share" on the web.

	It's just that Facebook has finally started to make their busy lives  
a little more productive - and a lot more fun.

	Try logging in to quickly check a message, and you may find yourself  
scrolling through new baby photos from that guy who used to sit next  
to you in English class. How did such a goofball end up with such a  
cute baby? And how'd he find you here anyhow?

	Soon you're checking the friends you have in common. This addictive  
quality keeps Facebook's typical user on the site for an average of  
169 minutes a month, according to ComScore.

	Compare that with Google News, where the average reader spends 13  
minutes a month checking up on the world, or the New York Times  
website, which holds on to readers for a mere ten minutes a month.

	The "stickiness" of the site is a key part of 24-year-old CEO Mark  
Zuckerberg's original plan to build an online version of the  
relationships we have in real life.

	Offline we bump into friends and end up talking for hours. We flip  
through old photos with our family. We join clubs. Facebook lets us do  
all that in digital form.

	Yet we also present different faces to the different people in our  
lives: An "anything goes" page we share with pals might not be  
appropriate for office mates -- or for the moms and grandmas who  
increasingly are joining the site.

	Basic privacy controls today allow users to share varying degrees of  
information with friends, but when I recently met with Zuckerberg in  
Palo Alto, he waxed philosophical about eventually giving a user the  
ability to have a different Facebook personality for each Facebook  
friendship, a sort of online version of the line from Walt Whitman's  
"Song of Myself": "I contain multitudes."

	His ultimate goal is less poetic -- and perhaps more ambitious: to  
turn Facebook into the planet's standardized communication (and  
marketing) platform, as ubiquitous and intuitive as the telephone but  
far more interactive, multidimensional -- and indispensable.

	Your Facebook ID quite simply will be your gateway to the digital  
world, Zuckerberg predicts. "We think that if you can build one  
worldwide platform where you can just type in anyone's name, find the  
person you're looking for, and communicate with them," he told a  
German audience in January, "that's a really valuable system to be  
building."

	Just how valuable is subject to great debate. Microsoft in 2007  
invested $240 million for a 1.6% stake in the company, giving Facebook  
a valuation of about $15 billion -- though according to a June 2008,  
court proceeding, the company values itself at only $3.7 billion.  
(With a 20% to 30% stake, Zuckerberg quite possibly is the world's  
youngest self-made billionaire, on paper at least.)

	A big part of the challenge in assigning a valuation to Facebook is  
that its financial results don't come anywhere near to matching its  
runaway success signing up members: The site pulled in estimated  
revenues of just $280 million last year, and sources close to the  
company say it didn't break even.

	Indeed, sometimes it seems as if everyone but Facebook is  
capitalizing on the platform. The Democratic Party in Maine is using  
it to organize regular meetings. Accounting firm Ernst & Young relies  
on the site to recruit new hires; Dell will soon do the same. And  
Microsoft's new operating system has a slew of features lifted  
straight from Facebook's playbook.

	Zuckerberg knows this is a make-or-break moment for the company he  
founded five years ago in his linoleum-floored Harvard dorm room. He  
must figure out how to continue to add new members and make Facebook  
vital to its mass audience without alienating the kids and early  
adopters who helped popularize the site.

	(Growth has leveled off at MySpace, the original mega--social  
networking site with 130 million members, and it may wind up as a  
playground for music lovers.)

	He'll have to fend off search giant Google, which has its own grand  
plan to profit from social networks. And he has to live up to his  
change-the-world bravado: The Net is riddled with examples of  
companies and services that promised to be the next great  
communications platform -- AOL and Yahoo, to name two -- but failed to  
do so.

	To help Facebook figure out how to profit from its scale and  
popularity, Zuckerberg has brought in chief operating officer Sheryl  
Sandberg, who built Google's money-minting AdWords program.

	YouTube's former chief financial officer, Gideon Yu, runs the finance  
operation. And the board is packed with old-school cred (Washington  
Post publisher Don Graham and venture capitalist Jim Breyer) and tech  
smarts (PayPal co-founder Peter Thiel and Netscape founder Marc  
Andreessen).

	Zuckerberg, who favors jeans and T-shirts, has taken to wearing ties  
beneath his black North Face jacket because, as he tells his  
colleagues, "2009 is a serious year."

	And not just for Facebook. Few ultra-young tech company founders  
manage to hold on to the CEO reins as long as Zuckerberg has. They  
either go on to become the stuff of legend (Bill Gates) or flame out  
fabulously.

	There are certainly those who wonder whether the wunderkind is in  
over his head, punting on profitability when every other company in  
Silicon Valley is under enormous pressure to make money.

	And what's a stiff, reticent guy who'd rather be writing code doing  
in the CEO's job in the first place?

	Sure, Zuckerberg's done pretty well so far, creating a site that has  
won a rabid following among mainstream web users. But a lot of those  
people were once passionate about their AOL accounts too. Zuckerberg  
has our attention -- what's he going to do with it?

A digital world

	Mark Zuckerberg has always liked to build things. I first spoke with  
him in the summer of 2005 when he was still crashing on a friend's  
couch in Menlo Park, Calif. He was on his cellphone, pacing back and  
forth in the backyard as he explained his parents' reaction to his  
project.

	"The thing I made before Facebook almost got me kicked out of  
school," he said, referring to Facemash, a site that let people rate  
photos. He had to go before the school's administrative board to  
answer questions about how he gathered data.

	"When I started making Facebook, [my parents] were, like, 'Don't make  
another site'," he said. Then all his Harvard classmates -- as well as  
students from the rest of the Ivy League -- joined Facebook, and he  
spent the remainder of his tuition on servers.

	So much for school. Even in our initial interview, Zuckerberg was  
clear that he wasn't simply creating another online tool for college  
kids to check each other out.

	He called Facebook a "social utility" and explained that one day  
everyone would be able to use it to locate people on the web -- a  
truly global digital phone book. And he also knew that if the site  
were easy to use, a combination of peer pressure and the so-called  
network effect would kick in.

	Since that summer afternoon Zuckerberg has passed legal drinking age,  
found an apartment, accepted more than $400 million in venture  
capital, and attended the World Economic Forum in Davos, Switzerland,  
several times.

	But Zuckerberg makes it clear to me that he's still intensely focused  
on connecting the entire world on Facebook -- only now his vision goes  
well beyond the site as a digital phone book.

	It becomes the equivalent of the phone itself: It is the main tool  
people use to communicate for work and pleasure. It also becomes the  
central place where members organize parties, store pictures, find  
jobs, watch videos, and play games.

	Eventually they'll use their Facebook ID as an online passkey to gain  
access to websites and online forums that require personal  
identification. In other words, Facebook will be where people live  
their digital lives, without the creepy avatars.

	To achieve that goal Zuckerberg has brought in plenty of seasoned  
veterans, like Google's Sandberg, but he's also surrounded himself  
with young enthusiasts who share his view that Facebook can change the  
way people live and work.

	Like the early employees at Google, most won't see 30 for a long  
time. Pass by a receptionist, a straw-haired woman with funky glasses,  
and you'll notice she's updating her Facebook profile.

	Stroll the stretch of University Avenue in Palo Alto that connects  
the company's different offices and you can differentiate Facebook  
employees from the venture capitalists who toil in offices nearby: The  
Facebookers are the super-young brainiacs in ratty T-shirts and jeans.

	At times it may seem hard to reconcile Zuckerberg's lofty aspirations  
for Facebook with the utterly commonplace content that users create on  
the site.

	Consider 25 Random Things, a new take on the chain letter that has  
grown so popular it was written up in the New York Times Style section.

	You list 25 supposedly random things about yourself and send the note  
on to 25 of your friends (who are supposed to do the same), but your  
randomness also ends up on display to any gawker who may be surfing  
your profile.

	The items range from the banal (No. 17: I never, ever, ever throw up.  
Like five times in my adult life) to the intimate (No. 2: I knew I was  
gay in the sixth grade but didn't tell anyone until I was 19).

	The feature is high profile -- some 37,500 lists sprang up in just  
two weeks -- but taken as a whole it just seems like a lot of user- 
generated babble.

	Yet it is that very babble that makes Facebook so valuable to  
marketers. Imagine if an advertiser had the ability to eavesdrop on  
every phone conversation you've ever had.

	In a way, that's what all the wall posts, status updates, 25 Random  
Things, and picture tagging on Facebook amount to: a semi-public  
airing of stuff people are interested in doing, buying, and trying.

	Sure, you can send private messages using Facebook, and Zuckerberg  
eventually hopes to give you even more tools to tailor your profile so  
that the face you present to, say, your employer is very different  
from the way you look online to your college roommate -- just like in  
real life.

	But the running lists of online interactions on Facebook, known as  
"feeds," are what make Facebook different from other social networking  
sites -- and they are precisely what make corporations salivate.

The stream

	Every user on Facebook has two feeds. There's a personal feed, which  
you'll find on your profile page along with your photo and list of  
interests. Every time you post a status update, comment, or video  
post, that interaction is captured and stored for your review.

	Those changes also become fodder for a second news feed that runs on  
your home page (the page you see when you log on to the site). It  
keeps tabs on all the interactions your friends are having (and alerts  
friends to updates you've made on your personal feed).

	If your brother RSVP'd to a dinner party, for example, you might be  
notified about it, even if you weren't invited to attend. And if you  
change your profile photo, it may let your brother know.

	Like Facebook itself, the feeds are subject to the network effect:  
The more data you share and interact with, the more robust your news  
feed becomes.

	Zuckerberg calls the sum of those interactions the "stream," and it's  
his newest obsession. Unlike Google, which uses complex algorithms to  
serve up advertisements based on what you search for, Facebook lets  
you help "curate" your feeds.

	The information that pops up is partly a result of controls you  
establish in your privacy settings, and feedback you provide to  
Facebook.

	But Facebook also can track your behavior, and if the site notices  
you're spending a lot of time on the fan page of a certain movie star,  
for example, it will send you more information about that celebrity.  
Needless to say, marketers would love to tap into that information.

	"If there are 150 million people in a room, you should probably go to  
that room," says Narinder Singh, chief product officer for Appirio,  
which helps big companies like Dell and Starbucks find ways to connect  
with users over the site.

	"It's too attractive a set of people and too large a community for  
businesses to ignore," Singh says.

	Yet because businesses haven't yet effectively infiltrated Facebook,  
its users may be under the mistaken impression that they aren't under  
surveillance.

	"What I like is that it doesn't bombard you with advertisements, so  
it feels really personal," says Heather Rowley, a 35-year-old  
photographer in Berkeley.

	But it seems inevitable that some members will feel betrayed or  
uneasy when ads based on casual chats with friends start to appear on  
their feeds.

	Facebook already has had one brush with member backlash in 2007 when  
it introduced a feature called Beacon, which allowed members to see  
what websites their friends visited, and even showed purchases on e- 
commerce sites.

	Users protested vehemently -- one even filed a lawsuit on privacy  
grounds -- and Facebook apologized. Now the company is trying a  
slightly different approach. A feature called Facebook Connect lets  
users log on to company websites using their Facebook logins.

	The system, which dovetails with Zuckerberg's vision of a Facebook  
account as a form of personal ID on the web (privacy settings and  
all), appeals to advertisers for a couple of reasons.

	When a user logs on to a third-party site using Facebook Connect,  
that activity may be reported on her friends' news feeds, which serves  
as a de facto endorsement.

	The tool also makes it easy for members to invite their friends to  
check out the advertiser's site. Starbucks, for example, uses Facebook  
Connect on its Pledge5 site, which asks people to donate five hours of  
time to volunteer work.

	If you sign in using a Facebook account, a new screen, a hybrid of  
Facebook and the Pledge5 home page, pops up with information on how to  
find local volunteer opportunities.

	A tab on the page asks you to "help spread the word." Click on it and  
your entire address book of Facebook friends pops up, enabling you to  
evangelize Pledge5 with just a few keystrokes.

	So far most of the organizations using Facebook Connect are social  
enterprises, like Pledge5, or news outlets, like CNN, soliciting  
members for discussion groups.

	Who knows how Facebook users will react when a brokerage asks a  
member to spread the word about its services. Of course, members can  
ignore the exhortations to invite friends, the same way they might  
decline to forward their 25 Random Things.

	He also insists that marketing on Facebook isn't obtrusive, and that  
users can control what kind of advertising they see: Each ad contains  
a small thumbs-up or thumbs-down button.

	If a user finds an ad irrelevant, repetitive, or offensive, she  
clicks thumbs-down, and Facebook records her dissatisfaction.  
Eventually the inappropriate ads will go away. And when ads are  
useful, many online users do click on them.

	Rowley, the California photographer who values Facebook's intimacy,  
says she recently clicked on a Virgin America ad for tickets to the  
East Coast when it popped up on her news feed. "I was going there, so  
it made sense," she says.

	Still, the company couldn't have picked a worse time to start wooing  
marketers in earnest. Online advertising growth is expected to  
decelerate in 2009 from 17.5% last year to just 8.9%.

	And historically most of those ad dollars have flowed to portals and  
other online destinations, not experimental sites and social networks  
like Facebook.

	When Sheryl Sandberg arrived at Facebook, a substantial chunk of the  
company's revenues were still coming from a 2006 deal with Microsoft  
in which the software behemoth sold traditional banner ads on Facebook  
pages and the parties split the revenue.

	But attempts to sell traditional online ads on Facebook and other  
social-networking sites have failed miserably: Banner ads can sell for  
as little as 15 cents per 1,000 clicks (compared with, say, $8 per  
1,000 clicks for an ad on a targeted news portal such as Yahoo Auto)  
because marketers know that members ignore them.

	Sandberg acknowledges that Facebook has much more work to do to  
secure advertisers.

	"What we have to figure out is how [to] build a monetization machine  
which is in keeping with what users are doing on the site," she says.  
"It's about execution, doing things faster and better, getting more  
users and more advertisers."

	Facebook's march to 200 million users began in earnest in January  
2008. That's when the site made translation tools available to  
international users. Today more than 70% of Facebook users are outside  
the U.S., and most of them read it in their native language.

	But anecdotal evidence suggests that American baby-boomers have  
discovered Facebook in a big way: Some, like Microsoft CEO Steve  
Ballmer, use the site to keep an eye on their kids' online activities.  
Others are using it as a networking tool in a bad economy.

	The fastest-growing demographic on the site? Women 55 and older, up  
175% since September 2008. Cynics might say that if Granny is on  
Facebook, the site has "jumped the shark" and passed into irrelevance.

	Quite the contrary: Having a broad swath of users is exactly what  
Zuckerberg wants. The arrival of an older, less web-centric crowd  
suggests that he has succeeded in making the site easy to use:  
Facebook can't become a standardized platform if only cool kids use it.

	Besides, there doesn't currently seem to be another hot social- 
networking site that is drawing young users away from Facebook in  
large numbers.

	But the Facebook juggernaut still could very easily go awry: Remember  
AOL's Instant Messenger? Teenagers lived on it and companies started  
using it in lieu of e-mail. But AOL never figured out a way to make  
money on it.

	Facebook could meet a similar fate; indeed, it is a little worrisome  
that neither Zuckerberg nor Sandberg seems to feel any particular  
urgency about putting Facebook in the black.

	Zuckerberg prefers to leave the question of revenues to Sandberg, who  
punts: "I think what's really important is that we are able to fund  
our expansion, and we're very focused on that," she told me in mid- 
February.

	Investors seem pretty passive about it as well. Early board member  
Jim Breyer, who put in $1 million of his own money and $12.7 million  
from an Accel Partners fund, says that profits are "a secondary  
consideration in this stage of the growth."

	And then there's Microsoft, which is in the unusual position of being  
a Facebook owner, partner, and, through its Windows Live social  
network, a competitor.

	Since taking a stake in Facebook, Microsoft has been working closely  
with the site to create links between Facebook and the Windows Live  
social network so that when members update their status message or  
upload photos on Facebook, that information appears on the Microsoft  
site too.

	Facebook has influenced Microsoft in other ways. Its new operating  
system, OS 7, features a list of interactions, news, and information  
that happens to look a lot like Facebook's news feed.

	Could Microsoft end up buying Facebook outright? Both sides would  
have much to gain from the arrangement. Facebook investors could get  
their money out, and Microsoft, which has been searching for a way to  
deliver more of its software applications over the Internet, would own  
a viable online platform for selling a new generation of services

	 But Zuckerberg, like that other famous technology-loving Harvard  
dropout, seems determined to create a business empire that touches  
virtually every computer user in the world.

	Zuckerberg's not interested in selling to Microsoft; he wants to  
build the next Microsoft. And with 175 million "friends," he's off to  
a helluva start.