Who really runs Facebook?
- 06 July, 2010 00:59
Quick: Who's the CEO of Facebook?
Any geek worth his or her salt knows the answer: Mark Zuckerberg, the 26-year-old Harvard dropout whose net worth is said to be north of US$3 billion.
But behind Zuckerberg is a rogues' gallery of executives, advisors, and investors. Every one has an agenda, and a hand in the operation.
Or do they? How much control does anyone not named Zuckerberg really have at the company? Are there power struggles within Facebook's ranks? Will Zuckerberg someday be forced out or replaced (however cordially)? And who really runs Facebook, anyway?
To answer those questions we have to start at the top, outlining the key players at the company and what roles they play there--officially or otherwise. If you want additional information on who's who (and especially who's gone), the Facebook CrunchBase profile is an excellent resource.
On the Payroll
Mark Zuckerberg, CEO: This man clearly needs no introduction. He envisioned Facebook in his Harvard dorm room in 2004 and has personally overseen the company's growth on a daily basis ever since. By all accounts, Zuckerberg is not some powerless figurehead. He is deeply and inextricably involved with every major decision that Facebook undertakes. Zuckerberg has the misfortune to be the subject of an unflinching media eye, and the press dutifully documents his occasional missteps.
Earlier this year Business Insider claimed to have been given access to the IM sessions of a 19-year-old Zuckerberg, in which he mocked users for giving him their personal information, calling them "Dumb f***s." On a corporate level, Facebook's Beacon "social advertising service" became a major black eye for the company in 2007, with Zuckerberg finally taking personal responsibility for its failure when the public shunned it.
Sheryl Sandberg, COO: Formerly a vice president at Google and chief of staff for the United States Treasury, Sandberg came to Facebook in 2008 as the company's first COO. At the time many observers speculated that this was a move akin to Google's bringing in Eric Schmidt to take over the CEO reins, with some assuming that the young Zuckerberg (just 23 at the time) needed "adult supervision." More on Sandberg later, but it now seems apparent that--at least in the short run--Sandberg is not being groomed to take over for Zuckerberg. In reality, she does seem to be in charge of day-to-day sales and marketing operations, the nitty-gritty business functions in which Zuckerberg has no interest.
Peter Thiel, Director: Best known for cofounding PayPal, Thiel is now a venture capitalist and was Facebook's first serious investor. His $500,000 angel investment in 2004 earned him a 10.2 percent share in the company, which is now equal to about $1 billion on paper. Unconventional in his politics (and reportedly a stern anti-immigration advocate), Thiel sits on the board of directors despite the 3000-strong membership of the "Take Nativist Peter Thiel Off Facebook's Board of Directors" Facebook group. He has also compared tech bloggers to terrorists.
Jim Breyer, Director: Jim Breyer's Accel Partners gave Facebook its first serious venture-capital investment, dropping over $12 million into the company in 2005. Breyer took a seat on the board, as well, and he personally owns about 1 percent of the company. In interviews, Breyer seems to have his finger on the pulse of the company's operations and direction more than the other directors do, and he clearly has a sort of parental pride in both Zuckerberg and Facebook.
Marc Andreessen, Director: The most recent person to join the Facebook board of directors, Netscape founder Marc Andreessen has been a personal mentor to Zuckerberg for some time, and his role on the board largely formalizes that relationship. As Techcrunch notes, Andreessen operates a competitor in the form of the struggling Ning, which lets users create their own custom social networks for a fee. How the two work out those issues is a mystery; however, it's interesting that Andreessen is the only director who does not have a formal financial stake in the company.
Microsoft: The largest single investor in Facebook, Microsoft put $240 million into the company in 2007, which earned it a mere 1.6 percent stake at the time. The deal (said to have been negotiated largely via text message) dramatically vaulted Facebook's value, but didn't do much to change how Facebook is managed. In addition to its sliver of equity, Microsoft got a banner-ad arrangement on the site that runs through 2011 and, more important, blocked Google from making a similar deal. However, with no board representation and, apparently, little to say about how Facebook is operated, Microsoft seems to be largely a silent partner these days.
Li Ka-shing: This Hong Kong multibillionaire invested $60 million in Facebook in 2007, and then dropped in $60 million more under the terms of an option agreement. The arrangement was a bit strange for both sides, as Li invests primarily in Hong Kong businesses and operates a massive conglomerate with a quarter-million employees. Facebook is likely a diversion for the 79-year-old man, although observers have suggested that the relationship could eventually be fruitful for expanding Facebook (or a similar site) into China, something that has been rumored for months.
European Founders Fund: Facebook accepted a quiet and small $15 million (estimated) round of equity from this German group in 2008--perplexing many experts, since it had taken in a total of $300 million in 2007. The EFF is a trio of brothers who primarily invest in major European Internet ventures, and though the involvement of the group in Facebook management is unknown, it is almost certainly minimal to nil.
TriplePoint Capital: This Silicon Valley finance company provided $100 million in debt to Facebook in 2008, atop an earlier $30 million of debt already offered. As a debt provider, TriplePoint does not own any equity stake in Facebook, but it will eventually need to be paid back. Any involvement it has in Facebook management would likely be restricted to financial covenants that determine "safe" cash and asset levels along with a payment schedule for TriplePoint to recover its money.
Digital Sky Technologies: The most recent and curious investment in Facebook came in 2009, with Russian investment firm Digital Sky Technologies taking a near 2 percent stake in the company in exchange for $200 million in cash. It has also bought up another 3 percent or so from various employees and other holders, including Thiel. The Moscow connection piqued the interest of many people who weren't familiar with DST, which suddenly found itself thrust into the limelight in the United States. That said, despite Zuckerberg's assertion that "they have a lot of experience they can bring" to Facebook, DST is known to be a hands-off investor that likely has no real input on day-to-day operations (nor wants any). At the time, Zuckerberg implied that he didn't even need the money but simply took it as a hedge against a future business downturn.
So...Who Runs Facebook?
Before we delve into the big question, we have to note that no one involved with Facebook in any managerial or investor role responded to our requests for comment--or even acknowledged those requests with anything more than a form letter. Even analysts were gun-shy about commenting, and we can imagine why: Facebook is arguably the most powerful company on the Internet today, and everyone wants to make a deal with it, if they haven't already. Considering Zuckerberg's notorious my-way-or-the-highway management style, talking to a reporter about how Facebook's executive offices work is probably not tops on anyone's list.
We did manage to find someone who could offer insight, in the form of Ben Parr, coeditor of the Mashable site. A former outspoken critic of Facebook, Parr is now a supporter of the company and a pundit who frequently riffs on all things Facebookish. Zuckerberg himself often personally name-checks Parr during public appearances, so he knows the players involved.
That said, even Parr claims that his knowledge of Facebook's inner workings are "limited," but he is clear about one thing: "I see no future where Zuckerberg is not CEO."
"In every experience I've had with Facebook, Zuckerberg is the one in charge. If he disagrees with anyone, he'll put the law down. He's not afraid to get 90 percent finished with a project and then dump it. A lot of people can get frustrated with this, but it is always Zuckerberg's decision. If you're not getting along at the top, you'll be forced out. If you don't share his vision ... same thing."
Harvard Business School professor Ben Edelman echoes those sentiments. Though Edelman also has no insider involvement with Facebook, he observes that the company experiences "erratic movement, particularly on key features and settings, even in controversial areas--without the kind of foresight you would expect from a company at this point in its history. This is the way you'd expect a company to behave if it was micromanaging decisions with a particular vision rather than letting middle managers make them."
What of Sheryl Sandberg and her "adult supervision"? "Sandberg offers some guidance," says Parr, "but really she's there to run the day-to-day, nitpicky stuff like ad sales. I'm sure they argue about a lot, and she brings a different perspective, but really she focuses on sales while he focuses on technology. Zuckerberg still decides on the company's direction, and that's it."
Though David Kirkpatrick, in his book The Facebook Effect, describes Sandberg as an "essential partner" to Zuckerberg, one gets the feeling from Sandberg's interviews and appearances that she's still playing second fiddle. Nevertheless, she has clearly become a valued member of the team. As Kirkpatrick notes, "She has found her place in this youthful culture" and "other top managers … express admiration for how well she runs the organization."
Okay, but surely all of these investors have a say in return for their millions, right?
Not so much, says Parr. All of the company's recent investors, especially DST, are known to be hands-off, and in fact Zuckerberg won't take money from an investor who wants to meddle, Parr says. Not since the Accel Partners investment in 2005 has a financial stake given an investor a seat on the board in return, and Zuckerberg has turned away several otherwise attractive suitors because they were itching for board power.
Zuckerberg has even taken steps to ensure that down the road, after a potential IPO, he personally remains in control. Based on reports, current shareholders own class B shares in the company, but if they ever sell them the shares turn into class A shares, which have only one-tenth the voting power of class B shares. Public stockholders would also own these class A shares, essentially ensuring that the balance of power remains exactly where it is today.
Though Edelman says he believes that Facebook's frequent stumbles could cause one to "imagine investors insisting on taking another course," Parr disagrees. Parr sums his viewpoint up succinctly: "There is no pressure on Zuckerberg. He controls the board. He will ensure he will remain CEO through an IPO. He'll be CEO in ten years. And the board is completely on board with this. As the company grows, he's going to grow with it."