The Facebook Effect Part 5

Recruiter Reed was taking longer than she expected to conduct her search. For one thing, experienced engineers didn't like the idea of working for a twenty-one-year-old who'd never held a real job. And many interested candidates were daunted to discover Parker's reputation, especially once they learned that his t.i.tle at Thefacebook was president. It also was unclear to Reed exactly what Zuckerberg wanted. His description of what kind of person he wanted kept changing. He made it clear that he himself would remain in charge of product development. But despite the seeming immaturity and enveloping chaos of daily life at Thefacebook, Reed noticed that things seemed to keep moving forward.

Zuckerberg asked her to come and work with the company full-time for six months or so, until it filled out its staff. She had never done that before, but she liked the idea of stock options in Thefacebook. She was becoming a believer. "I thought I'd stood at the elbows of a lot of great entrepreneurs and knew how it was done," she says. "But when I got to Thefacebook I was struck by how much I didn't know about how twenty-somethings worked. Everybody called them irresponsible. They didn't come in until late. Some worked only at night. But Mark was actually incredibly responsible. All of them were. So I decided to forget what I knew and have a beginner's mind."

Reed, a Buddhist and meditator, sat in the cafe of San Francisco's Museum of Modern Art one Sat.u.r.day morning with Zuckerberg and made a deal. She would join the company for a few months and he would agree to meditate. She was starting to take a kind of motherly interest in his managerial success. She gave him special software for his computer that came with little biofeedback monitors that clip on your fingers and are connected by wires to your computer to measure whether you have calmed down. When they finished and came to an agreement, Zuckerberg said, "I think it's time for a hug."

Though the stresses on him these days were legion, Zuckerberg didn't seem freaked-out. In fact, he remained peculiarly placid. Even in these most hectic company days, he never lost his temper. (And he shortly reported back to Reed that he was actually using her meditation-a.s.sistance apparatus, to good effect.) This outward placidity is one key to the peculiar charisma that both draws people to Zuckerberg and vexes them. Not only is he unemotional; he seldom betrays his feelings. His typical way to listen is to stare at you blankly, impa.s.sively. It is never obvious whether he hears you. He seldom gives any reaction to what someone says to him right away. If you need to know what he thinks, you may be out of luck. "He's really hard to read," says Chris Hughes, the former roommate who during this period was managing PR for the company from his Harvard dorm room. "It's difficult to have sort of basic communication with him."

Thefacebook had stopped being small enough for everyone to know what was going on. Now Zuckerberg had to focus more consciously on communicating, making sure his messages were pa.s.sing down through the growing number of layers. Efrusy urged Zuckerberg to write down his thoughts about strategy and process. The next week Zuckerberg brought to their meeting a little leather-bound diary. "It looked like what Chairman Mao would carry around," says Efrusy. "He opened it up and it was page after page of tiny two-point handwritten text." Zuckerberg's handwriting is extremely precise, like that of an architect or designer. But he refused to let Efrusy read his notes. "I told him the point was to communicate to everybody else," says Efrusy. "He sort of looked at me like that was a new thought and said, 'Oh really?'"

This book was held closely by Zuckerberg, but some colleagues did get a peek at it. It revealed in detail where he was hoping to take his company. On its cover page it listed Zuckerberg's name and address, with a note: "If you find this book, return it to this address to receive a reward of $1,000." It was t.i.tled "The Book of Change," and just below that was a quote: "Be the change you want to see in the world-Gandhi." Inside, in Zuckerberg's precise and beautiful cursive script, were lengthy, detailed descriptions of features of the service he hoped to inaugurate in coming years-including what would become the News Feed, his plan to open registration to any sort of user, and turning Thefacebook into a platform for applications created by others. In some sections it became almost stream of consciousness, according to those who have read it. Even Zuckerberg occasionally notes in the margin, "This doesn't seem to be going anywhere." But for many of those who read it inside the company it seemed as weighty as Michelangelo's sketchbook.

A major new figure joined the life of the company around this time-investor and entrepreneur Marc Andreessen, who became a close adviser to Zuckerberg. Andreessen, one of Silicon Valley's most revered innovators and entrepreneurs, had come to California as a mere boy, much like Zuckerberg, after he helped invent the first Web browser at the University of Illinois. He co-founded Netscape Communications and later two more important and successful companies, while investing in scores more. Matt Cohler and board member Peter Thiel introduced Andreessen to Zuckerberg, thinking he could help the young CEO figure out how to grow Thefacebook. Zuckerberg immediately took a liking to the tough-minded Andreessen, who never showed the slightest hint of obsequiousness. He was consummately confident himself, in fact, never suffering fools very well. He didn't care what people thought of him, and Zuckerberg liked that. He was as blunt with Zuckerberg as he was with everyone else.

Prodded by Parker and Cohler, as well as Andreessen and Efrusy, Zuckerberg started trying to behave like a leader. He had been living in one of the company houses, but moved out in midsummer. Around the same time he proclaimed he would stop writing software. Zuckerberg needed to start focusing on bigger issues. There was a little ceremony to mark the day he installed his last piece of code. At a talk he gave at Stanford shortly afterward, he conceded, with a hint of disappointment, that "the dynamic of managing people and being CEO in a company is a lot different than being college roommates with someone." Some weekends Cohler, Moskovitz, and Zuckerberg could all be found reading Peter Drucker, the consultant and teacher often called the father of modern management.

Zuckerberg decided to study his newfound management idol-Don Graham. He asked if he could come visit the Post to observe how Graham worked. Even though at this point he barely knew the difference between profit and loss, he wanted to see what a CEO does. Zuckerberg flew to Was.h.i.+ngton and spent four days with this mentor. He shadowed Graham for two days at headquarters, then flew with him up to New York to watch him make a presentation to financial a.n.a.lysts. The Post Company's stock is divided into public shares and a separate cla.s.s of shares controlled by the family with significantly enhanced voting power. It's a structure intended to reflect the unique sensitivities of a public company that runs a newspaper-making it a hybrid of a for-profit enterprise and a public trust-and it gives the Graham family effective veto power over company decisions. Because of this family control, Graham has the ability to enforce a long-term view. Zuckerberg started thinking he might someday want a structure like that for Thefacebook.

Zuckerberg had to figure out how to respond to the people-management challenges that arise in any organization. His approach sometimes was to make a joke out of things others might treat more gravely. A young woman complained to him that an employee had hara.s.sed her in the lunch line. His response was to publicly embarra.s.s the perpetrator in front of everyone. "It has come to my attention," he announced at a company meeting, "that one of you said to a girl, 'I want to put my teeth in your a.s.s.'" He paused. The room was silent. "So, like, what does that even mean?" Everyone laughed. Then the matter was dropped.

The corporate culture was an inst.i.tutionalized, dormlike casualness, oddly fused to intense devotion and exertion. The twenty or so employees moved in packs-to the nearby Aquarius Theater, where they could get in for free because one of the engineers worked there part-time; to the McDonald's a few miles away in East Palo Alto; and to the University Cafe around the corner, which was the unofficial company meeting room. "We worked here all the time," says Ruchi Sanghvi. "We were each other's best friends. Work was never work for us. We worked through Christmas, over the weekends, and until five in the morning." She herself worked so hard that one night driving home in the wee hours to her apartment in San Francisco she twice ran into the center divider before pulling over and falling asleep on the side of the highway. After that she moved close to the office. Thefacebook offered a $600-a-month housing subsidy to those who lived nearby in Palo Alto, which encouraged the conflation of work and personal time.

Hardly anyone came in before noon. In his self-published Inside Facebook, Inside Facebook, Karel Baloun, a company engineer back then, writes that Zuckerberg himself set the tone: Karel Baloun, a company engineer back then, writes that Zuckerberg himself set the tone: "Zuck would come into the office and, seeing every chair full "Zuck would come into the office and, seeing every chair full, just lie down on the thin carpet on his belly, sandals flapping, and start typing into his little white Mac iBook." The place settled into a productive rhythm only in the evening. Programmers fueled by Red Bull would tap steadily into laptops while conversing via instant message. Fiftyish recruiter Reed started staying up at home until 3 or 4 A.M A.M. to engage in the late-night IM back-and-forth. She realized that was when many of the important decisions got made.

Zuckerberg preferred instant messaging, using AOL Instant Messenger (AIM). One employee a few years older who sat about six feet from Zuckerberg in those days received an IM from the boss. "Hey," it read. It was the first time he'd gotten such a message. So, seeking to be convivial, this guy stood up from his chair, turned to Zuckerberg, and said out loud in a friendly voice "Hey!" Zuckerberg continued staring blankly at his screen. It wasn't even clear if he had heard. If you wanted to communicate, you IM'd. Zuckerberg became slightly more animated in the evening when many people had left.

Thefacebook made explicit efforts to be a cool place to work, almost to the point of caricature. Appearance mattered. When Jeff Rothschild started at Thefacebook he dressed like a typical middle-aged, nerdy Silicon Valley engineer-clunky running shoes and a s.h.i.+rt tucked into khaki pants or loose jeans. About a month later a friend ran into him at the airport. He was wearing designer jeans with his s.h.i.+rttail untucked in the hipster manner. "Jeff, what happened?" his friend asked. "They said I was making them look bad," Rothschild replied. "They weren't going to let me back into the office." The other employees started calling Rothschild "J-Ro." "Part of our company mission was to be the coolest company in Silicon Valley," says Parker. "I played up the idea that this should be a fun, rock-'n'-roll place to work." That's why he hired graffiti artist David Choe to paint the office and had his girlfriend add a little special something in the ladies' room. (Choe got a tiny bit of stock for his efforts, now worth tens of millions.) The company continued to rent several houses that employees shared, one of them walking distance from the office. Everybody partied there on weekends.

Zuckerberg headed to New York to meet with the new ad salesman Tricia Black had hired, Kevin Colleran. Colleran had previously worked in the record industry, and the photo on his profile showed him beaming at a party with his arm around the shoulder of rapper 50 Cent-who was goateed, impudent, and decked in bling. Zuckerberg arranged to meet Colleran in front of the Virgin Megastore on New York's Union Square. Colleran showed up late and was walking toward Zuckerberg when he got a phone call from his new boss. "Where are you?" Zuckerberg asked. "Zuck! I'm right in front of you!" Colleran replied. Zuckerberg looked crestfallen. He thought Thefacebook's ad salesman was the tough-looking black guy in the profile photo.

The unique social functions of Thefacebook were occasionally deployed on its behalf. On the day a new Stanford grad named Naomi Gleit started work at the company, Matt Cohler asked her to get all her sorority sisters to poke Jim Breyer on his profile page. It was a way to keep the board feeling good about the product.

Zuckerberg's dry wit and cla.s.sicism showed then, too, according to author-engineer Baloun. "Around the end of May 2005," he writes, "Zuck painted the word 'Forsan' on his office wall in huge letters....The word comes from Virgil's then, too, according to author-engineer Baloun. "Around the end of May 2005," he writes, "Zuck painted the word 'Forsan' on his office wall in huge letters....The word comes from Virgil's Aeneid Aeneid: 'Forsan et haec olim meminisse iuvabit,' which can be loosely translated to read 'Perhaps, one day, even this will seem pleasant to remember.'"

More and more technology and media companies were taking note of Thefacebook's torrid growth and trying to figure out how they could get a piece of it. In the spring, Mys.p.a.ce founders Chris DeWolfe In the spring, Mys.p.a.ce founders Chris DeWolfe and Tom Anderson had come up to Palo Alto from Los Angeles to put out feelers about possibly buying Thefacebook. Zuckerberg, Parker, and Cohler met him in a University Avenue coffee shop, but only because they thought these were interesting guys and they were curious about Mys.p.a.ce. Then, in July, Mys.p.a.ce itself was bought. Rupert Murdoch's News Corporation purchased the social network's parent company for $580 million to get Mys.p.a.ce and its 21 million users. and Tom Anderson had come up to Palo Alto from Los Angeles to put out feelers about possibly buying Thefacebook. Zuckerberg, Parker, and Cohler met him in a University Avenue coffee shop, but only because they thought these were interesting guys and they were curious about Mys.p.a.ce. Then, in July, Mys.p.a.ce itself was bought. Rupert Murdoch's News Corporation purchased the social network's parent company for $580 million to get Mys.p.a.ce and its 21 million users.

At Thefacebook there was celebration. Not only did the deal proclaim that services like theirs were important and valuable, but they were pleased to think that a big old-line media company would now be mucking around with Mys.p.a.ce. They presumed News Corp. would slow it down tremendously. Parker called DeWolfe and his partner Tom Anderson that day and put them on speakerphone so everyone could hear. The team in Palo Alto was expressing condolences. Since DeWolfe and Anderson didn't own much of the parent company, they weren't going to get much money from the sale of their creation.

The last thing Zuckerberg wanted to do was to sell his baby. At his Stanford talk, someone asked him what he thought might be the best way to "monetize" or make money from Thefacebook, "as an exit strategy." Zuckerberg's reply was his only curt one of the night. "I spend my time thinking how to build this and not how to exit," he replied. "I think what we're doing is more interesting than what anyone else is doing, and that this is just a cool thing to be doing. I don't spend my time thinking about that. Sorry."

Though Zuckerberg put minimal priority on advertising, a fair amount was coming in anyway. But even at this early date it was apparent that Thefacebook wasn't like a typical website when it came to advertising. That was both a good and a bad thing. For one thing, ads on Thefacebook didn't get clicked very often. Some believed that was because when users were focused on finding out about friends they were unreceptive to commercial messages. A version of the Google model, which charges advertisers only when their ads are clicked on, did not look promising here.

Colleran, the new ad salesman in New York, was working hard to find brand advertisers who would pay on the basis of CPM, or cost per thousand views. That's how television ads are priced. The goal of this kind of ad (as opposed to the pay-per-click ones that Google specializes in) is not to get clicked, but rather to be seen by lots of people. But Thefacebook was still an exotic site for college kids that few on Madison Avenue had heard about and even fewer understood.

For some months Colleran was the site's only full-time ad salesman, and he quickly became frustrated. This big chummy guy with a blond crew-cut was a gung-ho cold-caller who could get in almost any door. He turned up plenty of advertisers willing to try Thefacebook. But many of their ideas were rejected out of hand by Zuckerberg. He vetoed anything that smacked of interference with the fluid use of the site, no matter how much revenue it might generate. Common practices like pop-up ads that displayed before you saw the content of a page were absolutely anathema, for example. Colleran learned to be cautious about what he even suggested.

It drove Colleran crazy that Zuckerberg wouldn't add new schools to Thefacebook more quickly. To the ad guy, more users just seemed better. Zuckerberg and Moskovitz, however, were methodical. Students from schools where Thefacebook hadn't yet launched regularly came to the site and tried to sign up. They would go on a waiting list and be alerted when it came to their school. When the number on the waiting list pa.s.sed 20 percent or so of the student body, Thefacebook would turn that school on. "I always thought it was wrong," says Colleran, "but now I realize it was a major reason for our success." By keeping the gates closed and only opening at schools once there was proven demand, Zuckerberg and Moskovitz, the expansion guru, ensured that when Thefacebook did open, usage would explode.

Colleran found one company willing to pay big bucks for ads. It was his first big deal. British online gaming company Party Poker didn't buy its ads on a CPM basis, but rather on what's called CPA-cost per acquisition. Party Poker paid a flat fee of $300 for each new subscriber who signed up for its service and put at least $50 into a gambling account. This proved to be hugely lucrative for Thefacebook-it was soon reaping $60,000 each month just for the 200 new members, on average, who signed up. Salespeople at Y2M, which was also still selling ads for Thefacebook, were astonished. They had never before seen a college advertiser spend so much on the Internet. A year or so later, though, online gambling was outlawed in the United States and Thefacebook dropped Party Poker.

Those interested in banner ads on a CPM basis included some companies that targeted college students as employees-like house-painting operations and door-to-door retailers that hired students for summer work. One big client sold kitchen knives. Businesses that provided products sold by fraternities and sororities for fund-raisers also saw a good response on the site. Ads started at $5 per thousand views and advertisers had to spend a minimum of $5,000 per month.

But aside from the lucrative Party Poker deal, the main revenue was still coming from sponsored groups, especially Apple's. Since Apple paid $1 per month per member, as the Apple group grew Thefacebook made more and more. Soon it was generating hundreds of thousands of dollars per month. That was the single biggest source of revenue the company had in 2005. Other companies that sponsored groups, which required a minimum monthly payment of $25,000, included Victoria's Secret.

But there were also early signs that this new kind of social network offered uniquely powerful tools for advertisers. In 2005, Interscope Records released a single by Gwen Stefani called "Hollaback Girl." The song takes the form of a sort of cheerleading chant, and Interscope's marketers got the idea of promoting it explicitly to college cheerleaders, hoping they would adopt it for their routines at games. Where better to find college cheerleaders than at a college-only website? Dustin Moskovitz had become good at mining profile data on Thefacebook for advertisers, so it was little trouble for him to target cheerleaders.

This approach might seem obvious, but few sites on the Internet before this could offer targeting based on information that had been explicitly provided by users. Interscope could have instead hired a firm that targets users on other sites based on inferential a.n.a.lysis of Internet behavior. Such ad networks watch what people do using tiny pieces of software called "cookies," which are installed in consumers' Web browsers. They can know, for example, you have been to the kinds of sites a twenty-year-old girl might go to, or that you have shopped for pop music online. If you did both, they might place ads on pages you visit. Such an approach infers who you are and what you're interested in by supposedly savvy guesswork.

While such targeting has been considered acceptably accurate, it's a shotgun approach. Many such ads are seen by people who aren't the real targets. Even gender targeting is often inferred incorrectly online. One longtime Internet ad executive estimates gender targeting errors at 35 percent. If you are sharing your boyfriend's laptop, for example, this approach won't work very well. Another way an advertiser like Interscope could achieve tight demographic targeting would be to find a site just for college cheerleaders, if one existed, and run its ad there. But it wasn't likely to get large numbers that way.

On Thefacebook, by contrast, Interscope could be given a guarantee-its ad would only be seen by college girls who are either cheerleaders or who have mentioned something about cheerleading in their profiles. The company told Interscope exactly how many times it displayed the ad on pages seen by such girls. "Hollaback Girl" did become a popular cheerleading anthem at football games that fall. It's impossible to prove the ads on Thefacebook were determinative, but it's a fair bet that just about every cheerleader at the schools where Thefacebook operated saw them.

Targeting of this type is enormously promising. A media kit used by Colleran right after he started lists the following parameters an advertiser could use for targeting college students: geography, gender, course, keywords in profile, cla.s.s year, major, relations.h.i.+p status, favorite books, movies or music, political affiliation, and university status (student, faculty, alumni, or staff). The house-painting and knife-peddling advertisers could show their ads only to male students at colleges in regions where they wanted to increase their workforce. Or they could aim more tightly-at freshman males on the football team who had gone to high school in northern Ohio.

Inside the company it was starting to sink in on these young pioneers that they had a unique database about people that could be tapped for many purposes. The combination of real validated ident.i.ty information and extensive information about individuals could yield insights no Internet service previously had seen. A math whiz friend of D'Angelo and Zuckerberg from Exeter spent the summer writing algorithms to find patterns in Thefacebook's data. He was able to create lists of user favorites. Movies were the top interest of the service's 3 million users. Their five favorites were Napoleon Dynamite, The Notebook, Old School, Fight Club, Napoleon Dynamite, The Notebook, Old School, Fight Club, and and Garden State Garden State. Favorite book: The Da Vinci Code The Da Vinci Code. Favorite musician: Dave Matthews. Soon the service began offering something called Pulse. It tracked which books, movies, and music were most popular on Thefacebook as a whole and on a given college campus.

For all the promise Thefacebook's unique data held for advertisers, most of the ads that were selling on the site at that point were generic banner ads. Facebook had contracted with several ad networks, which were posting ads w.i.l.l.y-nilly. None of it was generating very much revenue. The company was steadily burning through the money it had raised from Accel. By year-end, it had $5.7 million left By year-end, it had $5.7 million left from the $12.7 million it had raised. Thefacebook had not yet become a real business. from the $12.7 million it had raised. Thefacebook had not yet become a real business.

These highly intellectual dropouts would spend endless hours debating what Thefacebook was really doing. After all, there had never been a website quite like this before. They took a serious, almost grave view of the significance of what they were building. Zuckerberg referred to it as a directory of people. That was, he said, what he had originally set out to build. Parker put it more imaginatively. He said Thefacebook was like a little device you carried around and pointed at people so it would tell you all about them. Cohler's a.n.a.logy was that it was like your cell phone-a gateway to the people in your life. Even back then they often heard the criticism that Thefacebook was a waste of time. Zuckerberg's standard reb.u.t.tal: "Understanding people is not a waste of time." He started saying that the goal of Thefacebook was "to help people understand the world around them."

They loved to talk about how Thefacebook showed what economists call "network effects." And it did, just as have many of the great communications and software innovations of the last hundred years. A product or service is said to have a network effect when its value grows greater to all users each time one new user joins. Since every incremental user thus in effect strengthens the service, growth tends to lead to more growth, in a virtuous cycle. That was surely the case with Thefacebook, just as it was with instant messaging, AOL, the Internet itself, and even the telephone. Businesses or technologies with network effects tend to grow steadily and to have a durable market presence.

While they wanted working at Thefacebook to be seen as cool-that helped in recruiting-the product was another matter. Friendster had lived by its coolness and was now dying. Thefacebook, Zuckerberg began declaring, was "a utility." No term could sound more boring, though he was really thinking in grandiose terms. He meant it as a way of claiming Thefacebook's affinity with the telephone network and other communications infrastructure of the past. "We wanted to build a new communications medium," says Parker. "We knew we'd be successful when we were no longer cool-when we were such an integral part of peoples' lives that they took us for granted." Dustin Moskovitz adds that it was important for the company to escape the a.s.sociations that came with its campus roots. "It was always very important for our brand to get away from the image of frivolity it had, especially in Silicon Valley," he says. He had not been a big advocate of the beer-pong tournament.

Sleekness and efficiency were the image they sought, rather than frivolity. Though Thefacebook's white and barren functional look stood in stark contrast to the florid excess of Mys.p.a.ce, its design was still awkward and inefficient, reflecting the additive way it had evolved since its dorm-room days. Aaron Sittig, the graphic designer and programmer who was Parker's close friend, had now joined Thefacebook full-time. "On my first day I came in and asked Mark, 'What do you want me to do?'" Sittig remembers. "And he's like 'You're a designer. So redesign the site.'" It came to be called the Facelift project. Sittig spent the summer working closely with Zuckerberg to disentangle software code and simplify how everything worked. The simplicity that later came to characterize the site was deliberate. "We wanted to get the site out of the way and not have a particular att.i.tude," says Sittig. "We didn't want people to have a relations.h.i.+p with Facebook so much as to find and interact with each other."

Another major project in the summer of 2005 was acquiring the Internet address Facebook.com so the service could change its name. Parker, especially, was offended by the awkward inclusion of the article the the in Thefacebook. He spent weeks negotiating with a company called AboutFace, which used the Facebook.com address to market software that companies used to create employee directories. AboutFace was willing to sell, but didn't want Thefacebook stock as payment. Parker ended up paying $200,000 in cash. He also oversaw a redesign of the logo, removing the brackets that had surrounded "thefacebook" and streamlining the typeface for the new company name: Facebook. The partly pixelated head of Al Pacino in the upper left corner of the screen remained, cleaned up a little and shrunk. The company officially became Facebook on September 20, 2005. in Thefacebook. He spent weeks negotiating with a company called AboutFace, which used the Facebook.com address to market software that companies used to create employee directories. AboutFace was willing to sell, but didn't want Thefacebook stock as payment. Parker ended up paying $200,000 in cash. He also oversaw a redesign of the logo, removing the brackets that had surrounded "thefacebook" and streamlining the typeface for the new company name: Facebook. The partly pixelated head of Al Pacino in the upper left corner of the screen remained, cleaned up a little and shrunk. The company officially became Facebook on September 20, 2005.

But despite Parker's successes, every day it became clearer to Zuckerberg and others that he was not the right guy to be helping manage the company. Zuckerberg started to think he should run the company. Parker himself doesn't deny he was unreliable. "I'm always gearing up for a really big push and achieving a lot and then kind of disappearing," he admits, "which is not a good trait if you want to be operationally involved in a company day to day." Parker was disappearing periodically. And employees noticed his erratic moods.

Rebranding Facebook would turn out to be Parker's last important act as company president. In the last week of August he was on a kiteboarding vacation in North Carolina, where he had rented a house right by the beach with several friends, including a young woman who was his a.s.sistant at the company. That she wasn't yet twenty-one would figure in Parker's later difficulties. One night midway through their vacation week, they threw a party and invited the kiteboarding instructors, who in turn invited a bunch of their local friends. The party got so big that people began dropping in off the beach. Then two nights later, the final night, they hosted another, smaller gathering with the instructors. The group was drinking beer when a horde of police burst in with drug-sniffing dogs and a search warrant naming "Scott Palmer." They said they had a report that the house contained a large amount of cocaine, ecstasy, and marijuana. They searched everywhere.

Parker and his friends repeatedly insisted that the police were mistaken and that there were no drugs. But finally, after about an hour, a policeman triumphantly returned brandis.h.i.+ng a plastic bag containing white powder. Parker, who had signed the rental agreement for the house, was taken to the police station. When he got there he learned there had been reports of drug use following the party two nights earlier. After a lengthy back-and-forth over whether there was even enough evidence to book him, Parker was arrested for felony possession of cocaine. He was not formally charged with a crime. That would require an indictment. He was released immediately.

Parker flew home to California, shaken but adamantly insisting he had done nothing wrong. He told Zuckerberg, company counsel Steve Venuto, as well as executives Dustin Moskovitz and Matt Cohler. They decided it didn't call for any action by the company. Then Zuckerberg told Jim Breyer about the incident. That did not portend well for Sean Parker.

Breyer, Accel's board member at Facebook, took the arrest very seriously. He was worried not only that the company's president and board member was being accused of drug possession, but also that he had been with an underage company employee at the time. Breyer knew about the allegations about drug use and misbehavior at Plaxo, because he had talked to Mike Moritz and other investors in that company about Parker before investing in Facebook.

The fact that Parker had never developed a good relations.h.i.+p with Accel and Breyer made it hard for him to resolve the matter quietly. A complicated and tense negotiation ensued.

Zuckerberg was not convinced Parker had done anything wrong. No official charges had been brought, after all. (They never would be.) And Zuckerberg felt real loyalty to his friend. The CEO was deeply grateful to Parker for having done such a good job negotiating with Accel, and for ensuring he had control of the company.

But Breyer thought Parker was a liability for the company well beyond his actions in North Carolina, whatever they might have been. Though he had tremendous respect for Parker's intelligence, he saw him as bringing a volatile edge to the company's culture. Breyer was also fully aware of Parker's aversion to venture capitalists like himself.

Others in the company's leaders.h.i.+p felt uncomfortably stuck in the middle of an intractable dispute. Even some of Parker's friends felt that, regardless of the merits of this particular accusation, he should not remain Facebook's long-term president. For them, this incident was merely the straw that broke the camel's back. So while some of these younger employees supported Parker in his specific contention that he had done nothing wrong, they weren't eager to retain the status quo. Among other things, his compatriots worried about Parker's desire to remain the public face of Facebook. It felt risky for the company to have that same person leading what was beginning to seem like a reckless personal life.

A whirlwind of accusations and arguments swept the company up into a genuine crisis. Breyer insisted Parker had to leave the company. The pressure on Zuckerberg was intense. Meanwhile, Jeff Rothschild, who had been brought in as a seasoned technologist by Accel but had by now bonded with the team of young entrepreneurs, worked hard to serve as a mediator. He spent hours talking with Parker and Zuckerberg as they sought a resolution, as did company counsel Venuto (a longtime a.s.sociate whom Parker had hired).

All this took place over only a couple of days. Breyer demanded Parker step down and was talking about filing a lawsuit because as a board member he hadn't been informed earlier. Parker's friend and board member Peter Thiel was also encouraging him to quit. Parker and Zuckerberg sat in the dorm room and had an emotional conversation, which ended with Parker agreeing to step down.

But this third time he was being ejected from a company he had helped create, Parker had finally succeeded in building in some insurance for himself. Under the terms he had carefully crafted to protect himself and Zuckerberg, he had no obligation either to relinquish his board seat or to give up his stock options, even if he was no longer an executive. But Breyer insisted that he not only leave the board but also stop vesting, or acquiring final owners.h.i.+p, of his stock, since he had only been at the company about a year. (Vesting is generally tied to tenure-the longer you remain with the company the more stock becomes yours.) The company advanced Parker's vesting by a year, and he agreed to relinquish about half his options. (Had he retained the options he gave up, they would be worth around $500 million today.) But Parker had the right to a.s.sign his board seat, which he was also voluntarily relinquis.h.i.+ng, to someone else. He had reservations about giving it to Zuckerberg, because with the control of a third seat Zuckerberg would have unchallengeable authority over the company's destiny. However, Parker worried that any other choice would risk allowing the company to fall under the control of outside investors. His a.s.sumption that, if investors had the power, they would eventually seek to oust Zuckerberg gave him, he felt, no choice.

Parker and Zuckerberg agreed the seat should revert to the CEO, giving Zuckerberg control of two seats on the five-person board in addition to the one he occupied himself. For the time being these two seats remained unoccupied. But in the event of any serious disagreement with Breyer and Thiel, Zuckerberg had the ability immediately to appoint two new directors on the condition they vote as he instructed. "That solidified Mark's position as the sort of hereditary king of Facebook," says Parker. "I refer to Facebook as a family business. Mark and his heirs will control Facebook in perpetuity." Zuckerberg continues to this day periodically to consult his former colleague.

7.

Fall 2005.

"He was formulating a broader and broader theory about what Facebook really was."

As the school year resumed in the fall of 2005, the company now named Facebook had effectively blanketed the college market-85 percent of American college students were users and a full 60 percent returned to it daily. Now Zuckerberg wanted to broaden members.h.i.+p into new demographics. But many in the company wondered whether it made sense. "The debate was 'What's next?'" says board member Jim Breyer. "Do we go international? Do we go young adult and keep the people who are graduating? But we knew that if we were going to win big, we had to start getting the hearts and minds of high schoolers."

Zuckerberg and his co-founder Moskovitz, for their part, saw Facebook on a slow march toward ubiquity. To them, high school was just an obvious next step. This could be a huge leap in Facebook's audience. And it was important to counter Mys.p.a.ce, which was making rapid inroads in high schools. Once you knew how Zuckerberg felt, you knew how the board was going to vote.

So Facebook had that summer started planning to include high school students. Investor Breyer and Matt Cohler-the older people-both argued that the Facebook brand was irrevocably a.s.sociated with college and that college students didn't want high schoolers in there with them. They argued that a high school Facebook should operate separately and under a different name. Facebook High was considered promising, but "FacebookHigh.com" was owned by a speculator who wanted too much money for it.

If high school students joined Facebook, how would the service validate users? Protecting the culture of real names and genuine ident.i.ty was critical. The college-issued .edu email addresses had ensured that people were who they said they were. That was the foundation that enabled Facebook to protect its users' information-you only shared stuff with people you knew. More than half of all users had so much faith in the security of their information that they included their cell-phone number in their profile.

However, only a small number of high schools, mostly private ones, gave students email addresses. New general counsel Chris Kelly, who had recently been hired, briefly launched a campaign to convince high schools to issue email addresses to students as an online safety measure. Then Facebook considered inst.i.tuting its own national high school email service. Finally it came up with a compromise. Part of what authenticated you on Facebook was the people who, in effect, vouched for you by being your online friends. So college freshmen and soph.o.m.ores were encouraged to invite their friends who were still in high school. Then those users could invite their own friends. It meant a slower start for the high school version of Facebook. The service created separate "networks," or members.h.i.+p groups, for every one of the country's 37,000 public and private secondary schools.

Initially, the high school site operated as a separate "Facebook." Though high school users also logged in at Facebook.com, they couldn't see college users' profiles. Members.h.i.+p grew painfully slowly at first, but by late October thousands of high school students were joining the service each day. (Overall at that point, about 20,000 new users were joining daily.) Facebook was no longer just a college phenomenon. Zuckerberg, with the strong support of Moskovitz, soon insisted that the two services should be merged. By February 2006 they were ready to abandon that distinction, so users could freely establish friends.h.i.+ps or send messages with anyone regardless of age or grade (the minimum age was set at thirteen). Cohler and Breyer and many of the older employees remained extremely worried that Facebook's appeal to college kids would plummet when they saw high schoolers in there with them.

So it was a very dramatic day for them when they merged the two systems. But it turned out college kids-the ones who noticed-were generally pleased to be able to communicate with a larger universe of potential friends. There was some griping as there always was when Facebook expanded beyond what was seen as a formerly exclusive cohort. One new group was called "You're Still in High School One new group was called "You're Still in High School and You're Friending Me? That's Awkward...Now Go Away." But the data told Zuckerberg and his crew what they wanted to know. It showed that lots of communication was developing between high school and college kids and that overall activity was going up as a result of the change. By April 2006, Facebook had over a million high school users. and You're Friending Me? That's Awkward...Now Go Away." But the data told Zuckerberg and his crew what they wanted to know. It showed that lots of communication was developing between high school and college kids and that overall activity was going up as a result of the change. By April 2006, Facebook had over a million high school users.

Facebook had outgrown its cramped warren of rooms above the China Delight restaurant on Emerson Street in Palo Alto. The company decamped for larger quarters one block away on University Avenue, not far from Stanford and across the street from Google's original headquarters. Facebook relocated to a modern gla.s.s office building, indicative of a new gravitas for the company. Moving, however, involved improvisation of the cla.s.sic Facebook variety. Everybody carried their stuff themselves. A short procession ensued as a row of T-s.h.i.+rted, unkempt young engineers pushed their desk chairs, each one loaded with an extra-large monitor, along the sidewalk for the one-block trip.

When Facebook reached 5 million users in October 2005, it held another party at board member Peter Thiel's San Francisco club Frisson to celebrate-only ten months after the one-million-user party there. Every day brought more evidence that users were infatuated with the service. At the beginning of the school year, Facebook had nearly doubled At the beginning of the school year, Facebook had nearly doubled the number of colleges where it operated-to over 1,800. At almost every one, its penetration among students quickly surpa.s.sed 50 percent. More than half of users were signing in at least once a day-an extraordinary statistic for any Internet business. And in the office, the staff was being bombarded with emailed pictures of quails. the number of colleges where it operated-to over 1,800. At almost every one, its penetration among students quickly surpa.s.sed 50 percent. More than half of users were signing in at least once a day-an extraordinary statistic for any Internet business. And in the office, the staff was being bombarded with emailed pictures of quails.

Users had noticed the quote from Wedding Crashers Wedding Crashers at the bottom of the search page that said, "I don't even know what a quail looks like," and they were trying to be helpful. Or else they were in on the joke. Or both. It didn't matter. They cared. at the bottom of the search page that said, "I don't even know what a quail looks like," and they were trying to be helpful. Or else they were in on the joke. Or both. It didn't matter. They cared.

Users were viewing 230 million pages daily on Facebook, and revenue had climbed to about $1 million per month. Mostly it was coming from ad networks that were placing low-priced display ads. Sponsored groups like the ones run by Apple and Victoria's Secret were bringing in thousands, and announcements at individual schools generated some money as well. But since the company's costs each month were about $1.5 million, Facebook was burning through its capital at the rate of about $6 million per year. The money was mostly coming out of the Accel investment, and Zuckerberg wasn't very concerned. Neither was Moskovitz. Moskovitz kept working like a dog, but when he wasn't at his desk he was driving proudly around in a new BMW 6-series sedan he'd bought in September.

There was a sense among many at the company that they were partic.i.p.ating in something historic. Cohler, who unlike most of this crew had actually received a degree, from Yale in music, saw a.n.a.logies. "It was one of those moments with a unique creative zeitgeist," he says, "like jazz in New York in the 1940s or punk in the 1970s, or the first Viennese school of the late eighteenth century." The conviction that this was history in the making led people to work even harder.

The history was not being made by Facebook alone. The company was surrounded by other companies also creating a more social Internet. Just around the corner was Ning, funded by Marc Andreessen and building software that enabled anyone to create their own private little social network. Up in San Francisco, forty-five minutes to the north, Digg was inventing a new tool that allowed people to share articles and other media they found on the Web. Other social networks like Bebo and Hi5 were emerging there, too, some targeting the same users as Facebook but in any case building clever products that were resonating with users all over the world.

Moskovitz was more interested in user numbers than historical a.n.a.logies. Ever vigilant about compet.i.tors Ever vigilant about compet.i.tors, he was worried that Mys.p.a.ce had grown from about 6 million members in January to 24 million by now. "How are they doing it?" Moskovitz asked one day. "f.u.c.k Mys.p.a.ce," Zuckerberg replied.

He had a chance to express a similar disparaging view in slightly more polite language directly to Mys.p.a.ce's leaders shortly thereafter. Zuckerberg and Cohler flew down to Los Angeles, where they sat at a restaurant with Ross Levinsohn, head of Fox's interactive group for Rupert Murdoch's News Corp. He oversaw Mys.p.a.ce. Their compet.i.tor was being solicitous again. Levinsohn was cultivating Zuckerberg because he wanted to buy Facebook to add to his digital portfolio. But Zuckerberg was, as usual, just stringing him along. In her book Stealing Mys.p.a.ce, Stealing Mys.p.a.ce, Julia Angwin recounts how Levinsohn seemed dubious Facebook could handle its rapid growth. Julia Angwin recounts how Levinsohn seemed dubious Facebook could handle its rapid growth. Zuckerberg was dismissive Zuckerberg was dismissive, both of the comment and of Levinsohn's business. "That's the difference between a Los Angeles company and a Silicon Valley company," he said. "We built this to last, and these guys [at Mys.p.a.ce] don't have a clue."

A few weeks after it hit 5 million users, Facebook added a new feature that would transform its service. It had succeeded up to that point by being what one employee called "brain-dead simple"-all you were able to do was fill in your own profile and scan the information others had put into theirs. But there was one way to customize and modify your profile that had become very popular. Though you were allowed only one profile photo, students were frequently changing that photo, sometimes more than once a day. They clearly wanted to be able to post more photos.

Photo hosting was exploding on the Internet. Earlier that year Yahoo had acquired Flickr, a pioneering service that allowed users to upload photos for free, and was very creative with something called "tagging." A tag was inserted by the photographer when he or she uploaded the photo, to label it based upon its content. A single photo might be tagged "landscape," "Venice," and "gondola." Users could search for photos based on their tags.

A lengthy debate ensued about the wisdom of Facebook getting into the photo-hosting and storage business. The earlier add-on Wirehog application, which was intended partly to enable users to see photos on one another's PCs, had fallen flat. During the brief period when the Wirehog application was active, few users tried it. And Zuckerberg worried that to tinker with Facebook's simplicity was risky when the service was growing so rapidly just as it was. But finally Parker and others convinced him it was worth a try to build a Facebook photos feature. "The theory behind photos," says Parker, "was that it was an application that would work better on top of Facebook than as a free-standing application."

Some of the company's best new arrivals took on the project. Aaron Sittig oversaw the user interface and design. Engineer Scott Marlette wrote the software. Managing the process was newly hired vice president of product Doug Hirsch-the fruit of Robin Reed's recruiting labors. At thirty-four, Hirsch was an online veteran who had been one of the first thirty employees of Yahoo.

After a few weeks, Sittig, Marlette, and Hirsch quickly came up with a well-designed if conventional photo-hosting service. Like many on the Internet, it allowed users to upload photos and include them in online alb.u.ms, and enabled others to comment on them. But they knew it wasn't exactly right. Hirsch, who had years of experience in Internet product design, suggested they take a different approach, something uniquely Facebook. "I wish there was just one really social feature we could add to this," he said in a meeting. Sittig, a very serious young man with blond bangs whose impeccable beach-boy good looks are seldom graced by more than a fleeting and wry half-smile, considered what that might mean. "I went back and thought a bit," he recalls, "and I was thinking, 'You know, the thing I most care about in photos is, like, who's in them.'"

It was a breakthrough. They decided that Facebook photos would be tagged in just one way-with the names of the people in them. It sounds elementary but it had never been done before. You would only be able to tag people who had confirmed they were your friends. People who were tagged received a message alerting them about it, and an icon appeared next to their name on the lists of friends that appeared on each user's page.

The photos team made two other important decisions. To see the next photo, all you had to do was click anywhere on the photo you were looking at. You didn't need to hit a little "next" b.u.t.ton. They were attempting to encourage that "Facebook trance" that kept people clicking through pages on the service. It made looking at photos simple and addictive. They also took a gamble and decided to compress photos into much smaller digital files, so that when they appeared on Facebook they were significantly lower in resolution than the originals. That meant they would upload faster, so users could select a number of photos on their PC and see them online within minutes.

Would people accept low-resolution photos? Would they use the tags? On the day in late October when the team turned the Photos application on, they nervously watched a big monitor that displayed every picture as it was uploaded. The first image was a cartoon of a cat. They looked at each other worriedly. Then in a minute or so they started seeing photos of girls-girls in groups, girls at parties, girls shooting photos of other girls. And these photos were being tagged! The girls just kept coming. For every screenful of shots of girls there were only a few photos of guys. Girls were celebrating their friends.h.i.+ps. There was no limit to how many photos people could upload, and girls were putting up tons of them.

Ordinary photos had become, in effect, more articulate. They conveyed a casual message. When it was tagged, a photo on Facebook expressed and elaborated on your friend relations.h.i.+ps. "Pretty quickly we learned people were sharing these photos to basically say, 'I consider these people part of my life, and I want to show everyone I'm close to them,'" says Sittig. Now there were two ways on Facebook to demonstrate how popular you were: how many friends you had, and how many times you had been tagged in photos.

Sittig, Marlette, and Hirsch had also stumbled onto a perfect new use for photographs in the age of digital photography. More and more people were starting to carry cell phones with built-in cameras, using the cameras for quick snaps of daily activities. If you always had a camera with you, you could take a picture simply to record something that happened, then put it on Facebook to tell friends about it. The tags on a photo automatically linked it to people throughout the site. This was very different from the way photos were generally used on Mys.p.a.ce. Mys.p.a.ce was a world of carefully posed glamour shots, uploaded by subjects to make them look attractive. In Facebook, photos were no longer little amateur works of art, but rather a basic form of communication.

In short order the photos feature became the most popular photo site on the Internet and the most popular feature of Facebook. A month after it launched, 85 percent of the service's users had been tagged in at least one photo. Everyone was being pulled in whether or not they wanted to be. Most users had their profile set up so that if someone tagged them in a photo they received an alert by email. Who wouldn't go look at each new picture of themselves once they got that email? After the photos feature launched people began to come back to Facebook more often, since there was more often something new to see. This thrilled Zuckerberg, whose primary measure of the service's success was how often users returned. A full 70 percent of students were now coming back every day, and 85 percent at least once a week. This is astonis.h.i.+ng customer loyalty for any Internet service, or any business of any kind, for that matter.

Immediately the question s.h.i.+fted to whether Facebook could handle all the new data and traffic. It put a ma.s.sive burden on the storage and servers. Within six weeks the photos application had consumed all the storage that Facebook had planned to use for the coming six months. Having data center software veteran Jeff Rothschild on hand proved fortuitous. He stayed late night after night, trying to keep the company's servers from "redlining"-exceeding their capacity and potentially cras.h.i.+ng. People from across the company were drafted to trek to the data center and help plug in new servers. Marlette, considered by most of his colleagues a programming genius, focused on rewriting the photo software code to make it more robust and efficient. By late 2009 Facebook was hosting By late 2009 Facebook was hosting 30 billion photos, making it the world's largest photo site by far. 30 billion photos, making it the world's largest photo site by far.

The success of photos led to an epiphany for everyone at Facebook, from Zuckerberg on down. The team had built what was otherwise a plain-vanilla photo-hosting application. But the way they integrated it with Facebook showed the magic of overlaying an ordinary online activity with a set of social relations.h.i.+ps.

Facebook executives were seeing the Facebook Effect in action themselves for the first time. Zuckerberg was beginning to talk about what he would come to label the "social graph," meaning the web of relations.h.i.+ps articulated inside Facebook as the result of users connecting with their friends. With Facebook photos, your friends-your social graph-provided more information, context, and a sense of companions.h.i.+p. But it only worked because the photos were tagged with people's names and Facebook alerted people when they were tagged. The tags determined how the photos were distributed through the service. "Watching the growth of tagging," says Cohler, "was the first 'aha' for us about how the social graph could be used as a distribution system. The mechanism of distribution was the relations.h.i.+ps between people."

Perhaps applying the social graph to other online activities would make them more interesting and useful, too. But how could Facebook help make that happen? If photos were a new application on top of the Facebook platform, what would some other applications be? Zuckerberg found these to be enormously exciting questions, and they dovetailed with thoughts he had discussed with Adam D'Angelo since even before Thefacebook launched about how the entire Internet needed to become more "social." It was the Wirehog dream finally coming to fruition. "Watching what happened with photos," says Parker, "was a key part of what led Mark's vision to crystallize. He was formulating a broader and broader theory about what Facebook really was."

Harvard continued to figure in Facebook's story. Following the success of photos, Zuckerberg began scheming to make more dramatic changes in the service, but to implement them he would need a bunch of new top-quality programmers. He had been frustrated by the people who were applying in Silicon Valley. They just didn't fit in with Facebook's culture. They were too corporate, not iconoclastic enough, and not in his view sufficiently creative. So he combed through Facebook looking up old teaching a.s.sistants and other computer science majors who had impressed him at Harvard. He wrote out a list and gave it to Robin Reed, who started calling them. It turned out that a bunch were living in Seattle.

In January 2006, Facebook hired four former computer science teaching a.s.sistants from the Harvard cla.s.ses of '03 and '04: three worked at Microsoft and one at Amazon.com. One-Charlie Cheever, from Microsoft-Zuckerberg thought of as a kindred spirit because Cheever had been brought before Harvard's Administrative Board for downloading student information into a database. Cheever let a few friends search through his program to find out who roomed with whom, or which dormitory that cute girl lived in. It was an escapade not unlike Zuckerberg's with Facemash, but a year earlier.

This influx of programming hotshots immediately brought a new rigor and focus to Facebook's engineering. Not only were they young enough to understand the ethos of openness and transparency that was at the heart of the company's values, but they had several years of experience at the best software companies under their belt. They expected nothing less than to partic.i.p.ate in groundbreaking Internet innovation.

8.

The CEO.

"You'd better take CEO lessons!"

As Facebook kept evolving-and growing faster with every change-the established powers of the technology and media world began paying ever closer attention. This appeared to be the kind of irresistible consumer website every executive had dreamed of owning since the Internet took off in the mid-1990s. Mark Zuckerberg suddenly had a lot of new older, well-dressed friends from Los Angeles and the East Coast.

But he didn't think like the CEO of an established technology or media company. He barely gave a thought to profit and was still ambivalent about advertising. This wasn't easy for his newfound suitors to understand. One senior executive from a tech company recalls a frustrating visit during that time with Zuckerberg, who seemed uninterested in increasing the company's revenue. "He didn't know what he didn't know," he says. "But when he opened his mouth he was very direct, very smart, and he was very focused on Facebook as a social tool, to the point of naivete. It sounded just too altruistic at the time. So I asked him, 'Is it a social tool as a tactic to get to the next point?' And he says, 'No, all I really care about is doing this social tool.' So I thought, 'Either this guy is being very strategic and not telling me what his next thing is, or he's just got his sandbox and he's playing in it.' I couldn't figure it out."

Viacom's MTV subsidiary had identified Facebook as a natural partner back in early 2005 when strategy boss Denmark West had vainly proffered the idea of a $75 million acquisition. A few months after that overture was rejected, MTV almost succeeded in buying Mys.p.a.ce, only to have it s.n.a.t.c.hed away by News Corp. in July. Viacom's octogenarian CEO, Sumner Redstone, was enraged that archrival Murdoch had stolen his prize. By the fall of 2005, MTV's interest in Facebook was stronger than ever. After all, West and others reasoned, there was so much overlap between the two companies' audiences that Facebook could be be MTV's digital strategy. MTV's digital strategy.