All Things Digital

We’re posting all the interviews from the sixth D: All Things Digital conference that took place in late May.

But–as many readers have requested–they will all be available in their entirety in this column.

Here’s Part 3 of 4 of an interview I did with Facebook Founder and CEO Mark Zuckerberg and COO Sheryl Sandberg. (I will post one video part of the discussion with Zuckerberg and Sandberg every day this week, starting Monday and concluding tomorrow.)

The social-networking site has had quite a year as the hottest and most hyped on the Web 2.0 landscape. With fast growth and still-questionable monetization power, where Facebook is going will be a journey plenty will be paying attention to.

In this video, Zuckerberg and Sandberg talk about why Facebook is a technology and not a media company, as well as how to make money via advertising, how change is affecting the young company, the state of its relationship with both Google (GOOG) and Microsoft (MSFT), whether Facebook should sell or go the IPO route, and where the company will be in five years.

Please see this disclosure related to me and Google.

Yesterday, in a quarterly regulatory filing, Google stated what everyone and their mother and their sisters and their cousins and their aunts have known for about, say, years now:

That its $1 billion investment in AOL, made in 2005 at a $20 billion valuation, “may be impaired.”

While that makes it sound like AOL has had a few too many beers, actually, this is accounting-speak for: Our investment has tanked big time.

“There can be no assurance that impairment charges will not be required in the future, and any such amounts may be material,” Google (GOOG) said in its filing.

Indeed and coincidentally, in a piece about AOL’s downward valuation and its negative implications for its ability to sell itself to Yahoo (YHOO) or Microsoft, which was published yesterday before Google essentially wrote off a lot of its AOL investment, BoomTown wrote:

Of course, $10 billion is about half as much as AOL was valued in late 2005, when Google forked over $1 billion for five percent of the unit.

At the time, no one actually believed the $20 billion was a real figure, but that it was due more to Google’s incentive to overpay in order to clinch a renewal of its search deal with AOL and ward off Microsoft’s aggressive efforts to steal that business away.”

The Google filing is the company’s official warning that its AOL payola will now have to be accounted for and could result in a charge to future profits.

For a moneymaker like Google, that might not be a problem.

More interesting, of course, are the geopolitics of the whole thing. As part of its investment, Google got the right to demand that the AOL unit be spun off in an IPO or Time Warner (TWX) would have to buy back Google’s stake.

If Time Warner managed to get Microsoft (MSFT) to buy AOL, one wonders what Google might demand.

After all, while its AOL investment might be a dog, it’s still Google’s flea-bitten mutt.

On one of my many trips to Los Angeles (what can I say? I like to hang where LoRo* hangs), I dropped in to see Nick Grouf of Spot Runner.

As many might know, Spot Runner is an online-offline ad agency play that has gotten big funding and even bigger hype of late.

We’ll see how that goes. But Spot Runner actually seems to be tackling an underserved (and unexciting) market of local and national clients in need of cheap online ad solutions married to more traditional marketing venues to boost revenue.

Here’s my video interview with Grouf at Spot Runner’s offices on Wilshire Boulevard:

Read more »

Maybe it would be easier to sell Facebook to Microsoft for billions and billions, even though it is not likely you will.

But, for the sake of argument, let’s take the opposing position about the best future for the hot social-networking site.

In other words, make a friendly Microsoft takeover of Facebook your own version of an IPO, as John Furrier has suggested here, and walk away a Silicon Valley legend.

Because such a sale to Microsoft could happen, you know, with or even without you.

Read more »

If wishes were horses, all Facebookers would ride!

But alas, even though BoomTown is also intrigued by the idea as much as tech bloggers Robert Scoble and John Furrier, Facebook is not about to be bought by Microsoft (MSFT).

Unless that is, Microsoft CEO Steve Ballmer stands in front of Facebook’s Palo Alto, Calif., HQ, starts loading up an air cannon of money that never ever ends and aims directly at it.

And even then, I expect CEO and Co-Founder Mark “Just Say No” Zuckerberg might say no to that, as he pretty much said today from Tokyo about past rumors of a sale to Microsoft.

He shouldn’t, as this might be the social-networking site’s golden–and I do mean solid golden–opportunity. (Furrier argues this Microsoft-as-Facebook-IPO here.)

And while Zuckerberg would not comment on selling to Microsoft specifically, he was pretty definitive on the subject of Facebook’s independence, as quoted by Reuters, while in Tokyo to launch a Japanese version of Facebook:

“You can tell, from our history and what we’ve done, that we really wanted to keep the company independent, by focusing on building and focusing on the long-term.”

A strong sentiment the 24-year-old Zuckerberg has been firmly voicing since he was, well, 22 years old!

And while “wanted” is in the past tense–a Blue’s Clue for conspiracy-minded tech bloggers, perhaps?–Microsoft bankers querying Facebook execs does not a deal make.

Many sources inside and outside Facebook with knowledge of the company said a sale was unlikely and pointed to an IPO as the exit for its investors.

Not that some Facebookers don’t wish that Zuckerberg would change his mind and sell now.

That’s especially true given Zuckerberg’s mind is the only one that matters in the current balance of power at Facebook.

Why? Well, some people I talk to there are worried about a variety of things, especially the prospect of a big, fat cash-out now versus the very slow road to IPO.

While Facebook investors and even the company have once pointed to 2009 as the earliest for such a liquidity event, many sources both inside and outside the company I talked to said Facebook needed to establish a strong and sustainable business model before it can contemplate that move.

Thus, 2010, 2011. Joked one person close to the company: “Try 2021!”

Ahahahahaaa. (Not quite as funny, of course, if you are now holding a private-plane’s-worth of Facebook shares.)

That’s not to say Facebook and Microsoft aren’t friendly or that Microsoft has been uninterested in grabbing hold of the whole company.

They have been for a long time, as BoomTown reported here.

And top Facebook execs recently visited with Ballmer.

Of course, the company is still swimming in the $240 million in cash from the investment Microsoft handed over and collecting those payments from its guaranteed ad deal with the software giant.

And, best of all, Facebook just faced off with Google (GOOG) over data portability, which Google-hater-in-chief Microsoft doubtlessly is cheering on.

So, while all signs point to close friends with some affectionate hugging, marriage is still not in the cards, if it ever will be.

Yesterday, I moderated a panel at AlwaysOn’s Venture Summit East in Boston, called “Is There Still Upside in the Internet?”

Short answer: Always and forever, as long as there are venture capitalists with bags of other people’s money and enough rat holes to shove the cash down!

In all seriousness, it was a great discussion, centering on the lack of exit for start-ups via IPO, the slowing down of the M&A scene and a need to build businesses that have strong revenue outlooks.

As to hype? Social networking, of course! And underhyped? Mobile.

The panelists included: David Kidder, CEO, Clickable; Waikit Lau, Co-Founder, ScanScout; Bob Davis, General Partner, Highland Capital Partners; David Beisel, VP, Venrock; and, one of my personal favorite VCs and charmingest Yahoo (YHOO) board member, Eric Hippeau, Managing Director, Softbank Capital.

I gave Hippeau a teeny hard time about the MicroHoo situation (essentially, WTF!!?). He deftly ignored me and made the most salient point of the panel about the continuing transformative power of the Web.

(Thus, shaming me for my tiny-minded, here-and-now focus! Well, I was only ashamed just for a second, but it was a really long second!)

Here’s the video with interviews with Hippeau and others, including conference organizer Tony Perkins:

Here are two clips of the much longer interview I did with Lesley Stahl of CBS’ “60 Minutes” for their piece on Facebook, which did not appear on the program last night. They are a bit tougher on the company, although I think they are also quite fair (paging Brandee Barker: That’s right, fair!).

In the first, Stahl noted at the start that I am known as “that nasty woman” at Facebook and called “mean” by some there, because I have had a few tough questions in my BoomTown posts for the social-networking start-up’s business underpinnings.

If that’s the reason, especially since I am also clearly praising the service itself in this clip, I guess I consider the monikers to be compliments.

(One caveat–in this clip, I say Facebook has “no revenues,” but this is not true obviously as I and many others have reported. I believe just previous to this part of the interview, I was asked a lot about the particulars of the revenues, which I have written need to be much less dependent on guaranteed proceeds from Facebook’s relationship with Microsoft. But that part of the interview is not here, which gives the wrong impression that I am declaring that Facebook has no revenues. It does and they are growing strongly, but my point here was that revenues are still not in sync with Facebook’s oversized valuation.)

In this second clip below, Stahl asks me about the “Toddler CEO” title I foisted on co-founder and CEO Mark Zuckerberg a while back. Let me say, at the time I meant it as a joke and not as a judgment (and I know my toddlers, given I have had two actual ones).

Still, it probably was unfair and even ageist (in the nontypical direction) to call a 23-year-old Zuckerberg a toddler. But, as I note here, Facebook probably at least has to consider a more experienced CEO in the planning for an eventual IPO.

I got a lot of reaction from my piece earlier this week poking holes in the recent round of funding that hotsy-totsy social-networking site Facebook was looking for.

Two weeks ago, I broke the news that the start-up was looking to raise more investment dollars at an insanely high valuation from patsies–oops, I mean investors–like Microsoft, Facebook’s ad-serving partner.

And earlier this week, The Wall Street Journal followed up with a piece putting actual numbers on the board–Microsoft was interested in investing at a $10 billion valuation and Facebook founder Mark Zuckerberg was holding out for $15 billion.

My initial reaction? Eek. Why wait for a puffed-up IPO when you can demand ridiculous prices like that from supposedly savvy investors?

Some of the commenters on our site mostly seemed to agree that this was all a little frothy.

Noted Tom Coseven: “Good piece, Kara, sometimes you must wonder if there are any adults left [in] Silicon Valley.”

Tom, I don’t wonder at all. Let’s review: Exercise balls as furniture, unless it is a beanbag chair; free fun food and energy drinks for all; volleyball in the courtyard; flip-flops.

But another poster, Yuval Romik, pointed out that I was underestimating the romantic pluses of Facebook on his way to making a more salient point: “A person in college without a FB page is a non-person. It’s a truly disruptive offering–a sky-rocketing would do it justice.”

While I am with Yuval on the afternoon-delight aspects and college popularity parts of Facebook, I would have to respectfully disagree on the sky rockets in flight.

Alexander van Elsas noted the danger to software giant Microsoft of doing such a deal: “It is also a very risky strategy for Microsoft to invest a large amount in a single platform. While Google makes a great deal more in advertisement revenues each quarter, Microsoft will be forced to monetize their investment by increasing ad pressure on Facebook users. Given that a Facebook user is spending lots of time on his online identity, I don’t think they will like that very much.”

Yes, indeed, an ad-serving nightmare. My read was simpler: Microsoft desperate=cash forthcoming.

Again, others have a different view.

Wrote Dave McClure: “While an acquisition at $10 billion to $15 billion without Facebook having defined a long-term monetization strategy might be irrationally exuberant, an investment of $500 million that simply values the company at $10 billion to $15 billion is not such a huge risk, for either Microsoft or Google (or in fact, at $500 million, even for Yahoo). That’s chump change for a piece of the Facebook action…noting the previous market insanity surrounding Google’s IPO a few years back, and the subsequent rocketship Google was for the next two to three years, most retail investors have unfortunately forgotten the lessons of the dot-com bust–they’re going to pile into any Facebook IPO thinking this is Google 2.0 all over again. They might be irrational, but there’s no question they’ll be similarly bullish for a Facebook IPO.”

Ah, the greater fool theory! Dave, you’re right on the money here, but it is a profoundly cynical way of looking at it and has nothing to do with the underlying business of Facebook. If the company does not live up to its hyped promise, as Google has done, it is also extremely dangerous for the company’s long-term future.

Nirav Bhavsar makes an excellent point about the international market. “Google gets 45% revenue from international market. Facebook doesn’t have that kind of growth prospects internationally and given its inability to monetize in the U.S., it is definitely not worth $15 billion,” he writes. “Facebook has no presence in Europe, China, India or Brazil. Bebo in Europe, Orkut in Brazil-India and MySpace in China are formidable. Also, people forget that Google was already making $3 billion in 2004 when it took the IPO route. If Facebook goes for [the] IPO route: I’d buy shares and sell within one week before the bubble bursts.”

I could not have said it better myself, so I will not.

Lastly, John Minnihan makes points as both a user and an entrepreneur.

As a user: “I’m using Facebook today as an interesting way to communicate with and track the doings of some of my friends. But the ones that I *really* want and need to communicate with, I’ll simply call, email, or IM. Facebook has absolutely no influence upon this. That’s what I did before Facebook and it is what I’ll do when it is gone. Beyond serving ads, which I don’t click and, in fact, completely ignore, what is the value in Facebook for me? I’ll quit using it when it becomes boring (maybe sooner), or when the ad placement becomes too obnoxious to ignore.”

As an entrepreneur: “Take the money and run (as you pretty much said yourself). We dream of billion-dollar valuations, so if this is really happening, don’t be foolish. Settle on an amount and take the investment. And cash out as soon as you legally can, because this house of cards is in the direct path of a very fickle consumer ‘big wind.’”

Indeed, that wind will eventually huff and puff and blow your house down if you don’t build it well and in a way that is less about valuation and more about what comes after all the hype has died down.

And here’s a certainty: It always does die down, often taking promising companies with it to oblivion.

Please see this disclosure related to me and Google.