Exclusive: Discussing the Future of Facebook with CEO Mark Zuckerberg

FACEBOOKThere’s a lot happening at Facebook these days. From advertising to payments, search to mobile, platform to privacy, Facebook has teams working on a spectrum of products to serve the company’s 200 million active users – 100 million of which log in every day – in the years ahead.

Since Facebook was founded in 2004, it has repeatedly evolved to make it easier for people to share and consume information in trusted and more efficient ways. Facebook has always focused on establishing real identity and user profiles, and that identity continues to be foundational for all of the company’s products and monetization plans today.

In late 2006, Facebook created the now-famous News Feed, making it easier than ever for users to keep track of friends’ activity on the site. Facebook then launched the Facebook Platform in 2007, enabling thousands of developers to leverage Facebook’s data to create a new wave of web applications with deeper social context than had been possible before. Facebook extended that context to the rest of the web, desktop, and mobile through Facebook Connect late last year.

Around that same time the company also flirted with acquiring Twitter, the hot “micro-blogging” service, but a deal was never reached. And just a few months ago, Facebook replaced the algorithmic News Feed with a stream of real-time updates on the home page.

With all of these changes in the core product alone – not to mention advertising, mobile, and many changes to Platform – where is Facebook going next? We spoke with Facebook CEO Mark Zuckerberg yesterday at the company’s new Palo Alto headquarters about how he sees communication, commerce, advertising, and the Platform continuing to evolve in Facebook’s future.

Justin Smith: We’ve seen Facebook evolve in several phases over the years, most recently with the home page stream. How do you see communication evolving going forward?

Mark Zuckerberg: There are a bunch of aspects about how communication is evolving that are big trends in the world – some of which we’re touching, and some of which are just broad that we’re not affecting but that we adopt.

The biggest one that we are pushing is Facebook has people’s real identity. You are yourself on Facebook. You connect to your real friends, they’re real relationships. You put in real information, it’s really you. That’s really the basis of what we’ve been calling the “social graph” since the Platform launched in 2007. It’s the idea that you are the people and the things that you’re connected to. The social graph is this concept that exists in the world that we try to map out as much as we can on the site.

Now on top of that, you can build different applications. And some of them – whether they’re status updates or messages or wall posts – are simple communication tools that are built on top of real identity. The reason why a lot of people use the Inbox on Facebook instead of email, for a lot of cases, is you don’t need to know someone’s email address – you can just send it to their identity directly.

Status updates are really cool because you can see what’s going on with this real person. Wall posts are cool because I can go to someone’s profile, and even if I don’t know the person writing on it, I know that here’s someone you’re connected to and here’s what they’re saying, and I can click on them and get that context. Real identity really helps people communicate a lot and is really powerful.

Another trend is just that content production is getting simpler. Over time, content production has gone into smaller and smaller bits, and therefore more and more of it happens – there’s this elastic function in there. For example, few people wrote books, more people write blogs, even more people write status updates, and who knows what the next thing will be. There were few professional photographers doing really intense photography, but then a lot of people got digital cameras and uploaded photo albums, and even more take mobile photos just one picture at a time. That’s another big trend.

With the increase in the amount of content being shared, many people have privacy and security concerns. Facebook has been good at establishing robust privacy controls for users to choose who has access to their information. However, there have still been many worms and phishing attacks within Facebook. How will Facebook handle these broader security challenges in the long run?

I think those challenges aren’t specific to Facebook. Facebook is really way better equipped to handle worms and phishing attacks than almost anyone else because of the real identity and how hard it is to spoof that.

You can start a blog saying you’re someone you’re not, you can start an account on some other service really easily saying you’re someone you’re not. One thing that’s really interesting about Facebook is, for example, I had a friend who decided that he wanted to create fake identities for himself on Facebook using a bunch of different accounts just for fun – but he couldn’t do it. He could get a few fake people to add him as friends, but ultimately people looked at the people that he knew and asked, ‘Why don’t you have friends?’ or ‘Why don’t you have pictures of you with other people?’ They thought, ‘Something just doesn’t add up here.’

It was really hard to create a fake account, and because of that understanding of realness within the system, it’s really easy to weed out different behavior when someone’s trying to be a worm or trying to phish.

It is an ongoing problem that we’ll continue to have to work on. We have a team that focuses on this just because it’s so important, but I really think that we’re better equipped to handle these things than almost any other company.

Recently Facebook launched a couple of alpha tests for its payments service with application developers. How important is payments to the future of Facebook’s monetization goals? My (and others’) estimates show that a payments service might add just a few percent to Facebook’s revenues today.

I think it has the potential to be really important. Its potential correlates with how valuable it is to developers and users. There’s a bunch of things that we test as a company, and we basically choose what to invest in based on what people are doing. I don’t really have anything new to add to the information that you already have on this.

But based on how our tests go, we may choose to do a lot more. We’re pretty optimistic [about the potential performance of the payments service], but we don’t really have a sense of how big it will be yet either. I do think it is one interesting area.

Do you think that the majority of those transactions will happen within Facebook.com, or on other websites through Facebook Connect?

Well, I think the whole system is decentralizing. The idea of Facebook Connect is really that it’s the evolution of the Platform.

The idea was never that we would have these boxes inside the site. That was a good way to get started, but the idea is that eventually there should be thousands and thousands of applications built on the web, desktop, and mobile. Those will be the ones that handle most of what people are doing.

One of the messages I’ve heard from [Facebook COO] Sheryl Sandberg is that Facebook feels like there is some misconception of its advertising sales success. Why do you think there is a potential misconception there about how things are going?

I think that’s partially because there’s been data in the market about companies not doing that well with advertising. We decided earlier this year to issue three new stats: five quarters of EBITDA profitability, 70% growth in revenue year over year, and that we’ll be cash flow positive in 2010 based on our current estimates.

The reason that we did that was because we felt like the general perception around things was that we weren’t anywhere near those levels. You know, thoughts like ‘the economy isn’t doing well, so Facebook isn’t doing well or is losing money,’ when in reality we’re on track to be cash flow positive really soon.

I don’t know how those perceptions got there, but that was why we issued those numbers – to try to clear that up. I think that since then, people’s perception around things seems to mirror reality more. It’s a tough balance as a private company, because the easiest thing would be for us to just go out and tell people what our revenue numbers are, but we don’t want to do that.

How are things going with Microsoft?

Good – you know, people tend to focus on the advertising relationship with Microsoft, but that is just a part of what we do, and we’ve built out our own revenue systems and advertising systems that are a much bigger part of our revenue.

We work with Microsoft on ads, but we’re also working with them on a few things around search that hopefully we’ll be ready to roll out at some time in the near future. We have also done integrations with them around different communications products.

In general, I would just say it’s a good relationship. The original deal was around ads, and then we added search in, but the Xbox Live integration and the other integrations that we’ve done are completely separate. We just do that because the teams are talking.

Which Platform verticals would you say add the most value to the Facebook ecosystem in the long run?

It’s tough to say. The beauty of Platform is that we don’t know the answer to that question, but I can tell you what we’re surprised by.

As soon as we launched the Platform, we saw a few areas of information that are clearly important to people that we just hadn’t touched before, like music. We didn’t touch that because of a lot of the legal issues surrounding music online, but there were immediately a ton of applications around it. It was pretty neat to see that those got built out so quickly.

We expected music, location based services, and travel – but the biggest surprise so far has been games.

Why?

We just hadn’t thought about that at all. It makes a lot of sense, and people love it and just do it so much. I think Apple was surprised by this too. I’ve gotten the sense that since they launched their platform, they have also been developing a lot more to enable games than they were thinking about originally.

It’s interesting to see that that’s an area that’s so far from the core social value of the site but it so important to people. You’re doing it with your friends in a lot of cases, and it’s the perfect candidate for an application, but we just kind of laugh about it because we completely overlooked it.  The DNA of a company that produces games is just fundamentally different from the DNA of a company that produces tools for mapping out the social graph.

A lot of Facebook’s traffic, including games, is international today. Which country’s social networking behavior have you been particularly intrigued by?

The most interesting thing is actually how uniform it is. There are some differences in the stats from country to country or demographic to demographic, but it’s way more similar than different. Sharing and connecting are core human needs. Everyone has an identity, and from a very young age people start building out their identity and figuring out how they want to express themselves and what things they want to associate with. It’s just a really core part of being human.