Facebook's Thiel Explains Failed Twitter Takeover

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Facebook and Twitter Still Talk

Thiel won't say precisely how much he thinks Facebook is worth other than to say, "It's worth more than people think it is." Despite the deal's failure, Thiel says the company remains open to buying other companies, though he adds the issue of valuing its stock could remain a sticking point.

Facebook and Twitter haven't completely walked away from one another. The two companies continue to talk, though there are no serious discussions going on, says the person close to Twitter. "They are always interested," the person says of Facebook. "There is a conscious dialogue."

Meantime, Twitter's growth and cultural cachet has continued to soar. Analytics Web site Compete shows Twitter has 6 million unique users, up from around 800,000 last year. Yet Twitter doesn't generate any revenue, despite its surge in popularity.

Controlling the advertising flood

As the Twitter deal shows, Facebook remains intent on improving its product. That means less of an emphasis upon promoting advertisements on the site. "We're also focused on getting the product right," says Thiel. "Getting ads right—that's not the top user demand."

Thiel says Facebook could generate more revenue by flooding the site with more ads but the company believes that this would alienate users. Instead, Facebook is trying to come up with ways to incorporate ads in a less obtrusive way. During a recent interview on The Charlie Rose Show, Marc Andreessen, the successful entrepreneur who last year joined Facebook's board, said the company could make as much as $1 billion a year in sales if it wanted to. Thiel says he agrees that this is a possibility. "There's no reason to think we couldn't do $1 billion a year in sales if we turned on all the dials," he says. "That's about what MySpace does."

Facebook is also continuing to expand workforce. Last winter, Facebook considered implemented a hiring freeze for non-engineering positions, according to several sources familiar with the company. But Thiel says Facebook has decided not to move forward with that plan. "There's been no freeze," he says. "We're growing with deliberate speed. It's close to 1,000 people."

25% staff growth in two months

In the fall of 2008, Facebook said it planned to end the year with 800 employees, up from 400 at the close of 2007. That means the company has brought on about 200 new workers since the beginning of the year. Currently, Facebook lists 86 job openings on its Web site, with the majority being sales and operating positions based overseas, where the company is seeing explosive growth.

But even as Facebook keeps its foot on the accelerator, Thiel says the company does not need to raise money to fuel growth. Since the financial crisis blew up last fall, many startups have been desperately trying to raise capital. But Facebook was shrewd in having raised about $500 million over the past few years. Since the company is still not burning a lot of cash, Thiel says he sees no need to add to its war chest.

Ante is an associate editor for BusinessWeek.