There’s lots of criticism going around about Facebook’s monetization strategy, and in a similar vein, it’s pretty common to criticize startups that grow without worrying about revenue. But venture capitalist and Facebook board member Marc Andreessen said today that’s looking at things the wrong way. In fact, he argued that great companies have one thing in common — “a willingness to defer gratification.”
Andreessen, along with Sheryl Sandberg, was interviewed on-stage by Charlie Rose at the IAB MIXX advertising conference. He said it’s common to complain about Facebook and other new companies by saying that they’re just run by “a bunch of kids,” “Facebook will never be able to monetize,” and that “it’s all falling apart.” Then these companies turn into big businesses, and the critics say, “Wow, that was a fluke.”
What’s actually happening, Andreessen said, is that before worrying about monetization, companies are focusing on getting other things right, namely the product, the user experience, and “the R&D engine” that allows them to continually improve. For example, he said that Facebook beat Myspace because the older social network “over-monetized,” while at Facebook, Mark Zuckerberg was always “focused on user value first.”
Amazon CEO Jeff Bezos takes that even further, Andreessen said. He quoted Bezos as saying, “Amazon is not in business to have a profit margin.” Sure, the company needs to make a profit, but that doesn’t mean worrying about “the near-term optimization of every case.”
Earlier in the interview, Rose asked Sandberg if Facebook was monetizing more slowly than expected, to which she responded, “monetization is an evolution.” The company is at “different points along the curve” with different advertisers, she said, with some of them still trying to understand the Facebook ad model and others grasping. “They can’t just do the same ad campaigns” as they would in other media.
Andreessen and Sandberg also talked about the need for Facebook to take big risks rather than stand still.
Update: Andreessen elaborated on this point during the press Q&A after the interview. The fact that Facebook delayed its IPO for as long as it did is also an important form of delayed gratification, he said. Andreessen (jokingly) noted that in the past, Internet startups went public “early and often,” but now an IPO is “a really big deal.” That higher bar isn’t great for the stock market itself, he said, but it actually has benefits for the companies. They can operate for a longer time without the scrutiny and pressure facing public companies, and then go public when they’re “in a position of strength.” That’s going to be “a big decision” for a lot of the current generation of Internet startups, he added.
Facebook is the world’s largest social network, with over 1 billion monthly active users. Facebook was founded by Mark Zuckerberg in February 2004, initially as an exclusive network for Harvard students. It was a huge hit: in 2 weeks, half of the schools in the Boston area began demanding a Facebook network. Zuckerberg immediately recruited his friends Dustin Moskovitz, Chris Hughes, and Eduardo Saverin to help build Facebook, and within four months, Facebook added 30 more college networks. The original...