Captioning sponsored by Rose Communications from our studios in new york city, this is charlie rose. Rose we want to talk about facebook, social media and the digital revolution. Ken auletta is here, he writes for the new yorker magazine. His column the annals of communication extensively covers the tech giants of Silicon Valley. In july he wrote a profile of Sheryl Sandberg called a womans place can Sheryl Sandberg upend Silicon Valleys maledominated culture . Tonight well look at where facebook stands, the recovery from the highly disappointing i. P. O. , the move towards mobile technology, the enduring concerns about privacy and the competition with google. I am pleased to have ken auletta back at this table to talk about that before we show you an interview i did with Sheryl Sandberg and Marc Andreessen whos on the board of facebook. We begin with this question, though. Where is facebook today after all the controversy about that i. P. O. Theyre in a very strong position. Theyve got over a billion users in the world. That two months ago it was 900 million users in the world. So theyre growing. And theyre not yet in china and other parts of asia. So they are in a nice growth trajectory. Their revenues are rising. Not as fast as some people would expect them to and theres real questions about that. As the world moves to smart phones and away from desktops and people access social Networks Like facebook on their mobile devices, will you be able to monetize it . Will you be able to create ads . You cant do a display ad, take up the whole screen, you cant interrupt a phone call or email message, so what is the form of advertising you will have for facebook that will allow them to generate income. Thats a big question that looms out there and they would acknowledge they dont know the answer. They would say we are very confident, we can do this. Its a question mark. But is there revenue growing . Yes. Is there user growing . Yes. Is their stock lower than it was when they did the i. P. O. Coming in at roughly rose 38 but now down to 23 and it got lower to 16 or 17. Its inching up. But i think wall street is a poor barometer of how a company is doing. Its very yes occupied short term considerations and if they see the growth has slowed or someone is taking money away to invest in the future they tend to punish the stock. And that doesnt make sense. And Mark Zuckerberg like steve jobs, like jeff bee soz, like the google guys is someone who believes in investing in the future. Rose theyre also founders who are still running the companies they founded. And one of the questions is is the founder always the best person to run a company . Steve jobs was not and he was replaced and then he came back. He was a very different c. E. O. When he came back, much more able. But the google guys had to bring in eric smith and Mark Zuckerberg had to bring in Sheryl Sandberg and thats a very normal thing that happens in these companies. The founders have to sometimes they have division t vision, the passion, the brilliance but they dont have the managerial skills. Rose what happened in the i. P. O. . I think they let it get out ahead of them. I think they were too bullish, too optimistic about how well it was going to go and let wall street persuade them that, oh, we can do it at this price and they couldnt. And people say and then there were glitches in the way rose but no one doubt it is leadership of zuckerberg and sandberg . No, i think they are solid. He is a guy who acknowledged mistakes in the i. P. O. He is a man hes brilliant. He knows what hes doing. Hes got the passion, he stays behind it. He understood that he was not a manager and he brought her in and shes a good manager and very good with people which is not always his skill and not always his skill with a lot of these founders, including all the name wes just mentioned. So i think they are a nice team. If you watch them together they are literally this table apart from each other, you know, side by side in an office and they talk all day long. Rose many people look at sill von cali and beyond and they say theres a great competition, this race going on between google fasz book, apple, and amazon and sometimes microsoft because they have so much money and you have to throw in samsung. Rose samsung now because of consumer problems and theyre products and theyre having some success and weve seen the increasing prevalence of the android model. Tell me where that race is and what are they racing for . Well, everyone is racing for dominance. Rose dominance in what . They want to dominate your screen. If your platform is the mobile phone, the smart phone, if its a tablet, if its a desktop, whatever your platform is, they want to do b the tom nant force on it. So then the question becomes do you have to own the system in order to dominate the way apple was . The way microsoft does . The way google with android does. I mean, google has a much bigger market share than the iphone does in terms of both what in terms of powering both ipad and iphones, mobile phones and tablets. But google made a different decision than apple. They said were going to give market share by giving it away. Rose gain market share by giving it away. Yeah, right. And were going to give it away. So samsung, you want to have an operating system for your smart phones . Use the android. And its a very good operating system. So they have it. And google says what are we going to get out of that . They said in the short term were obviously Google Search is going to be prominent on those smart phones and our search growth will rise and it has, by the way, theyve grown because mobile rose theyve got a huge lead. 70 almost. A. B, they say at some point as they did to figure out how to make money in 2001, at some point well come up with a way to monetize this. That is the same view that Mark Zuckerberg has at facebook. Were going to put it out. Weve got a billion people, a billion users on facebook, well figure out a way, just as google did in 2001 with ad words and ad sense, those little ads on the righthand side that generate over 40 billion a year. And well figure out a way to do it. And, you know, will they . You know, maybe. And maybe not. But with that mass audience theres a good chance they will. Rose heres whats interesting to me. Theyre getting in each others businesses. Totally. And sometimes they cooperate. I mean, samsung take google and samsung. They cooperate. Android is providing the operating system for samsung. Android helps with amazons operating system. And yet, you know, theyre competing. Facebook you say, well, theyre a social network, they dont compete with search but what is a like button on facebook . Rose steve jobs died about a year ago. Cook is running the company. Some say theyre operating the ideas that steve jobs has in the pipeline. But are people confident that apple will continue to be the Great Company it was . Because theres been some decline in their stock price, although i accept your idea wall street knows nothing about technology. I mean, theyre still a Great Company and think about they introduce the product and how quickly they get it to market and they meet the consumer demand for that. So i would not i mean, is Tim Cook Steve jobs . No, who is steve jobs . Steve jobs was this rare creature. But does that mine because hes gone and apple is gone . A lot of people that steve jobs recruited still run that Company Including tim cook. Rose including eddie, including the design genius that we love. And whos gaining more responsibility, by the way. But they all are people they wake up every morning when youre jeff bezos and Mark Zuckerberg or tim cook at apple or c. Balmer at microsoft or larry paige at google, they wake up every morning and they say what is samsung doing . What is microsoft doing . What is google doing somewhat is facebook doing . And even though they cooperate with some of these i mean, think about here google is a major partner of samsung and a major reason for samsungs success. Yet if youre samsung and you say why did google buy motorola . Thats a competitor of mine what are they doing with that . And google says i have a great relationship with jeff bezos, he was one of our early investors. Then they watch your show and they say oh, my god, hes going to create a cell phone rose he has a different attitude about tablets. Hes not so much interested in how many kindles you buy is hes interested in you having a kind sol you can access these other things that he sells. Rose hes done two things. Thats one thing that was in retrospect brilliant and, again, goes against the grain of wall street. Why arent you concerned about your margin . Apple has this great big fat profit margin on each ipad. Rose high price items comparatively. And by a soes says no, no, im not interested in just buying books, i want them to buy clothing and barbecues. B, the second thing he does, which is really unbelievable, when he introduced the new round of kindles, not the last round, the one before that and he did it at a price point several hundred dollars below apples ipad. People said it wont work. Well, he proved he was right. In fact, price did matter. And kindle sales rose because he was offering it for 200 bucks or a hundred bucks. Different models. So he understood that. Give him credit. Rose what interests you most out there today. I mean, youve been there early and often. Im interested in a number of things. If im interested and i discovered this doing the google book in 2009 engineers are content creators and a lot of people in capitals like new york dont understand that, the important of the engineer. And in the interview you do with mark andreessen, who will say software is eating the world. But the flip side of that is also true. Theres an arrogance to those engineers. A belief that software is easing the world and that we dont need your professional content, we can create it ourself. Well, you two discovered they needed a professional content in order to take off so they started buying professional content. Thats what amazon is doing or making their own. Rose and, in fact, they had some concerns about the locally created content on youtube and they ended up creating channels for everybody. Im also interested, charlie, its a subtheme of what weve talked about here. When you go out here and spend time with a be it a Mark Zuckerberg or steve jobs or larry paige, there was a palpable passion that these people have, almost a religious belief in what they are doing and its very hard to prove. Its very hard to prove that Mark Zuckerberg will have the kind of monotyization success that he heralds. But he believes you. And that passion that drives these companies, its quite extraordinary to watch it. Rose all right, let me introduce the two characters well see in this interview that i did several months ago here in new york. Sheryl sandberg we mentioned. Very bright, former chief of staff to Larry Summers at treasury. I guess maybe even worked at the world bank. She did. Rose and then went to google and then went over to facebook, hired by Mark Zuckerberg in a famous courting that took place to get her on board. Then she began to steal some of the people from google, didnt make her much loved at google correct. Rose then theres this great silicon character named Marc Andreessen who developed, originally, netscape software. Who is he . Well, marc the browser which is essential tool to navigate t internet was invented by a couple of students laughs in illinois. Rose university of illinois. So he was recruited by jim clark to work at netscape and create the browser for netscape which it did. And then microsoft saw that, oh, my god, this browser could replace our operating system. And weve got to put them out of business. Which led to the antitrust rose which you wrote about. Okay. So andreessen leaves netscape several hundred Million Dollars richer, maybe a billion dlars richer and goes to work for a. O. L. For a period of time which bought netscape and then created a company that does very well and then created a series of companies that does very well. He becomes a kind of fixture in Silicon Valley. He joins the board of hewlettpackard, he joins the board of ebay and now hes also on the board and a major mentor to Mark Zuckerberg and facebook. So he is and now hes created this Venture Capital firm that, unlike some other Venture Capital firms, actually rolls up its sleeves and get involved in helping the c. E. O. S, the founders manage their companies. So hes a big figure. Rose so here is a conference in which i moderated in which the two guests were Sheryl Sandberg and Marc Andreessen. Take a look at this and when we come back ken and i will look at some of the things they said. Rose i want to begin with marc and have him sort of lay the ground work in terms of where advertising meets social media. Sure. So the big thing i think thats happening in the industry, were 35 years years into the president clinton, 20 years into the internet, five years into the smart phone and for the first time were now over two billion people on the internet. We have a billion smart phones worldwide. Were on our way to five billion smart phones worldwide. Weve got just tremendous enthusiasm for from users using all these new services, people love the internet. At one point that was seriously in question. It turns out people do like the internet. And theres just theres such a powerful global phenomenon going on wiring up the world and putting the internet in everybodys hands. Its the culmination of the payoff all of us in the industry have been doing for decades. In a lot of cases going back to the 1950s and 1960s with the creation of the computer. So theres a tremendous number of things working and its fantastic to see whats happening all around the world. We have the fundamental sort of challenge, question still in sort of advertising land, media land which is, of course, most of the marketing money is still trapped in my view on the wrong side of the analogtodigital transition so we have consumer adoption, radical consumer adoption of the internet and new forms of media and online video and everything else. We still dont have most of the advertisers and money. Most advertisers moved online and we have both a challenge and opportunity as an industry to have that transition happen. Which has been promised for a long time. Its a very exciting time for that. Rose before we talk about mobile, move to platforms youre familiar with. Evening into what will they did with search when you were there and pioneered that but how you see the future as advertising does complete this transition as users move to platforms, so did do advertisers and so you went from radio to t. V. And obviously the print generation and then online. We think facebook and social media represents the next phase of online Media Advertising opportunity and very much in its infancy. When you think about the fact that most marketers have been marketing for a long time and theyre good at it but most of the marketing is to large anonymous groups of people. Its a relationship which is one business to many consumers all at once. Those consumers are anonymous. Those advertisements are one time and one way. I pay to show you an ad, i have to pay to show you an ad for next time and i dont know who you are nor do i establish an ongoing relationship. What we are at is the beginning of changing that. We are the largest and most engaged community of people anywhere in the world and that gives businesses an opportunity to transform their relationship rather than just talk at large groups of anonymous people, businesses can relate to a consumer and establish an ongoing relationship and importantly that consumer has an average of 130 friends there so when theyre talking to that consumer that person brings their friend along. Marketers have talked about word of mouth for a very long time. This is word of mouth and its made possible by real identity on line and on mobile devices in a way we havent seen before. Rose and the transfer and the evolution fortomobile devices, what are the impediments and the challenges for facebook and how are you measuring where we are today . Googles a huge opportunity for facebook. As marc said, there are about to be five billion phones. And when you think about what facebook is, facebook is an opportunity for users to share something or marketers to reach users. If those opportunities only happen on your desktop, they can only happen so many times per day if five people are carrying around billions of people are carrying around social devices in their phones. The engagement opportunities for us are obviously much, much, much higher. Already we find the average user on facebook, the average mobile user is 20 more likely to come back on a given day. So what we find is mobile users are much more engaged and that forms the basis for modernization. But then the next question is what format should the ads take. If you look at most ads online, they have the property that theyre kind of on the righthand side, not just on our site but lots of sites. Most sites around the web. Theyre also the form factor of what that site is and when those forms get collapsed and off mobile screen, that creates a big challenge for that. Facebook, we are very focused on putting ads into news feeds in a way that gives marketers a great return and continues to drive User Engagement. Rose but does it in any way make the user unhappy . Were measuring this really carefully. What were looking at is User Engagement with news feed. We measure it with and without ads. We also measure engagement with advertising content and nonadvertising content and weve been very pleased with the results. We get realtime feedback from our users. They can let us know what theyre doing and how engaged they are with news feeds. The nice thing is while we havent seen a degradation on the user side, weve seen a real improvement for marketers. So compared to ads on the righthand side, our ads are eight times more engaging when theyre in news feeds and the ad recall is ten times. So that means that for us we have a mobile product thats quite a mobile ads flaukt naturally fits into the mobile ecosystem and the mobile format and enables us to deliver on noble the unique way. Rose has monetization been slower than you expectd . Monetization is an evolution. I think we see ourselves at different points along the curve with different marketers. We have marketers who have bn working with us from the beginning or very aggressively in the last couple years. They understand they cant do the same ad campaigns like they do for a mass audience when theyre reaching real people and seeing and were increasingly able to prove that to them. Then you have other people that either havent tried it or maybe havent tried it as effectively or havent worked as well and with those people were helping them understand that social advertising is different. Rose how do you prove it . With data. Its the only way to prove things. Its been an interesting met mortar foe sis for us. So the first one anyone asked about facebook is does anyone even see the ads . Facebook ads are small and they fit into our u. I. Versus other ads have home page takeovers and people were worried no one even saw them. So weve done over 500 studies with nielsen and weve proven now that p. M. C. Them. Our ad recall is about two times greater than anything else online and our grand awareness is about 30 higher. So we know p. M. C. The ads. So this year were really working on showing marketers the value they get. That its not just that p. M. C. The ads its this we ring the cash register. Our director of analytics spoke just yesterday and he talked about weve done about 60 studies looking at how people that have seen ads, people in have seen facebook ads and what happens to sales and the returns are great. 70 of the ad campaigns from v a 3x or better and 49 have 5x or better. Rose what do you Tell Companies what want to make the transition . Whats your advice . I think theres a bigger opportunity. One way of looking at the question is how do you go from desktop to mobile, how do you adapt . Theres a different question i think about a lot which is there are going to be opportunities in mobile that have never existed before and it will take time to discover what they are. But for the first time with smart phones we have a computer were going to have a computer in everybodys pocket. Were going to know where people are. Well know a tremendous amount about people. Well know where theyve been, whether theyve had lunch that day. Were going to know where they like to eat. Were going to know where their friends are. I think its a very powerful concept. Rose is all this good . I think its good. Let me explain to you why i think its good. Theres a very powerful concept in media and marketing which is the best advertising comes as content. The best advertising is added to the User Experience, not neutral and certainly not negative. Rose slow up on that. The best advertising is counted as content . Meaning they dont know difference between an advertisement or news . When you buy both rose or entertainment. A very large number of people who buy vogue are buying it in large part for the ads. If you like fashion, you read the ads. People watch the super bowl for the commercials. The commercials are so entertaining. Rose but is that actually happening in this im coming to it. laughter im coming to it. Im coming to it. Google has always had the property that the ads if youre shopping for something, the ads are content on google. If you intend to buy a digital camera and search a digital camera it is value added to your search experience that youre getting the ad because you have an indication of who is willing to pay to get you as a customer and theres some implication that theyre probably a credible vendor if theyre willing to go on google to get you. There is the opportunity on mobile. Social ads are very exciting already from the standpoint that they can be useful, but theres a bigger opportunity on mobile to intersect a lot more with what a person is actually doing in their day to day life. So the idea that i like to play around with is the experiment of im walking down the street and youre having lunch at whatever fancy media place you hang at out. And youre sitting by yourself rose thats likely, too. Cbs just let you go for the day, 1 30 in the afternoon and youre sitting there eating by yourself and im walking by and lets say im lucky enough or you want to be my facebook friend. Then i get a bing and its like, oh, your friend charlie is having lunch inside this restaurant. Come in and sit down and join him and youll get 30 off your meal. And that would make total sense to the restaurant because its a seat that hasnt been filled, they might as well fill it. So there you have like a triple win scenario. You have somebody to have lunch with you, im able to get something to eat, the restaurant gets to fill the empty seat. So these things are only possible when you have the Situational Awareness of what have the user is doing, when you have to mobile form packtory, you have to computer in your pocket, you have the merchants connected in and you think creatively about how to apply all that. Rose is the argument that its better to have recommendations from friends than from the crowd a selling argument for you . Absolutely. Its been the hallmark rose has it been proven . Its been proven. Yeah, i think it has. I think you ask people first of all, they do surveys all the time of who do you trust and people always answer their friends. How do you make purchasing decisions . With most products people answer their friends. Then the question is can you make that part of peoples daily lives . Can you take the opportunity for people to share information from their friends . And it works. Another recent example, best western. They run a spring ad promotion every year advertising for people to, you know, take vacations. They did one this year and they did a facebook app and the facebook app allows you to create your dream vacation and your friends and family on facebook can see it. Their sales went up 20 year over year and they attribute that to facebook because that was the only thing that was different about that campaign and that makes sense because vacations are better with your friends, right . It makes sense if youre going to think about going on vacation that you would invite other people and they would get the idea to go, too. Rose project mobile forward. Where are we going . Were going to a level of ubiquity that weve never had before. Its never been possible to have these technologies with us all the time and have them at our fingertips. The smart phone itself has decades to play out. This is going to be one of the most important things our industry has ever done and theres a huge amount thats going to happen. Rose like . I mean just the power ultimately the power of a fully connected supercomputer in your pocket. I think smart phones are going to replace video games are going to move entirely online, videos will move entirely online, a lot of that will come in through the smart phone so these will be the central devices in our lives. Then theres another couple powerful concepts on top. These will be the control devices for other things in their life, including the big screens. So i think apples air play indicates the future whereof this is going which is if you want to watch t. V. You call up a show on your phone and you project it on to whatever screen happens to be nearby. And its a completely different way of your phone is not only your remote control, your phone is the origin point for the show. So i think all the big screens in our lives will be controld from these devices. The other thing thats going to happen is theres a new generation of devices, wearable computing. And thereserly example of this with jawbone, our company has the health up, nike has their fuel band and google has the google glasses and i think theres going to be an assortment of Consumer Products that were literally going to wear and that will feed us information and react and do things for us and i think the smart phone is the hub for those devices as well which is very exciting because as it becomes socially unacceptable to check your email during a meeting on your smart phone, you can look at your wristwatch. Rose thats why hes in Venture Capital. I for one cant wait. Exactly. Rose what new products should we expect from facebook beyond what you have said after the i. P. O. , our focus is on mobile and monetization. What new products especially in ecommerce . As you said, were increasing our investment in monetization our primary focus is on advertising and mobile so youre seeing rapid innovation from us. Since the i. P. O. Weve rolled out mobile app ads already which means you can advertise to get a user to install a mobile app and they can do it from their phone. That goes to marcs point to something you wouldnt have thought about. There werent mobile apps a few years ago and now we think theres going to be a huge ecosystem, an advertising ecosystem that we think were very positioned to be central to around mobile apps. Youve seen from us already things that help advertisers and marketers connect to the right customer at the right time. From the Facebook Ad Exchange to custom audiences. Thats just the beginning. As businesses are able to give customer what is they want at the right time and let them invite their friends you can see the possibilities and were thinking about broader categories. Last year we were talking about facebook gifts. Has someone sent you a gift yet . Rose no. We have a whole audience here. Lets have someone send charlie a gift. Rose im lonely thats why i was having lunch alone. laughter he was eating lunch alone, he has no gifts. Rose so tell me this. When facebook looking at marketing and looking at the way you saw the world evolveing have you guys made assumptions that did not significantly that did not turn out right . Did you make bets that surprise you because they were not what you expected . The big one mark just spoke about recently during his tech crunch interview which was betting on haiti million 5 and Spending Energy building a product called face web where we were hoping we could deliver our products to the mobile world really with one platform and thats the mobile web and that was the wrong bet. At least for now we think it may happen. We sort of weve now moved to native apps because we can get the performance and thats a good example. Rose youre on the board. What else . Oh, i dont know. I mean, look, these companies at least my standpoint being an investor in these companies, you want these Companies Taking risks. Its really hard. When Tech Companies turn conservative and stop making bets because theyre afraid somebody is going to say what did you screw up . Thats when they go sideways. So if the hit rate is greater than 5050 theyre probably taking enough risk. Mark zuckerberg has a great phrase which is theres two ways to fail. One way to fail is that you dont hit your plan. The second way to fail is that you hit your plan and your plan wasnt big enough. And if you actually look at it, most Companies Fail the second way. They fail the second way their plans are too conservative and they hit it quarter after quarter as they slide out we want to make sure that our plans are big, bold, aggressive and risk taking enough that theyre big enough to achieve the growth we want to achieve for our company. Rose what did you mean im not sure i got this quote right but Something Like this. Software is eating marketing. Yup. Rose what does that mean . The bigger one is software is eating the world. Forget marketing. Eating the whole world. Rose well, i was thinking of the audience. So software is eating the world and will leave what kind of world behind . A software world. A very, very exciting world with lots of programers. laughter rose so everybody should everybody can redeem their risks all day. Rose would you want your children to grow up and be Software Programs . Absolutely. Oh, yeah, no question. laughter first they learn chinese and then software programming. Hes actually a little bit of i sent my son, hes seven, to tech camp at stanford and 35 kids, sevenyearolds, 30 boys and five girls. Rose so tell me how software is eating industry its the result of the fact that weve put computers in so many places. That businesses run on computers, that were all going to have computers in our pocket so we can imagine in every business in every industry and every sector what would it be like. I mean, the thought experiment i like to run is what if the team at facebook actually said im now going to go transform education. Im going to transform health care. Im going to transform government. Im going to transform law. Or in this case im going to transform marketing. So we have the chance of performing the kind of innovation and Software Development that weve gotten good at in the computer industry for computer applications and applying much more broadly. This is a big change in the computer industry itself and this is a very big change in Many Industries that are being essentially effected or transformed. Retail is a big one. Right now in the process of software is eating retail and marketing is right for it and theres a huge progress in software base marketing in the last 20 years. But theres another big innovation that is right to happen right now. Which is marketing becoming a software becoming enabled and powered through applications. So what would you most like mark . Ill begin with you. People in this audience who come here marketing as advertising geniuses to understand about the revolution that you know a whole lot about . What is your take away from what you have to say . I think its were on the tipping point, the convergence of smart phones, the convergence of social networks. And most marketing most marketers, most companies, most agencies are not yet taken advantage of and the next three years, i mean, its sort of a cliche but its true. The next three years will see transformation and change than weve seen in the last ten or 15 and that was a good time for experimentation and innovation. Youre selling user information, correct . Absolutely not true. We wont sell it to you; we wont sell it to anyone; we wont even sell it to marc and hes on our board. I want to talk about that. Rose notice how quick that is a misconception . I appreciate it but we never sell user information. We dont make more money when you share more and we do not give your information to marketers we have systems that enable marketers to serve the right ad to people at the right time. As mark said, when adds are good users want them more theyre a good experience. Im getting an offer or opportunity i want to go to. When ads are bad people dont want them. I think when p. M. C. An ad thats targeted sometimes theyre nervous like how do they snow are they giving away my information . Rose or is it an invasion of my private any and all of those are fair questions and our answer to that is no. Rose so its not an issue that you have not had to be concerned about every new Technology Brings fears around the invasion of privacy. My favorite example is when caller i. D. Came out it was considered a ginormous invasion of the callers privacy that you would know who i am when im calling you. States california and others tried to pass legislation banning caller i. D. How many people answer a call and we see the number. Hands . I see no hands. That was originally considered an invasion of privacy and it is now considered your basic right to have information. Rose marc, people often talk about this competition. Sometimes its the big four. Apple, google, facebook, amazon. Sometimes its apple, google, facebook, amazon and microsoft. One central fact to me is that they seem to be getting in each others business. Is that the future . laughter so theres a lot has to do with software programers which is software programers tend to assume they can write any software. So every the hardest company to sell a piece of soft swir the Software Company and Software Companies tend to be the most aggressive about invading each others spaces and the great thing about software is its mutable. So what will determine the winners . I think the best rose the best software . The best products. And is it the history that whoever got their first, social media will prevail because they will constantly make Better Software we believe they have . Witness google, facebook i dont think any of us were first. Rose subpoena that right . Yeah. Rose google wasnt the first to search for sure. And we werent first rose so if its not being first with good software, whats the secret to success . Execution and innovation being willing to continually it rate. So you look at what is social networking, friendster was long before facebook and myspace. But what we did and did well and its to marcs credit and our engineering teams is we continually innovate our product i think an important thing is a willingness to defer gratification. So facebook, many of these other companies that become very successful businesses its the cliche. Read about a lot in what used to be called the newspaper that these companies are run by a bunch of kids and they dont know how to make money and they wont ever make money and facebook will be able to monetize and search will never be able to monetize and this whole internet thing. Rose and its all falling apart. And dont these guys know they have to run their own business, they have to have real customers. And when these things are big successful businesses its like, oh, wow, that was a fluke. So thats the way the narrative gets told and its Something Different that happens behind the scenes which is getting the product right. Getting the User Experience right. Getting the r d engine right. And then expanding out and building the business and building the company and expanding the new areas. And so this is the why did facebook win. Partly it was overmonetized. They underinvested in r d and overinvested in advertising and mark from the very start was focused on user value first. And so by a soes is a perfect exam . Jeff takes it a step further. Jeff actually says amazon is not in business to have a profit margin. Rose laughs its very interesting. Amazon is only in business to have profit. So he cares about dollars and profit not margin of profit and so hes willing to go basically eat businesses, including his known pursuit of the right User Experience with the full intention of having profitability out the other side but not near term optization. Rose google owns motorola. Do you want to own a phone . A smart phone the . The hardware . Were not building a p. Mark said that recently. The important thing us is that we want to be on every mobile device, on every operating system carried in everyones pocket in the world. And were the number one free down loded app on i. O. S. And android. For us its the horizon that matters. The vertical depth is important but what matters is any phone in the world runs facebook. And we work hard at that. We are partnered with enormous number of people around the world and its been integrated into nine million web sites and mobile apps. We want to be integrated everywhere and thats super important for people to be able to connect to each other. Looking at the industry as a whole and whats happened in i. P. O. , you had an i. P. O. , didnt you . Did we . Rose well come to that in a moment. Do you worry about any kind of whats going on here in terms of value and the way the market looks at whats happening . Im thinking of groupon and other things. Ill probably dodge all the companies . Why because you invested in them or people will get mad at me. And then i have to eat lunch by myself. laughter so because of you i may not have the that situation ever again. So were in an era tech stocks havent traded this low relative to Industrial Company in the last 30 years. So were seeing an era rose theres no bubble. Not even a tiny little bubble. We had the bubble it was in 2000. Rose but there have been worries about that. Theres been worries about how do you make valuation. Everybody worries about the bubble when theres no bubble. When theres a bubble they stop worrying about the bubble. Because theres no bubble. laughter rose the cycle the whole theory is that everybody becomes convinced its rational. Nobody in 1990 very few people everybody says they were saying bubble in 1999 and they werent. Everybody was panicked they were getting left behind. Its become harder to be a public company. You need to be a Strong Company to be a public company. Rose speak to the experience of the yip owe. Mark talked about it, i talked about it. It didnt go as expected. We were surprised and disappointed. Rose do you know why . There are so many people who are willing to talk about it. So many people. I havent met anyone or seen anyone without an opinion on this. I think people think oh, my god, all of facebook must be ined at thered because this has been so hard in the press. And while certainly people were disappointed, Silicon Valley companies, we cycle quickly. What is a short period to the rest of the world to us feels like an eternity because we it rate so quickly. So were good at moving forward. We launch products, some of them work, we launch the next product. If you look at our innovation which is what the Company Looks at in the last four months its as strong or maybe stronger than any period. Rose so you can say the loss of market value, whatever it is, 30 billion or more, does not affect the operation of the business one bit . It hasnt affected our operation or the innovation. Look at what weve launched. Since that time weve launched a large number of new ad products that are increasing. Weve launched a new mobile application which is we were just talking about it its great. Engagement is up all around, all around, all around. All around the new mobile app so were happy with the progress were making and were really happy that people believe in our future. Valuation for people working in a company is what they believe will happen in the future not the past. Mark zuckerberg had me as guest speaker at the all hands a couple months ago. This one was the first one that opened with a standing ovation for the c. E. O. Of i a company. I never got a standing ovation. A lot of c. E. O. S go through their entire careers and never get a standing ovation. Rose so what excites you most about the future . There are always rumors about you . You get a lot of attention. Mark does, too, but you are you going to be there . Are you going to stay there or are you going to be enticed to go other places . Like washington. I love my job and im staying. I love what we do. What excites me is we have 950 Million People on facebook. Those people share and Facebook Changes your life. Rose if we come back five years from now what we will be talking about . Hopefully not president crash of the great tech bubble of 2012. laughter that would be rose that makes you wrong. That would be extremely embarrassing. laughter which wouldnt be the first time. My motto is often wrong, never in doubt. Rose i know a lot of people like you. laughter rose it could be the title of your show. So i think it will be the unanticipated consequences of these changes happening. Rose i agree. Its going to be exciting. Rose you . Just look to the future and fantasize about it. I think its going to be about real people connected. You know weve never had this kind of connectivity and weve never had this kind of connectivity with it being real people. Things are better when theyre social. Meaning i enjoy things more with my friends and people are more authentic with real names. You look at a web site that before had anonymous comments. Look at anonymous comments compared to comments where people are logging in with facebook or real names. A lot of categories, people are higher quality, better engagement because its who they are. I think we are at the very beginning of what will be i think a different type of ability to communicate and thats exciting. Were very social beings. People want to share. Rose there it is, this conversation in which we talked to Sheryl Sandberg and Marc Andreessen. Take me back to what they said about me having dinner at michaels at their suggestion and people would know i was there. What are the issues that raises . Well, first of all, the assumption that they made in discussing that is that Marc Andreessen is walking by michaels restaurant, youre having lunch there alone and that someone from michaels would call him on his cell phone and say your friend charlie rose is having lunch, would you like to join him . And he says great idea ill join him. But what did no one think to ask . Did you want to be joined . Did anyone ask your permission . Rose an invasion of my privacy. And from there they talk about ideal vacations and sheryl is talking about oh, my god, you can go on this vacation and create your own ideal vacation and you can share it with your friends and they can come along. Well, what if you dont want your friends to come along . Rose andreessen and sheryl raised a big question which is when will Digital Advertising reach the levels of analog advertising . Its a really big issue. One of the things you encounter all the time in Silicon Valley is this frustration that they have such a large audience of people on facebook or google or whatever yet they dont get a comparable share to what t. V. Gets of advertising dollars. I was at a Conference Last Week where tom rogers, the head of tivo, is talking about tivo use and one of the things he said that was stuning is that 65 of the people who who watch prime time shows on tv they record them, they skip to the end. Yet the advertiser is paying for an audience that watches it on tivo or on television. At some point the Advertising Community is going to start asking harder questions. And at that point there might be and i suspect there will be a major shift of ad dollars away from traditional media to digital media. Rose everybody, everybody agrees that the smart phone is the device of the future. I agree. They talk about in the interview with the five billion smart phones. I was in india recently rose theres only 7. 3 billion people in the world. Were so dependent on it and its so easy. Think about how it changes everything. Its always in your hand and as Marc Andreessen said to you, its a computer in your pocket. So if you want to search your internet, do email, make a phone call, look up something you want to watch a video, play a game, its in your hand. And your hand could be a smart phone, a tablet, but its portable and it follows you everywhere. It just changes everything. Then the questions become how to monetize that. Can you we know how to do a t. V. Ad in television, right . We know how to do an ad in a Movie Theater when you go in and you sit there and whens the movie going to start. But its primitive how youre going to do an ad on mobile. And thats something that everyone is experimenting with. Rose you know what else is exciting about all of this . Its how its changing our world beyond miniaturization its how its changing our world and all the questions that gives expression to about cyber terrorism, about hacking, abut privacy blts, about emails, all the stuff that came out of the petraeus story. Charlie, were in were thee thing we are experiencig more change than at any time in our history and the internet is a big driver of that. I mean, ive had delicious arguments with people in the valley over the years where they say has there ever been a more Disruptive Technology than the internet . I say what about electricity . You wouldnt have internet without electricity. Rose but they say its becoming electricity. It is. And whats different is electricity took a long time to reach 50 of the american people. The internet, 20 years. And its a dominant technology. And from that Technology Everything is happening so fast. Five years ago we didnt have a smart phone. Just think of it. Now theyve got five billion. Rose and the amount of power in a smart phone compared to your desktop. Rose its just amazing. And the whole world of applications which are presenting themselves. So so rose making life easier but also more complexes, the choices you have to and one of the things that one of the difference between people and the valley is the difference between the truly arrogant who believe they have the answers and the people who only pretend to be arrogant but dont have the answers, know they dont have them. And if you talk scratch the surface of Mark Zuckerberg, if you scratch the surface with Marc Andreessen you have to scratch harder, hes a brilliant guy. But he tends to be certain of or seemingly certain. But when you scratch deep with these people, theyre all scared. Theyre scared of change. Theyre scared of how what new technology is going to come along thats going to disrupt their Current Business model. I mean, think about google. Google has this great search engine. Theyve been challenged by yahoo , by microsoft, none of it has worked. Well, along comes two things that you see that are out there now potentially. One is the like button on facebook. Oh, my god. Its how much more effective is a search than with my friend. And then you look at apples sirry. Sirry, tell me what restaurant i should go to that has good italian food or indian food in the neighborhood . And i dont have to get a thousand answers from google. I get one or two answers by voice from siri. So these are all things that they sit there and theyre nervous about. And if theyre good they should be nervous. Rose its a good job you have, following this stuff in the annals of communication. Its work. Rose every couple of years writing some big book. Its a good life. But you meet interesting people, too. Rose thank you for coming. Thank you for joining us. See you next time. Captioning sponsored by Rose Communications captioned by Media Access Group at wgbh access. Wgbh. Org this is n. B. R. Tom im tom hudson. Earlier than ever thanksgiving store openings have workers speaking out, how black friday sales starting on thanksgiving day are affecting labor re