NEW YORK — 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?
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“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 relationship between Facebook and WhatsApp started in spring 2012 over coffee at a German bakery. It was consummated on Valentine’s Day with chocolate-covered strawberries, after just five days of talks.
Facebook, the world’s largest social network, agreed last week to acquire mobile-messaging startup WhatsApp for as much as $19 billion in cash and stock, seeking to expand its reach among users on mobile devices.
Mark Zuckerberg, Facebook’s chief executive officer, first reached out to WhatsApp CEO Jan Koum in early 2012, inviting him for coffee at the bakery in Los Altos, Calif. They ended up talking for two hours, according to a person with knowledge of the matter.
On Feb. 9, Koum went to Zuckerberg’s house in Palo Alto for dinner. That’s when the conversation about a possible deal became serious, the person said. The two first talked about how they could work together more closely on Zuckerberg’s Internet.org initiative for connecting the world on mobile devices.
Zuckerberg, 29, then proposed that their companies join together and that Koum join Facebook’s board. Koum took a few days to think it over. Five days later, on Feb. 14, Zuckerberg was having dinner with his wife at home when Koum showed up, strawberries in hand. They then negotiated a price.
The Ukraine-born Koum moved 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 late 2009, two years after they left their jobs at Yahoo 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.
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, 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 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 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.
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.”
Material from Bloomberg News
is included in this report.