Silicon Valley Notepad: Lunch at Facebook -- and plans for domination

The first thing I noticed was the dearth of parking spaces at Facebook world headquarters in Palo Alto, California. I drove to the top lot. Full up. I drove down to the lower lots, where visitors are not really supposed to park. After losing out in stare-off battles with a few FB employees, I finally nailed a spot almost at the back of the lot. The last time I've seen a parking lot like this was . . . Google before the IPO.

At the reception desk, I'm asked if I'm coming just for lunch or for a meeting. I reply "Both" and sneak a peppermint chocolate candy from the bowl sitting on the desk. Refrigerators with water and soft drinks stand in the lobby for visitors. Once I'm allowed through the door into the open area where hundreds of employees sit, I can't help but notice the significant number of 22- and 24-inch LCD monitors perched on desks. I learn that these desks do not even belong to engineers. So this is clearly not a company that is worried about spending money, by any conventional standard.
I am there to meet with the Facebook communications team, a well-oiled group culled from Google and other top-notch startups and tech companies. I'm also a recovering foodie and restaurant hound. And I've heard that FB has a damn good lunch operation running -- which explains the steady stream of visitors I see in the lobby coming to meet friends for lunch. In fact, the Facebook corporate chef was one of the early culinary wizards to grace the Google kitchen. Talk about an IPO hopper -- make that guy a VC or something.

I meet Larry Yu. He runs the Facebook communications team on the business and finance side, which is where we first connected, after I wrote a story on why Facebook's IPO might not be as good as some pundits have opined. After that exchange, I invited myself down to talk to the FB crew in Palo Alto. Larry suggested lunch, and I was happy to partake.

We talked about surfing a bit. Larry surfs, and I, having just moved over from Hawaii, am getting tooled up for frigid NorCal wave riding. Then it was time to eat and discuss Facebook's plans for global domination. Which is verbatim what I asked Larry: "Tell me about your plans for global domination." He didn't miss a beat: "Where should I start?"

Eschewing the crowded cafetaria option (including sushi), we headed to the roof for the second Facebook dining facility: a sun-dappled BBQ spread with a splendid view of Silicon Valley. Selections included pulled pork, BBQ chicken, burgers, veggie burgers, and Cajun-rub red snapper. I snapped up the fish, piled on two chocolate-chip cookies, and sat down for my grilling. The FB team first grilled me on what was going on at AOL with our new content strategy. Fair enough -- the price of admission.

Then we got down to business. The basic takeaways were fairly interesting to me. First, Facebook has crossed a threshold somewhere in the past few months that has made it friendly enough to appeal more broadly to ad agencies and big brands. I'll write more about this in a subsequent post. But Yu said that a lot of this comes from simply figuring out what works in terms of advertisements, targeting, and understanding how to interact with Facebook users in an environment that's far more communal and not nearly as transactional as the general Internet or search engines.

Also of interest, Facebook is leveraging its own community to cut costs. User-generated content has allowed many sites to populate with material written by users. Facebook has taken this a step further by enlisting its own users to localize Facebook into more than 50 languages. This has probably saved the company several hundred million dollars in localization costs, and it's a template for how community-driven companies can tap their avid fans not only as an ad audience but also as a source of intellectual horsepower.

There are still many companies that specialize entirely in localizing Web content. And LinkedIn has largely failed to localize its content, which has meant that it hasn't had as broad a user-base expansion as Facebook. I was shocked to learn that 70 percent of Facebook users are outside the U.S. -- a very impressive number.

You have to ask Facebook some hard questions, and I did: Does Facebook plan to let users more freely export their data, friends, and photos to other social media applications? Yu and his team told me that plans were already underway, and that it would get easier for users to do these things. Lots of other people don't think so, though, and you can understand why Facebook might be reluctant to make it easier for people to leave.

Then again, Facebook may have passed a critical threshold thanks to its Facebook Connect service. As for myself, I find I'm using Connect more and more, to log into other companies' sites without hassling with passwords. Open ID is still making a run for that function, and the two may well coexist, but I definitely sense that Facebook is ahead. If Connect ends up dominating, then Facebook basically has sealed its position, and it can let users move their data anywhere, pretty much.

Facebook acknowledged that it's looking at ads far more in terms of engagement rather than merely in terms of impressions. This isn't exactly news that Facebook has started to launch ads that are more about driving demand for events, products, and the like than just foisting impressions. But this mantra has quickly been taking over the ad space. More and more product companies seek to define their campaigns not so much in impressions or clicks, both of which are hard to place a value on, as engagement.

One thing that did spook me a little bit was that the Facebook team seemed to feel that highly targeted ads were no big deal, not Big Brotheresque at all. This is something that has bothered me about Facebook, and using user data and pictures to seed ads has caused some concerns. It has also caused some interesting ad campaigns, such as this one where Sarah Palin critics targeted Palin's Facebook fans with a slam campaign. Facebook's team said that they do allow users to vote down ads they dislike, and that will give them a strong filter over what sorts of spots show up on pages they view.

And of course, I had to ask if they planned to take on PayPal. Nope: That's a whole different kettle of fish. Antifraud systems alone are a bear of a business to be in, and PayPal has plenty of other issues that it needs to solve. For now, that is, Facebook plans on keeping its transactional side confined to internal uses.

Is the company cashflow-positive yet? Yu wouldn't answer, nor would he disclose revenues, but from the body language it seemed clear that they felt pretty comfortable with that question. I'd say the company is solidly in the black at this point.

As I walked out, I realized that I did forget to ask about Facebook's ongoing quiet struggle with Twitter for the real-time space. The recent purchase of FriendFeed made its intentions pretty apparent. But I'm pretty much real-timed-out, and I figure that everyone will be able to search all the streams at some point. A good question for my next lunch.

I left Facebook HQ with a full belly, a pocketful of expensive organic fruits lifted on my way out (at Yu's invitation) as we passed the cafeteria, and a few things to think about. I am still not sure their IPO will meet earlier expectations, but now I have a much better idea of what to look for as I consider Facebook's business going forward. And next time I'll bring my wife for lunch, too.
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