UPDATE:To include mention of a report that Facebook valued itself at $3.75 billion.
SAN JOSE, Calif.--What is Facebook really worth?
One of the burning questions in the technology business during the past year also played a major role in the dispute between social networks ConnectU and Facebook, according to documents obtained by CNET News.com.
Some interesting details about Facebook's valuation were revealed in partially redacted court records released Wednesday by federal district judge James Ware. The documents were a transcript of a June 23 hearing in the case, which Ware had closed to the public. The judge released the redacted transcripts after CNET Networks, parent company of News.com, objected to the closing and launched an effort to have relevant documents unsealed.
Facebook founder Mark Zuckerberg
(Credit: Facebook)ConnectU, founded by brother Cameron and Tyler Winklevoss and Divya Narendra, filed suit against Facebook founder Mark Zuckerberg in 2004 and accused him of stealing their business plan. The two sides reached a settlement, but ConnectU's side tried to pull out of the deal after alleging that Facebook fraudulently misrepresented the value of its stock. Ware disagreed and last week ordered that the settlement be enforced. That means Facebook is nearing the end of the ConnectU case.
But what the transcripts show was just how much Microsoft inadvertently influenced the proceedings.
Last fall, Microsoft paid $240 million to acquire a 1.6 percent share of Facebook. The day that news of the deal broke, headlines screamed that Facebook was worth $15 billion based on Microsoft's investment.
Analysts said all along that the money Microsoft paid was more a reflection of the company's need to strengthen ties to Facebook than what Microsoft thought the company was really worth. Judging from the transcripts, the Microsoft money may have gotten ConnectU's founders seeing dollar signs. But it shouldn't have, according to statements made during the June 23 hearing by Facebook attorney Neel Chatterjee.
The value of Facebook shares
As part of the settlement, Facebook agreed to give ConnectU's four principals--Narendra, the brothers Winklevoss, and their father, Howard Winklevoss, who had invested in ConnectU--an undisclosed amount of cash and Facebook stock. In exchange, ConnectU's principals agreed to give Facebook all the stock they held in ConnectU. The settlement was essentially an acquisition.
In a statement to the court, a small portion of which was redacted, it's obvious that Chatterjee wanted to make clear that Microsoft's investment in Facebook had little in common with ConnectU's deal. The transcript indicates that ConnectU received common stock while Microsoft received preferred stock.
"ConnectU didn't get that and they knew they weren't getting that," Chatterjee said. "What Microsoft got out of the deal...are fundamentally different than what ConnectU is getting, or the principals of ConnectU, which was subject to the fair-market valuation."
Chatterjee pointed out that Facebook provided ConnectU with fair-market valuations it obtained when it considered using stock for other partnerships. But he also noted that if ConnectU wanted to know what Facebook was worth it could have obtained its own "independent appraisal," which it did not do before agreeing the the settlement.
Getting an accurate Facebook valuation was not why ConnectU had sought to challenge the settlement, said the company's attorney, David Barrett. ConnectU argued that the settlement was unenforceable for several reasons, the first being that Facebook withheld vital information.
"The point is that (Facebook's) duty is to disclose all material information," Barrett said, noting that Facebook is a privately held company but comes under security laws when selling shares. "If they decide to engage in a private trade of their stock, they do have to disclose material information."
Specifically, Barrett said that Facebook's board of directors obtained an evaluation of their company's worth following the Microsoft sale but before the settlement was reached. ConnectU claimed that Facebook never handed over that valuation. The transcript of the hearing didn't reveal the amount of Facebook's valuation.
But on Thursday, The New York Times' Brad Stone reported that in a transcript from a June 13 case management conference, that figure was revealed: "one-quarter of its apparent value based on Facebook's public press releases." That would put the price of Facebook at $3.75 billion.
As Stone points out that valuing private companies is not exact and we'd have to wait until someone actually plunks down real money for Facebook in an acquisition or in a public offering of the company's stock.
In any case, Chatterjee, Facebook's attorney, told the court he suspected that the reason ConnectU's founders had changed their mind about the settlement was because of a dispute with the company's former law firm, Quinn Emanuel. The reality of legal fees "was affecting the economics in some way they don't like," Chatterjee said.
Lawyers from Quinn Emanuel have filed a lien against ConnectU's settlement money, and appeared before Ware on Wednesday to request that he not release any of the company's funds until they got paid.
CNET News.com's Caroline McCarthy contributed to this report.
SAN JOSE, Calif.--The public will be allowed a peek at some of what was said last week during a settlement hearing in the long-running legal dispute between ConnectU and Facebook.
James Ware, a U.S. district court judge, barred reporters and the public from attending the June 23 hearing in San Jose, Calif. He also put many of the documents in the case under seal. CNET Networks filed an objection to Ware's decision last week.
On Wednesday, Ware said he would release a redacted copy of the transcript from the June 23 hearing and allow a magistrate judge to decide on whether some of the other sealed documents should be released. What was redacted is still unclear, according to CNET lawyers who were at Wednesday's hearing.
Facebook has agreed to pay ConnectU's founders cash and stock as part of the terms of the settlement, but the exact amounts have not been released.
The case began in 2004, when ConnectU's founders alleged in a lawsuit that the idea for Facebook was originally theirs, and accused Facebook founder Mark Zuckerberg of ripping off their business plan and their code while they all attended Harvard.
Zuckerberg denied the allegations. The case dragged on until the two sides reached a settlement earlier this year that called for Facebook to pay cash and stock to ConnectU's founders. ConnectU later tried to back out after it said it had obtained important new information.
Some of that information was unearthed by a computer forensics expert hired by ConnectU who located instant-message logs belonging to Zuckerberg.
But Ware decided there was no reason to throw out the settlement. The purpose of Wednesday's hearing was to figure out how the settlement would be paid and take care of other legal loose ends.
Prior to the judge's decision about releasing some of the sealed documents, Facebook's lawyers objected, arguing that some of the information included Facebook's source code, proprietary trade secrets, financial information, and communications between Facebook employees and their family and friends.
Roger Myers, the attorney representing CNET, told the court that before documents should be sealed in this kind of legal proceeding, the parties had to prove that they would suffer a "competitive harm."
"They have the burden of proof," Myers told the court.
Ware said he wanted to protect the privacy enjoyed by parties who are in mediation. He said he had promised ConnectU and Facebook that their discussions would not be part of the public record and he would have to go back on his word: "The integrity of the court is an issue," Ware said.
Myers, from the San Francisco law firm of Holme Roberts & Owen, wasn't altogether happy with the judge's decision to redact information from the transcript.
"It's not clear what he's going to redact," Myers said later. "Whether we think the redactions go too far, it's going to be hard to say until we see them. I think he's going to redact what was said in the mediation...In the documents that were filed with respect to the proposed judgment that includes a copy of the term sheet of the settlement, the only thing that was redacted was financial information: how much money was going to be paid and how much stock was going to be given.
"It sounds like he's (going to redact more than that) in the transcript," Myers continued. "We think that goes too far...There's hundreds of documents filed under seal. We think that most of them should not have been sealed. There's some things that (Facebook) can keep confidential, like their source code and trade secrets but they've gone way overboard here."
As for Zuckerberg's IM logs, Myers said: "Those should not have been sealed. There's been no showing made that would justify keeping that information under seal, so those should be released."
After the discussion about unsealing documents ended, Ware turned to address a third-party claim on some of ConnectU's settlement money. Before ConnectU co-founders Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra can pocket the money and stock Facebook agreed to pay to settle the case, they have to pay off their former lawyers.
Lawyers representing Quinn Emanuel, the law firm that once represented ConnectU, made every attempt to persuade the judge not to disperse the settlement money and stock before they've been paid.
The legal spat is winding down between Mark Zuckerberg and the former college classmates who accused him of stealing Facebook's business plan from them.
The two sides will be in U.S. District Court in San Jose, Calif., on Wednesday to iron out the details of a settlement between Facebook and ConnectU, founded by Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra.
The three ConnectU founders claimed in a lawsuit filed in 2004 that Zuckerberg, Facebook's founder, stole ConnectU's code and business plan while all four were students at Harvard University.
ConnectU tried to back out of the settlement after a computer-forensics expert it hired discovered some of Zuckerberg's instant-messaging logs that the company claims is relevant to the case.
Once it obtained the logs, ConnectU accused Facebook of fraud and asked the judge to throw out the settlement. One of the reasons ConnectU gave was that Facebook never disclosed that it had altered the value of its common stock not long before February's settlement was reached.
Facebook, which is not publicly traded, did not deny that it had altered its valuation, and the judge in the case found nothing in Facebook's actions to be fraudulent.
As for what was revealed in Zuckerberg's IM logs, we don't know because the court has prevented the public from gaining access to much of the information in the case.
Indeed, the only fireworks left in the dispute might come from a third party: CNET Networks, parent company of News.com. CNET objected to U.S. District Judge James Ware's decision to close the courtroom for a June 23 hearing between Facebook and ConnectU and is pursuing a request to have the court unseal documents related to the proceedings. (CNET Networks has since been acquired by CBS in a deal that closed Monday.)
The reason for barring the public appears clear. Facebook doesn't want to reveal financial information, the content of Zuckerberg's IM logs, and the terms of the settlement. case. As my colleague Declan McCullagh wrote in a recent blog, the term "under seal" appears at least 234 times in the official court docket.
McCullagh wrote: "Not only should the courtroom not have been closed, but any audio recording or transcript of the proceedings should be released."
Vancouver-based computer technician Byron Ng, who likes to prod social networks for holes and other errors, stumbled across a way to learn more about Facebook users than you're supposed to be able to--prompting Facebook to suspend the Top Friends application late on Wednesday.
Until Facebook suspended the Top Friends app, created by Slide, anyone could browse partial profiles of anyone else on Facebook who had added Top Friends to their page. CNET News.com confirmed that the security hole exposed the birthdays, gender, and relationship status of strangers, including Facebook executives, the wife of Google co-founder Larry Page, and one profile that seemed to belong to Paris Hilton that used her middle name "Whitney."
Security holes in Facebook can be used to access peoples' personal information and view their friends and other activities if they are using the Top Friends or Super Wall apps. For instance, this screenshot shows the Top Friends of Facebook Chief Operating Officer Sheryl Sandberg. CNET News.com obscured her personal information.
(Credit: CNET News.com)Basically, the app was not obeying the privacy settings specified by the user, enabling anyone with the know-how to bypass the security once they obtained someone's Facebook ID number.
"We expect third-party apps to follow the rules the users set," Ben Ling, director of platform product management at Facebook, said in a phone interview Wednesday. "With Top Friends, the privacy settings of the user were not being respected according to the privacy policy terms of use."
Less than six hours after CNET News.com contacted Facebook on Wednesday about the matter, the company decided to suspend the Top Friends app, meaning no one can use it, Ling said. The company is also conducting an ongoing investigation into the matter, he said.
Meanwhile, another third-party app that Ng disclosed a security hole in, Super Wall, was fixed. With Super Wall, which was created by RockYou, no personal data is revealed, but anyone could have viewed the Super Wall of any other user, even if they were not friends.
"Super Wall is respecting the privacy rules of the site," Ling said, adding that data created in the apps is not governed by the same privacy policies as user profile data.
These are supposedly the Top Friends of Paris Hilton, who apparently listed herself using her middle name.
(Credit: CNET News.com)Before the app was suspended, CNET News.com was able to use Top Friends to pull up profiles of Bobby Jindal, the Republican governor of Louisiana who's been talked about as John McCain's running mate; Facebook Chief Operating Officer Sheryl Sandberg; Jonathan Heiliger, Facebook's vice president of technical operations; and what is believed to be a page for Hilton.
Similar steps were taken to view the Super Wall pages for Sandberg, Facebook founder Mark Zuckerberg; Google executive Marissa Mayer; and Lucy Southworth, wife of Google founder Larry Page.
By accessing these pages it is easy to get the Facebook ID numbers for their friends and see their pages, as well.
Nothing on the Super Walls was all that juicy (who hasn't been annoyed by the "Click forward to see what happens" spam?), but the information revealed through Top Friends is sensitive and could have been used to commit identity theft if it landed in the wrong hands.
"Any Facebook user who adds an application to their profile is agreeing to give any of their personal information to the developer of that profile," Ng wrote in an e-mail after walking News.com through a demonstration of how to exploit the security holes. "Facebook has pretty low barriers of entry with regards to becoming a developer. You just need a Facebook account and to fill out some online forms."
This screenshot shows the Super Wall of Facebook founder Mark Zuckerberg. News.com blacked out the names.
(Credit: CNET News.com)It would be fairly easy for someone to create a new Facebook app that could be used to steal people's information, he said.
"Of course, it's against the Facebook terms of service for an application to store someone's personal information, but there's NO WAY for Facebook to verify compliance since Facebook applications run on PRIVATE THIRD-PARTY SERVERS, not on their own servers," Ng wrote.
Ng uncovered a way to snoop on strangers' SuperPoke pages a few weeks ago and Facebook promptly plugged it. He also exposed a hole in MySpace earlier this month that allowed people to see private photos of Hilton and her celebrity pal Lindsay Lohan, and currently there is an open hole in MySpace that allows anyone to create a discussion group and delete other peoples' bulletins, even if they are not the group leader, he said.
A MySpace representative said late Wednesday she was looking into the matter.
CNET News.com's Declan McCullagh contributed to this report.
Updated 1:12 p.m. PDT to reflect that the hearing session has ended.
SAN JOSE, Calif.--A hearing in a dispute between Facebook and ConnectU wrapped up early Monday afternoon with no ruling, after the federal judge overseeing the matter had closed the proceedings to the public and the press.
U.S. District Judge James Ware plans to issue a ruling before too much time has elapsed, attorneys involved in the matter said as they left the courthouse here following the hearing, which lasted somewhat less than two hours.
Reporters from CNET News.com, the San Jose Mercury News, and Bloomberg had objected to the courtroom being closed, which is uncommon in federal civil cases, and asked for a delay so their attorneys could be present. Ware rejected the request, saying he would "set up a time to make objections."
"I've made a judgment that it could be beneficial to the court" to conduct at least the first portion of the hearing "in a closed courtroom," Ware said Monday morning.
A lawsuit between ConnectU and Facebook was settled earlier this year. ConnectU now says Facebook, the most popular social network in the world, entered into the settlement fraudulently. Therefore, it says, the case must be reopened.
The beef stems from allegations by ConnectU's founders that Facebook's Mark Zuckerberg stole their business idea in 2003, when the founders were students at Harvard University.
Many documents in the case have been filed under seal, including instant messages reportedly sent by Zuckerberg to colleagues at Facebook.
Matt Cohler, employee No. 5 at Facebook, will leave the high-flying social network this fall to join venture firm Benchmark Capital as its youngest general partner at 31 years old.
Matt Cohler
(Credit: Dan Farber/CNET News.com)Cohler, whose job description, as written on Facebook, is "ensuring that Zuck (Facebook founder Mark Zuckerberg) never makes it back to Harvard," has been the company's technical adviser, recruiter, and business strategist since 2005, roughly a year after the company started from a dorm room at Harvard University. Cohler said he will remain a special adviser to "Zuck" and the executive team at Facebook even after he moves to Benchmark as an investor in early-stage Internet start-ups. (Facebook does not have an advisory team, so the adviser role will be new to the company.)
Many early employees of companies such as Google and Yahoo are hearing the siren call of venture investing, but this is a first for Facebook. When it comes to executive moves, the social network makes many more headlines for new executive hires. Still, Bryan Schreier, a former Google employee, not too long ago joined Sequoia Capital, an early investor in the search giant. Jeff Weiner, a longtime vice president at Yahoo, recently joined Accel Partners and Greylock Partners as an entrepreneur-in-residence, following former Yahoo colleagues.
Cohler, a graduate of Yale University with a bachelor's of arts, has a healthy track record of picking promising start-ups and entrepreneurs, a talent that Benchmark partner Peter Fenton believes will translate well to venture investing. "He's worked at the center of social media and he's established himself as a go-to person for young entrepreneurs," said Fenton, 35, who's known Cohler for several years.
Cohler met the Facebook founders in 2004 through Peter Thiel, a PayPal co-founder and Facebook's first angel investor. He was introduced to Thiel through Reed Hoffman, the founder of business social network LinkedIn, which this week raised $53 million for a valuation of $1 billion. Cohler joined LinkedIn as a member of its founding team and a general manager.
Menlo Park, Calif.-based Benchmark, which now has nine partners, is known for its early investment in eBay, Handspring, and Red Hat Software. Despite its eye for promising young companies, it does not have an investment in Facebook. (Cohler said that he has not talked with the venture firm about it taking an investment in Facebook.) Benchmark's portfolio includes Zillow.com and OpenTable.
As for his experience at Facebook, Cohler said, "I've loved Facebook, the people, the product. I just knew my long-term trajectory would be to be an early stage investor."
Cohler's Facebook status on Thursday? "I'm excited for LinkedIn!"
Yahoo Mail, the top provider of Web-based e-mail, is letting users sign up with the ymail.com and rocketmail.com domains in an attempt to attract new users and keep existing ones loyal.
The move is geared to help people find a better e-mail address, said John Kremer, vice president of Yahoo Mail. "We want users to get the exact e-mail account they want so they stay with us for life," he said.
Because "yourname@yahoo.com" is likely taken by now, a lot of people must resort to unpleasant and hard-to-remember addresses such as "yourname1988@yahoo.com." Yahoo wants to give people a new chance with a name they like.
Yahoo headquarters in Sunnyvale, Calif.
(Credit: Stephen Shankland/CNET News.com)The rocketmail name dates back to Yahoo's $92 million acquisition in 1997 of Four11, a company that offered the free RocketMail service.
"It's a great brand," Kremer said. "Those who have no memory of our service in the late 1990s indicated they like it, and those who indicated they want to be retro like it for the fact that it's associated with Yahoo.com since the beginning."
Maybe it's retro for Yahoo, too, which is under fire from shareholders after a bruising takeover attempt by Microsoft. Probably plenty of employees enjoy thinking nostalgically about the company's dot-com glory days. But the company is trying to move forward, too, with Mail one major part of the company's Yahoo Open Strategy (YOS) strategy.
Open mail
Through YOS, Yahoo is trying to make its online services a foundation for third-party applications. For mail, that means letting other applications appear on the Mail "canvas," Kremer said.
In this area, Kremer said, Yahoo was inspired by technology the Yahoo got through its acquisition of online e-mail specialist Zimbra in 2007.
"Zimbra was a pioneer in opening up Web services within the Zimbra application. They have open applications within their space that are used all over the place," he said.
There are now "no walls" between Yahoo Mail and Zimbra engineers, he added, though the business units are separate. "They share a lot of what they do. You'll see in very short order products on our site built on their technology, and vice versa," Kremer said.
The Internet company revamped its Yahoo Mail interface beginning three years ago, calling the update the "all-new Yahoo Mail" for well over a year now. The new interface is based on technology from Yahoo's 2004 acquisition of Oddpost.com.
The "all-new" badge will be removed "pretty soon," Kremer added.
Rolling Thunder
Yahoo plans a "rolling thunder of announcements" around Yahoo Mail in the next six to eight months, he added. Some significant changes will include as a "smarter inbox," work to make Yahoo Mail fit better in today's world of social networking, and the opening of the mail platform, he added.
It's a good thing, because there are plenty of competitors--not just traditional Web mail outfits such as Microsoft Hotmail, AOL, and up-and-coming Google Gmail, but also social sites such as Facebook and MySpace. Yahoo considers the full spectrum of competition, though.
"What we believe here at Yahoo is all communication is eventually coming together," Kremer said. "You don't need to bounce out to a separate social communications site or a different social event site when most of those tools are really just communications. If it's built on the same address book and calendar information, you can see them coming together in a single, more productive, smarter inbox."
Facebook understands what makes its service tick: lots of users and developers.
On July 23, the social-networking powerhouse will hold its second annual F8 platform conference in San Francisco. The company claims 400,000 developers in more than 160 countries and 24,000 Facebook applications in its directory.
Facebook also recently reached a milestone, according to ComScore, catching up with MySpace on the unique-user metric.
Both social networks attract about 115 million members on a monthly basis. However, most of Facebook's growth has come from outside the United States, which could be more difficult to monetize than U.S. users. MySpace has 72 million unique monthly users in the States, twice the number of Facebook.
See also: "The battle for Facebook" (Rolling Stone)
The following is live coverage from D6 of Facebook's Mark Zuckerberg and Sheryl Sandberg being interviewed Wednesday by Kara Swisher:
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