Facebook Woos Washington

President Obama hosts a town-hall at Facebook headquarters today, a sign of the social media giant’s growing political power and its oddly symbiotic relationship with the president: he needs Facebook for reelection, the company needs him to stay in Congress’ good graces.

04.20.11 1:22 AM ET

Barack Obama is now friends with Mark Zuckerberg. The two powerful men sat down Wednesday at a town hall event at the headquarters of Zuckerberg’s company, where the president tackled questions about the recent wave of Arab revolutions, how to provide access to new technologies, and how to bring down the U.S. deficit. For the latter topic, Obama pitched the idea of raising taxes on the wealthy—meaning people like himself and Zuckerberg. “I’m cool with that,” Zuckerberg replied, to laughter. “I know you’re cool with that,” Obama replied.

Dan Lyons on why Obama needs Facebook for reelection, and the company needs him to stay in Congress’ good graces.

When President Obama visited with some Silicon Valley big shots in February, the tech blog Business Insider ran a photo of the president chatting with Facebook founder and CEO Mark Zuckerberg.

Below the photo, a commenter called “pauldeba” posted: “I gotta say, it must feel impressive meeting the most powerful man in the world. I wonder how Obama feels about it.”

Think about it. Zuckerberg’s company has 600 million members, making it about twice as big as the United States.

So the true significance of Obama’s visit Wednesday to Facebook headquarters in Palo Alto, California, didn’t involve anything the president says. Simply by doing this event, a town-hall meeting broadcast on the Internet, the White House is recognizing Facebook’s growing power and influence in politics and the culture at large.

What TV was to John Kennedy, Facebook is to Obama. Social media in general, and Facebook in particular, have become so important to politics that you almost can't run for president without mastering the new medium.

The event also reflects the way that Facebook, from the very beginning, has learned how to curry favor in Washington. Unlike tech giants Microsoft and Google, which shunned Washington and refused to play the game, and as a result ended up in hot water with regulators, Facebook recognized the need to build bridges with lawmakers early on.

One of the smartest things Zuckerberg ever did was to bring aboard Sheryl Sandberg, the company’s chief operating officer, who will play co-host during the Obama town-hall meeting. Sandberg came to Facebook from Google, but before that she was a power player in D.C., serving as chief of staff under Larry Summers during his tenure as secretary of the Treasury. She’s now a member of the recently formed President’s Council for Jobs and Competitiveness.

Obama needs Facebook to help him get reelected. Facebook needs Obama to keep them out of trouble with Congress and countless government agencies.

After Sandberg joined Facebook, she brought along a fellow Google exec, Elliot Schrage, who before coming to Silicon Valley worked at the Council on Foreign Relations. Schrage, a lawyer by training, serves as Facebook’s head of global communications and public affairs.

Chris Hughes, a Facebook co-founder, ran Obama’s 2008 social-networking operation via a website called More recently, Facebook has been rumored to be wooing Robert Gibbs, Obama’s former White House press secretary, to come aboard in a senior communications role. Last year Facebook poached Marne Levine, a White House economic adviser, to help run its global public policy efforts.

All this cross-pollination prompted Politico on Tuesday to question whether Obama and Facebook are getting too cozy.

Thing is, when it comes to dealing with the government, Facebook needs to get as cozy as it can. This company is gathering more personal information about more people than any other company ever, even more than Google. Suddenly it is dawning on everyone, including members of Congress, just how much power Facebook is amassing.

Facebook has already landed in hot water with lawmakers for changing its privacy policies in ways that some found creepy and opportunistic. In April 2010, Facebook caused an uproar by introducing new rules that pushed users to share more information about themselves.

When users and privacy advocates howled, Facebook’s spinmeisters claimed, laughably, that the new policy was meant to help members, not hurt them, and that the site simply hadn’t done a good enough job of explaining this fact.

When that didn’t wash, Facebook did what it had done in previous skirmishes—it agreed to dial back the changes, a little bit, while leaving much of the encroachment in place.

Facebook has no choice but to keep delving into the private lives of its members. Gathering data is the only way the company can make money. Instead of charging subscription fees, Facebook aims to study its members—what do they like; what do they buy; with whom are they friends—and then deliver targeted advertising based on that information.

How can we expect Facebook to stop pushing for ever more information? Its entire business model is built around being able to gather and use data about members.

Moreover, some very powerful people have an interest in seeing Facebook succeed. Its investors include big-name Silicon Valley venture capitalists, plus Russian power player Digital Sky Technologies, and, as of a few months ago, Goldman Sachs.

Goldman’s investment created yet another headache for Facebook in Washington. The bank created an investment vehicle through which its wealthy clients could buy private shares in Facebook.

By rounding a bunch of investors into a single fund, Goldman hoped to help Facebook sidestep a rule that says companies with more than 500 investors must disclose their financial information to the public. The Securities and Exchange Commission expressed some skepticism. So Goldman backed off, selling Facebook shares only to investors outside the United States.

So: a business model based on collecting and selling member data, and a management team that will jump through hoops to raise money while avoiding public scrutiny. No wonder these guys put so much effort into making friends in Washington.

Facebook spends a lot less on lobbying than Google and Microsoft do, the Los Angeles Times reports.

But Facebook intends to beef up its Washington presence this year.

The good news for Facebook is that its efforts appear to be working. Earlier this month, when Senators John Kerry and John McCain drafted their new “privacy bill of rights” legislation, they included language that seems to benefit Facebook by allowing it to continue gathering information from users.

As the Electronic Frontier Foundation points out, the new legislation contains a “Facebook loophole,” allowing Facebook to continue tracking users as they move around the Internet, even when they’re not logged in to Facebook.

Now comes President Obama, sitting down for a friendly chat with Mark Zuckerberg and Sheryl Sandberg. Obama needs Facebook to help him get re-\elected. Facebook needs Obama to keep them out of trouble with Congress and countless government agencies. No wonder they’re on each other’s friends list.

Dan Lyons is technology editor at Newsweek and the creator of Fake Steve Jobs, the persona behind the notorious tech blog, The Secret Diary of Steve Jobs. Before joining Newsweek, Lyons spent 10 years at Forbes.