Jeff Clavier's Software Only: The Facebook unplugged at Stanford ETL

October 27, 2005

The Facebook unplugged at Stanford ETL

I have attended last night's session of the Entrepreneurial Thought Leaders (ETL) program featuring Mark Zuckerberg, the Founder and CEO of the Facebook, and Jim Breyer, Accel's Managing Partner who is sitting on the board of the company after his firm led a $13M round of financing (at a rumored $100M-ish post-money valuation).
The Terman auditorium was close to full to hear these two share their stories and experiences about the Facebook and its stellar growth. I have written about it in the past right after their financing, and actually this post is one of the most visited on my blog. Also check out their TechCrunch profile (and do read the comments from Facebook users).

Before I get into the actual session, here is an update on their metrics – which are (increasingly) stunning:

5M+ registered users
coverage of 45% of US colleges (a total of 2,000 - representing 8M students)
80% penetration among students of colleges that are on the platform
10th most visited Internet site in the US
5.5B page/views a month (230M page/views a day)
8.5M unique visitors
signing 20,000 new users a day
repeat usage: daily 70%, weekly 85%, monthly 93% – can you think of another site that sees 93% of its registered users coming back every month ?

Mark Zuckerberg started the Facebook during his sophomore year at Harvard, in order to have a directory of students on campus in which they could list their profile, their activities and essentially what is going on with their lives. The application became popular beyond Harvard, and other colleges started requesting it.

Mark said that he has not conceived the Facebook as a social network – which is a community application, it is a directory that he considers a utility that students use in order to find information which is socially relevant. Product development is about optimizing the application on scale and user experience, and adding new functionality: for example, they just added the ability to upload an unlimited number of photos. Expectation is that about 10 to 15% of the people on the network will upload photos.

One of the early design trade-off was to partition users by schools, and limit the visibility of profiles at school level. The decision was made in order to make the environment safer for their users, especially since 30% of them list their cell phones in their profiles. This contributed to an increased privacy, and a relative limitation of the number of “lurkers:“ who are crawling other sites like MySpace.

On the reason why the first generation of social networks failed (as compared to MySpace and Facebook), he thinks that they have not focused on providing a set of utilities to their audience, they were merely about creating connections. They also had issues of scalability that plagued their growth.

Mark’s team is younger than most entrepreneur teams (many are under 21), and was originally made up of some of his college friends. The company has since quadrupled, and now has 40+ employees. They had started hiring engineers after Mark had built the first version of the site in a couple of weeks (note that he is a psychology major) and worried about scaling it. At some point they got an office, and had to face the issue of organizing the company and its product development, particularly in order to start releasing features in parallel as opposed to serially. Mark learned then the difference between managing dorm friends and employees who had to serve a community, and advertisers. Employees can’t be only engineers: finance, business development, sales became necessary functions to add.

The Facebook is recruiting heavily (Stanford) grads and experienced staff. Their primary criteria is raw intelligence, and alignment with the company’s market and culture. They actually don’t insist on raw development talent – more sheer interest and ability to get things done.

On international expansion, Marc explains that Facebook has to go beyond internationalization and figure out the cultural implications of moving into markets like Europe, China, Japan,… The strategic choice so far has been to develop a high school product in the short term.

The session then moved into a Q&A with the audience that you can find in the extended post.

In a very timely way, Bambi Francisco has made a video interview of Mark Zuckerberg, which provides this data point about the original investor in the Facebook:

In the fall of 2004 former-PayPal-CEO-turned-hedge-fund-manager-and-angel-investor Peter Thiel -- whose fund is up 60%-plus this year -- gave Zuckerberg $500,000 to buy servers to support the growing audience base at Facebook. Thiel told me it's one of the best, if not the single best, venture investments he's made.

The video of the session is now available on the ETL website.

Q: What happens after you have left College, and how do high school students roll forward once they move to College ?
They are not focusing on that issue yet. About 800,000 students have graduated last year, and were offered the feature of being part of a geographical community as well as a school. A new set of functionality are being developed for this year.
Only 5% of high school students have authenticated emails (.edu, etc.) and a seeded approach was not really usable for these students.

Q: How does Facebook make money ?
Low operating expenses, and selling ads through a small sales force. They have been cashflow positive almost since the beginning – except for a few months after Accel’s investments during which they decided to scale a bit more aggressively. Their traffic and demographic allows them to sell their inventory easily because high school and college students represent a highly sought demographic.

Q: Most important entrepreneurial experience learnt in college ?
Mark has been programming since the age of 10, put up the initial site in a couple of weeks – and had no idea of the potential commercial value of the application. He built random stuff to add new features, and release them to the community.
Jim Breyer adds that Mark is a great listener, and has shaped Facebook to be a listening organization. They also believe in the virtue of experimenting, failing and trying again.

Q: Was this a well planned business or a hobby ?
Facebook did not turn into a business until the site had been up for six months. Mark and his roommate moved to Palo Alto over the summer, and hung out with friends of theirs (namely Sean Parker of Napster and Snocap fame) – and got into the startup thing.

Q: What does the concept of utility mean, and what implications are there for such a tool that enable stalkers to reach such a large number of people.
Mark stated that they are working hard to protect their users, and identify inappropriate user behavior. (It is interesting to see that the Facebook is doing a lot to push back on statements that people are using it for dating/poking – I have heard both sides of the argument from their users).
Jim Breyer added that privacy and ethics is an issue they want to deal with proactively – but have one key feature: the fact that most of their users are validated through their digital id – their email address.
Mark also added that clever filtering and behavioral tests allow to detect fake profiles. They are also trying to detect the strength of networks, and even apply their usage data to predict the additions to one’s network.

Q: Why didn’t we see a Facebook earlier ?
Jim Breyer explained that this was one of these simple things that nobody really thought of before, but makes so much sense once it has been built.

Q: Why not build Facebook as a platform on which a lot of applications can be built and monetized.
Coming at some point.

Q: What is the exit strategy ?
Both Mark and Jim stated that they are thinking about scaling the company, not exiting it (though the $540M that MySpace got must have made them feel *happy*).

Q: Innovation process and integration of new functionality developed by individuals – as compared to the Google 20% of free time?
Not formalized at this point, and leveraging fluid communication. Mark stated that he sees these processes being put in place once companies have broken a comfort level/factor allowing people to freely communicate. He makes people hang out so that they can exchange and come up with ideas.

Q: Biggest challenge for Facebook
Making sure that what they produce is valuable, that usage is sustained and improving (through new features like photos) – i.e maintaining the utility while growing.
Jim Breyer added that Mark has been maintaining a high bar on hires, focusing on quality rather than filling in positions as quickly as possible.

Q: Biggest tension between Mark and Jim ?
Nothing major at this point, but Mark knows and appreciates that as a 21–year old kid without experience running a company, Accel will eventually want to transition someone into the role in order to take the business to the next level.
Tong-in-cheek comment: there is no tension because they have not found the person.

Posted at 04:08 AM in Advertising, Conference & Events, Social Networking | Permalink