This article was originally published in the April 2014 edition of WIRED magazine. It has been published online for the first time following news that Jan Koum is to leave WhatsApp, reportedly over differences in opinion about user privacy.
When he was living on welfare, Jan Koum’s family collected food stamps a couple of blocks from the unmarked Mountain View office that now houses his company, WhatsApp. An émigré at 16 from communist Ukraine – where phones were routinely tapped – Koum and his mother could rarely afford to call family back home.
So when, at 31, he left a job at Yahoo! with enough cash to launch his own business, it made absolute sense that he would work on democratising phone-based communications. He had just three rules as he experimented with the early iterations: his service would defiantly not carry advertising, an experience satisfyingly absent from his Soviet upbringing; it would not store messages and thus imperil individual citizens’ privacy; and it would maintain a relentless focus on delivering a gimmickless, reliable, friction-free user experience.
Five years after launch, WhatsApp is among the world’s most popular and profitable phone apps – and one which Facebook last month acquired for $16 billion plus $3 billion for founders and staff. On a typical day in January, more than 18 billion messages were sent through its network, two billion more than in early December – and a whisper away from the 19.5 billion sent daily via SMS. Some 450 million people are active monthly users (including a quarter of the UK population), up from 400 million in December, 300 million last July, and 200 million last January. That “active” sets WhatsApp apart from many big-number competitors: as Koum huffed on Twitter last May, “Comparing total registered users and active users is like comparing Ferrari 250 GTO with a skateboard.” And most of them are paying a pound, a euro or a dollar as an annual fee.
How did an avowedly non-technical founder build a product that, at current growth, is on track to cross a billion users early next year? How, in a market saturated with mobile-messaging apps, has it stayed ahead of Apple’s iMessage,Tencent’s WeChat, Facebook Messenger, Snapchat, LINE, Kik Messenger, Kakao-Talk and more – and all with a staff of just 50? And how, as part of Facebook’s data-gathering, ad-led business, can WhatsApp retain its mission?
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Pinned to Koum’s desk in his open-plan office is a handwritten note signed by his cofounder and early investor, Brian Acton: “No ads! No games! No gimmicks!” Alongside the note is a pair of walkie-talkies that Koum is using to understand better how to simplify the voice-messaging function. “We’re the most atypical Silicon Valley company you’ll come across,” says Acton, a clean-cut, red-faced 42-year-old from Michigan, whose appearance contrasts markedly with Koum’s 188cm-tall, dark, unshaven look. “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.” He and Koum, he adds, are “the yin and yang – I’m the naïve optimist, he’s more paranoid. I pay attention to bills and taxes, he pays attention to our product. He’s CEO. I just make sure stuff gets done.”
Acton was employee number 44 at Yahoo!, working on display ads, shopping and travel, then keyword ads. A computer-science graduate from Stanford, he’d grown up in suburban Florida playing golf: his adoptive father had attempted a professional golf career, while his mother had built an air-freight business. In 1997 he interviewed Koum for a job in systems security. They both left Yahoo! on the same day, October 31, 2007. They kept in touch, often playing ultimate frisbee together. On Koum’s birthday, February 24, 2009, he ran excitedly on to the frisbee field and told Acton that he’d just registered a company to make a phone “status” app. It would be called WhatsApp – “Zap” was another contender – and would simply indicate whether it was convenient to receive a call.
The first release, in May 2009, went nowhere. But a month later, Apple introduced push notifications in iOS 3.0. That led Koum to rethink WhatsApp as a full, cross-platform messenger app that would use the phone’s contacts folder as “a prebuilt social network”, and the phone number in place of a login. He had gone through three Skype accounts the previous summer because he couldn’t remember his passwords and user names, and he was determined to make his app “just work”. By September, when it went live, Acton had decided to join Koum, to lead an investment round, and to experiment with business models that would bring in revenue but also ensure controlled growth that their infrastructure could support. “We’d grow superfast when we were free – 10,000 downloads a day,” recalls Acton. “And when we’d kick over to paid, we’d start declining, down to 1,000 a day.” At the end of the year, after adding picture messaging, they settled on charging a one-time download fee, later modified to an annual payment. From the start, they refused to carry advertising – which, according to Koum’s first tweet, on August 28, 2011, channelling Fight Club’s Tyler Durden, “has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need”.
“There’s nothing more personal to you than communicating with friends and family, and interrupting that with advertising is not the right solution,” he says when WIRED visits in December, before the Facebook deal. “And we don’t have to know a lot about our users. To target advertisements well, companies need to know where you are, what you might be doing, who you might be with, what you might like or not like. That’s an insane amount of data. Besides, I grew up in a world with no advertising. There was none in the communist Soviet Union.”
Koum, 38, grew up Jewish and “a rebellious little kid” in a tough village outside Kiev. “It was so run-down that our school didn’t even have an inside bathroom,” he says. “Imagine the Ukrainian winter, -20°C, where little kids have to stroll across the parking lot to use the bathroom. Society was extremely closed off: you can read 1984, but living there was experiencing it. I didn’t have a computer until I was 19 – but I did have an abacus.”
He rarely saw his father, who ran a government construction company and worked until 10pm with what Koum calls a “get shit done at any cost” attitude. “I saw him deal with problems every day, nightmare after nightmare. The building still had to go up.” When he moved to California with his mother and grandmother in 1992, living in government-assisted housing, his father stayed behind, which he recalls as hard: “To instant-message my dad then would have been something.” He was the kid in class whose family didn’t have a car, so had to get up at 6am to get the bus; he didn’t speak much English, and “got into trouble for bullying people who bullied me – I’m 6’2”. Growing up in Ukraine is not easy, and prepares you for a lot of things physically and mentally.” He dropped out of college – “I studied computer science and maths, and was equally bad at both, and bored” – and took jobs bagging groceries; at Fry’s Electronics; at an ISP; and conducting computer-security audits at Ernst & Young. And then he met Yahoo! cofounder David Filo at an Apache security conference and was invited in for a job interview.
Theodore Vail, Bell Telephone’s then president, used his 1908 annual report to argue for a monopoly on operating US telephone lines. At the time, there were thousands of disparate phone providers – but Vail persuaded Washington that a single giant communications network would optimise utility to consumers. Since then, it’s been a business assumption that a communications platform can gain an unencroachable market advantage once it reaches such penetration that the “network effect” removes an incentive to go elsewhere.
WhatsApp’s availability across six platforms – Android, iPhone, BlackBerry, Nokia S40, Symbian and Windows Phone – has given it that escape velocity, with each new user likely to invite friends and family to connect through the network. “It’s likely to be a winner-takes-all market in the messaging category because of the strong network effect,” says Jim Goetz of Sequoia, which made astute early investments in Google, Yahoo!, LinkedIn and many more before putting $8 million (£4.9 million) into WhatsApp in 2011 and $50m more last summer. “Jan and Brian’s active graph is approaching Facebook’s and we believe will exceed it on mobile within 24 months. There’s fragmentation in social, and we’re still in the early innings of embracing these new ways to connect. WhatsApp will have more than a billion active users in the not too distant future.”
Goetz adds that he is “shocked” that Koum and Acton have asked him to meet a journalist. “We’re more interested in building stuff than talking about it,” says Koum, whose flu, on the December day WIRED arrives, does not inhibit his dry, blunt sense of humour. “Plus, I get sick when I have to talk to the press… ” It just proved advantageous to be under the radar, he explains. “If someone learns about our product from their friends, that’s a huge endorsement. If you hear about it from the press, a commercial, it’s not the same.”
When WIRED visits, the pair are adamant that they want to build the business independently. “I worry about what [an acquiring] company would do with our population,” Acton says. “You’re never hands-off in the long term. To have someone come along and buy us seems awfully unethical. It goes against my personal integrity.” Koum adds: “We worked in a large company and we weren’t that happy. Facebook, Google, Apple, Yahoo! – there’s a common theme. None of these companies ever sold. By staying independent they were able to build a great company.” Nor had they seriously considered an IPO. “It’s not an active part of our agenda,” according to Acton. “We just want to go back to work, for God’s sake. We have bugs! We just have so much going on that we’re not planning our exit.”
Mark Zuckerberg approached Koum in 2012; they met over coffee in Los Altos. It wasn’t until last month that Zuckerberg made a formal offer; the deal was announced on February 19. It seems that $19bn in cash and stock (and a Facebook board seat) alleviated the founders’ doubts. In a blog post, Koum insisted that WhatsApp “will remain autonomous and operate independently”, with “absolutely no ads interrupting your communication”.
Talk of the business’s multibillion valuation and growth numbers seems almost a distraction when WIRED visits before the acquisition. “It’s almost incomprehensible,” Acton says. “We focus on what our brains can wrap themselves around, like customer complaints… It’s also possible that it’s not completely real – there’s a bubble. Yahoo! in 2000 was a $100bn company. Sixty days later they were a $10bn company.”
Koum says revenue is not his prime concern. “We take a similar approach to Google in search. Remember the portals that came before? Google want people to leave their site as soon as possible because they’d done a good job. We want you to talk without being interrupted by ads. Monetisation is important to us, but we’re not sitting here with a bunch of consultants figuring out how to squeeze the last penny out of our users.”
They would rather the app be known for its reliability and simplicity. What keeps them awake – literally – is the occasional server outage, such as one the previous Saturday that led to “people having panic attacks on Twitter,” Koum says. A whiteboard lists its 99.92456 per cent uptime in 2013 – with 600 servers ensuring smooth delivery of up to 250,000 messages per second and a billion images a day. “Our mission is clear: get out of the way,” Acton says. “I worked on Yahoo! Shopping, where there was always a debate about putting more ads and logos on pages. It left a bad taste.”
“The f-word here is focus,” Koum says. “All software bloats to the point when it sends and receives email. Jamie Zawinski said that.” Acton adds: “People ask for a desktop version, for user names – but we focus on the utility, the simplicity, the quality of the service. We don’t want to build a hookup app. We’re about your intimate relationships.” For the recently rolled-out push-to-talk voice messaging, it takes a single tap to record and send a voice message; to play it, a phone will automatically switch from speaker-mode to soft volume when its proximity sensor detects that it’s being held near an ear.
Yet caution can be a high-risk strategy. WhatsApp has been accused of innovating slowly and overlooking trends such as ephemeral messaging that reportedly brought Snapchat a $4 billion offer from Google.
Acton minces no words. “It’s not 100 per cent clear to me what’s working about Snapchat,” he says. “Great, teenagers can use it to get laid. I don’t care. I’m 42, essentially married with a kid. I don’t give a shit about this. I’m not sexting with random strangers. I send the ‘I love you’s in text. She’s sending me photos of our baby. These are memories. It’s not clear to me that being goofy with Snapchat creates that intimacy. Clearly [Snapchat cofounder] Evan Spiegel only has his pulse on one part of the world. People want chat histories. They’re a permanent testimony of a relationship.”
Which is why, WIRED suggests, these chat histories may be attractive to security agencies. So have governments demanded that WhatsApp gives them access to its servers?
“There is no key to give,” Koum says. The US National Security Agency, he insists, has no access to users’ messages. “People need to differentiate us from companies like Yahoo! and Facebook that collect your data and have it sitting on their servers. We want to know as little about our users as possible. We don’t know your name, your gender… Our system is as anonymous as possible.”
This is more than a business position for Koum. “I grew up in a society where everything you did was eavesdropped on, recorded, snitched on,” he says. “I had friends getting into trouble for telling anecdotes about communist leaders. I remember hearing stories from my parents of dissidents like Andrei Sakharov, sentenced to exile because of his political views. Nobody should have the right to eavesdrop, or you become a totalitarian state – the kind of state I escaped as a kid to come to this country where you have democracy and freedom of speech. Our goal is to protect it. We have encryption between our client and our server. We don’t save any messages on our servers, we don’t store your chat history.”
Last summer, Saudi Arabia threatened to block WhatsApp and other messaging apps for “failing to comply” with state regulations. “We’re a US company,” Koum shrugs. “We don’t have offices in Saudi Arabia. Blocking us would bother me not as CEO of WhatsApp but as someone who believes in freedom of speech and a right to privacy.”
Apple, too, has blocked WhatsApp – removing it from the App Store for four days in 2012, over what Acton calls “iOS 5 compliance” issues that were resolved. “We have a wonderful relationship with Apple,” Acton deadpans, as Koum laughs. “Look, we’d rather talk about how much we like to work with Android,” Koum says. “By having an open system we can develop new features faster, get them in the hands of our users faster, and if we find a bug we can roll back not in a matter of days, but minutes. Android provides that, Symbian provides it, Windows and BlackBerry provide it…” Acton adds: “We can innovate fearlessly on Android. We have too much fear of Apple. The approval cycle alone stifles your creativity.”
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Ovum Consulting forecasts that 71.5 trillion messages will go through these services this year, compared with 27.5 trillion in 2013; Flurry Analytics calculates that last year’s transactions were triple those of the previous year. Social messaging, as Facebook knows, is a key way to boost mobile engagement. And this is an all-fronts international war: from its office, WhatsApp offers customer support from staff fluent in Spanish, Mandarin, Turkish, Arabic, Indonesian and more.
For Facebook, the acquisition boosts its access to emerging markets. India is WhatsApp’s biggest customer base, with more than 40 million active users. Mexico has over 30 million users, and the UK 17 million. It may have just five-per-cent penetration in the US, but in countries such as Brunei, Kuwait and Hong Kong, WhatsApp is on at least two-thirds of phones. Neeraj Arora, who runs “all things business” at the company, points to partnerships with carriers – for instance, 3 in Hong Kong – to enable “very cheap usage” of WhatsApp through inclusive packages.
“I’d look at messaging as part of a bigger trend that’s using smartphones to drive openness and democracy,” Koum says. “Look at how quickly news about the Ukrainian protesters is spreading. Messaging is a building block.”
And as the founders see it, the phone is just the beginning. “Messaging will be entrenched in all our devices,” Acton says. “Miniaturised, a wearable pendant, glasses, a fashion accessory…”
“A hologram…” Koum continues.
Yet, as a former welfare recipient – he pointedly signed the $19bn deal leaning against the door of the Mountain View social services office – how does it feel to have built a business valued in so many billions? “I just don’t think about it,” Koum says after a pause. “It’s flattering, a good validation of what we’ve done, but we still have a lot of work to do.”
Koum says he tries to tune out the growth numbers.
“They’ve got so big that they seem incomprehensible to us,” Acton reflects.
“And we’re not even yet on a half of all smartphones,” says Koum. “We’re way behind! We’re not doing our job!” He adds: “I know it’s not sexy, I know we don’t have a third cofounder suing us. We’re just growing the company, hiring good people…”
Joking aside... In such a competitive space, he’s not threatened by what other tech firms could do to take his market? “I grew up in Ukraine,” Koum says, heading for the door. “I don’t get scared.”
This article was originally published by WIRED UK
