WhatsApp isn't your average Silicon Valley startup.
The company's founders Jan Koum, 38, and Brian Acton, 42, shun the media spotlight and are much older than your typical college dropout-turned CEO. And at a time when social media companies are focusing on advertising to generate revenue, WhatsApp rejects the idea of showing ads to the 450 million people who use its mobile messaging app.
The whopping $19 billion that Facebook is paying for the service is also unusual, even as other startups with no profit, or even revenue, are commanding sky-high valuations.
Koum and Acton are at the center of the largest buyout deal ever for a venture-backed company. How did two former Yahoo engineers who witnessed the late '90s dot-com boom — and bust — create the world's hottest app and make 10-year-old Facebook seem a tad grizzled?
“Jan keeps a note from Brian taped to his desk that reads 'No Ads! No Games! No Gimmicks!' It serves as a daily reminder of their commitment to stay focused on building a pure messaging experience,” wrote Sequoia Capital partner Jim Goetz in a blog post about Thursday's deal. Sequoia is WhatsApp's sole venture capital investor.
The Ukraine-born Koum, WhatsApp's CEO, move to the U.S. when he was 16. Acton was born in Michigan.
“We're the most atypical Silicon Valley company you'll come across,” Acton told Wired in a December interview that the magazine will publish next month in its U.K edition. “We were founded by thirtysomethings; we focused on business sustainability and revenue rather than getting big fast; we've been incognito almost all the time; we're mobile first; and we're global first.”
The pair started WhatsApp in 2009, two years after they left their jobs at Yahoo Inc. and five years after Facebook got its start in Mark Zuckerberg's Harvard dorm room. The service is simple. People use it to send text, photo or video messages to their contacts, bypassing text messaging charges and other fees from wireless carriers.
“WhatsApp is simple, secure, and fast. It does not ask you to spend time building up a new graph of your relationships; instead, it taps the one that's already there. Jan and Brian's decisions are fueled by a desire to let people communicate with no interference,” writes Goetz, who along with Sequoia also stands to reap a hefty sum from the deal.
Much like Zuckerberg did during Facebook's early years, WhatsApp's founders shun ads. But unlike Facebook, which now relies on advertisements for the bulk of its revenue, WhatsApp remains ad-free.
Users who download WhatsApp on their phones are greeted with a link that reads “Why we don't sell ads.” The link leads to a quote from Tyler Durden, the anti-establishment character from the 1996 novel “Fight Club.”
“Advertising has us chasing cars and clothes, working jobs we hate so we can buy s— we don't need,” it reads.
A note from Koum follows with more details.
“These days companies know literally everything about you, your friends, your interests, and they use it all to sell ads,” writes Koum. “No one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they'll see tomorrow. We know people go to sleep excited about who they chatted with that day (and disappointed about who they didn't). We want WhatsApp to be the product that keeps you awake.”
Koum then goes on to call advertising an insult to users' intelligence and an interruption to their train of thought. Take that, Facebook.
While WhatsApp rejects ads (it charges 99 cents per year after letting people use it free of charge for the first year), Facebook works to gather as much information as possible about its 1.23 billion users, their tastes for coffee and music, where they live and travel, their friendships, marriages and breakups. WhatsApp doesn't ask users their age, gender or where they live.
In a conference call with financial analysts, Zuckerberg talked about the acquisition and said he doesn't think ads are “the right way” to make money from messaging services. Koum agreed. Although WhatsApp is profitable, Koum told analysts on the call that making money “is not going to be a priority for us.”
“This is why I actually respect Mark and his vision, is that he takes a very long term on everything they do at Facebook. They focus on something that is not just tomorrow, but something that's 5 or 10 years from now, and that's the same about with our company,” he said. “We always talk about where mobile is going to be, not today, not next year, but in 2020 or in 2025. And as we look forward to the next 5 or 10 years, 5 billion people will have a smartphone and we have a potential to have 5 billion users potentially giving us money through the subscription model.”
Koum, who is now a billionaire, at least on paper, lived on food stamps when his family first moved to the U.S. He told Wired of growing up in a communist country, where “everything you did was eavesdropped on, recorded, snitched on.” That's another, more personal reason for his insistence on not collecting information about users. WhatsApp doesn't store your chats history on its servers because it doesn't need to, since it doesn't need it to target advertisements to you.
Though he's known Zuckerberg for a couple of years, the Facebook deal wasn't in the works yet when Koum spoke to Wired late last year. He brought up Facebook, Google, Apple and Yahoo as examples of “great” companies that never sold, and signaled that WhatsApp would like to stay independent.
Acton, meanwhile, expressed worry about what a bigger company would do with WhatsApp's users, to whom the company has made such an important promise of “no ads, no gimmicks, no games.”