Speaker 1: Welcome to tex Stuff, a production from I Heart Radio.
Speaker 1: Hey there, and welcome to tech Stuff. I'm your host,
Speaker 1: Jonathan Strickland. I'm an executive producer with I Heart Radio
Speaker 1: and I love all things tech. And you know, back
Speaker 1: in little company called Facebook maybe you heard of him,
Speaker 1: would hand over the equivalent of more than twenty one
Speaker 1: billion with a B dollars to purchase another tech company.
Speaker 1: Not only is that a princely sum, but it's actually
Speaker 1: more than what the other company had originally asked for.
Speaker 1: The original asking bryce from that company that got acquired
Speaker 1: was sixteen billion. That company was WhatsApp, and for old
Speaker 1: fogies like me, this announcement came as a total shock.
Speaker 1: I had even heard of WhatsApp at that time. How
Speaker 1: could this company be worth such a staggeringly huge amount
Speaker 1: of money and why would Facebook pay more than what
Speaker 1: they were asking for. That's not how negotiation typically goes,
Speaker 1: at least as far as I understand it. I am
Speaker 1: admittedly not a business type person. Well, in this episode,
Speaker 1: we're going to talk about the history of WhatsApp and
Speaker 1: what the app does for the two or three of
Speaker 1: you who don't know, and how things have changed in
Speaker 1: the years since Facebook acquired it, because things changed a lot,
Speaker 1: and it's a fascinating story. WhatsApp didn't start out as
Speaker 1: an end to end communication tool build upon a premise
Speaker 1: that the users could send private messages that were secure
Speaker 1: from prying eyes. It started as a much more modest
Speaker 1: tool that would let a user set a status so
Speaker 1: that other users would know if that first person was
Speaker 1: free to chat or whatever. That was the original WhatsApp.
Speaker 1: It was just to say, hey, is it okay if
Speaker 1: I call you right now? Essentially, And I guess that
Speaker 1: takes a bit off the edge over making a phone
Speaker 1: call For the folks who hate doing it. I'm pretty
Speaker 1: much in that boat. And while the story of WhatsApp
Speaker 1: is not over, there's been major drama over the last
Speaker 1: couple of years, and we will cover that along the way. Anyway,
Speaker 1: I'm getting ahead of myself. The story of WhatsApp should
Speaker 1: start with the story of its founders, Yon Coomb and
Speaker 1: Brian Acton, and I'll start off with comb first, as
Speaker 1: his story really tells us all we need to know
Speaker 1: about his motivations, both for developing WhatsApp the way he did,
Speaker 1: as well as why he would ultimately leave Facebook in
Speaker 1: two thousand and eighteen, and uh, I guess spoiler alert.
Speaker 1: So Comb was born in the Ukraine in nineteen seventy six.
Speaker 1: Back then, the Ukraine was part of the Soviet Union.
Speaker 1: And you may, oh, my drew gees have forgotten what
Speaker 1: the U S. SR was like. Back in those days.
Speaker 1: The authoritarian government was infamous for spying on its own citizens,
Speaker 1: eager to assess out any possible resistance to total government control.
Speaker 1: The KGB, which was the U. S s RS State
Speaker 1: Security Force, was justifiably feared throughout the country. Soviet citizens
Speaker 1: were cowed into obedience, and speaking ill of the government,
Speaker 1: even in private, was a potentially dangerous activity. The government
Speaker 1: was known to tap phones and to intercept messages, and
Speaker 1: the story of how people lived under that kind of
Speaker 1: umbrella is part of the reason why folks like me
Speaker 1: get a bit upset when we find out organizations like
Speaker 1: the n s A here in the United States were
Speaker 1: combing through phone records with no real checks or balances.
Speaker 1: But let's get back to Comb. Jancomb came from a
Speaker 1: humble home. His father worked in construction management, his mother
Speaker 1: took care of the home. Growing up, he lived in
Speaker 1: a house with no hot water By the time Comb
Speaker 1: was in his teens, things were getting really rough over
Speaker 1: in the Ukraine. There was a growing anti Semitic movement,
Speaker 1: and John's family was Jewish. So Jan and his mother
Speaker 1: immigrated to the United States, moving to Mountain View, California.
Speaker 1: His father remained behind, unable to follow his family in
Speaker 1: the United States. Komb's mother earned enough money through babysitting
Speaker 1: to make ends meet a little bit in Jan himself
Speaker 1: took a part time job at a grocery store, sweeping
Speaker 1: up the aisles. His mother grew ill and so the
Speaker 1: two ended up having to depend upon a disability allowance
Speaker 1: from the government. They relied on food stamps to help
Speaker 1: with their grocery purchases. Times were really hard. Comb became
Speaker 1: interested in computer programming and computer networks. He would read
Speaker 1: books and teach himself how to hack and code. He
Speaker 1: joined hacker communities and he enrolled in San Jose University
Speaker 1: and he got a job with a professional services firm
Speaker 1: called Ernston Young part time gig as a security tester.
Speaker 1: In that role, he would visit various companies to test
Speaker 1: their networks, probing for vulnerabilities in an effort to shore
Speaker 1: up defenses against the real bad guys out there. One
Speaker 1: of his jobs brought him to the offices of Yahoo,
Speaker 1: and there he met Yahoo employee number forty four, a
Speaker 1: k a. Brian Acton. So let's switch over to him
Speaker 1: for a moment, because he would become the other co
Speaker 1: founder of WhatsApp. So Brian Acton had a very different
Speaker 1: background than yon Comb. Acton was born in Michigan in
Speaker 1: nineteen seventy two. That makes him about four years older
Speaker 1: than John Is. But he grew up in Florida. And
Speaker 1: for those folks not in the United States who aren't
Speaker 1: familiar with our geography, Michigan and Florida are pretty darn
Speaker 1: far apart from each other, ones on the north end
Speaker 1: of the country, the others on the south end of
Speaker 1: the country. His mother was a businesswoman. She founded her
Speaker 1: own freight forwarding business. Acting credits much of his work
Speaker 1: ethic to his mother, whom he said would work tirelessly
Speaker 1: in an effort to make sure she could make payroll
Speaker 1: for her employees during tough times. Acting attended the University
Speaker 1: of Pennsylvania to study engineering, and after a year of
Speaker 1: studying there, he transferred over to Stanford and focused on
Speaker 1: computer science instead. He graduated in nineteen nine and he
Speaker 1: worked for a few big companies like Adobe and Apple
Speaker 1: in various roles, but then ended up working at Yahoo
Speaker 1: in nineteen nine six. That's when he became employee number
Speaker 1: forty four and he worked in the infrastructure team. Yahoo,
Speaker 1: just so you know, had started up as a two
Speaker 1: person project back in ninete, so it's still a very
Speaker 1: young company when act and joined, and it was on
Speaker 1: the rise, just as people began to suspect that there
Speaker 1: might be gold in them the our webs. No one
Speaker 1: was totally sure how the Internet was going to generate cash,
Speaker 1: like an out of control bit oin minor, but the
Speaker 1: general consensus was that the Internet was pretty much going
Speaker 1: to be the future of business, and the web in
Speaker 1: particular was going to take front and center stage in
Speaker 1: that regard. Acting and Comb clicked early on. Comb was
Speaker 1: working there as a security contractor, and of course Acting
Speaker 1: was employee number forty four. Both of them had a
Speaker 1: no nonsense approach to communication and feedback. Both of them
Speaker 1: would just cut to the chase, not necessarily to be rude,
Speaker 1: but to be efficient. Comb would end up getting a
Speaker 1: job offer from Yahoo in early nine seven, and he
Speaker 1: took the job offer he joined the company not long
Speaker 1: after his initial visit. He was still attending San Jose
Speaker 1: University at the time when he took the job at Yahoo,
Speaker 1: but after a server emergency at Yahoo pulled him out
Speaker 1: of class, he ultimately decided he was actually learning more
Speaker 1: on the job and being more useful at Yahoo, and
Speaker 1: so he dropped out of school and he worked for
Speaker 1: Yahoo full time. And now we can kind of fast
Speaker 1: for word a bit. Because the two men stayed at
Speaker 1: Yahoo for several years as early employees, they benefited from
Speaker 1: earning shares of Yahoo. The company had held its initial
Speaker 1: public offering in nineteen and those shares were growing in
Speaker 1: value year over year. The dot com crash of two
Speaker 1: thousand and two thousand one was a really rough time.
Speaker 1: Those those stock prices took a beating. Yahoo weathered the
Speaker 1: storm and came out the other side, but it was brutal.
Speaker 1: Before the bubble burst, Yahoo stock was up to more
Speaker 1: than four hundred seventy dollars per share before a stock split.
Speaker 1: And a quick side note on what stock splits are.
Speaker 1: You can think of a company's value as being the
Speaker 1: number of shares of that company multiplied by the market
Speaker 1: price for those shares. So if I've got a company
Speaker 1: that has one thousand shares held by shareholders, or they're
Speaker 1: on the market or whatever, and the market currently values
Speaker 1: those shares at ten dollars each, then the overall value
Speaker 1: of my company is ten thousand dollars ten dollars per share.
Speaker 1: One thousand shares, my company is valued at ten thousand dollars.
Speaker 1: That's a very high level way to describe this, but
Speaker 1: it's generally how it works. So in a stock split,
Speaker 1: companies will issue more shares of stock, giving each shareholder
Speaker 1: additional shares. So in a two for one stock split,
Speaker 1: each shareholder would have the number of shares doubled. However,
Speaker 1: the price per share would go down to half. So
Speaker 1: in my example where I said I have a thousand
Speaker 1: shares at ten dollars of share, now would be two
Speaker 1: thousand shares, but at five dollars per share. So why
Speaker 1: does the price come down on it's because you can't
Speaker 1: magically make the company be worth more. Remember, the company's
Speaker 1: value is based on the number of shares times the
Speaker 1: market price for those shares, So you can't just drive
Speaker 1: up your company's value by adding more shares at the
Speaker 1: same price as what is currently on the market that
Speaker 1: would be insanity. However, all that being said, after the
Speaker 1: stock splits, the Yahoo stock was worth about eighteen dollars
Speaker 1: per share at its peak, which is still incredible. However,
Speaker 1: on the low side, a couple of weeks after September eleven,
Speaker 1: two thousand one, which exacerbated the already uh struggling dot
Speaker 1: com market, the stock price for a yah who share
Speaker 1: was down to below ten dollars a share, So that's
Speaker 1: like finding your dollar bill is suddenly only worth a
Speaker 1: dime or ten cents. Still, Yahoo rebounded, and both Acting
Speaker 1: and Comb were still employees there during this time, so
Speaker 1: while they saw their fortunes totally crumble, they also saw
Speaker 1: them slowly build back up again. Now, by this stage,
Speaker 1: Comb had tragically lost both his parents. His father had
Speaker 1: passed away in nine having never moved to the United States.
Speaker 1: His mother passed away in two thousand. He and Brian
Speaker 1: Acton were friends as all his colleagues. They would hang out,
Speaker 1: they would play frisbee together, and they chatted a lot.
Speaker 1: So Acton's own resolve was being tested while he was
Speaker 1: working at Yahoo. He was put on a project in
Speaker 1: which he was helping build out an advertising strategy, and
Speaker 1: Brian Acton does not like advertising. He finds it distasteful,
Speaker 1: and he was discouraged that the only real goal of
Speaker 1: this particular job that he was doing was to convince
Speaker 1: people to buy stuff. By two thousand seven, both Comb
Speaker 1: and Acton felt they had done everything they wanted to
Speaker 1: do at Yahoo and now they were just doing stuff
Speaker 1: in order to have a job. So they decided it
Speaker 1: was time to go, and in the fall of two
Speaker 1: thousand seven both of them resigned from Yahoo, and they
Speaker 1: each took time to consider what they should do next.
Speaker 1: After about a year, both men had applied to and
Speaker 1: been rejected by Facebook. Now, if Facebook had hired one
Speaker 1: or both of them, this story might not have happened
Speaker 1: at all. What app may have never been a thing.
Speaker 1: But because neither were hired, it's set the stage for
Speaker 1: what would come next. Comb had purchased an iPhone in
Speaker 1: early two thousand nine, and he could see something that
Speaker 1: took other folks a lot longer to notice. The web
Speaker 1: experience was inevitably going to move to a mobile platform.
Speaker 1: Comb anticipated that people would be relying on devices like
Speaker 1: smartphones a lot more in the future, shifting the focus
Speaker 1: of the web experience from desktops and laptops to mobile
Speaker 1: phones and other mobile devices. And he had an idea
Speaker 1: for an app that he wanted to create, and I
Speaker 1: just want to say, like this whole move to the
Speaker 1: mobile experience. I remember us looking at that move as
Speaker 1: well when we were with how stuff works the website,
Speaker 1: because the experience of accessing website on a phone is
Speaker 1: different from the way you would access it on a
Speaker 1: desktop or on a laptop, and it meant that we
Speaker 1: had to really focus on how to optimize is that
Speaker 1: experience so people would still want to come and visit
Speaker 1: the website. It's a real challenge. And Come was already
Speaker 1: ahead of the game. He was seeing that this is
Speaker 1: where things were headed. So his idea was pretty simple.
Speaker 1: He thought it would be useful if the address book
Speaker 1: on his smartphone allowed the people on his address book
Speaker 1: to set a status. So that way, if he's thinking
Speaker 1: about calling someone, he pulls up the address book, he
Speaker 1: looks at their name and he sees the status and
Speaker 1: he sees, oh, that person is busy. You know they're
Speaker 1: on a conference call or something. I know not to
Speaker 1: call that person. So the status could let other users
Speaker 1: know if the person is available to text or chat,
Speaker 1: or if they're in a meeting or going to a
Speaker 1: movie or are otherwise occupied. It could give an alert
Speaker 1: if someone's phone battery had was low. So let's say
Speaker 1: you're looking at your your phone book and you say, oh,
Speaker 1: I want to call my dad, but my dad's phone
Speaker 1: batteries about to die, so I should probably hold off
Speaker 1: so that he can conserve that battery life in case
Speaker 1: he needs it for something important, and I'll just call
Speaker 1: him later. Or it might even be used to let
Speaker 1: people know if someone's interested in hanging out or grabbing
Speaker 1: dinner or something. You just set a status saying you
Speaker 1: know that you're looking to see if anyone else wants
Speaker 1: to grab a bite to eat. You could do that
Speaker 1: as well. Comb already had a name in mind for this,
Speaker 1: and it was WhatsApp, which itself was a play on
Speaker 1: the phrase what's up. The status would tell users at
Speaker 1: a glance what was up with their various contacts, saving
Speaker 1: them time if they see that someone's unavailable to chat
Speaker 1: or whatever. There was reportedly one other name in contention,
Speaker 1: which was zapp, but we got WhatsApp on his birthday
Speaker 1: February twenty, two thousand nine, Comb Incorporated WhatsApp Incorporated in California.
Speaker 1: He still had some cash from his Yahoo days when
Speaker 1: he left the company. He left just shy of half
Speaker 1: a million dollars. He was working on the back end
Speaker 1: side of WhatsApp. He was researching regional phone codes and
Speaker 1: stuff like that in an effort to build out the
Speaker 1: systems that would actually in able his idea to work.
Speaker 1: And he got in touch with an iPhone app developer
Speaker 1: named Igor Slomnikov and they got to work. They spent
Speaker 1: a month trying to get things working properly, and it
Speaker 1: was slow going. For one thing, Comb needed people to
Speaker 1: download and install the app, just to test it out
Speaker 1: and to be able to work on these features, and
Speaker 1: there weren't a whole lot of folks available to do
Speaker 1: it within his circle. He got discouraged, and he talked
Speaker 1: with Brian Acton. He said, maybe I should just give
Speaker 1: up on this thing and just walk away. But Acton said, no, no, no,
Speaker 1: you should stick with it, stay with us a bit longer.
Speaker 1: I think you're onto something. In the summer of two
Speaker 1: thousand nine, Apple change things and it made push notifications
Speaker 1: available to app developers, and a push notification in case
Speaker 1: you don't know gives an app the ability to send
Speaker 1: an alert to an end user, even if that user
Speaker 1: is not actively engaged in that app. Jan included push
Speaker 1: notifications in his version of WhatsApp. Now, if user change
Speaker 1: their status, it could send out a notification to everyone
Speaker 1: else in that user's address book who also had downloaded
Speaker 1: and installed WhatsApp. So you need both of those things right.
Speaker 1: You have to be within the address book of the person,
Speaker 1: and you also had to have WhatsApp installed on your phone.
Speaker 1: But if you did, then someone could change their status
Speaker 1: to something like I'm washing my hair and it would
Speaker 1: go out to all their WhatsApp friends. So it was
Speaker 1: a way of not just notifying people, but communicating with
Speaker 1: them in a new and interesting way. And then something
Speaker 1: kind of strange happened, and actually I would argue, it's
Speaker 1: not that strange, but comb didn't anticipate it. WhatsApp users
Speaker 1: began to leverage the app as a sort of messaging service.
Speaker 1: They were communicating through these status updates, which in a
Speaker 1: way is a lot like how Twitter evolved over time.
Speaker 1: And so it's not unusual for people to come up
Speaker 1: with alternative ways to use a tool once they get
Speaker 1: their hands on the tool. You know, the person developing
Speaker 1: it had an idea of how it's going to be used,
Speaker 1: but that doesn't necessarily follow through once people get access
Speaker 1: to it. But a good developer will take note of
Speaker 1: those behaviors and cater to them. A great developer will
Speaker 1: enhance those abilities even further. And Joan was about to
Speaker 1: turn into a great developer. I'll explain more in just
Speaker 1: a moment, but first let's take a quick break. What
Speaker 1: Jan had inadvertently done is create a free messaging service.
Speaker 1: And this requires us to think back a little bit.
Speaker 1: It's not necessarily as common now, but a decade ago,
Speaker 1: it was not unusual for phone companies to charge customers
Speaker 1: for text messaging. Some still do. Phone plans varied, however,
Speaker 1: Some allowed for a certain number of text messages per month,
Speaker 1: and if you went over that then you would have
Speaker 1: to pay a fee, possibly a small fee per additional
Speaker 1: text message. Others were pay as you go, and a
Speaker 1: fee here in the United States could range between ten
Speaker 1: to thirty cents per text message. A few plans allowed
Speaker 1: for unlimited texts, but you were probably paying a lot
Speaker 1: more for that plan. And then there was the policy
Speaker 1: that to this day I think is a total scam,
Speaker 1: which is that you would get charged for sending out
Speaker 1: too many texts. I kind of understand that. I mean,
Speaker 1: in a way, I think it's kind of you know,
Speaker 1: stone age policy, but I understand it from a certain perspective. However,
Speaker 1: you would also get fees for receiving texts, not reading them,
Speaker 1: just receiving them. So how is that fair? How is
Speaker 1: it fair for a carrier to charge you both for
Speaker 1: sending and receiving a text. In fact, if both people
Speaker 1: on a text message conversation, we're using the same phone carrier,
Speaker 1: it was possible for that carrier to collect on both
Speaker 1: the sending and the receiving side of a text message.
Speaker 1: This would be like if you were receiving a letter
Speaker 1: in the mail you had to pay for the stamp.
Speaker 1: They were double dipping for the same communication, charging both parties,
Speaker 1: and that's rotten if you ask me. But it gets
Speaker 1: even more expensive if you're trying to communicate with someone
Speaker 1: who happens to be in another country, not here in
Speaker 1: the United States. The average person might not do that
Speaker 1: too frequently. You know a lot of people do, but
Speaker 1: I'd say the vast average of the United States citizens
Speaker 1: were communicating within the US. However, in places like the
Speaker 1: European Union, where citizens in an EU country can travel
Speaker 1: freely to other EU countries to work or to study,
Speaker 1: it's not unusual at all to have to communicate with
Speaker 1: someone who's in another country. SMS messages, that is, text
Speaker 1: messages are an effective way to communicate succinctly, but those
Speaker 1: text fees could get pretty hefty, or at least they were,
Speaker 1: at the very bottom line, a nuisance, and WhatsApp got
Speaker 1: around that messages were sent through the app, not as
Speaker 1: SMS messages, So if you connected to WiFi with your smartphone,
Speaker 1: you weren't even using out the data on your cell
Speaker 1: phone plan. So you can now send messages for free
Speaker 1: through the status updates. You didn't have to worry about
Speaker 1: those text fees, and the log in for WhatsApp was
Speaker 1: just your phone number, you didn't need a user name.
Speaker 1: It was a great work around all on its own.
Speaker 1: People loved it. Like you knew the phone numbers you
Speaker 1: wanted to text, you just did it through WhatsApp and
Speaker 1: you avoided having to do all that nonsense with the
Speaker 1: SMS fees. Acting and COMB began to work on fleshing
Speaker 1: out WhatsApps so that it wasn't an ad hoc messaging system,
Speaker 1: but rather a purpose built messaging system. Acting also reached
Speaker 1: out to several of his former Yahoo colleagues and he
Speaker 1: raised some investment money to the tune of a quarter
Speaker 1: of a million dollars two hundred fifty thousand dollars. He
Speaker 1: officially joined WhatsApp in November two thousand nine. Now WhatsApp
Speaker 1: shifted toward being a messaging service. Users could reach out
Speaker 1: to people in their address list who also had the
Speaker 1: app and send text messages over WiFi for free. They
Speaker 1: could send out group messages to contacting a bunch of
Speaker 1: people at once instead of one at a time, And
Speaker 1: there was this great double check feature. You would get
Speaker 1: one check when WhatsApp detected that your message had been
Speaker 1: received by the other party. You would get another one
Speaker 1: when that message was read. You didn't have to worry
Speaker 1: about a message getting lost in the ether. You know,
Speaker 1: if you send a text message, the only way you
Speaker 1: know the person actually got it is if they responded.
Speaker 1: This way you could actually see if they got it.
Speaker 1: You could see if they responded, or see if they
Speaker 1: read it, and if they hadn't read it, you would
Speaker 1: be like, hey, what is going on here? You know
Speaker 1: whether or not it made it to the correct destination
Speaker 1: to expand beyond the iOS crowd. The co founders reached
Speaker 1: out to a developer named Chris Piper. He was getting
Speaker 1: to work on another version of the app, but it
Speaker 1: wasn't for Android because Android hadn't really gained a lot
Speaker 1: of traction yet. It would become an enormous part of
Speaker 1: WhatsApp straight g further down the line, but at this time,
Speaker 1: hardly anyone was running around with an Android phone. I
Speaker 1: mean I was, but I'm a dork. Not many other
Speaker 1: people were doing it. Pipher was able to create a
Speaker 1: BlackBerry version of WhatsApp because yeah, back then, BlackBerry was
Speaker 1: still a powerhouse in smartphones. You have to remember that
Speaker 1: before the iPhone came along in two thousand seven, BlackBerry
Speaker 1: was practically the only smartphone game in town. That's an exaggeration,
Speaker 1: but it's not much of one. BlackBerry was pretty much
Speaker 1: it when it came to smartphones pre iPhone. They set
Speaker 1: up a temporary office space and they continued to work
Speaker 1: on the app. Meanwhile, more people were beginning to discover WhatsApp,
Speaker 1: and at first it wasn't a money maker at all.
Speaker 1: In fact, it was mostly a drain on Comb's personal resources.
Speaker 1: As part of the verification process when signing up new users,
Speaker 1: WhatsApp would send an old school SMS text message to
Speaker 1: that user's phone with the verification, but the come and
Speaker 1: he had to pay for this service, And depending upon
Speaker 1: where that end user was, it could get expensive, because
Speaker 1: a message to a place like the Middle East might
Speaker 1: cost sixty five cents per message. And yeah, a little
Speaker 1: more than half a dollar isn't much all on its own,
Speaker 1: but when you consider that thousands and later millions and
Speaker 1: then tens of millions, and then hundreds of millions of
Speaker 1: people were signing up, those costs begin to add up.
Speaker 1: Sometimes the app would be available for free. Sometimes it
Speaker 1: was a paid app. So what was going on? Why
Speaker 1: did people have to pay for it sometimes? And sometimes
Speaker 1: it was just available for free. This wasn't necessarily a
Speaker 1: revenue strategy. It kind of was, but it was also
Speaker 1: a way of metering adoption. And what I mean by
Speaker 1: that is that the founders were using the paid option
Speaker 1: to help slow down growth. When things were getting out
Speaker 1: of hand. They would see a ton of people adopting WhatsApp,
Speaker 1: and in order to slow things DOWND. They'd say, all right,
Speaker 1: let's switch it to a paid app. And it was
Speaker 1: not necessarily to make money, although that was definitely welcome,
Speaker 1: but it was more to say, let's slow things down
Speaker 1: because fewer people are going to download it if we
Speaker 1: charge for it. So they charged like a dollar for
Speaker 1: the app, and if the adoption began to a spike,
Speaker 1: they would flip that switch. They'd make it a paid app,
Speaker 1: and when things would calm down, they would switch it
Speaker 1: back down to free. By the end of two thousand nine,
Speaker 1: they included the ability for iPhone users to send photos
Speaker 1: over WhatsApp. And they also saw that when they were
Speaker 1: charging that dollar for the app, people were still downloading
Speaker 1: the app. They were still paying that dollar, and they
Speaker 1: realized that maybe they could make this continue as a
Speaker 1: paid app. The general strategy was that WhatsApp would be
Speaker 1: free to users for the first year, but after that year,
Speaker 1: users would be required to pay a one dollar subscription
Speaker 1: fee for the next year, and every year after that
Speaker 1: they would renew with another one dollar. Now, when you
Speaker 1: compare that to the amount of money they might be
Speaker 1: spending on text messaging fees, that was nothing. So the
Speaker 1: money was coming in one other really big decision that
Speaker 1: Acting and Coma agreed upon is that the app would
Speaker 1: never ever include advertising. They both felt that ads were
Speaker 1: a bad idea, that it would ruin the experience and
Speaker 1: that just felt wrong. Brian even left a note for
Speaker 1: Jon with the phrase no ads, no games, no gimmicks,
Speaker 1: and Jan would thumbtack that to his desk. Acting felt
Speaker 1: passionately that the experience shouldn't be diluted by these things
Speaker 1: or monetized in those ways, and Jan agreed. The downside
Speaker 1: of that approach is that it was harder to make money.
Speaker 1: Comen Acting weren't really about to make the rounds with
Speaker 1: the press. They didn't want to do that either. They
Speaker 1: didn't try to do PR blasts or anything like that.
Speaker 1: The service was picking up steam from users all by itself.
Speaker 1: Venture capitalists actually sought out the co founders, and the
Speaker 1: two of them resist did the overtures of these investors
Speaker 1: for a while. They were worried that people coming in
Speaker 1: with investment money would make demands that they compromise on
Speaker 1: their service. They were also worried that investors would make
Speaker 1: them have to incorporate ads or somehow change things beyond
Speaker 1: what their vision was for WhatsApp. They did eventually make
Speaker 1: an agreement with the investment firm Sequoia for around a
Speaker 1: funding that amounted to eight million dollars after they were
Speaker 1: assured that the firm would only act in a strategic
Speaker 1: advisor capacity. Internally, the company continued to grow slowly over
Speaker 1: the first couple of years. By two thousand and fourteen,
Speaker 1: when Facebook would swoop in, the company boasted fifty five employees.
Speaker 1: About half of them were engineers working on WhatsApp services,
Speaker 1: and the rest were essentially customer service representatives who are
Speaker 1: providing support in dozens of languages. The user numbers were
Speaker 1: growing really fast, but the company itself was still very small.
Speaker 1: They would have been actually moved to a nondescript office building.
Speaker 1: There was no sign indicating the company was even there,
Speaker 1: and it was the sort of place you had to
Speaker 1: know about before you visited, or else you might just
Speaker 1: spend all day just looking for it. The whole endeavor
Speaker 1: was keeping a fairly low profile. In two thousand thirteen,
Speaker 1: one year before Facebook's acquisition, Acting and Coomb decided to
Speaker 1: hold another round of funding. By that time, the service
Speaker 1: was really going strong from a user standpoint. They boasted
Speaker 1: two hundred million active users by the beginning of and
Speaker 1: an active user is someone who uses a service at
Speaker 1: least once a month. As Joan would say, active users
Speaker 1: are what's important, not registered users, because anyone can register
Speaker 1: to a service and become a user, but then never
Speaker 1: touch the app or service again, so a registered account
Speaker 1: doesn't really mean much. Active users are how you should
Speaker 1: measure success because it shows that those people depend upon
Speaker 1: and hopefully whatever it is you are offering. The co
Speaker 1: founders had decided on this secret round of funding because
Speaker 1: they wanted to make certain there was money in the
Speaker 1: company in order to make payroll. Acting was remembering the
Speaker 1: lessons he picked up from his mother's freight forwarding business.
Speaker 1: So with this round they raised another fifty million dollars.
Speaker 1: At the time, the company had eight point to five
Speaker 1: seven million dollars in its accounts, which means that they
Speaker 1: actually still had more money than the original eight point
Speaker 1: to five million dollars that had been invested in it.
Speaker 1: But it wasn't like WhatsApp was raking an enormous revenue.
Speaker 1: It was stable, you know, it was generating income and
Speaker 1: profit at least some quarters. It was profitable, but it
Speaker 1: wasn't what you'd call a runaway success from a profit perspective,
Speaker 1: the company had made some other decisions. On top of
Speaker 1: turning down ad deals and keeping games and gimmicks off
Speaker 1: the app, they also decided that these servers running the
Speaker 1: service would not hold onto user messages, so when people
Speaker 1: communicated over WhatsApp all data, the message data would be
Speaker 1: stored locally to the users phones, but not on the
Speaker 1: WhatsApp servers. John and Brian both felt strongly about this
Speaker 1: that the users deserved privacy and they should be you know,
Speaker 1: confident that no one's eavesdropping or snooping along WhatsApp servers
Speaker 1: to learn about their private data. And they didn't want
Speaker 1: any of that to reflect poorly on their service, So
Speaker 1: as just a matter of policy, they didn't hold onto messages.
Speaker 1: All of this leads up to the Facebook acquisition in
Speaker 1: two thousand fourteen. So why would Facebook, a company that
Speaker 1: inteen was closing in on a billion daily active users.
Speaker 1: These days it's like two point four five billion monthly
Speaker 1: active users. Why would this company go after a messaging
Speaker 1: service that was not an enormous revenue generator. It was
Speaker 1: a service that wasn't keeping tabs on users at least
Speaker 1: not to the extent that Facebook does with its users.
Speaker 1: What was the motivation behind this deal and why did
Speaker 1: Facebook agree to hand over even more money than the
Speaker 1: asking price of sixteen billion dollars for a company that
Speaker 1: had recently had a valuation of one point five billion
Speaker 1: dollars that was a fraction of the asking price. Well,
Speaker 1: there's actually several answers to that question. First, Facebook has
Speaker 1: its own messaging app or layer known as Facebook Messenger,
Speaker 1: and that tool is incredibly valuable for Facebook. Keep in mind,
Speaker 1: Facebook makes its money primarily through advertising, the very thing
Speaker 1: that acted in comb are staunchly trying to avoid at
Speaker 1: this time, and Facebook can offer advertisers are really enticing deal,
Speaker 1: and that deal would be you, or rather the data
Speaker 1: that indicates who you are and what you like. By
Speaker 1: analyzing the stuff you post the status is, you interact
Speaker 1: with the groups, you join, the messages you engage with,
Speaker 1: Facebook and advertisers can earn an awful lot about you
Speaker 1: and your preferences, which means Facebook can target you with
Speaker 1: the ads that are most likely to appeal to you.
Speaker 1: That in turn means you're more likely to act on
Speaker 1: those ads. We have to remember that with platforms like Facebook,
Speaker 1: we users are the product. We're what is being bought
Speaker 1: and sold. The website is just the method for keeping
Speaker 1: us there and convincing us to share more information about ourselves.
Speaker 1: It has to be a compelling experience so that we
Speaker 1: give up our time and thus our data, and in
Speaker 1: turn that data can be sold effectively. But What's App
Speaker 1: represented a distraction from Facebook's Messenger. It was a problem.
Speaker 1: If people were using WhatsApp rather than a Facebook property,
Speaker 1: then all that sweet data just goes to waste. Worse,
Speaker 1: What's that wasn't even keeping that data, They were just
Speaker 1: discarding all that valuable information the very nerve. Now being
Speaker 1: facetious here, but that was one reason Facebook was interested.
Speaker 1: When we come back, I'll mention a couple of others.
Speaker 1: But first let's take another quick break. Okay, So one
Speaker 1: reason Facebook went after WhatsApp was that WhatsApp represented competition
Speaker 1: with Facebook's own Messenger app. Another is that Mark Zuckerberg
Speaker 1: heard that some other companies like Google had expressed interest
Speaker 1: in WhatsApp. Now, John and Brian weren't really looking for
Speaker 1: a deal at this time, but Zuckerberg didn't know that,
Speaker 1: and the thought of a competitor potentially grabbing up what
Speaker 1: was rapidly becoming a behemoth messaging app, though again not
Speaker 1: necessarily a profitable one, didn't set well with the markster. See.
Speaker 1: At this point, WhatsApp had more than four hundred million
Speaker 1: active users on a typical day, and on that typical day,
Speaker 1: nearly twenty billion messages would go across its servers, So
Speaker 1: it was clear that the service had value, even if
Speaker 1: it wasn't really capitalizing on that value the way a
Speaker 1: traditional service company would. And again, the time people spent
Speaker 1: on WhatsApp meant they weren't spending time on Facebook. But
Speaker 1: if Facebook bought WhatsApp, well, now those users are spending
Speaker 1: even more time on Facebook owned products and services, even
Speaker 1: if they're not fully monetized. And then there was the
Speaker 1: fear that Facebook would take what was intended to be
Speaker 1: a simple service, free of advertising and one that wouldn't
Speaker 1: hold onto user data like messages, and then turn it
Speaker 1: into a money generating ad platform. This is part of
Speaker 1: why Facebook tacked on that additional three billion dollars to
Speaker 1: the sixteen billion dollar asking price that John and Brian
Speaker 1: had demanded. This was all in an effort to convince
Speaker 1: the staff of WhatsApp to stay on to come over
Speaker 1: to Facebook and continue to work on the WhatsApp service,
Speaker 1: So it pushed up the price up to nineteen billion dollars.
Speaker 1: And this deal was based largely on Facebook stock shares,
Speaker 1: and those stocks actually increased in value before the deal
Speaker 1: was finally closed, so really, when you look at it
Speaker 1: was closer to twenty two billion dollars when it was
Speaker 1: all said and done. In an amazing symbolic move, the
Speaker 1: co founders would sign the agreement for this acquisition outside
Speaker 1: the building where Comb's mother would stand in line to
Speaker 1: get her allotment of food stamps, which is a heck
Speaker 1: of a rags to rich's journey food stamps to billionaire.
Speaker 1: In addition, Zuckerberg promised Yawn and Brian that Facebook wouldn't
Speaker 1: make any move to incorporate advertising in WhatsApp for like
Speaker 1: five years, and that they would run everything by the
Speaker 1: founders first, and that the company would be able to
Speaker 1: operate pretty independently from the rest of Facebook. WhatsApp should
Speaker 1: be able to do its own thing. Now, if this
Speaker 1: sounds familiar to you, it might be because as they
Speaker 1: said the same thing to Instagram when Facebook acquired Instagram.
Speaker 1: That was the same messaging and like Instagram, the founders
Speaker 1: of WhatsApp would become increasingly disenchanted with Facebook's moves over time.
Speaker 1: Around the same time that they were getting acquired, the
Speaker 1: WhatsApp founders were also looking to incorporate end to end
Speaker 1: encryption in WhatsApp messaging. This provides a level of security
Speaker 1: in communications, though it's by no means perfect. So let
Speaker 1: me explain what I mean by that. So, with end
Speaker 1: to end encryption, you have someone typing in a message
Speaker 1: into WhatsApp, and that message gets scrambled or encrypted in
Speaker 1: a predetermined way. It's encoded. The person on the other
Speaker 1: end can only descramble that message if they hold the
Speaker 1: appropriate key the decoder, and in this case only the
Speaker 1: recipient would possess that particular decoder. The process itself establishes
Speaker 1: the keys, and it's a bit complicated, but you should
Speaker 1: just know that the process allows both the parties to
Speaker 1: hold an encoder and decoder that's unique to their communication.
Speaker 1: No one else has that that decoder, So it means
Speaker 1: that if anyone were to intercept a message in transit,
Speaker 1: that person would only be able to see the encrypted
Speaker 1: scrambled version. It would be meaningless. They might know the
Speaker 1: origin of the message, and they might know the destination
Speaker 1: for that message, but they wouldn't know what was actually
Speaker 1: in the message itself, which is good. This is an
Speaker 1: important component in secure communications. However, it is not a
Speaker 1: bulletproof vest against eavesdroppers and spies and hackers. That's because
Speaker 1: someone could target the end devices in other words, the
Speaker 1: phones or you know, the phone of the person making
Speaker 1: the message or the phone of the person receiving the message.
Speaker 1: If the hacker does that, if they can exploit a
Speaker 1: vulnerability in that device, then they can potentially read messages
Speaker 1: once they get unencrypted. On the other side, so the
Speaker 1: message in transit would be difficult to suss out, but
Speaker 1: the hackers have bypassed that. They're going straight to an
Speaker 1: end point. They're getting the information through the phone, not
Speaker 1: pulling the communication out of the air. Here's what makes
Speaker 1: matters worse. In the old days, you could follow good
Speaker 1: browsing protocol and avoid most of these traps. You know,
Speaker 1: things like don't go to websites you don't know, don't
Speaker 1: open links from strange sources, that kind of thing. But
Speaker 1: in the world of apps with push notifications, it's possible
Speaker 1: to either sneak an app into an app store that
Speaker 1: pushes out malware automatically. If you've enabled push notifications for
Speaker 1: that app, then your phone would just take care of
Speaker 1: all that on its own. Or maybe you can even
Speaker 1: find a vulnerability in an existing app and hide some
Speaker 1: malware that way, and then you have a big install
Speaker 1: base that could receive a push notification that could potentially
Speaker 1: make their phones more vulnerable. This isn't great. Now. My
Speaker 1: thing is that end to end encryption is not the
Speaker 1: ultimate insecurity, but it frequently gets presented that way. So
Speaker 1: if the messages, hey, we can't read your messages because
Speaker 1: they're encrypted, that's not necessarily true. On top of that,
Speaker 1: you have governments around the world, including the United States,
Speaker 1: pushing companies that run encryption communication services to include a
Speaker 1: backdoor method of access for official government agents and investigators.
Speaker 1: Government agencies argue that this is necessary so that intelligence
Speaker 1: officers can detect potential threats. But there's a general rule
Speaker 1: of thumb that we should all keep in mind, and
Speaker 1: that is security vulnerabilities are a bad thing, intentional or otherwise,
Speaker 1: because a backdoor is a security vulnerability just by its
Speaker 1: very nature. It allows someone to bypass the security measures
Speaker 1: that are in place to protect users. That's the same
Speaker 1: thing that hackers look for when they're probing systems for vulnerabilities,
Speaker 1: except in this case the vulnerability is purposefully created and
Speaker 1: implemented by the service provider, And you can bet that
Speaker 1: if such back doors are created, armies of hackers will
Speaker 1: be seeking out ways to exploit those back doors. So
Speaker 1: even if you have a deep trust of intelligence agencies
Speaker 1: doing the right thing, and if you do have a
Speaker 1: trust and intelligence agencies doing the right thing, you might
Speaker 1: want to rethink that you should keep in mind it's
Speaker 1: not just the quote unquote good guys who will want
Speaker 1: to use these back doors. So anyway, I'll get off
Speaker 1: the high horse. Moreover, around the same time that WhatsApp
Speaker 1: was incorporating into end encryption as be around two thousand sixteen,
Speaker 1: Facebook was making another big change. WhatsApp would be sharing
Speaker 1: some user data with Facebook, which in turn would be
Speaker 1: using that data in an effort to serve up targeted
Speaker 1: ads to Facebook users. This was a big shift, one
Speaker 1: that was controversial among WhatsApp users and the tech world
Speaker 1: in general really as well as within WhatsApp. That being said,
Speaker 1: according to the press release, the data being shared would
Speaker 1: be limited. It would include the phone number, which for
Speaker 1: WhatsApp is equivalent to a user name, and the last
Speaker 1: time the app had been used. The information was spelled
Speaker 1: out in the updated terms and conditions for WhatsApp. But
Speaker 1: then the average person and I include myself in this,
Speaker 1: rarely gives the old T and C anything more than
Speaker 1: a cursory glance. And I'm sure that is even being generous.
Speaker 1: I suspect many of you, and again I am not
Speaker 1: leaving myself out here. Skip right on down to that
Speaker 1: little check box that turns us all into big old liars.
Speaker 1: You know the check box. I mean, it's the one
Speaker 1: that says, yeah, sure, I read all that stuff. Well.
Speaker 1: In the mass of text in these terms and services,
Speaker 1: there was a message about how to opt out of
Speaker 1: this data sharing feature, this idea of sharing your information
Speaker 1: for the purposes of ads, But again it was kind
Speaker 1: of buried in the bottom of that terms and conditions.
Speaker 1: It really sounded like Mark Zuckerberg was pulling out the
Speaker 1: old Darth Vader routine. You know, the I have altered
Speaker 1: the deal, pray I do not alter it further. And
Speaker 1: just like Lando, John and Brian were probably feeling that
Speaker 1: this deal is getting worse all the time, and they
Speaker 1: weren't the only ones. The European Union would end up
Speaker 1: finding Facebook more than a hundred million dollars for collecting
Speaker 1: that information. They ordered the company to knock it off
Speaker 1: in the EU. The EU is generally far more protective
Speaker 1: of personal information than places like the United States. But
Speaker 1: this really shouldn't come as a surprise to anyone. Facebook
Speaker 1: has long pursued a goal of aligning its various properties
Speaker 1: to maximize the payoff. It's also what drove the creators
Speaker 1: of Instagram away. They would leave Facebook largely because they
Speaker 1: had been told that Instagram would remain its own thing
Speaker 1: and that they wouldn't be asked to either incorporate Facebook
Speaker 1: features into Instagram, nor would Facebook a tip to integrate
Speaker 1: Instagram features in Facebook only. That's pretty much what Facebook
Speaker 1: did do well. The watsapp creators were facing a similar situation.
Speaker 1: In September two thousand seventeen, Brian Acton had had enough.
Speaker 1: He chose to leave Facebook, and this was an expensive decision.
Speaker 1: He was six months away from having his shares vest
Speaker 1: with the company. Those shares were worth around eight hundred
Speaker 1: fifty million dollars. But the agreement also hinged upon Facebook
Speaker 1: holding up their end of the deal, which included an
Speaker 1: agreement not to implement quote monetization initiatives end quote without
Speaker 1: the founders agreement. But then a lawyer for Facebook argued
Speaker 1: that the company was just, you know, exploring the possibility
Speaker 1: of monetization. They weren't actually implementing anything yet, so acting
Speaker 1: couldn't just grab his shares because they hadn't done anything.
Speaker 1: They were just talking about it. It's just talk, and
Speaker 1: rather than fight, Acton walked away. He left behind almost
Speaker 1: a billion dollars. Jean Koum stuck with Facebook for six
Speaker 1: more months, and he left after his shares vested, but
Speaker 1: he did leave in two thousand and eighteen. He also
Speaker 1: resigned his seat from the board of directors for Facebook,
Speaker 1: and between Acton's departure and Combs, the Cambridge Analytica scandal
Speaker 1: also had become world news. Act and gained even more
Speaker 1: attention because he called for people to delete their Facebook
Speaker 1: accounts hashtag delete Facebook. Comb kept quiet, and when he left,
Speaker 1: he said he would be pursuing his other interests, which
Speaker 1: include collecting very expensive, very fast cars. Since then, other
Speaker 1: WhatsApp executives who were either with the company pre Facebook
Speaker 1: acquisition or post have left, and Comb's replacement, a man
Speaker 1: named Chris Daniels, would leave even two thousand nineteen, along
Speaker 1: with his boss, a Facebook executive named Chris Cox, who
Speaker 1: at one time was thought of as a possible replacement
Speaker 1: CEO if Zuckerberg were to ever step down. This was
Speaker 1: after Zuckerberg had announced plans to realign Facebook toward a
Speaker 1: focus on private messaging, and it did little to make
Speaker 1: people feel better about what was going on over there.
Speaker 1: Will Cathcart would take over as the head of WhatsApp,
Speaker 1: and he remains that to this day. More than a
Speaker 1: billion people use WhatsApp today as a messenger service. Facebook's
Speaker 1: intent to monetize the service hasn't led to a massive
Speaker 1: drop in users, but for many people it was a
Speaker 1: bridge too far. It certainly was a bridge too far
Speaker 1: for co founder Brian Acton, who has since invested in
Speaker 1: an encrypted messaging service called Signal that uses the same
Speaker 1: encryption technology that WhatsApp uses. So you could argue he's
Speaker 1: effectively backing a semi competitor to the company he co
Speaker 1: founded back in two thousand nine, and that the story
Speaker 1: of WhatsApp so far from what I've read, Acting has
Speaker 1: held himself accountable for his decisions, perhaps to the point
Speaker 1: of self flagellation, saying I sold out. I'm sure Yawn
Speaker 1: is also frustrated with how things turned out, though I
Speaker 1: guess you can feel somewhat comforted if you happen to
Speaker 1: be sailing around the world on a yacht. Still, I
Speaker 1: can't say that I would have made a different decision
Speaker 1: had I been in their shoes. No one's ever offered
Speaker 1: me billions of dollars, But hey, if you want to
Speaker 1: see how I would handle that situation, I'm totally game.
Speaker 1: I'm welcome for you to give it a try. Go ahead,
Speaker 1: throw a couple of billion dollars at me. See if
Speaker 1: you can get me to compromise in my values. Please.
Speaker 1: And that wraps up this episode of tech stuff. I
Speaker 1: hope you guys enjoyed this story of WhatsApp and where
Speaker 1: it came from and why Facebook paid so much money
Speaker 1: for it. It's something that people are still wondering if
Speaker 1: it will pay off in the long run. I would
Speaker 1: argue it has simply because any distraction from Facebook is
Speaker 1: a detriment to Facebook. So as the company eliminates those distractions,
Speaker 1: it makes itself stronger. If you guys have suggestions for
Speaker 1: future episodes of tech Stuff, send me a message. You
Speaker 1: can do so on Twitter or Facebook. The handle for
Speaker 1: both of those is text stuff H s W and
Speaker 1: I'll talk to you again really soon. Text Stuff is
Speaker 1: an I Heart Radio production. For more podcasts from I
Speaker 1: Heart Radio, visit the i Heart Radio app, Apple Podcasts,
Speaker 1: or wherever you listen to your favorite shows.