Sheryl Sandberg

Stephen J. Adler, Editor-in-Chief

BusinessWeek

The social networking site Facebook has proven wildly popular, with the company announcing on Apr. 8 that it hit 200 million registered users. But the startup's business prospects are less obvious. Can Facebook evolve into another Google (GOOG), tapping a gusher of ad revenue? Or will it struggle to turn eyeballs into profits, like a relic of the dot-com era? In an interview in New York, BusinessWeek Editor-in-Chief Stephen J. Adler talked with Facebook Chief Operating Officer Sheryl Sandberg about the company's financial prospects, recent controversies over its redesign and terms-of-service changes, Sandberg's high school years, and other issues. Edited excerpts follow:

On the questions about Facebook's business strategy:

It's a really simple answer, which is that our business is advertising. We're not waiting to find our business. We found it, and it's actually working very well. Marketers all over the world have to sell products and services, and they have to generate demand for those services. They do that typically where people are spending their time. But there is a real imbalance right now: Between something like 28% to 29% of people's time is spent online, but only 8% to 10% of the dollars are spent online. So there is this migration of ad dollars from other places going online.

Then the question is how do advertisers make that useful? What we do is we enable connections. We enable people to connect with users and provide advertising in such a way that it's not obtrusive at all, but it's part of the advertising experience and part of the user experience. And so we're doing really well financially.

We've actually just confirmed that we expect to grow revenue 70% year-over-year in this year, obviously a very tough economic environment. We've been profitable on an [earnings before interest, taxes, depreciation, and amortization] basis for five consecutive quarters, and that's ongoing. We're on a very clear path to cash-flow profitability. So we have a business model, and our ad business is working, and working quite well.

On the prospects for advertising on social networks:

We believe advertising needs to blend into the experience. So yes, when you're reading BusinessWeek, you see an ad. It's something you expect to see, and it's part of your experience. It's part of the experience of reading magazines. On Facebook, what you see are ads that are very similar and integrated into the experience we have. So we don't have big banners across the site, nor do we have text-based ads that are really part of the search experience. What we have are ads that act like our site.

So, for example, on Valentine's Day, Honda (HMC) gave a virtual gift, which was a little heart that said—I forget the exact language, but "Your heart is full, so your tank should be, too." It was a little Honda-branded gift. They paid for 750,000 of them to be given. So 750,000 people gave this heart to 750,000 other people. Then what that generated on the site was talk about Honda, talk about their cars, excitement about some of the things they're launching, and then more than 200 million impressions. So [those ads] didn't look like the huge ads you're used to seeing on other sites, but what they looked like were [Facebook's] news-feed stories. So the advertising experience itself is very integrated into the Facebook experience.

On how Facebook's advertising approach is different from others online:

When you think about the Web, the Web promised engagement. No longer would it be static. No longer would you just watch the TV commercial, but you would interact. But there is not a lot of advertising on the Web which is truly interactive. There aren't that many places where an advertiser can connect with users and do so as a part of their experience and as part of the sharing. We actually offer that ability.

On the controversy over Facebook's recent redesign:

The first big redesign was [the introduction of a] news feed [about friends' activities]. When news feed first came out in 2006, it was by far the biggest protest. I forget the numbers, but a large percentage of our users were protesting the redesign. A few months later, news feed was considered by everyone as the major feature they liked about Facebook. Each time [we redesign], our percentage of people protesting is actually going down. I think we are getting better at explaining it. And the trend you see on our site is a trend from what is static information to more real-time information and real sharing.

Our company mission is to give people the power to share and make the world more open and transparent and connected. We want people to be connected. Each redesign is enabling people to share more and more information to move through what we call the social graph, your relationships, faster. So you saw from a static page to news feed, from news feed to a faster site, and now to what is a real-time stream. It's good that people are using the product enough that they care. We will always have some protests when there is a redesign, but we really believe that as a technology company, if we want to be on the cutting edge, we have to continually evolve the product.

On whether the microblogging service Twitter influenced the redesign:

We think of Twitter as very much part of the evolution that's happening on the Web. And we believe that if the world is moving in a certain direction, and we think it is—the world is moving to more connectivity, more sharing, more openness platforms—we don't think we're going to be the only company that is part of that trend. Twitter is very much a part of that trend, and it's a trend we're happy about.

On the controversy of Facebook's recent change to its terms-of-service agreement:

It's a great question and an important question for our business. We're pretty widely recognized as at the forefront of defining real privacy and protecting it. That's the substance of where we come from, where we've always come from. I think about a month ago, we republished our terms of service. In language that was kind of very legalese and not very understandable, which appeared to have broader claims to that data. But there was no substantive change at all.

And users did get upset. We pretty quickly pulled back, put out our old terms of service, and said, "Wow, terms of service on the Web are quite common." The fact that people were reading ours so carefully and bothering to protest made us realize how important this issue is and [made us] want to get involved with users—not just on the substance of this, which we were always in a good place on, but on the process.

So we put up the old [terms of service] as a placeholder, and we published two documents publicly. We published the Facebook principles, and the Facebook rights and responsibilities, and a new process. We posted these publicly on Facebook groups. We invited people to comment, and we said, "We're going to let our users vote to affirm these." I think it's scheduled for the week of Apr. 16 or something—Apr. 23, one of those weeks. We are actually going to get our users to vote.

We've also promised that going forward, any major changes to this will be something that we put out for comment to our users. If there are enough comments, we'll put those to a vote. For us, it's a really interesting way to stay at the very front of this issue.

On the recent departure of Gideon Yu, Facebook's chief financial officer, and whether Yu had a conflict with founder Mark Zuckerberg:

Gideon is a great guy. Gideon resigned and went on to do, I think, the next stage in his career. Gideon did a great job at Facebook [helping] build up the financial systems that have helped us get to where we are. We do have a search [for a new CFO], which is going quite well. We are looking for someone who is positioned to take the company to the next level.

You know, like other companies that have grown quickly, we've had people leave. People have left along the way for different reasons. One of the things I thought about the longest and the hardest when I first met Mark was, "Wow, I'm going to work for a CEO who is quite young." As he says sometimes at work, not only has he not been a CEO before, he didn't graduate from college and he's never worked anywhere. He'll say, "This is my first job," or "I have never worked at a company." So that's a pretty serious decision for someone like me to make.

You know, Mark is a great leader, and not in an age-adjusted kind of way. Mark has a really strong purity of vision of what he's trying to accomplish, but he's also a great manager. He brings people along with him. He's really dedicated to helping the team be successful.

On her childhood:

I grew up in Miami. My father was a physician, still is a practicing ophthalmologist. My mother taught English to speakers of other languages. She's great with languages—speaks a bunch of them. I have two siblings, a younger brother and a younger sister.

On the activities she did outside of high school:

What did I do? I mean, this is embarrassing. I taught aerobics in the '80s, the whole leg warmer, the whole thing. I hung out with my friends. I tried to study Spanish in Spain—went on a hiking trip there. But I had a pretty kind of regular, normal childhood.

On what she thought she would do in her life:

It's funny. I thought I wanted to go into some kind of service. So I thought—and particularly when I graduated from college—I would never work in a private-sector company. And you know, I left college and went to the World Bank. All my summer jobs were for some form of government. I worked in the prosecuting office.

My parents were very involved in human-rights activities all around the world and I had a very strong sense that I was lucky. I was kind of lucky to be born in the U.S. My parents were involved in the political movement in what was the Soviet Union at the time and had kind of been briefly arrested when they went on a trip. So I grew up with a very strong sense of freedom and democracy and the luck of where I was born and that I kind of owed something back.

So when I left college, I really believed I would only work on things that were very mission-based, which is in some ways how I eventually came to Silicon Valley.

On the similarities and differences between Facebook and Google, where Sandberg worked previously:

In some macro sense, there are a lot of similarities. These are both founder-led technology companies working in Silicon Valley on consumer-facing products that are broadly attracting people with similar passions and visions. So in any macro sense, if you compare it with working at IBM (IBM) or DuPont (DD) or, you know, the media industry, these are, in a lot of ways, similar.

Within the space that is Silicon Valley, there are obviously really important differences. One right now is just the size. Google is big. When I left, it was more than 20,000 [people], and Facebook is around 850 now. So we're at a different stage.

The second is what they're working on. The Facebook vision of the Web is that the Web is very much evolving from what was the information Web to what is the social Web. So we're working on different technologies which have different ecosystems around them, and therefore, I think, attracting people who are all within the computer science field but who have different passions.

On whether Facebook is looking for additional financing:

We don't have the need for additional financing. With our current business model, our current plans, we are profitable, on a clear path to being cash-flow positive. We're not short of money. We're doing really well financially in what is a really tough year. Every advertiser segment is growing—we're growing all over internationally. The ad products are really working for people, and they want to do more and more.

On whether Facebook plans to charge users:

The answer is no, we are not planning on charging a basic fee for our basic services. Once again, that question stems from people thinking we're growing so quickly, we're running out of money. We're growing really quickly, but we can finance that growth. We're not going to charge for our basic services.

On whether Facebook plans to go public:

No. You know, never say never. [But] we have no current plans to go public. What we really want to do is build a great business. And if at some time it makes sense to go public, we'll go public. But we don't have any current plans to do that.