Facebook CEO: How we blew it

By BusinessWeek

Facebook Chief Executive Mark Zuckerberg, 23, has developed a reputation, deserved or not, for being aloof and arrogant. And who can blame him? The Harvard dropout has created one of the fastest-growing and arguably most innovative Internet companies since Google (GOOG, news, msgs). An investment from Microsoft (MSFT, news, msgs) gave it a $15 billion valuation last year. (Microsoft publishes MSN Money.)

But at the South by Southwest Interactive Festival in Austin, Texas, Zuckerberg presented a humbler side of himself in his most public confession to date. In a keynote question-and-answer session with BusinessWeek columnist Sarah Lacy, Zuckerberg admitted a series of missteps. In a wide-ranging interview that lasted an hour, Zuckerberg also announced the launch of a French-language version of his social-networking site aimed at the 100 million-plus Francophiles worldwide.

In the span of four years, Facebook has become the second-largest social-networking site after News Corp.'s (NWS, news, msgs) MySpace. The company's top challenge now is figuring out a way to make money from its 60 million-plus members worldwide. But Zuckerberg admitted that Facebook's first attempts to turn the site into a financial powerhouse have not turned out as planned.

One of the biggest pitfalls came late last year, when Facebook announced an advertising program called Beacon that broadcast news of users' online purchases to their friends. Zuckerberg unveiled Beacon with fanfare in November, famously saying, "The next hundred years will be different for advertising, and it starts today."

At the Austin festival, Zuckerberg said he regrets the hyperbole. "We probably got a little bit ahead of ourselves," he said. "We came across as knowing more than we really knew. We have a lot of things we need to build before we get there. This is a very long-term thing. It's going to be interesting to watch this unfold over the next 15 to 20 years."

Many users said Beacon was an invasion of privacy, faulting Facebook for automatically enrolling members rather than letting them opt in.

Zuckerberg said the episode taught him an important lesson. "Almost all of the mistakes we made, we didn't give people enough control," he said. "We need to give people complete control over their information. The more control and the more granular the control, the more info people will share and the more we will be able to achieve our goals."

Perhaps the biggest failing that Zuckerberg tried to rectify in his keynote was the company's inability to articulate its overall vision. In the past, Zuckerberg has said Facebook's mission has been misunderstood. Zuckerberg spent much of his presentation trying to explain Facebook's ambitious and broad strategy to help people communicate more efficiently.

The opportunity is so great, said Zuckerberg, that the company is "not focused" on an initial share sale at the moment. "We have a chance here to build a platform that fundamentally changes the way people communicate," Zuckerberg said. "How many times do you get a chance to do that? Zero or one. So we just have to go for it."

Zuckerberg also addressed rumors ranging from the company's music ambitions to its profitability. Though the company is in talks with music executives, Zuckerberg downplayed the significance of the discussions. Instead, he focused on what the company already allows users to do on the site via music player applications and the like, many of which come from third-party developers. "As a company we are out building relationships, but at this point I can say we have nothing to talk about right now," said Zuckerberg. "We are trying to help people communicate really efficiently."

Zuckerberg also addressed the concerns that Facebook may not warrant the $15 billion valuation conferred on it when Microsoft bought a 1.6% stake for $240 million and gained the right to place ads on the network's user profiles. He said "we are running the business around break-even" and that "we're not throwing off a lot of money." The advertising deal with Microsoft that led to the valuation is going well, he added.

The CEO also shed new light on overtures from Yahoo (YHOO, news, msgs), which offered $1 billion to purchase Facebook. While some people in the company wanted to see the deal happen, Zuckerberg said that most employees were against it. What happened to the people supporting Facebook's sale? "We made some management changes," he said demurely.

This article was reported and written by Spencer E. Ante and Catherine Holahan for BusinessWeek.