Facebook playing hard to get with Yahoo

Constance Loizos
San Jose Mercury News
Matt Cohler (left) sits with Mark Zuckerberg, founder of in their office in Palo Alto, California, August, 26, 2005. (Karen T. Borchers/San Jose Mercury News/MCT)

While YouTube and Google got hitched after a quick flurry of negotiations, Facebook, another hot Internet start-up, is going through a more agonizing courtship.

SAN JOSE, Calif.--While YouTube and Google got hitched after a quick flurry of negotiations, Facebook, another hot Internet start-up, is going through a more agonizing courtship.

Search giant Google and online video upstart YouTube agreed recently to a $1.65 billion union after a week of talks. But Facebook, the popular social-networking site, is apparently nowhere close to an agreement with Yahoo, despite monthslong talks and widespread anticipation about the pairing.

Negotiations first stumbled when Yahoo's falling stock made it harder for the search giant and Facebook to agree on a price that Yahoo could afford, reportedly between $800 million and $1 billion.

But another obstacle, say people familiar with the situation, has been Mark Zuckerberg, Facebook's 22-year-old founder, chairman and chief executive, who has already rebuffed several suitors and isn't prepared to sell the Palo Alto, Calif.-based company unless some conditions are met, including price and control after a sale.

One of the most widely watched young entrepreneurs since a 22-year-old Marc Andreessen co-founded Netscape Communications in 1994, Zuckerberg exerts a remarkable amount of control over the company, which sources say is "fundamentally pretty far apart" from Yahoo at this point. He is still Facebook's largest shareholder despite two rounds of venture capital funding, and is, according to associates, very much calling the shots.

PayPal co-founder Peter Thiel, a Facebook board member and its first investor, said that "Mark is not focused on selling quickly. Some people get nervous about the boom and the bust and maybe the boom again; not him."

"People like to characterize Mark as nonchalant," added Facebook's 36-year-old Chief Operating Officer Owen Van Natta, referring to a widely circulated story that Zuckerberg won't schedule early morning calls or meet on weekends, regardless of the stakes.

"Mark would never blow off a call that needed to happen, and I've never known him to be inaccessible," he said. "He works very hard. Sometimes I have to step back from him and remind myself that he's not a 45-year-old."

However the Yahoo talks turn out, Zuckerberg's trajectory is already reminiscent of another tech star.

Like Bill Gates, Zuckerberg enjoyed a privileged upbringing and became interested in computers early on. Raised in Westchester County, N.Y., the son of a dentist and psychologist, he began programming at 10. Later, at the elite prep school Phillips Exeter Academy in New Hampshire, he began writing code, including a computer version of the board game Risk.

His next step was Harvard University, where he promptly transformed his dorm room into a start-up incubator, enlisting roommates Dustin Moskovitz and Chris Hughes to help. His first project allowed students to see who had enrolled in a given class; his second let them rate one another's class pictures on the Web. (School officials forced him to take down the site almost immediately.) The third was Facebook.

What followed changed Zuckerberg's life. Facebook -- an online directory of Harvard students that restricted anyone outside of the college from contacting users, and that let users be visible only to those they chose -- became a sensation.

Within weeks of its February 2004 launch, three-quarters of Harvard's undergraduates had signed up. By that fall, the site, launched at other campuses across the country, had 250,000 registered users.

The experience is addictive, says Danny Shea, a senior at Princeton. "If you overhear someone talking about so-and-so, you look them up on Facebook. Before you know it, 15 minutes have passed." Shea is not alone. "A new Facebook feature can become a campus talking point," he said.

It didn't take long for Zuckerberg to drop out of Harvard (like Gates), move West with Moskovitz and, later, Hughes (now Facebook's chief technology officer and lead spokesman, respectively), and dig in.

Fast-forward two years, and today Facebook, which has since opened its doors to high school students, has $38 million in venture funding, 150 employees and a $200 million advertising deal with Microsoft. And though the company won't disclose revenues or profits, sources say numerous media companies have come knocking, each interested in Facebook's now 9.5 million, overwhelmingly college-age, registered users.

Zuckerberg, who lives modestly and drives a dinged Infiniti SUV, has been misjudged at times. Said one person who is close to the company but asked not to be named, "Facebook's first offices (on Emerson Avenue in Palo Alto) were a little over-the-top. They were like little boys. They had video games installed in various places, and they'd hired a famous graffiti artist to paint the walls with Lara Croft-like characters."

Just last month, Facebook introduced a new feature that automatically distributed updates to members about the activities of their peers. Although the information had always been available on profile pages, Facebook users protested the move as an invasion of privacy, and within days, the company had apologized and agreed to turn it off.

Facebook's former president, Sean Parker, who had co-founded start-ups Napster and Plaxo, also quietly left the company this year, for undisclosed reasons. Said Van Natta of the split: "Sean continues to be a shareholder."

"It's literally baptism by fire," said angel investor and Facebook shareholder Ron Conway of Zuckerberg's past two years. "You have to figure out who you are going to take your advice from because you can't take it from everybody," he said. If you listen to "the wrong ones, you're dead."

So far, Zuckerberg has managed to chart his own course. "Many people recognize Zuck for being a technology `boy genius,' but I think what makes him more unique is his conviction," said Hadi Partovi, who first crossed paths with Zuckerberg in 2004; at the time, Partovi was managing Microsoft's MSN portal. "I've seen Mark make unpopular decisions in hiring and firing and in product design, but he pushes for what he wants. He has a strength of conviction that I've rarely seen, even among leaders twice his age."

Zuckerberg's convictions extend to treating his employees well. For example, despite Van Natta's protests, Zuckerberg pays a monthly stipend to employees who move to within a mile of Facebook's offices, where apartment rents are often extremely high. Catered food is brought into Facebook's offices daily. And in early September, Zuckerberg rented a tent at Shoreline Amphitheatre, providing tickets and food to anyone wanting to see the Dave Matthews Band perform.

Whether Zuckerberg is able to hang on to Facebook's audience should the site sell to another company remains to be seen. So does how long he has a choice about selling: Facebook has acknowledged that its hypergrowth has slowed, and high school students haven't taken to the site as expected. The company also plans to open its doors to anyone with a valid e-mail address, which may turn off loyalists.

Perhaps the biggest question, however, is whether Zuckerberg can work for someone else. That Facebook still reads "A Mark Zuckerberg Production" on each of its pages hints at more than his sense of humor.





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