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 comp