By Brian Womack
Aug. 24 (Bloomberg) -- Facebook Inc. may expand its staff by 40 percent to 50 percent this year as it benefits from a surplus of engineers amid the recession, Chief Executive Officer Mark Zuckerberg said.
“No one else has been hiring,” Zuckerberg, 25, said in an interview. “It’s been a great environment for us because the economy has helped out.”
The world’s most popular social-networking website which has 1,000 employees, will build its workforce at a slower pace than typical startups, Zuckerberg said. Google Inc., the most- used Internet search engine, almost doubled its staff annually in the three years through 2005, a year after it went public.
Zuckerberg said he’s trying to keep a lid on costs, an effort to reach positive cash flow next year. In May, Facebook moved into a decades-old building in Palo Alto, California, that he calls “the bunker” -- with unfinished cement floors and fading stickers on the front door.
“The thing I want to remind people of is we’re way closer to the beginning than the end,” Zuckerberg said in the Aug. 20 interview. “A lot of times buildings can be a signal that you’ve made it. I would rather that our building feel much more like a very large garage.”
Facebook, which has grown to more than 250 million users, is still proving itself to potential advertisers. An IDC survey last year found users of social-networking sites were less likely than other Web users to click on ads or buy the item if they did, said Karstein Weide, a San Mateo, California-based analyst at the research firm.
“I’m a little bit skeptical,” Weide said. “They may have to stretch the money that they have -- both the investment and the revenue.”
Crane Stays
Facebook makes money from advertising and an online payment system for gifts that users buy on the site. Revenue should grow 70 percent this year from 2008, Chief Operating Officer Sheryl Sandberg said earlier this year. Board member Marc Andreessen said the company should post at least $500 million in revenue this year.
Started in Zuckerberg’s Harvard University dorm room in 2004, Facebook has tried to stay close to cash flow positive since its inception, he said. Prior to the move in May, employees installed much of the cable themselves in the new building, which previously housed Agilent Technologies Inc. An old crane remains in an eating area because it was too expensive to move out.
“The first servers that I had I rented for $85 a month,” Zuckerberg said. “We’d put ads on the site and then when I had money to get another server, I’d get another.”
Investments
The company has received investments totaling more than $600 million. Digital Sky Technologies, a Russian investment firm, paid $200 million for less than 2 percent of the company in May.
“We think of that mostly as a buffer,” Zuckerberg said. “We didn’t take that round of financing with any particular goal in mind.”
That deal valued Facebook at $10 billion. Digital Sky agreed to the valuation because it expects Facebook to lure more brand-name advertisers, Alexander Tamas, a partner in the investment firm’s London office, said in May.
Facebook employees still have perks. The company offers three free meals a day and there’s a basketball court and horseshoe pits behind the building.
Marketing Tool
J.C. Penney Co., the third-largest U.S. department-store chain, bought ads on Facebook earlier this month to draw users to its own page as back-to-school shopping got under way, said Nick Bomersbach, vice president of the retailer’s jcp.com. J.C. Penney’s Facebook page went from having about 22,000 “fans” to almost 500,000, he said.
“It’s a much more significant part of our marketing mix and it will continue to be a bigger part of our marketing mix,” Bomersbach said.
Nike Inc., which also advertises on Facebook, seized on the site as a marketing tool, said Stefan Olander, director of global brand connections. Nike’s page has a place where people who play basketball can schedule games.
“You create an entire environment,” he said. “We layer on top of that the filter of sports and what we know really well.”
Facebook made its second acquisition this month, agreeing to buy social-networking site FriendFeed to gain engineering talent. FriendFeed’s co-founders had worked at Mountain View, California-based Google on products including Google Maps and Gmail.
Billion Users
Zuckerberg said he aims to eventually have 1 billion users, though he declined to give a time frame. He said he expects social networks to become as essential as Web browsers and operating systems.
Facebook will see much of its future user growth outside the U.S., Zuckerberg said. The service can expand without buying other social-networking Web sites, he said.
“It’s just really neat to see the impact of what we and other companies are doing,” Zuckerberg said, citing the use of social networks in June by Iranian activists after the government was accused of rigging the presidential election. “That’s just something that I think would be an awesome platform to have across the world.”
COMMENTARY: I am impressed with all the hoopla regarding the successful results that J.C. Penney and Nike have gotten from advertising on Facebook, but how did sales do? I have tracked online social networking sits and trashed hem all, especially Facebook. A question that I have for that kid Zuckerberg is, "when are you going to start making a profit?". Fact is, I don't have a lot of confidence in revenue models that rely strictly on online advertising. In a previous post I indicated that for every dollar in revenues the big online social networking sites generate, it costs them $2.50. The failure of YouTube, MySpace and Facebook to make a profit off those ads, is proof that the ad revenue model is all wrong. No more excuses. Show me the money.
And what's this crap about personally being involved in hiring and site design and taking his time hiring new employees. Fact is, Zuckerberg knows he is in trouble. Under pressure to make a profit. He nows that increasing new hires will reduce the bottom line and increase his monthly cash burn rate. That $200 million he raised from that Russian VC firm is going to disappear real quick. And you know what they say about Russians, don't you. They always get their money. That's his real excuse for being so involved and sounding so nervous. This adds more fuel to the fire and supports my argument that Facebook may not make a profit anytime soon.
Courtesy of an article dated August 24, 2009 appearing in Bloomberg
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