Facebook, a social site, has a suitor

Mark Zuckerberg is a member of the Google generation, one too young to remember all the ambitions dashed and fortunes lost when the last dot-com boom ended.

That may be one reason Zuckerberg, the 22-year-old founder of Facebook, a social-networking Web site, has so far shied away from selling his company, rejecting offers that would have made him several hundred million dollars.

"We're focused on building the company for the long term," he said Thursday.

When Viacom offered $750 million for Facebook in January, he asked for $2 billion and was rebuffed, according to a person involved in the negotiations. Now, he remains undecided about the latest offer, made in the last few weeks by Yahoo. That offer, first reported by The Wall Street Journal, was confirmed Thursday by two industry executives, one briefed on the deal by Facebook and the other by Yahoo. Both spoke on the condition of anonymity because the negotiations are continuing.

To woo Zuckerberg, Yahoo has offered about $900 million for Facebook and says it will keep the company somewhat independent, with Zuckerberg in charge. This has been its model with other acquisitions like Flickr, a photo-sharing site, and Del.icio.us, a social bookmarking service that lets members share lists of their favorite Web sites.

"A lot of people say there are problems with having a 22-year-old CEO, but one thing that is good about it is that he doesn't remember the boom and the bust that followed," said an adviser to Facebook. "That has distorted the thinking of a lot of people. If they have a good product or service, they sell way too early and they don't stick with it."

The adviser spoke on the condition of anonymity because of the sensitivity of ongoing negotiations.

Zuckerberg, through a spokeswoman, declined to comment on any potential acquisition offers.

Money, at least so far, does not seem to draw him. He lives in a barren apartment in Palo Alto, Calif., a short walk from Facebook's office. He only bought a stereo recently at the request of his girlfriend.

"Mark is the kind of guy you worry needs to get other things in his life," said David Sze, a partner with Greylock Partners, one of Facebook's venture capital investors.

By all accounts, Zuckerberg is motivated by his passion for his invention, which he created less then three years ago as a Harvard undergraduate. The site quickly became an electronic bumblebee, pollinating many American colleges with gossip, flirtation and news of the next fraternity party.

He said the minimalist design sensibility of Google, and also Apple, influenced how Facebook should look.

"I can remember the time when Yahoo was the coolest company, but for me and a lot of people my age, that is how people feel about Google," Zuckerberg said in an interview earlier this month.

He also modeled his management style as Facebook's chief executive on that of Google's founders--Larry Page and Sergey Brin--as well as Steve Jobs of Apple Computer.

Zuckerberg keeps tight control over the company's activities. He still writes some of the site's program code, designs most of its features and represents the site in public.

And he has been able to keep an unusually high share of the stock in Facebook, giving him the dominant say in its fate.

For Yahoo, an acquisition of Facebook would solve many problems. Yahoo has been trying, with little success, to build its own social networking service called Yahoo 360. Its brand is not seen as relevant by younger people, something the company has been trying to fix. Most of all, its growth has been slowing, increasing the gap between Yahoo and Google, which has become the largest Internet company.

"Yahoo is losing its grip on the younger demographic," said Jordan Rohan, an analyst at RBC Capital Markets, who said he thought that Yahoo should buy Facebook, even at a high price. "It needs to buy its way out of this."

Yahoo itself has been inconsistent about its pursuit of Facebook. It made an offer last summer, then withdrew it in July, the day after it announced disappointing second-quarter earnings. And Yahoo, which has prided itself on financial discipline, is still unsure exactly how much it wants to pay for such a small business. Facebook will have revenue of less than $50 million this year, according to two people briefed on the company's finances, and hopes to take in more than $100 million next year. It has been profitable.

A similar problem faces many large companies these days, both traditional media companies that want to follow their audiences online and older Internet companies that want to reverse their slowing growth. They are interested in buying some of the new crop of Internet companies that have emerged in the last two years. Many of these, from YouTube, the user-contributed video site, to Digg, a news site, have attracted large audiences but little revenue.

In some cases, the larger companies are willing to gamble on growth--as eBay did when it bought the Skype chat service last year for $2.6 billion. But in other cases the asking prices of the entrepreneurs and the offers of their potential acquirers have failed to line up.

For Facebook the key question is whether it will be able to find ways to weave advertising into its site in a way that its audience will accept.

Its larger rival, MySpace, is on a track to do so, spurred on by the News Corp., which bought it last year. Google recently agreed to pay MySpace at least $900 million over three years to sell text and banner advertisements on its site.

Facebook has recently made a similar but smaller deal with Microsoft. And it is working to create special sections, called groups, for advertisers. But Zuckerberg's focus on uncluttered design, like that of Google, is keeping the advertising on each of the site's main pages far smaller than on MySpace.

Much of Facebook's hope for growth rests on a planned expansion beyond its core audience in the college market. Sometime soon, it will open up membership to anyone in the world, a change that may alienate its existing members, who have become used to its exclusive college-only atmosphere.

As students returned to campus this fall, Zuckerberg introduced a new feature meant to give users easier access to what they wanted most from the site. When they log on, they see an up-to-the-minute list of everything their friends have done on the site: made a new friend, posted new pictures, even declared their allegiance to a political cause.

For many users, this took the site, which was already tending toward voyeurism, to an unacceptable extreme. And by the hundreds of thousands, they used Facebook itself to organize a mass protest.

Two days after the changes were introduced, Zuckerberg came back to a hotel room after a day of press interviews, and at 1 in the morning, made final tweaks on hastily conceived changes to the new feature. The next afternoon, after just a few hours of sleep, Zuckerberg joined a live discussion with hundreds of Facebook members.

He read their comments while sprawled on a hotel bed, wearing gym shorts and a T-shirt, tapping on a computer while propped up on his elbows. Some members told him they liked the new features or appreciated the modifications, but many expressed their anger in the sort of sharp words the Internet fosters.

"Wow," Zuckerberg muttered, as he read one particularly personal comment that began "Mark Zuckerberg is a pretentious Harvard" and ended with an expletive.

"Normally I talk to people, but not everybody at once," he said. "It's a bit overwhelming."

Then after a pause, he added, "It's neat."