The user is not the product: why the founders of WhatsApp quarreled with Mark Zuckerberg

In 2014, co-founder and head of WhatsApp, Jan Koum, sold the most popular instant messenger to Facebook for $22 billion, but remained at the head of WhatsApp. In May of this year, Koum announced that he was leaving the company. His partner Brian Acton retired last year. Koum's departure coincided with the height of the Cambridge Analytica scandal - but they are not connected in any way. What happened between Koum and Zuckerberg? The Wall Street Journal spoke to Facebook and WhatsApp employees and details ( paid material) how the conflict between the two teams and two ideologies developed.

Just not advertising

The reason for leaving was the ideological conflict between Acton and Koum with Facebook. The founders of WhatsApp are staunch supporters of maximum user privacy and, most importantly, sharp opponents of advertising. Prior to joining Facebook, the only thing they made was a 99-cent-a-year fee that was charged to every WhatsApp user.

In 2012, the creators of WhatsApp wrote a post on the company's blog that can be called programmatic. They called advertising an "insult to the intellect": "At every company that sells ads, a significant part of the engineering team spends their day improving data analysis, improving code to collect your personal information <...> The end result of all this is slightly a different banner ad in the browser or on your phone screen. Remember, when it comes to advertising, the user is the product.”

Facebook, under the leadership of Mark Zuckerberg and Sheryl Sandberg, by contrast, makes billions from targeted advertising, a model that has remained unchanged even after the international scandal Cambrigde Analytica . Moreover, one of the main components of Facebook's success is the company's ability to successfully monetize purchased startups and integrate them into its advertising system of earnings, says Daniel Ives, top manager of the research company GBH Insights.

Facebook and WhatsApp were incompatible from the very beginning - Kum and Acton showed complete disdain for the potential commercial use of the messenger. During the Cambrigde Analytica scandal, Acton, who had already left Facebook by that time, supported calls for a boycott of the social network and even donated $ 50 million to the Signal messenger, which competes with WhatsApp and relies on the security of data transmission.

Complete incompatibility

When Facebook bought WhatsApp, the company never discussed publicly how the two different philosophies would coexist. However, in 2014, Zuckerberg told stock analysts that he and Koum agreed that advertising is the wrong way to make money in instant messengers. Zuckerberg assured that he promised the founders of WhatsApp not to advertise in the messenger and guaranteed independence in working on their own projects and ideas. The founders of WhatsApp even had a clause in their contract saying that they could leave with an acceleration of additional rewards in the form of Facebook shares if the company insisted on “additional monetization initiatives.”

Still, hoping that Facebook wouldn't find a way to cash in on Koum and Acton's WhatsApp purchase was "a little naive," digital marketing and social media expert Nate Elliot told the WSJ. “Facebook is a business, not a charity,” he said.

"Welcome to WhatsApp - shut up!"

Differences also manifested themselves in small things. In January 2017, the WhatsApp team moved from Mountain View to Facebook's headquarters in Menlo Park. Facebook even tried to be friendly by decorating the office in WhatsApp green. But WhatsApp employees were annoyed by the noisy Facebook campus with many restaurants, and they plastered the office with posters “Please keep the noise level to a minimum.”

Facebook employees perceived the WhatsApp department as some kind of mysterious place and made fun of it. After the posters appeared, the mocking phrase “Welcome to WhatsApp - Shut up!” became popular. (Welcome to WhatsApp - shut up!) Some Facebook employees didn't like the WhatsApp office desks they moved from Mountain View - they were larger than the standard office desks. Facebook employees were not allowed to use WhatsApp intercoms, and the latter finally gained a reputation as suspicious misanthropes by equipping themselves with more comfortable restrooms, the doors of which reached the floor.

Kuma was annoyed by the need to work for a big company: sometimes he found fault with Zuckerberg and other top managers of Facebook about small things - for example, a particular model of chairs that Facebook insisted on buying.

“And little things like that happened in a company that prides itself on being egalitarian,” one Facebook employee ranted to the WSJ.

End of agreements

Facebook's non-intervention in WhatsApp ended in 2016, when the number of messenger users exceeded one billion people, and its management refused the commission of 99 cents a year. At the same time, Facebook told investors that it would reduce the number of ads in its own news feed, which, accordingly, would lead to a decrease in revenue. Other Facebook structures had to pay for this - including, of course, WhatsApp.

In response to the pressure, Koum and Acton came up with alternative ways to boost WhatsApp's revenue—like only selling brands' ads to users who had already bought their products—but none of them were as profitable as Facebook's advertising model. “Well, this is not the level,” Sandberg told WhatsApp executives: she wanted ads to appear in the messenger.

To achieve the appearance of advertising in WhatsApp, Sandberg and Zuckerberg cited the purchased Facebook Instagram as an example - its founders after the deal first tried to make their own advertising platform, but fell short of the targets. Eventually, Facebook convinced them to switch to Facebook's targeted advertising model, and after a "smooth and subtle" transition, Instagram became a key source of income for Zuckerberg's company. “The scheme worked for Instagram,” Sandberg told WhatsApp executives.

Frustration among Facebook's top executives also grew as Kuma and Actona delayed the decision to introduce new features to WhatsApp that could help monetize - the founders of the service wanted to keep its original simplicity. Zuckerberg and Sandberg have been pushing for WhatsApp to relax its strict stance on message encryption, which could help, for example, sell the messenger to companies as a user support platform.

Gap

Last summer, Facebook management discussed the possibility of placing ads in WhatsApp "statuses" (similar to Instagram Stories - allows users to post photos and videos for 24 hours).

Acton, whom WhatsApp employees call "the company's moral compass," decided to leave just as those discussions began. Kum spent another eight months at the company, but on April 30, 2018, he wrote a farewell post on Facebook and personally said goodbye to employees the next day. At the meeting, he was asked about the prospects for advertising in WhatsApp - Kum said that if advertising does appear in the messenger, then its placement in statuses will be as unobtrusive as possible for users.

With the founders gone, WhatsApp will be run by Chris Daniels, a longtime Facebook executive. He is tasked with finding a business model that will allow him to earn enough to justify the high price of buying a messenger. Naturally, the model should not compromise on the features that make WhatsApp so popular. There are still no ads on WhatsApp.

What do I get from this?

If you sell your startup to a big player, you can be sure that you will receive money ( Kum's fortune after the deal with Facebook is estimated at $10.4 billion, Acton - almost $7 billion). But if you have the illusion that after the deal, being a founder will allow you to challenge the decisions that the buyer insists on, it’s better to part with them in advance.

Artem Gubenko