PayPal to become a way to pay for Facebook ads

Mounting criticism has forced the social network to revert to its old terms of service.

Suleman Ali needed a change. So, in mid-2007, he left his programming gig at Microsoft to start a company--any company. On a whim, he wrote an application for Facebook, the social networking Web site, called Superlatives, which lets visitors rate their friends as the smartest, best-looking and such. It immediately caught fire.

"I basically started building it out of boredom, and people started noticing it three days after I launched it," says Ali. So did interested suitors: Nine months later, the 26-year-old sold his hobby-cum-enterprise, called Esgut, to Palo Alto, Calif.-based Social Gaming Network for "several million dollars" (he's not allowed to share the exact purchase price).

For all the troubles in the economy, the Internet continues to be a hotbed of innovation, entrepreneurship and, as development costs continue to decrease, stiff competition. Some of the most lucrative ideas have yet to hit the drawing boards. "I could almost make the case that the idea you think is really stupid is [the one that will] succeed," says Guy Kawasaki, partner at Garage Ventures.

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Ali financed Esgut, with an eight-employee roster, by selling advertising that runs alongside its applications. By the time he sold the business, the company's six apps had attracted some 14 million unique users. Now Ali is ready for round two. Despite the downturn, the young entrepreneur says he's in "brainstorming" mode with a high school friend and MIT graduate.

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Facebook has won a $873 million judgment against a Canadian man who bombarded users with millions of unsolicited messages about drugs and sex.

U.S. District Judge Jeremy Fogel signed the default judgment Friday, resolving a lawsuit that Facebook filed in August against Adam Guerbuez of Montreal and his business, Atlantis Blue Capital.

Facebook alleged that Guerbuez had fooled users into revealing their passwords so he could send out more than 4 million messages that included promotions for marijuana. Guerbuez could not be located for comment.

The Palo Alto, Calif.-based company predicted the judgment will be difficult to collect, but is hoping that its size discourages future abuses at its site.

As gloom descends on Silicon Valley, most startups and giants are growing cautious and cutting back. But not Facebook. The social-networking Web site sees a bleak economy as all the more reason to press ahead with aggressive plans for growth. "This is not the time for tech companies to be cutting back; this is the time to be hitting the accelerator," says Peter Thiel, a Facebook board member and investor.

Facebook executives think they can use the economic downturn to gain ground on the competition. So they're going to great lengths to keep user growth on track in these rough times. The company is gearing up for more acquisitions, hiring rapidly, and rolling out new advertising programs. Rather than trim the site's development costs, Facebook has engineers cooking up versions in languages such as Xhosa, Tagalog, and French Canadian to go after niche audiences around the world. "We're in this game not just for five or 10 years," says Sheryl Sandberg, Facebook's chief operating officer. "We're in it for 20 to 30 years."

To fuel growth, the company asked the Securities & Exchange Commission earlier this year for an unusual exemption. Typically, private companies that exceed 500 shareholders must start disclosing their financial results publicly. (This is the law that helped push Google to go public in 2004.) Facebook is approaching that threshold, so the company asked the SEC for a waiver that will allow it to keep hiring and handing out restricted stock without public disclosure. The SEC granted the request on Oct. 14. That will help the company reach 800 employees by the end of the year, up from 400 at the close of 2007.

The company is even reducing its revenue goals to pull in more users. In January, founder and CEO Mark Zuckerberg said Facebook was shooting for revenues of $300 million to $350 million this year. But this spring, Zuckerberg and his board lowered the revenue target to $250 million to $300 million, say sources familiar with company finances. Thiel says engineers were shifted away from ad programs to concentrate on fresh features, languages, and other projects that will boost user growth. Even as the economy has weakened in recent months, Facebook has decided to stick with its spend-now, profit-later approach. "We still think it's a land grab where we have to try to get to scale first," says Thiel.

It's a gutsy strategy, increasingly rare in Silicon Valley. Last month, prominent venture firm Sequoia Capital gave a presentation to its startups titled "R.I.P. Good Times," which argued that companies must cut costs fast to survive. One Power Point slide included a skull-and-crossbones and the words "death spiral" to show the likely fate of startups that fail to come to grips with the new reality. The Sequoia view has become accepted wisdom among Valley venture capitalists, leading to layoffs at scores of companies.

Facebook isn't yet profitable. But Thiel says the company can afford to be aggressive. It has raised about $500 million and is "slightly cash-flow negative," Thiel says. At its current burn rate, he says, the company has enough cash for three or four years. "If we stopped growing, we could make money, but it makes no sense for us to stop growing," he says.

Facebook's strategy stands in contrast to that of rival MySpace (NWS). Part of Rupert Murdoch's publicly traded News Corp. (NWS), MySpace has dialed back on growth to focus on profits. Over the past year the site has expanded modestly, to 118 million users, while Facebook has more than doubled in size, to 161 million users, according to research firm comScore (SCOR).

Dustin Moskovitz

Mr. Moskovitz founded the social-networking Web site with Mark Zuckerberg, who is now Facebook's chief executive, while they were both students at Harvard University several years ago.

Justin Rosenstein, a Facebook engineering manager, will also leave the company to join Mr. Moskovitz in starting a new software business. In a message left on Mr. Moskovitz's Facebook page, the two said they have been working on software for business users and wanted to incorporate the software into Facebook.

"But at some point it became clear that doing so wouldn't be good for Facebook or for us," he wrote. Mr. Moskovitz wrote that he sees the new venture as complementary to Facebook.

Several other executives have left Facebook over the past 18 months, including Owen van Natta, who served as chief revenue officer and chief operations officer; Adam D'Angelo, its former chief technology officer; and Matt Cohler, vice president of product management.

"Dustin has always had Facebook's best interest at heart and will always be someone I turn to for advice," said Mr. Zuckerberg in a statement.

By Brandon Griggs
CNN

(CNN) -- Anytime you tinker with something that millions of people use daily, you're going to upset some folks. Remember those redesigned $20 bills a decade ago -- the ones people said looked like Monopoly money?

Scott Sanders began an online petition protesting the new Facebook. It now has more than 1.5 million names.

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That may explain why Facebook's new makeover is sparking strong opinions -- hysteria, even -- among the more than 100 million users of the popular social-networking site.

More than a week after Facebook began forcing users to its redesigned pages, a backlash is still rippling through the online community.

"The new version is cluttered and there's no continuity to it," Valerie Stayskal of Addison, Illinois, told CNN. "I don't like the tabs they've got. When you get to the news feed, you see all these fonts, and it's just a mess. Very hard to navigate."

"Some of these [changes] just seem kind of pointless. The reason I joined Facebook is because it was simple and easy. Now they're just making it more complicated, and I really don't like that," said Kyle Aevermann of Gilbert, Arizona, who sent his complaints to CNN in an iReport video. "I just wish they would have kept it how it was." iReport.com: Watch Aevermann's Facebook review

Facebook's new look separates users' personal profiles into different areas of the site and provides more tools meant to make it easier to share information and photos. The changes also shift users' applications to the bottom of their home page and create more white space -- a move some users fear will lead to more ads on the site. iReport.com: What do you think of the new Facebook?

Facebook unveiled the makeover in July and let users decide whether to switch over to the new format or keep using the old one. But that transition period ended almost two weeks ago, when Facebook eliminated the previous version. Users logged on to the site to discover the information on their personal profiles had been rearranged.

"We are just beginning the process of moving people over to the new Facebook and saying goodbye to the old Facebook," wrote Mark Slee, product manager for Facebook, in a September 10 blog post on the site. "We set out to make Facebook simpler, cleaner, more relevant, and easier to control. With your feedback and participation ... we believe we've gotten to the best Facebook yet."

But many users don't agree.

In the past week, CNN has received more than 200 unsolicited e-mails from people complaining about the new Facebook. Several online petitions are circulating that urge Facebook to give users the option of returning to the old format. One, Petition Against the New Facebook, was launched by Scott Sanders, a student at Austin Peay State University in Clarksville, Tennessee, and has more than 1.5 million names.

"Facebook was once the classy alternative to MySpace. Now it's the classy girlfriend you once loved, but you begin to feel distant from because she wants to move into your house and tell you what colors to paint your walls and how to arrange your furniture," said iReporter Sara Campbell, 26, of Louisville, Kentucky. "You're given an ultimatum -- marry me or it's over. I wonder how many of us will give into the demands?"

Many other users defend the new Facebook, saying they find it better organized and easier to navigate.

"Quit your whining. It just takes time to get used to. You just have to be patient," said iReporter George Topouria of Tbilisi, Georgia. "I actually like the new design. It may seem to be giving less information on one page, but at least it doesn't take a century to load."

"When a company like Facebook doesn't change, it leaves open the possibility that one of countless other social-networking sites will make the changes that Facebook didn't," said Zack Colman, 24, of Los Angeles, California. "For those of you who don't think the Facebook system was broken, consider how hard it was to sift through all of the applications on someone's page before finding the relevant information you wanted. Or even just to write on their wall. Now, what you want is right in front of you."

In a September 18 blog post on the site, Facebook co-founder Mark Zuckerberg said that almost 100 million people around the world are now using the new design.

"It's tempting to say that we should just support both designs, but this isn't as simple as it sounds. Supporting two versions is a huge amount of work for our small team, and it would mean that going forward we would have to build everything twice. If we did that then neither version would get our full attention," said Zuckerberg, who launched Facebook from his Harvard University dorm in 2004.

"That said, Facebook is a work in progress," he said. "We constantly try to improve things and we understand that our work isn't perfect. Even if you're joining a group to express things you don't like about the new design, you're giving us important feedback and you're sharing your voice, which is what Facebook is all about."

The recent makeover isn't the first time Facebook has seen its users protest a change to the site. In 2006, the Palo Alto-based startup angered users by introducing a tool called "news feeds" that automatically broadcast users' personal details.

That furor eventually waned. Facebook is counting on this one subsiding as well.

"The new Facebook may upset a lot of people at first, but eventually we will get used to it and probably enjoy it more than we used to," Colman told CNN. "I'm sure in a few weeks everything will die down and in a few months everyone will have forgotten completely about the old Facebook."