>> rose: welcome to the program. tonight, ken auletta who writes annals of communication for the "new yorker" magazine talks about apple, facebook, amazon and google. >> as the world moves to smart phones and away from desktops and people access social networks like facebook on their mobile devices, will he will able to monetize it?

will he be able to create ads? you can't do a display ad, take up the whole screen. you can't interrupt a phone call or an e-mail message. so what is the form of advertising that you will have for facebook that will allow them to generate income? that is a big question that looms out there. >> rose: also a conversation this evening that i moderated in early october between marc andreessen and sheryl sandberg, the chief operating officer of facebook. >> i think there's a bigger opportunity. i think -- i mean, one way of looking at the question is how do you go from desktop to mobile how do you adapt. i think there's a different question that i think about a lot. there are going to be opportunities in mobile that have never exted before and it will take time to diover what they are. but for the first time with smart phones we're going to have a computer in everybody's pocket. >> rose: auletta, andreessen and sandberg when we continue.

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 woman's place: can sheryl sandberg upend silicon valley's male-dominated culture?" tonight we'll 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 who's on the board of facebook. we begin with this question, though. where is facebook today after all the controversy about that i.p.o. >> they're in a very strong position. they've got over a billion users in the world. that -- two months ago it was 900 million users in the world. so they're growing. and they're 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 there's 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 can't do a display ad, take

up the whole screen, you can't interrupt a phone call or e-mail message, so what is the form of advertising you will have for facebook that will allow them to generate income. that's a big question that looms out there and they would acknowledge they don't know the answer. they would say we are very confident, we can do this. it's 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. >> it's inching up. but i think wall street is a poor barometer of how a company is doing. it's 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 doesn't 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: they're 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 that's 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 don't 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 couldn't. 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 -- he's brilliant. he knows what he's doing. he's got the passion, he stays behind it. he understood that he was not a manager and he brought her in and she's 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 there's 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 they're -- products and they're having some success and we've 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 it's a tablet, if it's 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 we're going to give market share by giving it away. >> rose: gain market share by giving it away. >> yeah, right. and we're going to give it away. so samsung, you want to have an operating system for your smart phones? use the android. and it's 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 we're obviously -- google search is going to be prominent on those smart phones and our search growth will rise and it has, by the way, they've grown because mobile -- >> rose: they've 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 we'll come up with a way to monetize this. that is the same view that mark zuckerberg has at facebook. we're going to put it out. we've got a billion people, a billion users on facebook, we'll

figure out a way, just as google did in 2001 with ad words and ad sense, those little ads on the right-hand side that generate over $40 billion a year. and we'll figure out a way to do it. and, you know, will they? you know, maybe. and maybe not. but with that mass audience there's a good chance they will. >> rose: here's what's interesting to me. they're getting in each other's 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 amazon's operating system. and yet, you know, they're competing. facebook you say, well, they're a social network, they don't 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 they're 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 there's been some decline in their stock pce, although i accept your idea wall street knows nothing about technology. >> i mean, they're 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 he's gone and apple is gone? a lot of people that steve jobs recruited still run that company including tim co. >> rose: including eddie, including the design genius that we love. and who's gaining more responsibility, by the way. >> but they all are people -- they wake up every morning when you're 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 samsung's success. yet if you're samsung and you say "why did google buy motorola? that's 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, he's going to create a cell phone!" >> rose: he has a different attitude about tablets. he's not so much interested in how many kindles you buy is he's interested in you having a kind sol you can access these other things that he sells. >> rose: he's done two things. that's one thing that was in retrospect brilliant and, again, goes against the grain of wall

street. why aren't 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, i'm 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 apple's ipad. people said "it won't 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 tod. i mean, you've been there early and often. >> i'm interested in a number of

things. if i'm 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 don't 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. there's an arrogance to those engineers. a belief that software is easing the world and that we don't 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. that's 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. >> i'm also interested, charlie,

it's a subtheme of what we've 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 it's very hard to prove. it's 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, it's quite extraordinary to watch it. >> rose: all right, let me introduce the two characters we'll 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 didn't make her much loved at google >> correct. >> rose: then there's 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 eate the browser for netscape which it did. and then microsoft saw that, oh, my god, this browser could replace our operating system. and we've 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 licon valley. he joins the board of hewlett-packard, he joins the board of ebay and now he's also on the board and a major mentor to mark zuckerberg and facebook. so he is -- and now he's 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 he's 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 that's happening in the industry, we're 35 years years into the president clinton, 20 years into the internet, five years into the smart phone and for the first time we're now over two billion people on the internet. we have a billion smart phones worldwide. we're on our way to five billion smart phones worldwide. we've 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 there's just -- there's such a powerful global phenomenon going on wiring up the world and putting the internet in everybody's hands. it's 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 there's a tremendous number ofhings working and it's fantastic to see what's 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 analog-to-digital 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 don't 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. it's a very exciting time for that. >> rose: before we talk about mobile, move to platforms you're 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 they're good at it but most of the marketing is to large anonymous groups of people. it's 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 don't 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 they're 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 it's made possible by real identity on line and on mobile devices in a way we haven't seen before. >> rose: and the transfer and the evolution for-to-mobile devices, what are the impediments and the challenges for facebook and how are you measuring where we are today? >> google's 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 they're kind of on the right-hand side, not just on our site but lots of sites. most sites around the web. they're 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 engement. >> rose: but does it in any way make the user unhappy? >> we're measuring this really carefully. what we're looking at is user engagement with news feed. we measure it with and without

ads. we also measure engagement with advertising content and non-advertising content and we've been very pleased with the results. we get realtime feedback from our users. they can let us know what they're doing and how engaged they are with news feeds. the nice thing is while we haven't seen a degradation on the user side, we've seen a real improvement for marketers. so compared to ads on the right-nd side, our ads are eight times more engaging when they're in news feeds and the ad recall is ten times. so that means that for us we have a mobile product that's quite -- a mobile ads flaukt naturally fits into the mobile ecosystem and the mobile format and enables us to deliver on noble the unique way. >> rose: has monetization been slower than you expectd? >> monetization is an evolution. i think we see ourselves at different points along the curve with different marketers. we have marketers who have been working with us from the beginning or very aggressively in the last couple years.

they understand they can't do the same ad campaigns like they do for a mass audience when they're reaching real people and seeing and we're increasingly able to prove that to them. then you have other people that either haven't tried it or maybe haven't tried it as effectively or haven't worked as well and with those people we're helping them understand that social advertising is different. >> rose: how do you prove it? >> with data. it's the only way to prove things. it's been an interesting met mortar foe sis for us. so the first one anyone asked about facebook is "does anyone even see the ads?" facebook ads are small and they fit into our u.i. versus other ads have home page takeovers and people were worried no one even saw them. so we've done over 500 studies with nielsen and we've proven now that p.m.c. them. our ad recall is about two times greater than anything else online and our grand awareness is about 30% higher. so we know p.m.c. the ads. so this year we're really working on showing marketers the

value they get. that it's not just that p.m.c. the ads it's this we ring the cash register. our director of analytics spoke just yesterday and he talked about we've done about 60 studies looking at how people that have seen ads, people in have seen facebook ads and what happens to sales and the returns are great. 70% of the ad campaigns from v a 3x or better and 49% have 5x or better. >> rose: what do you tell companies what want to make the transition? what's your advice? >> i think there's a bigger opportunity. one way of looking at the question is how do you go from desktop to mobile, how do you adapt? there's a different question i think about a lot which is there are going to be opportunities in mobile that have never existed before and it will take time to discover what they are. but for the first time with smart phones we have a computer -- we're going to have a computer in everybody's pocket. we're going to know where people are. we'll know a tremendous amount about people. we'll know where they've been, whether they've had lunch that day. we're going to know where they like to eat.

we're going to know where their friends are. i think it's a very powerful concept. >> rose: is all this good? >> i think it's good. let me explain to you why i think it's good. there's a ry powerful concept in media and marketing which is the best advertising comes as content. the best advertising is added to the user experience, not neutral and certainly not negative. >> rose: slow up on that. the best advertising is counted as content? meaning they don't know difference between an advertisement or news? >> when you buy both -- >> rose: or entertainment. >> a very large number of people who buy "vogue" are buying it in large part for the ads. if you like fashion, you read the ads. people watch the super bowl for the commercials. the commercials are so entertaining. >> rose: but is that actually happening in this -- >> i'm coming to it. (laughter) i'm coming to it. i'm coming to it. google has always had the property that the ads -- if you're shopping for something, the ads are content on google. if you intend to buy a digital camera and search a digital camera it is value added to your search experience that you're getting the ad because you have

an indication of who is willing to pay to get you as a customer and there's some implication that they're probably a credible vendor if they're willing to go on google to get you. there is the opportunity on mobile. social ads are very exciting already from the standpoint that they can be useful, but there's a bigger opportunity on mobile to intersect a lot more with what a person is actually doing in their day to day life. so the idea that i like to play around with is the experiment of i'm walking down the street and you're having lunch at whatever fancy media place you hang at out. and you're sitting by yourself -- >> rose: that's likely, too. >> cbs just let you go for the day, 1:30 in the afternoon and you're sitting there eating by yourself and i'm walking by and let's say i'm lucky enough or you want to be my facebook friend. then i get a bing and it's like, oh, your friend charlie is having lunch inside this restaurant. come in and sit down and join him and you'll get 30% off your meal. and that would make total sense to the restaurant because it's a

seat that hasn't been filled, they might as well fill it. so there you have like a triple win scenario. you have somebody to have lunch with you, i'm able to get something to eat, the restaurant gets to fill the empty seat. so these things are only possible when you have the situational awareness of what have the user is doing, when you have to mobile form packtory, you have to computer in your pocket, you have the merchants connected in and you think creatively about how to apply all that. >> rose: is the argument that it's better to have recommendations from friends than from the crowd a selling argument for you? >> absolutely. it's been the hallmark -- >> rose: has it been proven? >> it's been proven. >> yeah, i think it has. i think you ask people -- first of all, they do surveys all the time of who do you trust and people always answer their friends. how do you make purchasing decisions? with most products people answer their friends. then the question is can you make that part of people's daily lives? can you take the opportunity for people to share information from their friends? and it works. another recent example, best

western. they run a spring ad promotion every year advertising for people to, you know, take vacations. they did one this year and they did a facebook app and the facebook app allows you to create your dream vacation and your friends and family on facebook can see it. their sales went up 20% year over year and they attribute that to facebook because that was the only thing that was different about that campaign and that makes sense because vacations are better with your friends, right? it makes sense if you're going to think about going on vacation that you would invite other people and they would get the idea to go, too. >> rose: project mobile forward. where are we going? >> we're going to a level of ubiquity that we've never had before. it's never been possible to have these technologies with us all the time and have them at our fingertips. the smart phone itself has decades to play out. this is going to be one of the most important things our industry has ever done and there's a huge amount that's going to happen. >> rose: like? >> i mean just the power -- ultimately the power of a fully connected supercomputer in your pocket. i think smart phones are going to replace -- video games are

going to move entirely online, videos will move entirely online, a lot of that will come in through the smart phone so these will be the central devices in our lives. then there's another couple powerful concepts on top. these will be the control devices for other things in their life, including the big screens. so i think apple's air play indicates the future whereof this is going which is if you want to watch t.v. you call up a show on your phone and you project it on to whatever screen happens to be nearby. and it's a completely different way of -- your phone is not only your remote control, your phone is the origin point for the show. so i think all the big screens in our lives will be controld from these devices. the other thing that's going to happens there's a new generation of devices, wearable computing. and there'serly example of this with jawbone, our company has the health up, nike has their fuel band and google has the google glasses and i think there's going to be an assortment of consumer products that we're literally going to wear and that will feed us information and react and do things for us and i think the smart phone is the hub for those devices as well which is very exciting because as it becomes

socially unacceptable to check your e-mail during a meeting on your smart phone, you can look at your wristwatch. >> rose: that's why he's in venture capital. >> i for one can't wait. exactly. >> rose: what new products should we expect from facebook beyond what you have said after the i.p.o., our focus is on mobile and monetization. what new products especially in e-commerce? >> as you said, we're increasing our investment in monetization our primary focus is on advertising and mobile so you're seeing rapid innovation from us. since the i.p.o. we've rolled out mobile app ads already which means you can advertise to get a user to install a mobile app and they can do it from their phone. that goes to marc's point to something you wouldn't have thought about. there weren't mobile apps a few years ago and now we think there's going to be a huge ecosystem, an advertising ecosystem that we think we're very positioned to be central to

around mobile apps. you've seen from us already things that help advertisers and marketers connect to the right customer at the right time. from the facebook ad exchange to custom audiences. that's just the beginning. as businesses are able to give customer what is they want at the right time and let them invite their friends you can see the possibilities and we're thinking about broader categories. last year we were talking about facebook gifts. has someone sent you a gift yet? >> rose: no. >> we have a whole audience here. let's have someone send charlie a gift. >> rose: i'm lonely that's why i was having lunch alone. (laughter) >> he was eating lunch alone, he has no gifts. >> rose: so tell me this. when facebook -- looking at marketing and looking at the way you saw the world evolveing have you guys made assumptions that did not significantly -- that did not turn out right?

did you make bets that surprise you because they were not what you expected? >> the big one mark just spoke about recently during his tech crunch interview which was betting on haiti million 5 and spending energy building a product called face web where we were hoping we could deliver our products to the mobile world really with one platform and that's the mobile web and that was the wrong bet. at least for now we think it may happen. we sort of -- we've now moved to native apps because we can get the performance and that's a good example. >> rose: you're on the board. what else? >> oh, i don't know. i mean, look, these companies -- at least my standpoint being an investor in these companies, you want these companies taking risks. it's really hard. when tech companies turn conservative and stop making bets because they're afraid somebody is going to say "what did you screw up?" that's when they go sideways. so i the hit rate is greater than 50-50 they're probably

taking enough risk. >> mark zuckerberg has a great phrase which is there's two ways to fail. one way to fail is that you don't hit your plan. the second way to fail is that you hit your plan and your plan wasn't big enough. and if you actually look at it, most companies fail the second way. they fail the second way their plans are too conservative and they hit it quarter after quarter as they slide out we want to make sure that our plans are big, bold, aggressive and risk taking enough that they're big enough to achieve the growth we want to achieve for our company. >> rose: what did you mean -- i'm not sure i got this quote right but something like this. "software is eating marketing." >> yup. >> rose: what does that mean? >> the bigger one is software is eating the world. >> forget marketing. eating the whole world. >> rose: well, i was thinking of the audience. so software is eating the world and will leave what kind of world behind? >> a software world. a very, very exciting world with

lots of programers. (laughter) >> re: so everybody should -- >> everybody can redeem their risks all day. >> rose: would you want your children to grow up and be software programs? >> absolutely. >> oh, yeah, no question. (laughter) >> first they learn chinese and then software programming. >> he's actually a little bit of -- i sent my son, he's seven, to tech camp at stanford and 35 kids, seven-year-olds, 30 boys and five girls. >> rose: so tell me how software is eating industry >> it's the result of the fact that we've put computers in so many places. that businesses run on computers, that we're all going to have computers in our pocket so we can imagine in every business in every industry and every sector what would it be like. i mean, the thought experiment i like to run is what if the team at facebook actually said "i'm now going to go transform education. i'm going to transform health care. i'm going to transform government.

i'm going to transform law." or in this case "i'm going to transform marketing." so we have the chance of performing the kind of innovation and software development that we've gotten good at in the computer industry for computer applications and applying much more broadly. this is a big change in the computer industry itself and this is a very big change in many industries that are being -- essentially effected or transformed. retail is a big one. right now in the process of -- software is eating retail and marketing is right for it and there's a huge progress in software base marketing in the last 20 years. but there's another big innovation that is right to happen right now. which is marketing becoming a software becoming enabled and powered through applications. >> so what would you most like mark? i'll begin with you. people in this audience who come here marketing as advertising geniuses to understand about the revolution that you know a whole

lot about? what is your take away from what you have to say? >> i think it's -- we're on the tipping point, the convergence of smart phones, the convergence of social networks. and most marketing -- most marketers, most companies, most agencies are not yet taken advantage of and the next three years, i mean, it's sort of a cliche but it's true. the next three years will see transformation and change than we've seen in the last ten or 15 and that was a good time for experimentation and innovation. >> you're selling user information, correct? >> absolutely not true. we won't sell it to you; we won't sell it to anyone; we won't even sell it to marc and he's on our board. i want to talk about that. >> rose: notice how quick th a misconception? >> i appreciate it but we never sell user information. we don't make more money when you share more and we do not give your information to marketers we have systems that

enable marketers to serve the right ad to people at the right time. as mark said, when adds are good users want them more they're a good experience. i'm getting an offer or opportunity i want to go to. when ads are bad people don't want them. i think when p.m.c. an ad that's targeted sometimes they're nervous like how do they snow are they giving away my information? >> rose: or is it an invasion of my private any and all of those are fair questions and our answer to that is no. >> rose: so it's not an issue that you have not had to be concerned about >> every new technology brings fears around the invasion of privacy. my favorite example is when caller i.d. came out it was considered a ginormous invasion of the caller's privacy that you would know who i am when i'm calling you. states-- california and others-- tried to pass legislation banning caller i.d. how many people answer a call and we see the number.

hands? i see no hands. that was originally considered an invasion of privacy and it is now considered your basic right to have information. >> rose: marc, people often talk about this competition. sometimes it's the big four. apple, google, facebook, amazon. sometimes it's apple, google, facebook, amazon and microsoft. one central fact to me is that they seem to be getting in each other's business. is that the future? (laughter) >> so there's -- a lot has to do with software programers which is software programers tend to assume they can write any software. so every -- the hardest company to sell a piece of soft swir the software company and software companies tend to be the most aggressive about invading each other's spaces and the great thing about software is it's mutable. >> so what will determine the winners? >> i think the best -- >> rose: the best software? >> the best products.

>> and is it the history that whoever got their first, social media will prevail because they will constantly make better software we believe they have? witness google, facebook -- >> i don't think any of us were first. >> rose: subpoena that right? >> yeah. >> rose: google wasn't the first to search for sure. and we weren't first -- >> rose: so if it's not being first with good software, what's the secret to success? >> execution and innovation being willing to continually it rate. so you look at what is social networking, friendster was long before facebook and myspace. but what we did and did well and it's to marc's credit and our engineering teams is we continually innovate our product >> i think an important thing is a willingness to defer gratification. so facebook, many of these other

companies that become very successful businesses it's the cliche. read about a lot in what used to be called the newspaper that these companies are run by a bunch of kids and they don't know how to make money and they won't ever make money and facebook will be able to monetize and search will never be able to monetize and this whole internet thing. >> rose: >> and it's all falling apart. >> and don't these guys know they have to run their own business, they have to have real customers. and when these things are big successful businesses it's like, oh, wow, that was a fluke. so that's the way the narrative gets told and it's something different that happens behind the scenes which is getting the product right. getting the user experience right. getting the r&d engine right. and then expanding out and building the business and building the company and expanding the new areas. and so this is the -- why did facebook win. partly it was overmonetized. they underinvested in r&d and

overinvested in advertising and mark from the very start was focused on user value first. >> and so by a soes is a perfect exam? >> jeff takes it a step further. jeff actually says amazon is not in business to have a profit margin >> rose: (laughs) >> it's very interesting. amazon is only in business to have profit. so he cares about dollars and profit not margin of profit and so he's willing to go basically eat businesses, including his known pursuit of the right user experience with the full intention of having profitability out the other side but not near term optization. >> rose: google owns motorola. do you want to own a phone? a smarthone the? the hardware? >> we're not building a phone. mark said that recently. the important thing for us is that we want to be on every

mobile device, on every operating system carried in everyone's pocket in the world. and we're the number one free down loded app on i.o.s. and android. for us it's the horizon that matters. the vertical depth is important but what matters is any phone in the world runs facebook. and we work hard at that. we are partnered with enormous numb of people around the world and it's been integrated into nine million web sites and mobile apps. we want to be integrated everywhere and that's super important for people to be able to connect to each other. >> looking at the industry as a whole and what's happened in i.p.o., you had an i.p.o., didn't you? >> did we? >> rose: we'll come to that in a moment. do you worry about any kind of what's going on here in terms of value and the way the market looks at what's happening? i'm thinking of groupon and other things.

>> i'll probably dodge all the companies? >> why because you invested in them or -- >> people will get mad at me. and then i have to eat lunch by myself. (laughter) so -- >> because of you i may not have the that situation ever again. >> so we're in an era tech stocks haven't traded this low relative to industrial company in the last 30 years. so we're seeing an era -- >> rose: there's no bubble. >> not even a tiny little bubble. we had the bubble it was in 2000. >> rose: but there have been worries about that. there's been worries about how do you make valuation. >> everybody worries about the bubble when there's no bubble. when there's a bubble they stop worrying about the bubble. because there's no bubble. (laughter) >> rose: the cycle -- >> the whole theory is that everybody becomes convinced it's rational. nobody in 1990 -- very few people -- everybody says they

were saying bubble in 1999 and they weren't. everybody was panicked they were getting left behind. it's become harder to be a public company. you need to be a strong company to be a public company. >> rose: speak to the experience of the yip owe. >> mark talked about it, i talked about it. it didn't go as expected. we were surprised and disappointed. >> rose: do you know why? >> there are so many people who are willing to talk about it. so many people. i haven't met anyone or seen anyone without an opinion on this. i think people think oh, my god, all of facebook must be ined at thered because this has been so hard in the press. and while certainly people were disappointed, silicon valley companies, we cycle quickly. what is a short period to the rest of the world to us feels like an eternity because we it rate so quickly. so we're good at moving forward. we launch products, some of them

work, we launch the next product. if you look at our innovation which is what the company looks at in the last four months it's as strong or maybe stronger than any period. >> rose: so you can say the loss of market value, whatever it is, $30 billion or more, does not affect the operation of the business one bit? >> it hasn't affected our operation or the innovation. look at what we've launched. since that time we've launched a large number of new ad products that are increasing. we've launched a new mobile application which is we were just talking about it it's great. engagement is up all around, all around, all around. all around the new mobile app so we're happy with the progress we're making and we're really happy that people believe in our future. valuation for people working in a company is what they believe will happen in the future not

the past. >> mark zuckerberg had me as guest speaker at the all hands a couple months ago. this one was the first one that opened with a standing ovation for the c.e.o. of i a company. i never got a standing ovation. a lot of c.e.o.s go through thei entire careers and never get a standing ovation. >> rose: so what excites you most about the future? there are always rumors about you? you get a lot of attention. mark does, too, but you -- are you going to be there? are you going to stay there or are you going to be enticed to go other places? like washington. >> i love my job and i'm staying. i love what we do. what excites me is we have 950 million people on facebook. those people share and facebook changes your life. >> rose: if we come back five years from now what we will be talking about? >> hopefully not president crash of the great tech bubble of 2012. (laughter) that would be -- >> rose: that makes you wrong.

>> that would be extremely embarrassing. (laughter) which wouldn't be the first time. my motto is "often wrong, never in doubt." >> rose: i know a lot of people like you. (laughter) >> rose: it could be the title of your show. >> so i think it will be the unanticipated consequences of these changes happening. >> rose: i agree. >> i's going to be exciting. >> rose: you? just look to the future and fantasize about it. >> i think it's going to be about real people connected. you know we've never had this kind of connectivity and we've never had this kind of connectivity with it being real people. things are better when they're social. meaning i enjoy things more with my friends and people are more authentic with real names. you look at a web site that before had anonymous comments. look at anonymous comments compared to comments where people are logging in with facebook oreal names. a lot of categories, people are

higher quality, better engagement because it's who they are. i think we are at the very beginning of what will be i think a different type of ability to communicate and that's exciting. we're very social beings. people want to share. >> rose: there it is, this conversation in which we talked to sheryl sandberg and marc andreessen. take me back to what they said about me having dinner at michael's at their suggestion and people would know i was there. what are the issues that raises? >> well, first of all, the assumption that they made in discussing that is that marc andreessen is walking by michael's restaurant, you're having lunch there alone and that someone from michael's would call him on his cell phone and say "your friend charlie rose is having lunch, would you like to join him?" and he says "great idea! i'll join him." but what did no one think to ask? did you want to be joined? did anyone ask your permission? >> rose: an invasion of my

privacy. >> and from there they talk about ideal vacations and sheryl is talking about oh, my god, you can go on this vacation and create your own ideal vacation and you can share it with your friends and they can come along. well, what if you don't want your friends to come along? >> rose: andreessen and sheryl raised a big question which is when will digital advertising reach the levels of analog advertising? >> it's a really big issue. one of the things you encounter all the time in silicon valley is this frustration that they have such a large audience of people on facebook or google or atever yet they don't get a comparable share to what t.v. gets of advertising dollars. i was at a conference last week where tom rogers, the head of tivo, is talking about tivo use and one of the things he said that was stuning is that 65% of

the people who who watch prime time shows on tv -- they record them, they skip to the end. yet the advertiser is paying for an audience that watches it on tivo or on television. at some point the advertising community is going to start asking harder questions. and at that point there might be-- and i suspect there will be-- a major shift of ad dollars away from traditional media to digital media. >> rose: everybody, everybody agrees that the smart phone is the device of the future. >> >> i agree. they talk about in the interview with the five billion smart phones. i was in india recently -- >> rose: there's only 7.3 billion people in the world. >> we're so depende on it and it's so easy. think about how it changes everything. it's always in your hand: and as marc andreessen said to you, it's a computer in your pocket. so if you want to search your internet, do e-mail, make a phone call, look up something

you want to watch a video, play a game, it's in your hand. and your hand could be a smart phone, a tablet, but it's portable and it follows you everywhere. it just changes everything. then the questions become how to monetize that. can you -- we know how to do a t.v. ad in television, right? we know how to do an ad in a movie theater when you go in and you sit there and when's the movie going to start. but it's primitive how you're going to do an ad on mobile. and that's something that everyone is experimenting with. >> rose: you know what else is exciting about all of this? it's how it's changing our world beyond miniaturization it's how it's changing our world and all the questions that gives expression to about cyber terrorism, about hacking, about privacy blts, about e-mails, all the stuff that came out of the petraeus story.

>> charlie, we're in -- we're -- the thing -- we are experiencing more change than at any time in our history and the internet is a big driver of that. i mean, i've had delicious arguments with people in the valley over the years where they say "has there ever been a more disruptive technology than the internet?" i say "what about electricity? you wouldn't have intnet without electricity." >> rose: but they say it's becoming electricity. >> it is. and what's different is electricity took a long time to reach 50% of the american people. the internet, 20 years. and it's a dominant technology. and from that technology everything is happening so fast. five years ago we didn't have a smart phone. just think of it. now they've got five billion. >> rose: and the amount of power in a smart phone -- >> compared to your desktop. >> rose: it's just amazing. and the whole world of applications which are presenting themselves.

so -- >> so -- >> rose: making life easier but also more complexes, the choices you have to -- >> and one of the things that -- one of the difference between people and the valley is the difference between the truly arrogant who believe they have the answers and the people who only pretend to be arrogant but don't have the answers, know they don't have them. and if you talk scratch the surface of mark zuckerberg, if you scratch the surface with marc andreessen you have to scrah harder, he's a brilliant guy. but he tends to be certain of -- or seemingly certain. but when you scratch deep with these people, they're all scared. they're scared of change. they're scared of how -- what new technology is going to come along that's going to disrupt their current business model. i mean, think about google. google has this great search engine. they've been challenged by

yahoo!, by microsoft, none of it has worked. well, along comes two things that you see that a out there now potentially. one is the like button on facebook. oh, my god. it's -- how much more effective is a search than with my friend. and then you look at apple's sirry. sirry, tell me what restaurant i should go to that has good italian food or indian food in the neighborhood? and i don't have to get a thousand answers from google. i get one or two answers by voice from siri. so these are all things that they sit there and they're nervous about. and if they're good they should be nervous. >> re: is a good job you have, following this stuff in the "annals of communication." >> it's work. >> rose: every couple of years writing some big book. >> it's a good life. but you meet interesting people, too. >> rose: thank you for coming. thank you for joining us. see you next time.

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