Sheryl Sandberg on Facebook's Future

In an exclusive BusinessWeek interview, the social networking site's chief operating officer talks about controversies and strategy

Watch the Video…

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.