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After the debacle of yesterday’s on-stage interview with Mark Zuckerberg at Soh By Southwest, I decided to take myself out of the process as much as possible by offering up a Q&A. The results below are heavily edited excepts from my conversation with the Facebook CEO. Instead of grilling him too much about monetization and the company’s $15 billion valuation, we spent most of the time talking about infrastructure, scaling Facebook’s architecture and what the ad platform is going to look like. And I’ll tell you right now: When I asked about money, my questions were quickly shot down.

ME: What does the Facebook infrastructure look like right now as it supports more than 67 million users?

ZUCKERBERG: I can’t talk about the number of servers specifically, but I can say it’s not on the order of hundreds of thousands yet; it’s in the order of tens of thousands. Would you like to talk about how the architecture has evolved over time? It’s pretty fascinating to see that the evolution of the network architecture pretty much reflects the evolution of the site.

When we were in a few colleges one of the theories there was that most of the people would want to talk to people at their own schools, so we set up a network architecture based on the school. We had a Harvard database and web server and routed traffic to them through sub-domains. As time went on, and we reached a reasonable scale, we had to break out into tiered services.

In mid-2005 or so we also started relying heavily on memcached, and today it’s become such an important part of our infrastructure that we’ve actually become the head developers on one of the branches of the code.

At this point in Facebook we’re now running our networks and have multiple data centers across the country, one on the West Coast and one on the East Coast. So we’re working on problems of reducing latency in transferring data from one to the other.

ME: So as you expand internationally will Facebook need an international data center? When?

ZUCKERBERG: That will be something at some point.

ME: Do the applications running on Facebook affect the network? How much of that does Facebook need to support?

ZUCKERBERG: We have an API tier that serves the data requests, but the same servers serve the requests generated inside of Facebook and those form outside of Facebook. We’re trying to blur the boundaries of content created inside Facebook and applications created outside Facebook, and that’s reflected in the architecture.

ME: What challenges will you guys need to address as you scale?

ZUCKERBERG: We put a ton of focus into making sure going forward that our development speed will be very fast. But you know the phrase, “Premature optimization is the root of all evil”? If we spend our time trying to optimize our architecture it could end up being one that’s difficult to develop on and going forward, a big focus for us is making sure that’s not the case.

One of the recent places is internationalization. The infrastructure to do that is pretty fascinating but it has the potential to slow down future development as people ask if they need to develop an application in another language first, so we’ve basically built a wrapper for every string of text and the developer puts a wrapper around that text and we send it to users to translate. So that doesn’t slow down the development speed.

ME: How do you handle quality control?

ZUCKERBERG: In the three cases we’ve done so far (Spanish, German and French), the quality of the translations that we got was actually better. If you wanted to get professional translators it wouldn’t be scalable.

ME: Let’s talk about monetization. You said yesterday that you envision the social advertising landscape evolving over the next 10…15…20 years. How will those ads evolve and when will we start seeing aspects of them on Facebook? And where does Beacon, which you said wasn’t an ad effort, fall into this?

ZUCKERBERG: Beacon was a part of the platform. It was part of this while effort to blur the boundaries between what’s inside Facebook and what’s outside Facebook. Beacon was our first cut at a protocol to do that.

When it comes to social ads we really want to line up what people are trying to do on Facebook and the utility it offers with monetization. If you look at what people are trying to do on the site, it’s communicating and connecting with each other and sharing information, so the business model should be around people sharing information and staying connected.

In banner advertising, people who have developed a trust with the audience run a banner ad and the trust bleeds over to the ad so people pay attention to it.

ME:(making a skeptical face.)

ZUCKERBERG: What? You look like something’s wrong? People go to a content site to see a specific kind of content and will trust those ads relate somehow to it. On Facebook, people aren’t coming to see content from Facebook; they’re coming to see what other people are sharing, so the most natural analog would be having the ads be information shared among the people. Because so much of our society has some commercial component it seems like there will be a way to both share information and line that up with what advertisers want.

Some amount is happening as advertisers pay to accelerate that distribution of information. The amount they’d be willing to pay is proportional to how much it is accelerated.

ME: And before we leave I wanted to ask about revenue and the fact that you mentioned yesterday that you are operating at breakeven.

ZUCKERBERG: I said we’re operating around breakeven. In the past we’ve run at sometimes more and sometimes less, but as a private company we don’t disclose those numbers. A lot of people ask us what we’re going to do with that Microsoft money, but we have no specific purpose for it. We didn’t take that money to buy something. I said we’re operating around breakeven. In the past we’ve run at sometimes more and sometimes less, but as a private company we don’t disclose those numbers. A lot of people ask us what we’re going to do with that Microsoft money, but we have no specific purpose for it. We didn’t take that money to buy something.

Fresh from his Mix’08 keynote, Microsoft’s Chief Software Architect and industry luminary, Ray Ozzie, spent some time on the phone with me, discussing everything from the company’s services strategy, to the economics of cloud computing, to the relevance of desktop and infrastructure challenges. What follows is a highly edited version of our 20-minute conversation.

Enjoy this interview, the first of what I hope will become a series of conversations with tech greats.

OM MALIK: You outlined Microsoft’s software-plus-services strategy, but what I want to know about is the changing role of the desktop in this service’s future.

RAY OZZIE: I think the real question is (that) if you were going to design an OS today, what would it look like? The OS that we’re using today is kind of in the model of a ’70s or ’80s vintage workstation. It was designed for a LAN, it’s got this great display, and a mouse, and all this stuff, but it’s not inherently designed for the Internet. The Internet is this resource in the back end that you can design things to take advantage of. You can use it to synchronize stuff, and communicate stuff amongst these devices at the edge.

A student today or a web startup, they don’t actually start at the desktop. They start at the web, they start building web solutions, and immediately deploy that to a browser. So from that perspective, what programming models can I give these folks that they can extend that functionality out to the edge? In the cases where they want mobility, where they want a rich dynamic experience as a piece of their solution, how can I make it incremental for them to extend those things, as opposed to learning the desktop world from scratch?

OM: So basically you’re saying that in this new environment, that you have to give up on your legacy of desktop and just view the world from a web perspective?

RAY OZZIE: Well, I can’t say give up on it. Here’s the way I talk about it to people at Microsoft. The desktop is very useful. People use it a lot on a daily basis. There are things that the web is good for, but that doesn’t necessarily mean that for all those things that the desktop is not good anymore. What I think is important is to re-pivot the center of what we are trying to accomplish.

OM: What makes you guys think that you can actually do better than everybody else?

RAY OZZIE: I’m not going to get cocky. The reason I’m a believer is that Microsoft as a company is in a number of different markets. I think we’re well positioned, because we have a selfish need to do these things, and because we have platform genetics. We have the capacity to invest at the levels of infrastructure that are necessary to play in this game. So I think we’ll be well positioned.  I can’t tell you specifically which aspects we’re going to kick somebody else’s butt, or where they’re going to kick our butt, but I think we’re pretty well positioned.

OM: I buy into the whole services model, but then I see what happened a couple of weeks ago — Hotmail goes down for quite a long time. And this happens way too often, not only just at Microsoft, but at other services also. It is very hard for me to imagine, we keep talking about services, but the reliability of the infrastructure is just not there.

RAY OZZIE: It’s not straight engineering, and it’s not an art. It’s somewhere in-between. And we are all learning. And so if you look at the innards of a Yahoo or a Microsoft, an MSN, or a Google, you will see the people who have designed the systems and have taken a number of the things we’ve learned in the enterprise space. We have to throw them them away, because the way that we did it in the enterprise space was more tightly coupled. We need to be more loosely coupled.

So I’m not going to make any excuses for downtime. We need to develop more and better application design patterns that we give to developers that let them develop mesh-oriented apps at birth, horizontal apps that can suffer massive failures of certain aspects of their infrastructure, while still surviving.

OM: It (mesh-oriented apps) sounds like a great idea, but in reality can we actually deliver that kind of a mesh app architecture, and how soon?

RAY OZZIE: I think that you’ll see is over the course of this year, to 18 months, you’ll see the incumbents and startups, both, do their first big volleys of services platform, apps tools, runtimes, various things. It really isn’t being taken seriously right now by anybody except Amazon. They’ve done the world a service by putting out there some fairly provocative, interesting services.

OM: The costs of computing, hardware and bandwidth are dropping quickly. Do you believe that the cost will come down fast enough to make cloud computing actually a profitable business?

RAY OZZIE: Well, it’s unlikely that we would get into it if we didn’t think it was going to be a profitable business. So we’ll just manage it to be profitable. It’s going to have different margins than classic software, or the ad (-supported) business. But, we have every reason to believe that it will be a profitable business. It’s an inevitable business. The higher levels in the app stack require that this infrastructure exists, and the margins are probably going to be higher in the stack than they are down at the bottom.

OM: Can you actually elaborate a little bit on that, like when you say higher in the stack, what precisely do you mean?

RAY OZZIE: Let’s go all the way up. Let’s stick to boring old enterprise, all the way up at business solutions, HR apps, or things like that. Somebody who is selling those apps is going to build in, more than likely, the underlying utility costs within their higher-level service. It will still be cheaper to do those things on a service infrastructure than it is on a server infrastructure, but the margins will still be higher to people who build solutions that customers understand the business value of.

When you go down to selling bandwidth, or selling MIPS there will be competition at that level. So the margins, at generic commodity levels are going to be substantially lower.

OM: When do you think utility computing can be a profitable business; are we’re looking at like maybe two years, four years out before it actually starts to become a profitable entity?

RAY OZZIE: (Let’s) take (one company) who is in the market today: Amazon. They chose a price point. There are either customers at that price point or not. They may have priced themselves at expected costs as opposed to actual today costs, but it doesn’t really matter. They could have brought it out at twice the existing price and there still would have been a customer base, and they’d be making money at birth.

I think all of these utility-computing services, as they’re born will either be breaking even or profitable. At the scale that we’re talking about, nobody can afford, (even Microsoft) can’t afford to do it at a loss. We could subsidize it, I suppose. Google could subsidize it by profits in other parts of their business, we could subsidize it, but I don’t think there’s any reason that any of us in this world would bring out that infrastructure like this without charging for what we’re paying, and then trying to make some profit over it. The cost base is so high in terms of building these data centers you do want to kind of make it up.

Microsoft is fighting a war — one in which it’s being attacked on three sides. Cut through the flurry of announcements out of its Mix conference this week and what emerges is the Redmond giant’s three-pronged defense strategy: consumer, enterprise and developer. Only by understanding the battles Microsoft is fighting does it become clear where the company is headed. So we’ve broken it out for you here.

The consumer attack

The front: Desktops, handsets and consoles. Flanked by Apple’s cooler desktops and devices, Google’s insight into users, and the Nintendo/Sony console world, Microsoft is struggling. Windows Mobile isn’t a consumer handset like the iPhone. Live hasn’t really taken off. Vista flopped, with the company embroiled in claims that it overstated the number of machines on which it would run. And the Xbox, despite its success, has an alarmingly high recall rate. Perhaps most frighteningly, it’s becoming clear that when it comes to consumers, advertising is paying for it all (what Chris Anderson calls the “freeconomy”). But Microsoft isn’t plugged into that ad stream.

The defense: One OS to rule them all. Users have dozens of devices, and Ray Ozzie wants them all to work seamlessly together. Expect Danger, Zune, Xbox and Vista to share and synchronize automatically. Carriers and labels will love it. Consumers will settle for it. And once they’ve got a central identity, they’ll be able to carry their desktop applications (with varying degrees of functionality) from their desk, to their car, to their hip, to their sofa.

But how to pay for it? What Microsoft needs is an ad network like Yahoo, and media formats like Silverlight that lure advertisers. Ballmer’s clearly not resistant to the concept of advertising: In an on-stage Mix interview with Guy Kawasaki, he performed a mini-monkeyboy dance, only to demand of the person who had requested the jig: “If your buddy behind you just gave you a buck, I want 50 cents.” He knows where his consumer revenue’s coming from down the road.

The enterprise attack

The front: On-demand apps and a mobile workforce. Salesforce.com has gone from a turnkey contact manager to a full-fledged ecosystem for developing CRM applications. Amazon lets hundreds of upstarts build project planning, accounting, word processing, messaging and more — apps that traditionally filled Microsoft’s coffers. Standards like OpenID give interoperability without buying a suite. As companies realize the inevitability of on-demand computing, Microsoft has to completely change its business model. And on the mobile front, Windows Mobile can’t hold a candle to the BlackBerry.

The defense: Connected productivity and an easy move into the cloud. Expect the firm to retrench on mobility. Exchange still holds the bulk of business users’ internal relationships. More and more, it’s focusing on workflows and business process. Moving those processes between the enterprise server, the mobile device and the web — seamlessly — would be a big win that companies will love. With Danger, Windows Mobile can stop being a tweener and go after Research In Motion. And Microsoft’s asp.net architecture is still the easiest way for its legions of developers to build online applications.

When companies are ready to port their data centers into the cloud, Microsoft will make the transition as painless and transparent as possible using Windows Live Storage, SQL Server Data Center Services, and other services with codenames like CloudDB, Horizon, and Live Core that execs are still tight-lipped about.

The developer attack

The front: Open source, web apps and video. The thing Bill’s always done right is focus on developers. He put in functions. He opened up APIs. He showered them with development resources. And it worked. But today, we have Sourceforge for snippets of code. Eclipse gives ActiveVisual Studio a run for its money. We built Web 2.0 with Flash, AJAX, Ruby, Python — the language of the web isn’t .net, and it hurts. When it comes to video, Microsoft’s Silverlight seduces content providers with tracking and ad support, but we’ve already built those things out of Flash ourselves. And Microsoft’s notoriously long release cycle for Longhorn impacted its ability to react to market changes.

The defense: New Lego. Remember old Lego, which only had a few pieces? You had to carefully build the front of a spaceship from thin rectangles and dozens of identical bricks. But new Lego is different. There’s a single piece for the front of the spaceship. And while old-school Lego types cry foul, now pretty much anyone can build a spaceship.

That’s Microsoft. New features in Internet Explorer 8, working in concert with the company’s web servers, will make it easy to drag-and-drop sex appeal into the application without needing much talent. And enterprise developers will embrace it, as they always do, because it’s easy. Things like Feedsync and Sliverlight will make it that way. Even the Popfly site makes anyone who can drag a mouse a coder, performance be damned. By breaking the software into services, there will be less delay between releases, which should fix the Longhorn drought.

How will the battle go?

Mix08 was an upbeat event.  But read between the lines, and it’s clear that the company is bracing for a fight from several sides at once. Don’t write off Microsoft: We were here once before, when Netscape was going to put the company out of business. But Gates issued an edict, the company turned on a dime, and a few years later IE was the dominant web browser.

But you never want to fight a war on multiple fronts, and that’s what Microsoft faces in battles for consumers, enterprises and developers. If it survives, the Microsoft of tomorrow will be a very different company.

Of all the technology subsectors out there right now, the one with the most promise is the mobile platform. This is true for many reasons, notably that:

• Your mobile phone is always on your person, making it a lucrative market for advertisers.
• Most cell-phone consumers are still carrying “dumb” phones but are starting to look at smartphones. This is especially true as the BlackBerry Pearl and $100 Palm Centro are making smartphones more accessible, price-wise.
• Here in the U.S., high-speed mobile broadband networks are becoming more pervasive.
• Web sites are increasingly being offered in impressive mobile versions.

One major barrier to adoption with smartphones is the clunky interface these devices offer. Small screens combined with cramped keyboards, inadequate mobile software, and awkward pointing devices make email writing, web browsing and other common tasks difficult.At this year’s Mobile World Congress, the world’s largest mobile phone gathering, it was clear the major handset makers were well aware of the issues facing mobile phone users. The buzz from the conference centered on Nokia, Samsung and Sony trying to capture the user interface spirit of Apple’s iPhone. For example, most modern cell phones come with a camera phone, MMS features and the Java framework that allows for the use of a mobile platform. However, interaction with these advanced features is hindered by the complex user interfaces found on the phones.

Clearly a development was needed to engage customers.In June 2007, Apple showed the world how user-friendly and useful the touch interface could be. Now that the mobile handset market has had some time to react, two options are coming our way that are sure to heat up the market.Google’s Android platform will feature a touch capability. Imagine being able to zoom and move around with Google’s Street View or having access to your Google Talk contacts with the flick of a finger. For an interactive presentation, check out Android’s Andy Rubbin showcasing the device’s user experience:

Amazingly, the Android demo is running on a device that has a 300 Mhz processor — half of what the iPhone currently uses. With this type of efficient horsepower, it will be simply shocking to see the types of applications mobile developers can bring to the mobile userbase when Android hits the streets.

Mobile powerhouse Nokia isn’t sitting idle either, as the Symbian Touch UI will soon be making its way onto the Finnish handset maker’s devices. Unveiled at Mobile World Congress, the soon-to-be released mobile opeating system holds a high degree of promise. Like Android, Symbian’s touch UI will be open source. This should continue Symbian’s fantastic array of third-party application support.

Smartphone adoption in the U.S. has been hindered, especially when compared to Europe. Perhaps there is a cultural difference in that Americans seem to want to pull a phone out of the box and just start using the features. Europeans, on the other hand, seem more apt to read the manual and actually figure out complex features. Additionally, 3G GSM networks were available in a more timely fashion in European countries.

The Touch UI, with its speed, elegance and simplicity, might turn out to be just what the U.S. cell carriers have been hoping for, the catalyst that finally kickstarts the adoption of smartphones stateside — and cinches 2008 as the year the touch interface revolutionizes the mobile market.