Exclusive: Discussing the Future of Facebook and the Facebook Ecosystem with CEO Mark Zuckerberg

There’s no shortage of big initiatives going on at Facebook these days. We sat down with Facebook CEO Mark Zuckerberg this week to talk about the state and future of Facebook and its surrounding ecosystem.
Zuckerberg shared his thoughts on recent changes to the Facebook Platform, competitive dynamics he desires amongst developers, the surprising growth of the social games business on Facebook overall, his vision for Facebook Credits, market perceptions of Facebook’s revenue streams and overall revenue numbers, what the company learned from its period of serious interest in Twitter, and Facebook’s company culture around money.
Today, Facebook’s 1,400 employees are working on products to better serve and monetize its nearly 500 million monthly active users around the world – up from 150 million at the start of 2009. We estimate the company did between $600 to $700 million in revenues last year, and will see between $1 and $1.1 billion in overall revenues this year.
As Facebook’s business has grown, so has the Facebook Platform economy. Developers of social games on the Facebook Platform will earn hundreds of million of dollars in revenues in 2010, according to our Inside Virtual Goods: The Future of Social Gaming 2010 report, and tens of thousands of businesses are shifting more of their marketing efforts and dollars to build their Facebook presence.
Justin Smith: What’s the state of the platform right now, in terms of the alignment of incentives between developers and Facebook and users, compared to where it was just after the Platform launched a couple of years ago, and where you want it to be?
Mark Zuckerberg: There’s two parts of the Platform – there’s canvas and then everything outside of Facebook. The focus now is actually the latter – Connect and everything we’re doing with social plugins. We have an all hands meeting later today and I was just told that Connect is now on 1 million sites. That’s definitely an increasing focus, and the last two f8’s have been around that. But I think what you’re asking is about the canvas part.
There are two ways that apps get usage that really define the character of the application. One way is viral distribution – spreading to new people. The other is reengagement. Early on, the viral strength was so much, but there were really no channels for reengagement. So people were using viral channels to reengage people, and you basically had apps that were growing very quickly, and their best way to get a good user count was to get new users and churn through them. That really optimizes for apps that are very viral instead of apps that are high quality and that people want to reengage. So we intentionally weakened the viral channels recently, and intentionally strengthened reengagement with emails, so that there will be better apps. It’s going to be a long process, but I think it’s going reasonably well.
One of the things we did recently was rebalance around games. A lot of users like playing games, but a lot of users just hate games, and that made it a big challenge, because people who like playing games wanted to post updates about their farm or frontier or whatever to their stream. They want all their friends to see their updates, and they want to get all their friends’ updates, but people who don’t care about games want no updates. So we did some rebalancing so that if you aren’t a game player you’re getting less updates.
One of our goals that we have is to make it so that you have just as good of a chance to build a good game if you’re a standalone game shop as if you’re a part of a bigger conglomerate, like Zynga or EA. That is a long term thing, to make sure the market stays competitive around this. CrowdStar has grown pretty quickly in the last 6 months, from very small to now pretty big. That to me shows that it’s definitely not a one company market, and that’s what we’re looking for. A lot of what we’re working on is can a small company succeed in the space.

What do you think about how big the games business has become on the platform? You told me a couple of years ago soon after the Platform launched that you weren’t really thinking about games when you built the Platform.
I was surprised, I was surprised about games. I had a conversation with some folks at Apple at one point, and they were surprised that games was the big thing on the iPhone too. I also heard anecdotally that the people making the first PC operating systems were surprised that games were that big too. So I think people build platforms for utilitarian purposes and then get surprised that games are a killer app, so I don’t think it’s uncommon. But clearly a lot of people like them.
Someone once wrote that I don’t like games, and I think that’s pretty silly. I don’t spend a lot of time playing games myself, but it’s really cool as a first proof example of an industry that’s getting completely disrupted by the whole social movement. All the dynamics of how you play the game, getting neighbors, trade with people, do tasks with people to more efficiently use your resources. It’s the first place where someone completely wove in social dynamics into the dynamics of the industry, and it works really well. The early games like Jetman and Boggle and things like that weren’t that social, but now when you hear gaming companies talk about the next generation of games that they’re creating, everything is about integrating the social stuff more and more deeply into the game.
Now, there are companies like Zynga, EA/Playfish, CrowdStar, but then there’s a Facebook version of Civilization as well, so it’s going in both directions. The Civ game is your traditional high quality game, but the big question there is whether they leverage social dynamics enough. The risk for them is that it might just end up being a good traditional game with very little social integration.
One of the questions that people I talk to have these days is what role Credits will have in the future of the company. How important is Credits in terms of your overall product priorities, do you think it will succeed, and how important will it be in terms of revenue?
It makes sense that there should be one currency. If I go play a CrowdStar game right now and get Credits there, I can’t go use those Credits in a Zynga game, so that kind of sucks. One of the biggest inefficiencies in buying virtual goods is all the friction of having to take your credit card out, so having one store of [virtual currency] that you can use everywhere is both good for users and good for all the apps.
The other thing about Credits from our business perspective is that payments and Credits is a significantly lower margin business than ads. Ads are 20%, 30%, 40%. A lot of people are skeptical of when we say we are doing this primarily for the developer ecosystem, but that’s really how we think about it. A lot of the apps so far are games, a lot of games monetize a lot better through virtual goods than through ads, and a big goal for us is to build this level ecosystem. So if Zynga or any one player can allow cross payments within their games, but that doesn’t extend to other games, then that ends up being a big barrier to entry for other startups. Making it so that there is one currency that people can take everywhere levels the playing field a bit, which is good.