Inside Facebook

Although he’s been rumored to have a seat on Facebook’s board for a long time, Facebook announced today that Silicon Valley luminary and current Ning Chairman Marc Andreessen has officially taken the fourth seat on Facebook’s board.

A long-time advisor to the company and CEO Mark Zuckerberg, Andreessen is known for writing the early Mosaic web browser, co-founding Netscape, and staying on as AOL’s CTO after it acquired the company. Andreessen later founded web infrastructure company Loudcloud/Opsware, which was acquired by HP, and then co-founded Ning.

Andreessen joins current Facebook board members Zuckerberg, Jim Breyer of Accel, and Peter Thiel of Clarium Capital and Founders Fund. David Sze of Greylock and Paul Madera of Meritech Capital Partners also sit as board observers.

Commenting on landing Andreessen for the board seat, Zuckerberg said, “Marc is an industry leader, and we’re fortunate to have him join our board. He has experience that is relevant to Facebook in so many ways: scaling companies that are experiencing extraordinary growth, creating successful technology platforms, and building strong engineering organizations. I know Marc will be a great mentor to me and our leadership team.”

New Inside Facebook Top Jobs for June 30:

• Director of Business Development (MySpace / Los Angeles, CA or San Francisco, CA)
  

AOL’s Platform-A ad network made a major splash in the social networking platform advertising space today by announcing guaranteed CPMs for Facebook and Bebo application developers. While the CPMs were not disclosed, numbers we’re hearing are under $1.00 but well above the $0.10 floor most publishers see with remnant networks. PaidContent reports the floor will be $0.40.

The offer is good news for Facebook developers hoping to squeeze more money out of their inventory. Platform-A will greatly expand the universe of advertisers who will be able to purchase Facebook app inventory. Advertisers will be able to add Facebook apps to their media mix by purchasing inventory in Platform-A’s WIDGNET widget and application network.

However, the guaranteed CPM rates will apply to the first three impressions for each unique U.S. visitor who visits a member application. This means that the amount of money app developers will make through Platform-A primarily depends on the US reach of their audience.

“This announcement reinforces Platform-A’s commitment to helping developers generate revenue and monetize their Bebo and Facebook applications in the rapidly evolving social networking space. Advertiser interest in social networks is rising at a steady rate, and Platform-A is making an unprecedented flat-fee commitment to help application developers generate revenue and guarantee monetization of their applications,” said Dave Jacobs, Senior Vice President of Publisher Services, Platform-A Advertising.com Networks.

Social platform ad network Lookery has announced similar guarantees in the past, but only the $0.125 CPM European guarantee is currently open for new developers to join.

While much time has been spent debating the viability of media businesses built on the Facebook Platform, far less attention has been paid to those developers innovating in areas that have traditionally been much slower to change. One developer, Causes, has been doing just that.

Founded by Joe Green, former Harvard roommate of Facebook CEO Mark Zuckerberg, and Sean Parker, former President of Facebook, Causes (also known as Project Agape) is changing the way social and political activists evangelize and raise money. Inside Facebook sat down with Causes co-founder Joe Green to learn more about the company’s progress since the company launched just over one year ago.

Joe, what milestones did Causes achieve during its first year, and what are you hoping to achieve in year two?

Our first goal was always to figure out how to get people to start Causes and spread awareness, and during our first year, over 12 million Facebook users registered and created or joined over 80,000 causes.

We put donations in initially as a way to increase impact. We thought it would take a while for donations to ramp up, but we’ve been positively surprised. We raised over $2.5 million for nearly 20,000 non-profits in our first year - almost all of them small donations, which we’re very excited about. Now we’re starting to focus more on trying to increase donations.

Which demographics have you found the most traction with?

It’s hard to know much about demographics, because it’s hard to target this type of social product. You put it out there, and it will spread where it spreads.

We want to create broadly applicable solutions that both allow the hard core activist to take a lot of ownership and allow others to participate somehow. Even when Causes are featured on your profile, they’re an important part of your identity.

How have you seen Causes drive offline activity?

We ran the Causes Giving Challenge in January, and we had people taking their laptops to classes to get people to sign up, and starting phone trees. Causes is really integrated with the real word, and these days, it’s harder to distinguish between what’s happening online vs. offline. For example, you can go to Obama’s website and pull down a phone list to call - is that online or offline? It’s all integrated.

We also did a national program with the United Way, where all their local campaigns competed to see who could get the most people to join their causes and donate, that was really successful.

What are you doing around the 2008 elections?

To be honest, we haven’t focused a lot on the campaigns, because we want to make sure we focus on our core strength. Campaigns on Causes are bottom up, but presidential campaigns are very top down and very brand focused. We may have more impact on things happening down the ballot, however.

How has your experience on the Facebook Platform compared to that on other social networking platforms?

Well obviously the MySpace Platform is still in a much earlier phase. The Facebook Platform has allowed us to get immense distribution, but there’s also a lot of spammy apps. Many apps are using Facebook just like they used email in the past. Facebook is trying to address this, but it’s a slow process to get things aligned.

MySpace has done a good job of using their native communication channels for the platform, not creating new ones. In the native channels, social conventions are already developed - MySpace users are more judicious about how they use comments. By contrast, requests and notifications were hardly used on Facebook before the Platform, except for friend requests.

MySpace has also done a good job with home page boxes, because they allow applications to create their own communication mechanisms. If they’re spammy, people will just remove the box altogether.  But you can’t do that with Facebook requests.

How do you expect the upcoming Facebook profile redesign to affect Causes?

The profile redesign has its positives and negatives, and will be very controversial. People enjoy featuring their Causes on their profile. The new Publisher and application tabs will be very interesting. For example, if a friend asks you to join a cause publicly, we think that’s a pretty interesting social dynamic.

Thanks Joe. Any final thoughts?

The non-profit world is just waking up to the world of peer to peer activism and fund-raising. I think we’re just on the cusp of a lot of exciting things.

One thing not everyone knows about Facebook is they’re also the biggest photo storage and sharing site on the web. To date, Facebook users have uploaded over 6.5 billion images. Facebook stores them in 5 sizes each, totaling over 30 billion files that take up about 540 TB of disk space.

Recently, Jason Sobel, Facebook’s manager of infrastructure engineering, gave a presentation at the Stanford ACM entitled Needle in a Haystack: Efficient Storage of Billions of Photos. He talks about the infrastructure Facebook has built to handle this volume of data and serve it at high performance (Facebook serves almost half a million images per/second at peak load). You can check out the presentation here.

Most developers have discovered that a large portion of Facebook’s user base - perhaps as much as 30% - haven’t specified their sex on their profile page. According to Facebook, that’s about to change.

Citing the difficulty of translating the gender-neutral (and invented word) “themself” that appears in Facebook feed stories in English, Facebook has decided to start prompting users to specify a gender. Currently, non-English Facebook users that haven’t specified a gender often get assigned the wrong gender in feed stories.

However, Facebook will still make it possible for users to remove gender from their profile altogether. Facebook’s Naomi Gleit writes,

We’ve received pushback in the past from groups that find the male/female distinction too limiting. We have a lot of respect for these communities, which is why it will still be possible to remove gender entirely from your account, including how we refer to you in Mini-Feed.

Earlier this week, Social Media Networks, one of the largest ad networks for Facebook and other social network platforms, announced the launch of Social Banners, a new advertising product based on users’ “FriendRank” - a new proprietary method of examining user behavior and calculating the likelihood that a user’s behavior will be influenced by a given friend’s.

While Social Media has many privacy and data portability waters to navigate as it collects greater amounts of behavioral data on Facebook users, in the end, “Social Banners” must produce measurable improvements in performance in order to gain significant traction. I sat down with Social Media CEO Seth Goldstein to learn more about why he thinks the Social Banners value proposition is real. (Disclosure: Social Media advertises on this blog.)

Seth, what kinds of advertisers do you think will benefit most from Social Banners and why?

Brands will benefit the most.  Social Banners provide brands with a way to spark social interactions involving their products and offerings from within the banners themselves (no application install necessary).

In the past, many brands have been adamant about building Pages and Applications on Facebook, and then buying media to promote those properties.  While this certainly isn’t a bad thing, it is riskier, and the success of the campaign largely hinges on the quality of the application.

However, the primary reason that brands want users to engage in their applications is not just to have an application or to have a page.  It’s because they want users to interact, recommend, and engage with their product socially, and applications and pages were the only things that facilitated this.  With Social Banners, we enable brands to shortcut the application and page installation process and have that social interaction take place within the banner, with just one click.

Additionally, for brands who *do* want an application, we feel that social banners are a more effective means of driving users to those applications, as we are able to mirror the functionality of the application inside of the banner, which provides a more seamless transition from banner to application, resulting in less user drop off upon install.

What kind of performance increases are you seeing so far, and do you expect to see?

Social banners tend to perform at approximately 2-4x the rate of traditional banners, depending on the social content within them.  However, we also have a proprietary technology called FriendRank that adds a new dimension to ad targeting by selecting the ads not only by application context and user behavior, but also by determining the relevant “social distance” of the viewer and the individual inside of the ad.

For example, if two of your friends recommended a movie to you, one of the two recommendations is going to have a higher psychological impact.   FriendRank determines which of these two people should be presented to you in order to maximize the effectiveness of the ad for the advertiser, and the relevancy of the ad for the user.  People have, on average, 150 friends.  It’s not enough to just stick some of them in ads.  You have to know who the right friends are, and that’s what FriendRank determines.

What case studies and examples are most illustrative of the potential value created by Social Banners?

We helped to create an application for BMW for their new 1 series car release.  The application, Joyrides, allowed individuals to select a car, a few of their friends, and a destination you would all drive to.  This information was shared with your friends through news feeds, status updates, and notifications.  In order to promote it, we created an ad which presented the viewer with pictures of several of their most trusted friends (as determined by FriendRank) which plainly asked, “Which of these friends has shotgun on your BMW Joyride?”  The content of the ad allowed users to transition seamlessly into the application, leaving little doubt as to what the application did.  And, there was statistically significant data showing that users were several times more likely to click on the ad if it contained someone we determined to be highly trusted, as opposed to one of the viewers random friends.

So what must happen in order for Social Banners to become a big success?

We truly believe in this product.  Social has already proven to work in applications, and there’s no reason it shouldn’t work in ad units.  But, in order for this to be truly successful on a large and sustainable scale, progress needs to be made in the data portability world.  People need to maintain control of their data, but also be able to leverage it anywhere they wish for more compelling apps and more relevant ads.

With more data, we could make our existing ads more value added to users.  Not because the ads would be better targeted using age, gender, location, interests, and other data.  But because the ads would benefit from the rich interactions of the social graph the same way that many of the best apps do..  The more freedom we have to test new ad types, the more freedom we have to pioneer new kinds of opt-in social ad formats.

In what appears to be a major event for application developer Slide, Top Friends, the third largest application by daily active users and installs, has disappeared from the Facebook Platform.

As of 12:01am Pacific Time:

1. Going to the Top Friends app page redirects to the Facebook home page
2. Searching the application directory for “Top Friends” yields nothing
3. The Top Friends box is missing from all profile pages

While Platform performance is expected to be intermittent from time to time, this is either a pretty big accident or significant action taken by Facebook. We’ll have more soon.

Update: Facebook has just confirmed that this is an intentional suspension. Facebook says,

We have suspended the Top Friends application while we investigate violations of our Terms of Service. We recognize this is a popular application and don’t take this action lightly.

Apparently, Top Friends was allowing access to non-friends’ personal information in a way that violated the TOS. This is a pretty siginificant disciplinary action by Facebook. As of 9:00am, Top Friends is still not available.

Tonight, in San Jose District Court, Judge James ware issued a decision rejecting ConnectU’s claims of fraud in its recent settlement with Facebook, and enforcing the terms of that agreement. Two weeks ago, ConnectU fired its legal team, hired new counsel, and sued Facebook for fraud.

In the decision (full text here), Judge Ware listed the following reasons for tonight’s decision:

• First, the Agreement clearly states the consideration for the performance required and how it must be paid.
• Second, the Agreement clearly defines the structure of the transaction. (Sutton Decl., Ex. A at 1-2.) Paragraph 7 recites that all ConnectU stock is to be exchanged for a sum certain amount of cash and a precise number of common shares in Facebook; it is a stock and cash for stock acquisition. Subsequent negotiations might have proposed a different structure for the transaction or other additional terms, but those proposal were, apparently, rejected.
• Third, the principals of each company, who are persons authorized to make decisions for the parties, all signed the handwritten version of the Agreement and none of the signatures are disputed.
• The shareholders who signed the Agreement own 99% of the outstanding shares. Since a majority of ConnectU’s shareholders have agreed to the transaction, the consent of Howard Winklevoss is unnecessary to make the Agreement binding on him.

Regarding ConnectU’s claim of fraud regarding Facebook’s valuation, Judge Ware wrote,

Apparently, in October 2007, Facebook and Microsoft issued a press release stating Microsoft would “take a $240 million stake in Facebook’s next round of financing at a $15 billion valuation.” (Parke Decl., Ex. J.) Defendants proffer evidence that subsequent to the press release, in the regular course of its operations, Facebook’s Board of Directors determined a value of the company’s “shares” which was different than the valuation disclosed in the press release. (Declaration of Robert T. Clarkson ¶ 11, filed under seal.)

Defendants do not challenge the accuracy of the press release itself. Thus, there is no claim that the statement in the release was not true when it was made. (Declaration of Ted Wang in Support of Plaintiffs’ Confidential Motion ¶ 2, filed under seal.) Plaintiffs do not deny that the Facebook Board of Directors made a subsequent valuation of Facebook shares which was a different value from the value Microsoft attributed to the company. However, Plaintiffs did not make any representations or warranties in the Agreement about the value of Facebook common stock.

Morever, it is undisputed that the shares the parties agreed to exchange in the Agreement and the shares involved in the Microsoft’s transaction are of different classes. Accordingly, the failure to disclose the difference in the valuations cannot be fraudulent as a matter of law. Further, the Agreement does not attribute a specific value to the outstanding shares of Facebook’s stock; there is no admissible evidence that Plaintiffs made any such representation while negotiating the settlement. Rather, the only representation evident from the Agreement is the number of fully diluted shares which Facebook currently has outstanding. (Parke Decl., Ex. A.) Defendants have failed to show that this representation was false or that there were any other misrepresentations made by Plaintiffs upon which Defendants could have justifiably relied.

Finally, Judge Ware concludes,

In sum, the Court finds Defendants have failed to establish that Plaintiffs made a misrepresentation during the negotiation. The individual signatories to the Agreement are sophisticated business parties who were represented by reputable counsel at the mediation. Either party could have chosen to condition the financial exchange being negotiated on representations and warranties of the value of the stock involved or to conduct their own due diligence with respect to Facebook’s valuation. Neither party chose these courses of conduct.

Basically, ConnectU tried to get out of the deal, fire its lawyers, and settle for more cash and stock, and the judge told them it was too late.

Responding to the decision, Facebook issued the following comment:

We are happy that Judge Ware enforced the agreement settling our dispute with the ConnectU founders.  ConnectU’s founders were represented by six lawyers and a professor at Wharton Business School when they signed the Settlement Agreement.  The ConnectU founders understood the deal they made, and we are gratified that the Court rejected their false allegations of fraud.  Their challenge was simply a case of ‘buyers remorse,’ as described by the Boston Court earlier this month.

We were disappointed that we had to litigate the settlement, as we believed we were caught in the middle of a fee dispute between ConnectU’s founders and its former counsel.  Nevertheless, we can now consider this chapter closed and wish the Winklevoss brothers the best of luck in their future endeavors.

We’ll see if ConnectU is done or if their new counsel wants to press the matter further.

Facebook’s 2nd annual F8 developer conference is coming up in less than a month, and registration is now open.

Developers can register before July 7th for the early-bird rate of $150. After July 7, the price will be $250. Some student tickets will also be available for $50.

Here are the event details:

• When: Wednesday, July 23rd, 2008, 12:00 - 8:00 pm
• Where: The Concourse at San Francisco Design Center
• Address: 635 8th Street (West Entrance), San Francisco, CA 94103

Also, if you’re interested in exhibiting at or sponsoring f8, you can email the Facebook event team at f8exhibit@facebook.com.