After a long dispute over how to produce more revenue with ads and data, the messaging app’s creators are walking away leaving about $1.3 billion on the table
How ugly was the breakup between Facebook Inc. FB -0.18% and the two founders of WhatsApp, its biggest acquisition? The creators of the popular messaging service are walking away leaving about $1.3 billion on the table.
The expensive exit caps a long-simmering dispute about how to wring more revenue out of WhatsApp, according to people familiar with the matter. Facebook has remained committed to its ad-based business model amid criticism, even as Facebook Chief Executive Mark Zuckerberg has had to defend the company before American and European lawmakers.
The WhatsApp duo of Jan Koum and Brian Acton had persistent disagreements in recent years with Mr. Zuckerberg and Chief Operating Officer Sheryl Sandberg, who grew impatient for a greater return on the company’s 2014 blockbuster $22 billion purchase of the messaging app, according to the people.
.. Many of the disputes with Facebook involved how to manage data privacy while also making money from WhatsApp’s large user base, including through the targeted ads that WhatsApp’s founders had long opposed.
.. Messrs. Acton and Koum are true believers on privacy issues and have shown disdain for the potential commercial applications of the service.
.. Mr. Zuckerberg and Ms. Sandberg have touted how an advertising-supported product makes it free for consumers and helps bridge the digital divide.
.. When Facebook bought WhatsApp, it never publicly addressed how the divergent philosophies would coexist. But Mr. Zuckerberg told stock analysts that he and Mr. Koum agreed that advertising wasn’t the right way to make money from messaging apps. Mr. Zuckerberg also said he promised the co-founders the autonomy to build their own products. The sale to Facebook made the app founders both multibillionaires.
.. Small cultural disagreements between the two staffs also popped up, involving issues such as noise around the office and the size of WhatsApp’s desks and bathrooms, that took on greater significance as the split between the parent company and its acquisition persisted.
.. During the height of the Cambridge Analytica controversy, in which the research firm was accused of misusing Facebook user data to aid the Trump campaign, Mr. Acton posted that he planned to delete his Facebook account.
.. David Marcus, an executive who ran Facebook’s other chat app, Messenger, confronted his former colleague. “That was low class,” Mr. Marcus said
.. When Mr. Acton departed Facebook, he forfeited about $900 million in potential stock awards
.. Mr. Koum is expected to officially depart in mid-August, in which case he would leave behind more than two million unvested shares worth about $400 million at Facebook’s current stock price. Both men would have received all their remaining shares had they stayed until this November, when their contracts end.
.. It is also the antithesis of what WhatsApp professed to stand for. Mr. Koum, a San Jose State University dropout, grew up in Soviet-era Ukraine, where the government could track communication, and talked frequently about his commitment to privacy.
.. Mr. Koum, 42, and Mr. Acton, 46, became friends while working as engineers at Yahoo Inc
.. WhatsApp, which launched in 2009, was designed to be simple and secure. Messages were immediately deleted from its servers once sent. It charged some users 99 cents annually after one free year and carried no ads.
.. Mr. Zuckerberg assured Messrs. Koum and Acton at the time that he wouldn’t place advertising in the messaging service, according to a person familiar with the matter. Messrs. Koum and Acton also negotiated an unusual clause in their contracts that said if Facebook insisted on making any “additional monetization initiatives” such as advertising in the app, it could give the executives “good reason” to leave and cause an acceleration of stock awards that hadn’t vested
.. Mr. Acton initiated the clause in his contract allowing for early vesting of his shares. But Facebook’s legal team threatened a fight, so Mr. Acton, already worth more than $3 billion, left it alone
.. said the WhatsApp founders are “pretty naive” for believing that Facebook wouldn’t ultimately find some way to make money from the deal, such as with advertising. “Facebook is a business, not a charity,”
.. At the time of the sale, WhatsApp was profitable with fee revenue, although it is unclear by how much.
.. Facebook told investors it would stop increasing the number of ads in Facebook’s news feed, resulting in slower advertising-revenue growth. This put pressure on Facebook’s other properties—including WhatsApp—to make money.
.. That August, WhatsApp announced it would start sharing phone numbers and other user data with Facebook, straying from its earlier promise to be built “around the goal of knowing as little about you as possible.”
.. Some of the employees were turned off by Facebook’s campus, a bustling collection of restaurants, ice cream shops and services built to mirror Disneyland.
.. After WhatsApp employees hung up posters over the walls instructing hallway passersby to “please keep noise to a minimum,” some Facebook employees mocked them with chants of “Welcome to WhatsApp—Shut up!”
.. “These little ticky-tacky things add up in a company that prides itself on egalitarianism,” said one Facebook employee.
.. Messrs. Koum and Acton proposed several ideas to bring in more revenue. One, known as “re-engagement messaging,” would let advertisers contact only users who had already been their customers.
.. None of the proposals were as lucrative as Facebook’s ad-based model. “Well, that doesn’t scale,” Ms. Sandberg told the WhatsApp executives of their proposals
.. Ms. Sandberg wanted the WhatsApp leadership to pursue advertising alongside other revenue models, another person familiar with her thinking said.
.. Ms. Sandberg, 48, and Mr. Zuckerberg, 34, frequently brought up their purchase of the photo-streaming app Instagram as a way to persuade Messrs. Koum and Acton to allow advertising into WhatsApp.
.. “It worked for Instagram,” Ms. Sandberg told the WhatsApp executives on at least one occasion
.. Mr. Zuckerberg wanted WhatsApp executives to add more “special features” to the app, whereas Messrs. Koum and Acton liked its original simplicity.
.. Mr. Zuckerberg and Ms. Sandberg also wanted Messrs. Koum and Acton to loosen their stance on encryption to allow more “business flexibility,”
.. Mr. Acton—described by one former WhatsApp employee as the “moral compass” of the team—decided to leave as the discussions to place ads in Status picked up.
The Old Allure of New Money
Practically no one, outside of computer science departments, can explain how cryptocurrencies work, and that mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough.
.. the true public justification for creating the European currency in 1992 was a kind of “groupthink,” a faith “embedded in people’s psyches” that “the mere existence of a single currency…would create the impetus for countries to come together in closer political embrace.”.. in 1932 the economist John Pease Norton, addressing the Econometric Society, proposed a dollar backed not by gold but by electricity. But while Norton’s electric dollar received substantial attention, he had no good reason for choosing electricity over other commodities to back the dollar. At a time when most households in advanced countries had only recently been electrified, and electric devices from radios to refrigerators had entered homes, electricity evoked images of the most glamorous high science...Each of these monetary innovations has been coupled with a unique technological story. But, more fundamentally, all are connected with a deep yearning for some kind of revolution in society. The cryptocurrencies are a statement of faith in a new community of entrepreneurial cosmopolitans who hold themselves above national governments, which are viewed as the drivers of a long train of inequality and war.And, as in the past, the public’s fascination with cryptocurrencies is tied to a sort of mystery, like the mystery of the value of money itself, consisting in the new money’s connection to advanced science. Practically no one, outside of computer science departments, can explain how cryptocurrencies work. That mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a compelling story may not be enough.
Britain Considers Life Without Its Russian Oligarchs
Roman Abramovich, Britain’s best known Russian oligarch
.. Since he bought Chelsea—a purchase that made him a household name—Abramovich, more than any other Russian billionaire, has personified to the British public what oligarchs do and are. They buy soccer teams. They buy art. They get divorced. They are absentee governors of remote parts of Siberia. Their fortunes rise and fall according to their relationships with Vladimir Putin.
.. If the U.K. has decided it is no longer willing to take Abramovich’s money or—at the very least—to help him transform it from one asset class into another, this is quite a departure.
.. passengers on the flight were subjected to the kind of bureaucratic oddities that I have sometimes come across when reporting in Eastern Europe.
.. According to anti-money-laundering campaigners, in the last two decades around a hundred billion pounds of Russian money have come through London and been reinvested in property, commodities, and financial instruments
.. Between 2008 and 2015, the British government granted so-called investor visas to some seven hundred Russian citizens, who were each willing to spend two million pounds in the country.
.. During the same period, Russian oligarchs and Kremlin-connected businesses hired some of London’s finest bankers and lawyers to protect them from the closing circles of international sanctions and financial regulations.
.. On March 16th, two days after May expelled the diplomats, Russia raised four billion dollars from sovereign-debt sales on London’s bond markets.
.. The previous day, the Russian oil giant Gazprom had raised seven hundred and fifty million euros in bond sales in the city. “Business as usual?” the Russian Embassy tweeted.
.. On June 14th, the soccer World Cup kicks off in Moscow.
.. An estimated thirty thousand England fans will travel to the country to watch the national team play
Trump’s Reckoning Arrives
The president’s unpredictability once worked to his advantage—but now, it is producing a mounting list of foreign-policy failures.
.. Trump’s election jolted almost every government into a frantic effort to understand what to expect. Other countries’ uncertainty enhanced Trump’s relative power—and so, perversely, did Trump’s policy ignorance and obnoxious behavior.
.. presidents are surrounded by elaborate staff systems to help them—and oblige them—to think through their words and actions.
If we impose tariffs on Chinese products, how might they retaliate? What’s our next move after that?
If we want to pressure Iran more tightly than our predecessors, what buy-in will we need from other countries? What will they want in return?
What do we want from North Korea that we can realistically get?
Team Trump does not engage in exercises like this.
.. Team Trump does not do it because the president does not do it. His idea of foreign policy is to bark orders like an emperor, without thinking very hard about how to enforce compliance or what to do if compliance is not forthcoming.
The administration canceled the Iran deal without first gaining European, Chinese, Japanese, or Indian cooperation for new sanctions. Trump started a trade war with China without any plan for response to the inevitable Chinese counter-moves.
.. The U.S. has abjured its right to inspect Iranian nuclear facilities without any workable plan to impose global sanctions instead. India and China each trade more with Iran than with the entirety of the European Union—and neither is very vulnerable to U.S. pressure... First, because he talked so much and tweeted so much, he revealed much more of himself much earlier than other presidents. His ego, his neediness, his impulsiveness, and the strange irregular cycles of his working day—those were all noted and analyzed before any formal action of his presidency... for example, Australia, his offensive words had limited the ability of Australia’s democratically accountable leaders to cooperate with him... Second, foreign leaders have concluded that the shortest path to Trump’s heart runs through his wallet. Oil states such as the United Arab Emirates and Saudi Arabia have rushed to be helpful to the business interests of Donald Trump and his son-in-law Jared Kushner, seeking an advantage over regional rivals like Qatar. Authoritarian leaders who could hamper Trump-licensed businesses—like Turkey’s Recep Erdogan and Rodrigo Duterte in the Philippines—have exploited their perceived leverage, acting with apparent impunity... Third, Trump’s highly suspicious dealings with Russia before the election potentially put him at the mercy of countries in a position to embarrass him... Only 17 percent of South Koreans trust Trump to do the right thing.. At a time of relatively low military casualties and strong job growth, the president’s popularity at home roughly matches that of George W. Bush’s during the worst months of the Iraq war, 2005–2006, and Barack Obama’sduring the most disappointing months of the weak recovery from the recession of 2009.