Facebook Should Fire Sheryl Sandberg
Sheryl Sandberg became the chief operating officer of Facebook in March 2008. She came to the company at a time when it was still experiencing rapid growth and had yet to find an exacting monetization strategy. At Google she had excelled at selling online advertisements and growing Google into a cash gushing behemoth.
Having built an impressive resume at Google and charming the then 23-year old Mark Zuckerberg into making her COO, Sandberg took control of the monetization strategy at Facebook:
She had come to the company to turn it into an advertising powerhouse. She needed all her staff and peers on the [top management] team to work in synch. There was no question in her mind that Facebook represented one of the great advertising environments of all time. - The Facebook Effect, David Kirkpatrick, pg. 256
Though she was brought to Facebook to help develop a monetization strategy, it was clear she came with her own pre-conceived biases. None the less, she assembled the top leadership at Facebook and they had meetings about the best path to monetization for Facebook:
On the white-board Sandberg wrote, in big letters, “What business are we in?”
These were bull sessions at first, giving everyone a chance to express their views. As they continued, the meetings grew steadily in size. Word spread that you shouldn’t miss these conversations. Pretty soon the entire [top management] team and a larger swath of ad people were making it, a total of fifteen to twenty on a typical evening. - The Facebook Effect, pg. 257
"What business are we in?" To me, that is a question that incites creativity. In an environment like Facebook in 2008, imagination should have been the dominant force in deciding monetization. But from what I can tell, not only were the ceremonies at these meetings heavily tilted toward one business model, that business model was predetermined:
On the whiteboard Sandberg listed options. Facebook could be in the advertising business. It could sell data about its users. It could sell avatars and other virtual goods to those users. Or it could enable transactions and take a small cut, like PayPal. […] After weeks of this, at the final meeting Sandberg went deliberately around the room and asked each person what percentage of Facebook’s revenue would ultimately come from each category. Virtually everyone said 70 percent or more would be adverstising in some form. - The Facebook Effect, pg. 258
Do these sound like the creative monetization solutions that the best minds in Silicon Valley could muster?
The most interesting thing about these meetings was that Mark Zuckerberg was on vacation while Sandberg was leading the charge to turn Facebook from a social network into a media conglomerate. She had his blessing, of course, but its interesting that maybe the most important turn in the company’s history happened when Sandberg was captaining the ship.
So why did Facebook make this decision, perhaps their most important, this way? It was clear from past experiences that Zuckerberg and Co. made decisions on the future of Facebook by looking for hidden meaning in their various successes, both intentional and accidental.
Examples of this type of reasoning came after the implementation of photo sharing and event invites into Facebook:
"Our photo site lacks features anyone else would build," Zuckerberg told me in early May 2007. […] "Yet somehow, this application became the most trafficked photo site on the Internet, by far." And something similar was going on with the application Facebook engineers had quickly thrown together to allow users to invite friends to events. It was garnering more usage than Evite.com, which had been for years the leading website for invitations.
"So why were photos and events so good?" he asked. "It was because despite all their shortcomings they had one thing no one else had. And that was integration with the social graph." - The Facebook Effect, pg 216 (emphasis mine)
So after coming to all of these excellent conclusions, Zuckerberg hires Sandberg and puts her in charge of deciding how Facebook makes money, even though she wasn’t at Facebook to develop any of these insights.
I agree with Zuckerberg completely. The true value that Facebook provides is not its ability to attract eyeballs or organize your photos or create pages to promote how pretty your cat is. The true value of Facebook is to create user experiences set within the backdrop of the social graph - something nobody else can do without Facebook’s permission.
So what did Zuckerberg do with this insight? Why, he did the smartest thing he could do:
In the fall of 2006 Zuckerberg set out to realize his long-held vision of a platform for others to build applications on top of Facebook. He wanted to do for the Web what Gates did for the personal computer: create a standard software infrastructure that made it easier to build applications - this time, applications that had a social component. “We want to make Facebook into something of an operating system, so you can run full applications” he explained. - The Facebook Effect, pg. 217
And with that, an entire industry was born. But two years later, Sandberg promptly killed it.
You may ask why, but the answer is simple. It’s the reason that Facebook treats its users privacy like a play thing, and the reason that Twitter has started down the path of injecting unwanted content into their user experience. It’s the reason that App.net exists, and the reason that this is an Internet meme:
If you are building an advertising/media business, it would then follow that you need to own all of the screen real-estate that users see. The next logical step would be to kill all 3rd-party clients, and lock down the data in the global firehose in order to control the “content”. - Dalton Caldwell
When a company lacks a customer, the product is built for the user. The selection of a customer is the most important user experience decision a company makes. Pick the wrong customer, like advertisers, and the user experience is destined to get worse. Pick the right customer, and your business will grow to the delight of your users, instead of to their despair.
So who was the right customer for Facebook? It certainly wasn’t advertisers. Let’s have a look at what that business model has done for them lately:
However, I’m convinced Mark Zuckerberg already had it figured out, but he stopped short and hired an advertising incumbent to deal with the problem while he went off to an ashram in India.
While App.net seeks to charge both users and API developers for an ad-free social ecosystem, and Facebook continues to flounder in advertising hell because of Sheryl Sandberg’s influence at the company, a middle ground exists that I admit I have not seen anyone mention, but it seems too obvious to have not been considered.
That middle ground is to allow users to have free access to the consumer facing product on the home site, and to charge API developers for access to the social graph that you create.
As Zuckerberg made abundantly clear, there is massive value in the social graph and the ability to build applications on top of it. I believe the value is greater than all of the advertising revenue generated on the web to date.
What is the best way to monetize the social graph? To sell access to the social graph!
While Zuckerberg had been forced by circumstance to accept advertising, he did so only so he could pay the bills. Whenever anyone asked about his priorities, he was unequivocal - growth and continue improvement in the customer experience were more important than monetization. - The Facebook Effect, pg. 258
The point is simply this: Zuckerberg is the CEO of Facebook. He was never interested in devising a way for Facebook to make money on the social graph. His instinct was to avoid the problem of monetization and focus on the Facebook product. So he empowered Sandberg to solve the problem. His instinct was correct - he needed to have someone else find a solution. However, he should have been empowering the developers building apps on the social graph to fix the problem - even if they had to pay for the right to do so. Those developers can then figure out if advertising, or micro transactions, or payed access is the best way to monetize the social graph.
Zuckerberg’s move should be to fire Sandberg, and give her a generous severance package. Thereafter, he should slowly phase in an incredibly developer-friendly API to access to the social graph. Then, as the revenue from the API grows, he should slowly phase advertising out of Facebook’s ecosystem.
Sandberg should start an ad agency on the East Coast. Miami is nice. That’s a job she’s qualified to do. Her rampant lack of business creativity should have no place in centers of innovation.