Outside the Lines

Facebook CEO Mark Zuckerberg and his new COO Sheryl Sandberg fielded questions from Kara Swisher at the D6 conference. The pair stayed on message. Zuckerberg has learned to simply state the company goals in answer to almost any question. It shows focus and the savvy of a budding politician. Sandberg brought serious chops to the monetization and marketing discussion.

Kara asked Zuckerberg why he chose to be the CEO, even as the company has grown to 550 people. He sidestepped the question and talked about the company goals--helping people share information, building products, and creating teams.

Zuckerberg offered up that the Beacon advertising program was a big mistake, but it reinforced the point that Facebook needs to give people complete control of their information. In other words, Facebook takes privacy seriously.

Sandberg talked about value in Facebook applications, including those that are whimsical and fun, such as Slide's SuperPoke. Kara asked how Facebook will change the advertising paradigm in the context of those applications. "The larger part of advertising is in demand creation and traditional brand advertising. Facebook has a really unique opportunity to fulfill that message. Users tell us what they like and what they do, and it provides us an opportunity to work with advertisers to provide things that are great for users. We think we can offer real users engagement."

Zuckerberg thinks of Facebook as a technology company, while Sandberg described Facebook as a media company that connects people and advertisers. The ended up connecting their viewpoints. "Technology can speed up the interaction between advertisers and users, and that's really good for users," Sandberg said. Making privacy and advertising work harmoniously will be a major challenge for the CEO and COO.

Zuckerberg talked about changes to the Facebook platform, especially getting rid of the box mentality--user pages littered with applications in boxes on pages. The net effect of the new Facebook platform is that the more engaging applications and those that users trust more will get more distribution, through feeds instead of boxes, he said.

Kara saved the Microsoft question for last. She asked Zuckerberg if he would sell Facebook to Microsoft for $15 billion. "The goal of the company is to execute on the things we talked about before, become more open, and share more information. The end goal isn't to sell the company or IPO. We evaluate how it will help us along the way," Zuckerberg said. Can they sell company without you?, Kara asked. "I don't think so," Zuckerberg responded. Facebook's VCs may have a different view on Zuckerberg's view on exit strategies, but it is refreshing to talk about building value.

Sandberg, who recently made her first visit to Microsoft, said the two companies had a good partnership. "No company can go it alone. We are a small company with 550 people, four years old and not very big," she said.

Zuckerberg told of Google's Sergey Brin and Eric Schmidt coming to his apartment for dinner. He didn't have the proper things to make dinner or enough chairs for his guests to sit. Kara asked him about working with Google. He danced around this question.

"They do a lot of interesting things. It would be good to work with them on something. The thing is Google is such a big company and doing so many things. They are also working social stuff. It would be good to talk to them about some stuff." In other words, we aren't really working with them. However, with all the Google refugees at Facebook, that could change.

Regarding the controversy with Google's Open Social initiative, Zuckerberg said that Facebook is watching how it evolves. "It's really just getting started," he said.

Click here for full coverage of the D: All Things Digital conference.

The latest wild rumor circulating is that after doing a search ad deal with Yahoo, Microsoft will spend its cash acquiring Facebook for $15 billion to $20 billion.

At a press conference in Tokyo on Monday, Facebook CEO Mark Zuckerberg was asked about Facebook's future as a standalone company. "You can tell, from our history and what we've done, that we really wanted to keep the company independent, by focusing on building and focusing on the long term," Reuters reported.

Zuckerberg declined to comment on a follow-up question regarding the prospect of a sale. Microsoft invested $240 million to acquire 1.5 percent of Facebook at a $15 billion valuation. After walking away from the negotiating table with Yahoo, Microsoft's bankers supposedly had some conversations with Facebook about an acquisition.

Microsoft has not lost its lust for Facebook, which would be a much cleaner acquisition than Yahoo and provide a lot of ad inventory, though social-network advertising isn't as lucrative as search.

Here's some of the logic trail that could lead Microsoft to the conclusion that it could end up with deals for both Yahoo and Facebook. This can be viewed in the context of the four pillars of Microsoft's online strategy:

1. Consolidate ad platform and win in display

2. Innovate and disrupt in search

3. Deliver end-to-end user experiences across the PC, the phone, and the Web

4. Reinvent portal and social-media experiences

• Yahoo was surprised when Microsoft walked away from the table. Yahoo wanted $37 per share, and it threw the Google ad deal in Microsoft's face, so CEO Steve Ballmer withdrew his $33-per-share offer. Miscalculation on Yahoo's part.

• Since then, Yahoo shareholder lawsuits, plus Carl Icahn's buying up of shares and proposing a complete new board of directors for the July 3 shareholder meeting, have put serious pressure on Yahoo to rethink its stance.

• Doing a deal for Google to sell text search ads on Yahoo's sites would not only bring up possible antitrust issues, but it would also turn off Microsoft.

• Turning off Microsoft by getting in bed with Google would give those influential Yahoo shareholders--as well as disgruntled employees who view an acquisition by Microsoft as the right ending to the saga--more ammunition to fry Yahoo's board. So, it's wiser to keep the door open to Microsoft than to embrace Google to keep Microsoft out of the picture.

• Microsoft seriously needs to ramp up its search ad business. It has a deal with Facebook, but it lost out to Google on AOL and MySpace.com. How about taking over Yahoo's text search ads business as a way to gain inventory and to continue the tough love for Yahoo, which could then lead to a full acquisition, especially in light of Icahn's machinations and the shareholder meeting coming up July 3?

• As a bonus, announce the search ad transaction at Microsoft's Advance08 Advertising Leadership Forum this week.

• As the summer gets into gear, Microsoft will talk to Yahoo shareholders such as Icahn, various intermediaries, and eventually Yahoo, about a union at $33.50 per share.

• There is the chance that Microsoft will cool to a Yahoo acquisition--too many bad memories during the unfulfilled courtship--and just settle for a search ad deal to keep Google at bay. A joint venture for search covering both the search and advertising technology, as well as sales, would be a stronger play versus Google, but that might be hard to execute.

• Microsoft has been attracted to Yahoo for more than its search business. It has engineering talent, 500 million members, and some compelling services that would work across the MSN and Yahoo brands.

• If Microsoft doesn't acquire Yahoo outright, Facebook becomes more enticing. Zuckerberg has said many times that he plans on going public when the time is right.

• However, times have changed. Facebook has found that selling ads on social networks isn't as profitable as selling search ads. The company has reduced its revenue forecast for the year. The growth curve for bringing in new users has slowed somewhat, though Facebook is expanding outside the United States. Competitors such as Google, AOL's Bebo, and MySpace have not gone away, and the notion of data portability means that the walled gardens that keep people fenced into a social network are becoming porous.

• Thus, Zuckerberg & Co. might be more open to taking $15 billion to $20 billion now for their four years of work, rather than taking a chance on an uncertain market. I suspect that is what the elders are telling the Facebook management team.

• Now for the ideal scenario for Microsoft: acquire both Yahoo and Facebook. First, do the search ad deal with Yahoo to pre-empt Google on that front. Over the summer, acquire Yahoo as the pressure builds from shareholders such as Icahn. Finally, as Facebook realizes that its dreams of becoming the next Google are less certain, acquire the social-networking giant.

• If this scenario were to occur, Microsoft would have a lot of online territory. It's not as cheap as the Louisiana Purchase, and it's not clear how Microsoft would integrate and leverage the various platforms and audiences.

The 35-year-old Microsoft has a long-term view, and has been known to be persistent and tenacious. However, it's not clear that by cobbling together and integrating different services, Microsoft can lead the way to Web 3.0.

The crew at Facebook has done well to amass a huge war chest (Microsoft's $240 million investment), 66 million members, 200,000 developers, 16,000 applications, 500 employees and somewhere between $100 million and $200 million in revenue for last year.

With the appointment of Sheryl Sandberg as COO, the odds just increased for Facebook to survive its adolescence (more on Techmeme).

Sandberg is 15 years senior to Facebook CEO and co-founder Mark Zuckerberg. She has been through the gauntlet, working in the Clinton administration and then at Google for six years, starting when the company had less than 300 people. Since Owen Van Natta, who held job titles including COO and chief revenue officer, left the company Zuckerberg has been searching for an experienced manager who would fit into the culture and lead the next wave of business growth.

The Google and Facebook cultures are not dissimilar--both are engineering driven. But Sandberg brings high-level sales and marketing expertise into the company at a time when growth in revenue needs to start catching up to the growth in members and applications. She has been through the hypergrowth and going public phases at Google, which is great training for getting Facebook on the same trajectory. She should also help Facebook avoid disasters like the Facebook Beacon program.

In the PR release, Zuckerberg said, "She has just about the most relevant industry experience for Facebook, especially since we need to scale our operations and scale them globally. And we also share the same values."

Sandberg could have easily slowed down with her megamillions in Google stock. But the opportunity to take Facebook into the stratosphere was apparently too appealing.

In an interview with CNET News' Caroline McCarthy asked Zuckerberg about how Sandberg's role will differ from Van Natta's:

Well, they were different roles. Owen, as chief revenue officer, was mostly focused on direct sales, which is what we have now, and business development. He was just focused in different areas. I wouldn't view this as really a replacement there, as other people have characterized it. Owen was doing that role, and he wanted to be a CEO, and I think Owen did great work here and I'm supporting him in doing that. With bringing in a COO, we just decided it was the right time for him to go and do that. Sheryl's role is going to be managing sales and business development but also a handful of other things.

So there's going to be all the different sales channels, direct and inside and online sales, and human resources, and marketing, communications and public policy...Sheryl will be in charge of all these different operations, and our consumer operations, the user operations group. It's a large organization for someone to oversee, and she's going to be primarily responsible for scaling that organization and scaling those operations.