Stephen’s Posterous

The Accidental Billionaires is author Ben Mezrich’s version of the founding of Facebook, the social network website.

Mr. Mezrich entered the spotlight seven years ago with his story of a group of Massachusetts Institute of Technology students who employed a blackjack card-counting strategy to siphon millions of dollars out of Vegas casinos. The book, Bringing Down the House, was excerpted by Wired magazine, and later turned into a move called 21.

Mr. Mezrich wrote the "The Accidental Billionaires" without ever speaking to Mr. Zuckerberg, who refused to cooperate with the project. This did not stop the film rights to "The Accidental Billionaires" from being purchased before the book was finished.

The story of Facebook’s growth since its founding is worthy of telling. It is one of the more remarkable tales of the digital era. As a college student, Mark Zuckerberg quickly realized that what he had started as a girl rating prank had potential as an online meeting place.

Mr. Zuckerberg along with a handful of other computer-science students first developed Facebook as a Harvard-only network where students could post photos and information about themselves, link to one another’s pages, and form groups based on shared interests.

But Facebook gradually expanded to include other colleges, then allowed high-school students to join as well. In 2006, two years after incorporating, the site was opened, at no cost, to anyone 13 years or older with a valid email address.

Facebook now has more than 250 million members around the world. The privately owned company has been valued as high as $15 billion.

Readers of "The Accidental Billionaires" will gain as little sense of the drama in the company’s rise as they will of Mr. Zuckerberg role in the story says reviewer Paul Boutin of The Wall Street Journal.

Mr. Boutin says that the book is filled page after page of Mr. Mezrich going on about hot girls," the only kind that matter to his cast of Harvard undergrads. The book also speaks of Mr. Zuckerberg as a genius, but Mr. Mezrich does not provide examples illustrating this genius in action.

One aspect of the story that Mr. Mezrich has down is the reverence that Harvard graduates like himself hold for the place.

The Accidental Billionaires by Ben Mezrich
Doubleday, 260 pages, $25

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VentureBeat reported that angel investing partners Marc Andreessen and Ben Horowitz have finished raising money for supposed $300 million venture fund, nicknamed Project A, according to an article in BoomTown that cites "numerous sources close to the situation."

The fund will invest between $200,000 to $1 million in a company, with $500,000 as typical investment. These would most likely be young, web-focused companies.

Mr. Andreessen, who co-founded Netscape and build-your-own-social-network startup Ning, first announced the fund in an interview on the Charlie Rose Show.

In the interview on the Charlie Rose show, Mr. Andreessen said that “our claim to fame is, we’ve actually, you know, by entrepreneurs for entrepreneurs, we’ve done it, we’ve been on that side of the table for a long time; we know what it’s like.”

Mr. Andreessen’s angel investments include Facebook, Digg, Twitter, and LinkedIn. Other backers for the fund include institutional investors and other Silicon Valley luminaries.

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Facebook Inc. announced that Digital Sky Technologies, a Russian Internet-investment group, has invested $200 million in the social-networking company, which represents almost a 2% equity stake at a $10 billion valuation as reported by the Wall Street Journal's Venture Capital Dispatch.

The Wall Street Journal first reported the offer on May 23, 2009. The article stated:

Digital Sky Technologies, a Russian Internet-investment group, has offered to invest $200 million in Facebook Inc. at a $10 billion valuation for the company's preferred stock, according to people familiar with the matter.

Venture Capital Dispatch said that Digital Sky is run by Russian businessman and Internet investor Yuri Milner. It owns pieces of a number of Russian Internet properties, including Russia’s largest Web site, Mail.ru, and a Polish social-networking site.

VentureBeat said that on a conference call with reporters on May 26, 2009, Mark Zuckerberg, the CEO of Facebook, said this about Digital Sky:

One of the things that’s most interesting about [Digital Sky] is in their portfolio they have a large number of social networks. Each is able to monetize in different ways but all are effective.

Yuri Milner, chief executive of DST, said on the call via VentureBeat about the reason he invested in Facebook:

We have a unique perspective on this investment because we see something that other people don’t see, because we see the monetization profiles of our other social networks. We’re fanatic believers in social networks. We’re investors in five in Russia and Eastern Europe — an area with 250 million people. Only 60-70 million are online. Facebook has a much bigger audience, while we have expertise in building smaller sites.

Russia has world-class programmers. Vkontakti [Ed. a site that launched as a Facebook clone] has launched features like search that have made it a top search engine in the country. Micropayments are also working. For example, a small number of people are willing to pay a lot of money for value-added services, like registration.

Venture Capital Dispatch ended by writing:

The company [Facebook] is forecasting revenue growth of at least 70% in 2009, putting revenue around $500 million or more, according to people familiar with the company's finances. The social network, which has more than 200 million active users, expects to be cash-flow positive in 2010, according to these people.

Leaving Twitter by David Gelles, FT.com

The incessant media focus on Twitter, coupled with a parade of celebrity endorsers from Oprah to Lance has excited enormous public interest in the micro-blogging service. Eager to see what all the fuss is about, millions of people around the world are signing up to send their first "tweets". Unique users of Twitter grew by more than 100 per cent in March, and are now estimated at 14m.

But it turns out most of those users are determining that the fuss isn't about all that much, after all. A full 60 per cent of new Twitter users fail to tweet again the following month, according to David Martin, Nielsen vice-president of primary research.

Mr Martin makes the case that this strikingly low 40 per cent retention rate poses a significant obstacle to Twitter's long-term success. "A high retention rate doesn't guarantee a massive audience, but it is a prerequisite," he said. "There simply aren't enough new users to make up for defecting ones after a certain point."

Comparing Twitter with Facebook and MySpace, Mr Martin notes that when today's two dominant social networks were emerging, their retention rates were twice as high. "When they went through their explosive growth phases, that retention only went up, and both sit at nearly 70 per cent today," he said.

As Facebook adapts its service to mimic many of the most popular features of Twitter, these numbers give good reason to think that Facebook, with its 200m users and robust retention rates, has little to fear from the flurry of interest in Twitter.

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Taking Helm at MySpace by Jessica E. Vascellaro, WSJ.com

When Jonathan Miller, News Corp.'s chief digital officer, phoned Owen Van Natta to finalize his appointment as chief executive of MySpace last week, Mr. Miller offered the dealmaker the sort of job he had been seeking ever since he was elbowed aside at Facebook Inc. last year, people close to him say.

As the 39-year-old Mr. Van Natta sets out to turn around MySpace, Facebook's closest competitor, he can draw on more than a decade of Internet experience, including several years at Amazon.com Inc., where he hammered out partnership deals.

But MySpace, with more than a thousand employees and flat user growth is a challenge unlike any Mr. Van Natta has seen. His mission, handed down to him by his new boss, Mr. Miller, who joined News Corp. earlier this month, is to jump-start growth and recapture some of the buzz that MySpace once generated, people familiar with the matter say.

MySpace, based in Beverly Hills, Calif., remains the largest social-networking Web site in the U.S., but the gap is closing fast. In March 2009, it attracted 70.1 million unique U.S. visitors, down 3.6% from a year earlier, according to comScore Media Metrix. Meanwhile, Facebook, which has surpassed MySpace in world-wide users, grew 72% to 61.2 million unique U.S. visitors.

Mr. Van Natta, known for a blunt style that has caused friction with co-workers, is walking into an organization that analysts, advertising executives and former executives say has lost its focus and become bloated. Pali Capital analyst Rich Greenfield predicts massive cost cuts will be needed to align MySpace with its revenue. A spokeswoman for MySpace declined to comment.

People close to Mr. Van Natta say he has just begun digging into details of the Web site's operations. They say he has been reviewing organizational charts, and has some ideas to simplify the site and place more emphasis on its technology.

Mr. Van Natta is keeping his roughly 0.5% stake in Facebook, according to people familiar with the talks, a move recruiters say is fairly common in the tech industry, where executives frequently jump from company to company. A Facebook spokesman declined to comment on Mr. Van Natta's keeping his stake.

Conscious of his lack of technical experience, Mr. Van Natta has begun narrowing the field to choose a senior product person, say people familiar with his thinking. They expect him to hunt for engineering talent within Silicon Valley, where his family will be based for now.

Mr. Van Natta isn't likely to turn MySpace into another Facebook, these people say. He views Facebook more as a communications channel and MySpace as a destination, where people come to entertain themselves by discovering music and meeting new people, they say.

The executive landed at Facebook in 2005 following an introduction by Silicon Valley investor Ron Conway, among others. At the time, the site was a small group of mostly 20-somethings seeking an experienced hand to help them negotiate partnerships. Facebook Chief Executive Mark Zuckerberg brought Mr. Van Natta on as vice president of business development, promoting him to chief operating officer five weeks later, according to people familiar with the matter.

He focused first on recruiting. He also solicited bids for the role of third-party advertising provider, helping seal a crucial alliance with Microsoft Corp. But over time, his hard-driving personal style, an asset at the negotiating table, aggravated disagreements between him and Mr. Zuckerberg, who is also know for a stubborn streak, say people familiar with the matter.

The two sparred in 2006 over Facebook's refusal of a nearly $1 billion takeover offer from Yahoo in 2006, which Mr. Van Natta had helped negotiate, according to people familiar with the matter.

Mr. Zuckerberg told Mr. Van Natta that he felt he needed to build out his management team and wanted him to take on a different role, according to two people familiar with the matter. In August 2007, Mr. Zuckerberg made him chief revenue officer and elevated several other executives to a similar rank.

Mr. Van Natta played a key role in negotiating a new round of financing in 2007. At a dinner in his Palo Alto, Calif., home with Mr. Zuckerberg and Microsoft CEO Steve Ballmer, Mr. Van Natta played hardball, say two people familiar with the meeting. Soon after, Microsoft took a 1.6% stake in the company in a deal that valued Facebook at roughly $15 billion.

Mr. Van Natta left the company in April 2008, telling friends and colleagues he was leaving because he always wanted a chief executive job and was tired of the erratic schedules of 20-somethings, according to these people.

He chilled out in Santa Cruz, grew a beard and made a few small investments in start-up companies, friends say. He turned down an opportunity to head MySpace Music, say people familiar with the matter. Instead, in November 2008, Mr. Van Natta became CEO of music-streaming site Playlist Inc.

Mr. Van Natta continued to weigh other possibilities. He interviewed with News Corp. Chairman Rupert Murdoch about the chief digital officer position, according to people familiar with the matter. Several weeks later, after Mr. Miller was named to that post, he started conversations over dinner with him about the MySpace chief executive job.

Emily Steel contributed to this article.

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Napster founder Shawn Fanning's newest brainshild by Alex Pham, LATimes.com

Mention the name Shawn Fanning, and most people still picture a kid in his dorm room at Northeastern University in Boston, cooking up Napster, a file-sharing website that let users trade songs for free and triggered a financial tsunami in the music industry.

Fanning, now 28 and living in San Francisco, is not only long out of college, but he's also moved on to his third company, Rupture. His second one, music licensing company Snocap, was sold in April 2008 to Imeem Inc., a social networking site. This third venture is related to one of Fanning's personal passions: games.

Pick any year between 2009 and 1989, when he played his first game, the Legend of Zelda on the Nintendo Entertainment System console, and Fanning will tick off a list of hot titles for that year. Most people mark their lives by major events; Fanning marks his by the releases of new games.

He started Rupture in 2006 to help gamers find out what their friends are playing and connect. He sold Rupture in June to video game publisher Electronic Arts Inc. for $30 million. But Fanning remained at the San Francisco start-up to see his newest brainchild through to launch, which is expected this summer.

Founders Step Aside at MySpace by Juia Angwin and Emily Steel, WSJ.com

The founders of MySpace are leaving the helm of the pioneering Web site that made social-networking a mainstream phenomenon, as owner News Corp. seeks to reinvigorate the once-hot property it scooped up four years ago.

The stepping aside of Chris DeWolfe and Tom Anderson, whose contracts weren't due to expire until October, represents a pivotal test for the viability of social-networking sites. While social-networking sites such as MySpace and Facebook have exploded in popularity in recent years, they have struggled to generate the kind of revenue and earnings prospects that can sustain them as businesses over the long haul.

News Corp. now aims to show that a large conglomerate, with a portfolio that includes many old-media properties including newspapers, can succeed at that task.

People familiar with the situation said News Corp., was completing a deal to name former Facebook Chief Operating Officer Owen Van Natta as chief executive to succeed Mr. DeWolfe. He would report to Jon Miller, the former AOL chief executive who was recruited to join News Corp. this month in a newly created position of chief digital officer.

Charged with all News Corp.'s stand-alone digital properties, he was particularly given the mission of shoring up MySpace. Spokeswomen for News Corp. and MySpace both declined to comment beyond a news release. Messrs. DeWolfe, Anderson and Van Natta couldn't be reached for comment.

News Corp. sees MySpace as critical in its transformation from a conglomerate of traditional television, movie and newspaper businesses to a new-media titan. But while MySpace grew quickly following News Corp.'s purchase, last year its revenue fell short of executives' targets, according to people familiar with the matter. News Corp. also owns Dow Jones & Co., publisher of The Wall Street Journal.

MySpace is still the dominant social-networking site in the U.S. But its U.S. audience has fallen this year. In March, MySpace attracted 70.1 million unique visitors, down 3.6% from a year ago, according to comScore Media Metrix.

Meanwhile, Facebook is nipping at its heels. Facebook surpassed MySpace's world-wide audience a year ago, and is growing fast in the U.S., with 61.2 million unique visitors in March, up 72% from a year earlier. Facebook also has made international expansion a priority, pressuring MySpace.

More broadly, MySpace, like other social-networking sites, still must overcome doubts about the medium's viability. Advertisers, for one, remain leery. "Advertising doesn't fit so neatly into a conversation that people are having among themselves," says Tom Bedecarre, chief executive of independent digital-ad firm AKQA. "The interruptive model of advertising hasn't been successful."

MySpace was founded in 2003 by Messrs. DeWolfe and Anderson. Their email marketing division of a Los Angeles company called eUniverse, which later renamed itself Intermix, was floundering, so they imitated a popular site at the time, Friendster.

They made two key improvements on Friendster: They allowed users to customize their profile pages, and they allowed users to create any identity they liked. Friendster, like Facebook today, encouraged members to use their real names.

But just as MySpace was taking off, fueled in large part by its popularity with musicians, it was sold to News Corp. MySpace's parent company, Intermix, negotiated the $650 million deal directly with News Corp., leaving the MySpace founders out of the loop until the last minute.

News Corp. Chairman Rupert Murdoch immediately sought to mollify the founders with lucrative two-year pay packages of $30 million each, but Messrs. DeWolfe and Anderson still chafed at the fact that MySpace ad sales were taken over by executives at Fox Interactive Media, according to people familiar with the situation.

The rank and file of MySpace was also angry that their stock options were canceled after the acquisition and that they were forced to move from Santa Monica to Beverly Hills, the people said.

Relations fell apart further. Mr. DeWolfe ignored suggestions from Fox Interactive Media President Ross Levinsohn about ways to improve the site. Mr. DeWolfe also sought to amend a $900 million advertising deal that News Corp. cut with Google Inc., delaying its implementation, the people said.

Mr. Levinsohn also clashed with Mr. Anderson, who is president of the site. Mr. Anderson controlled the product development and was criticized for not moving fast. In April 2006, MySpace bought the online karaoke service kSolo. MySpace launched the karaoke feature on its site in April 2008, two years later.

The tension between the MySpace founders and News Corp. eventually led to Mr. Levinsohn's dismissal in November 2006. He was succeeded by his distant cousin, Peter Levinsohn, who eventually gave Mr. DeWolfe control of the advertising sales at MySpace that he had sought.

All this time, Facebook was steadily gaining on MySpace. Founded by Silicon Valley computer programmers as a social network for Harvard students in 2004, Facebook expanded to other college campuses and opened to everybody in 2006. Facebook focused on building innovative features and encouraging third-party software developers to write applications to run on Facebook.

Meanwhile, MySpace, with its marketing and music background, fought back with entertainment, such as a celebrity news site and an expensive music joint venture.

Last April, Facebook edged out MySpace in terms of world-wide unique visitors and has continued to steadily gain in the U.S. Three top MySpace executives, including Amit Kapur, former chief operating officer, left the company in March to work on a start-up. MySpace has yet to name successors for those positions.

Mr. Miller began discussing the job with potential candidates including Mr. Van Natta, but hadn't finalized anything when the news of the talks leaked, according to people familiar with the situation.

Mr. Van Natta helped expand Facebook but stepped into a less prominent role as chief revenue officer as the site grew, ultimately leaving the company in February 2008. At MySpace, he could serve as a bridge between Silicon Valley and MySpace, which has struggled to match Facebook's technology prowess.

Hearing of the talks, Mr. DeWolfe offered to resign, these people said.

Jessica E. Vascellaro contributed to this article

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Oracle-Sun Deal Promising For Datase Start-Ups by Scott Denne, WSJ.com

Although its buyout has led to plenty of uncertainty, Sun Microsystems Inc.’s database partners see more opportunity than danger in the company’s sale to Oracle Corp. Largely related to its acquisition of MySQL, a popular open-source database, Sun has partnered with several venture-backed companies to sell data warehouse products that are built on MySQL databases or run on Sun’s hardware.

"This is a monster step backward for those of us who are committed to sustaining open source," said Lev Gonick, chief information officer at Case Western Reserve University in Cleveland, who uses database software from Oracle as well as MySQL. "I have no doubt that this is an attempt to kill the competition."

An Oracle spokeswoman declined to comment beyond what company executives said during a conference call Monday. During the call, Oracle Chief Executive Larry Ellison praised Sun's Java programming technology and its Solaris operating system, which are both available in open-source versions. He did not mention MySQL.

Marten Mickos, a former MySQL CEO who recently left Sun, said he is optimistic that Oracle will use the software to drive into new markets. "It could be huge for Oracle and it could be huge for MySQL," he said.

In the past, Oracle has continued to support open-source software that it has acquired, including several products that compete with its core database business. Analysts don't believe that Oracle will stop offering MySQL or Sun's other open source products.

They anticipate that Oracle may limit spending on developing new versions of some of the programs, try to charge more for them or take other steps to wring more profit from the products than Sun did.

Open-source software often can be downloaded free of charge. Customers can elect to pay for product support and updates or continue using free versions. It is attractive to some customers -- particularly as the recession takes a toll on corporate tech budgets. Forty-six percent of businesses plan to deploy open-source software in 2009, according to a recent survey by Forrester Research.

But while open-source software has provided value for some customers, few companies have built big businesses selling the products.

Sun, which last year spent $1 billion to buy MySQL's creator, said the business generated just $81 million in billings in the December quarter. That was 55% more than the year-earlier period, however, making it one of Sun's fastest-growing segments.

MySQL is widely used by companies such as Facebook Inc. that operate hundreds or thousands of servers to run Web sites, while Oracle's databases are best known as a foundation for companies to build programs to run internal operations.

Will Crawford, an IT director at Children's Hospital in Boston, said he would be willing to pay a small fee to continue using MySQL, but if Oracle charges too much people will find alternatives. "They will use something else that is free," he said.

Another reason to exploit MySQL and other free software is that they are mainstays for young programmers -- particularly in emerging economies, said Kim Polese, who worked on Java at Sun in the 1990s and is now CEO of a Silicon Valley start-up called SpikeSource Inc.

There are "a lot of unanswered questions" about how Oracle plans to use Sun's programs, she said, but if it doesn't exploit them Oracle could "miss the opportunity to bring this new generation onto their platform."

Don Clark contributed to this article.

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In the latest example of investors trying new approaches during the downturn, a venture-capital firm that was an early backer of Facebook Inc. is devising a plan to outsource early investing decisions to hand-picked entrepreneurs and technology executives.

The Silicon Valley firm Founders Fund plans to give at least 12 "fellows" $25,000 to invest in an early-stage company of their choosing. Founders Fund will invest $25,000 alongside those initial investments and request the right to invest an additional $250,000 when the companies raise their next round, according to Sean Parker, managing partner at Founders Fund, which announced it raised a $220 million fund in late 2007. The firm expects to devote roughly $3.6 million to the new program.

Mr. Parker hopes the program is a more efficient way to get in early with small start-ups, by tapping the connections of those working in the industry. "Early-stage ventures are about betting on people," said Mr. Parker, 29, who has co-founded such Internet ventures as Napster, Plaxo and Causes, which helps nonprofits raise money on social-networking sites. "There isn't really a shortcut," he said.

To select the recipients, the fund has assembled a brain trust of Silicon Valley heavyweights, including former Yahoo chief executive Terry Semel, LinkedIn co-founder Reid Hoffman, Facebook Chief Executive Mark Zuckerberg, and Michael Arrington, founder of industry Web site TechCrunch, who helped shape the program.

The 22-person team will help Founders Fund select winners from four categories: engineering leadership, product design and marketing, general management and disruptive innovation. They will consider nominations submitted through TechCrunch.

The effort, being called the TechFellow Awards, will likely confront the same issues that have plagued other early-stage investing programs, including young entrepreneurs' reluctance to accept money perceived to come with strings attached.

Despite the downturn, which is deepening a slump afflicting the venture-capital industry, other programs have been sprouting up to help start-ups in their infancy. In March, venture-capital giant Sequoia Capital backed a new fund being managed by Y Combinator, which specializes in funding early-stage start-ups, while Boston-based Spark Capital last month launched a new seed program, Start@Spark.

The investors say the new programs are less about reducing risk during the downturn than about adapting to new realities of the venture-capital business. New technologies make it easier for small tech companies to get off the ground with relatively little investment, broadening the pool of potential companies that could become big businesses. The trend is forcing venture capitalists, which stand to reap bigger rewards if they invest at an early stage, to come up with new ways to cast a wider net.

But there is no debate that a dramatic pullback in venture capital is affecting all phases of investing activity, including the very early phase of several hundred thousand dollars or less. Venture capitalists invested $5.5 billion in U.S. start-ups in the fourth quarter, 26% less than in the third quarter, according to data compiled by VentureSource, which is owned by Wall Street Journal publisher Dow Jones & Co.

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