Facebook’s announcement Wednesday that it had agreed to buy the mobile instant-messaging company is fascinating on multiple levels. The first involves the warp-speed dynamism of the tech sector. Facebook just celebrated its 10th birthday, which makes it a senior citizen of Silicon Valley compared to WhatsApp, which turns five next week.
Think about it — five years ago, this company did not exist. Today, $16 billion and counting.
Perhaps it will turn out that Facebook overpaid. The WhatsApp number makes Facebook’s $1 billion purchase of Instagram in 2012, or even its spurned $3 billion offer for Snapchat last year, look like pocket change. And the social media gods are notoriously fickle. Anyone remember Friendster? (Shoulda taken the $30 million buyout from Google, guys.)
WhatsApp doesn’t sell advertising and produces relatively little revenue, a scant $20 million last year. The messaging service — think of it as a way to text or share photos and video without having to pay a cellular provider — is free the first year and charges 99 cents thereafter. Yes, that’s cents. Per year.
Yet a look at the alpine trajectory of WhatsApp’s growth helps explain its allure. According to numbers posted by Facebook, WhatsApp boasts 450 million users. It is adding 1 million daily, putting it on a path, Facebook chief executive Mark Zuckerberg said, to reach 1 billion. An astonishing 70 percent of users are active on a given day, and, Facebook said, the volume of messages is “approaching the entire global telecom [texting] volume.”
A second, and even more powerful, lesson of the acquisition is the quintessentially American nature of the WhatsApp success story. It is Horatio Alger updated for a global, interconnected age — and a powerful rebuke to border-closers railing against immigrants on the government dole.
WhatsApp co-founder Jan Koum, now 37, was born in a small village outside Kiev, Ukraine, according to Forbes’ Parmy Olson. His house had no hot water; his parents — a construction manager and a housewife — avoided speaking on the phone for fear of being overheard by authorities.
Koum’s mother brought him to the United States when he was 16, along with a stack of Soviet-issued notebooks to avoid paying for school supplies. (His father remained behind.)
Settling, fortuitously, in Mountain View, in the heart of Silicon Valley, the family received food stamps and rental assistance; Koum’s mother baby-sat and, after she was diagnosed with cancer, received disability benefits. Koum himself was a screw-up in high school, but he taught himself computer networking, buying manuals from used bookstores and returning them when he was done. He dropped out of college to work at Yahoo.
Koum’s Soviet-era childhood is relevant to a third intriguing aspect of the WhatsApp story: its aversion to advertising and the related drive to collect user data. Having worked at Yahoo for a decade, Koum and fellow WhatsApp co-founder Brian Acton developed an intense dislike for an advertising-based business model.
“Advertising isn’t just the disruption of aesthetics, the insults to your intelligence and the interruption of your train of thought,” Koum wrote on WhatsApp’s Web site. “At every company that sells ads, a significant portion of their engineering team spends their day tuning data mining, writing better code to collect all your personal data.”
In an age of self-promotion, the pair remained elusive, rarely giving interviews and operating out of an unmarked office. The company has never advertised or done other marketing, Koum, dressed in the Silicon Valley uniform of hoodie and jeans, a slight tinge of accent still remaining, told AllThingsD last May.
The WhatsApp sale has two magnificently satisfying kickers. Both co-founders applied unsuccessfully for jobs at the company that just agreed to make them billionaires. “We’re part of the Facebook reject club,” Acton told Forbes.
Even better is the venue that Acton, Koum and venture capital investor Jim Goetz chose to sign the sales documents. They drove a few blocks from the WhatsApp headquarters to a vacant building literally on the other side of the tracks: the former social services office where Koum once stood in line to collect food stamps.