Facebook Grows Up

Within days of its release at Harvard, students at other schools were clamoring for their own versions of the site, and by the end of March it was at Stanford, Columbia and Yale, on its way to capturing the entire college market. But even more extraordinary was the way people used it. Facebook, as it became after a name change, was permeating every aspect of campus social life. Students even came to use its messaging function instead of e-mail.

That spring, Zuckerberg quit school, and he and his partners moved to Silicon Valley, where they met with investor Peter Thiel. "Mark was clearly a brilliant engineer with a great vision for his product," explains Thiel, who kicked in $500,000. "Mark's plan had all the fundamental characteristics you would see in a Google or eBay in the early days of those companies," says Matt Cohler, an executive who sat in on the meeting and wound up working at Facebook himself.

Later Facebook received $12.7 million in venture-capital money from Accel Partners. (Zuckerberg took this in preference to an investment offer from Don Graham—chairman of NEWSWEEK's parent, The Washington Post Company—with whom he is friendly.) Accel's Jim Breyer recalls the 2005 dinner that clinched the deal: "I ordered a nice pinot noir and Mark ordered a Sprite, telling me he was underage." Breyer was impressed with Zuckerberg's youthful passion for his product, though he says the investment was controversial within his firm—some colleagues wondered whether social networking was a fad. (The early leader in the field, Friendster, had fizzled.)

Armed with cash (the most recent influx was $25 million in 2006), Facebook began its march beyond colleges, adding high schools in 2005 (no one under 13 is permitted to register) and then "work networks" within corporations in early 2006. By September of last year, anyone could register, and the site's numbers started climbing. That's when Terry Semel, who was then Yahoo's CEO, dangled a billion dollars in front of Zuckerberg—which he blithely ignored.

Zuckerberg's next big move was to fill Facebook with all sorts of applications people could use without leaving the site—programs that took advantage of Facebook's vast social networks. "There are a ton of different ways that people can share information, and rather than trying to develop all those ourselves, we wanted to allow anyone worldwide to create any kind of application," says Zuckerberg. Thousands of developers, from big companies to kids in dorm rooms, instantly began creating applications that piggybacked on Facebook's infrastructure. The new applications could get instant viral distribution, since the News Feed blasts a report to friends every time someone installs a new app (in other words, free promotion). Developers could make money from Facebook-embedded apps by taking ads or selling things—without sharing a penny of the proceeds with Facebook.

For instance, one company took two weeks to create a Facebook version of iLike, a music-recommendation and band-tracking service, and within a month more than doubled its users. A 22-year-old college student stayed up all night to hack a free (though less polished) version of Facebook's $1 graphic "gifts"—and 5 million people downloaded his application.