WhatsApp

We kick off Season 6 with a long-awaited Acquired Classic: Facebook’s $22B purchase of WhatsApp in 2014, which still ranks as the largest acquisition of a private VC-backed startup in history. Yet despite that enormous pricetag and all its associated fanfare, as we sit here 5+ years later WhatsApp actually generates LESS revenue than the meager ~$20m it was bringing in at the time of acquisition. Was this this worst acquisition of all-time, or a brilliant strategic chess move by Mark Zuckerberg & co? Tune in as we render Acquired’s judgement! Note: Unfortunately David’s audio quality in this episode was impacted by a technical glitch which we didn’t discover until after recording. Our editors worked super hard to fix in post-production, but it’s still not totally perfect. We hope you’ll give it a listen regardless, and we’re working on getting a transcript made ASAP, which we’ll post to the website when it’s ready. Thanks for bearing with us, -Ben & David Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Carve Outs: Ben: Computer glasses: https://www.amazon.com/s?k=computer+glassesDavid: Reebok Floatrides: https://www.amazon.com/Reebok-Forever-Floatride-Energy-Black/dp/B07NYBRQ96/Sources: https://en.wikipedia.org/wiki/WhatsApphttps://www.forbes.com/sites/parmyolson/2014/02/19/exclusive-inside-story-how-jan-koum-built-whatsapp-into-facebooks-new-19-billion-baby/#64c1c94b2fa1https://www.forbes.com/sites/parmyolson/2014/03/04/inside-the-facebook-whatsapp-megadeal-the-courtship-the-secret-meetings-the-19-billion-poker-game/#63d8b5c4350fhttps://www.wired.com/2015/09/whatsapp-serves-900-million-users-50-engineers/https://youtu.be/v6PbymjXstohttps://youtu.be/X4YsJt4rIOIhttps://overcast.fm/+WorS9-a74https://youtu.be/-2CAWS7M_0whttps://youtu.be/X4YsJt4rIOIhttps://www.wired.co.uk/article/whats-app-owner-founder-jan-koum-facebook https://www.buzzfeednews.com/article/ryanmac/whatsapp-brian-acton-delete-facebook-stanford-lecture https://www.forbes.com/sites/parmyolson/2018/09/26/exclusive-whatsapp-cofounder-brian-acton-gives-the-inside-story-on-deletefacebook-and-why-he-left-850-million-behind/#7475a0213f20 https://www.bloomberg.com/news/features/2017-06-28/tencent-rules-china-the-problem-is-the-rest-of-the-world https://techcrunch.com/2013/07/16/whatsapp-free/http://allthingsd.com/tag/jan-koum/http://allthingsd.com/20130510/whatsapp-ceo-jan-koum-hates-advertising-and-the-tech-rumor-mill-full-dive-video/ https://techcrunch.com/2018/01/31/whatsapp-hits-1-5-billion-monthly-users-19b-not-so-bad/https://blog.whatsapp.com/10000633/Building-for-People-and-Now-Businesseshttps://techcrunch.com/2017/09/05/whatsapp-business-app/ https://techcrunch.com/2014/02/21/whatsapp/https://www.washingtonpost.com/business/economy/whatsapp-founder-plans-to-leave-after-broad-clashes-with-parent-facebook/2018/04/30/49448dd2-4ca9-11e8-84a0-458a1aa9ac0a_story.htmlhttps://www.wsj.com/articles/whatsapp-backs-off-controversial-plan-to-sell-ads-11579207682https://www.wsj.com/articles/behind-the-messy-expensive-split-between-facebook-and-whatsapps-founders-1528208641?mod=article_inline https://blogs.wsj.com/digits/2014/06/05/whatsapp-co-founder-stresses-independence-from-facebook/?mod=article_inlinehttps://bgr.com/2020/01/17/whatsapp-ads-2020-facebook-canceled-plans-to-bring-ads-to-status-bar/https://www.vox.com/2018/5/8/17329524/whatsapp-new-ceo-facebook-cofounder-jan-koum-departshttps://www.linkedin.com/in/chdaniels/https://www.linkedin.com/in/jkoum/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  I do have to say that based on all the other companies we analyze, I was expecting to see gross margin highlighted in their financials and talked about in the presentation. But Facebook's actual operating margin is so good that that is what shows up everywhere because they actually make money and they make a ton of it. It's like a dramatic departure from a lot of the episodes we've done in the last year.

• 0:19Speaker 01

  So. That's, that's insane.

• 0:22Ben Gilbert?

  I mean, the fun, the way to like, think about that stat is like, for every dollar they bring in-house, they keep 45 cents even after paying for everything, all of their fixed costs, all of their employees. It's just a cash machine.

• 0:34Speaker 01

  Man, that's why it's a $630 billion market cap company.

• 0:39Ben Gilbert?

  Yep.

• 0:50Ben Gilbert?

  Welcome to season six, episode one of Acquired, the podcast about great technology companies and the stories behind them. I'm Ben Gilbert.

• 0:58Speaker 01

  I'm David Rosenthal.

• 1:00Ben Gilbert?

  And we are your hosts. Today, we are talking about WhatsApp, an app that Facebook paid $22 billion for and has done virtually nothing in the six years since. And in fact, it was reported last week, they are, that's right, David, abandoning near-term efforts to enable advertising in WhatsApp, which of course is Facebook's core business model.

• 1:21Speaker 01

  Just, you said 22 billion, right?

• 1:24Ben Gilbert?

  Billion.

• 1:25Speaker 01

  Just to make sure we're on the same page.

• 1:26Ben Gilbert?

  That's right. That's 22 Instagrams right there. So today, we will decide, was this one of the worst acquisitions of all time, or did Facebook make a genius move even for this insanely, insanely high cost?

• 1:40Speaker 01

  I'm super looking forward both to telling this story because it's an amazing story, but also to debating that question because, you know, I think there are really good arguments to be made on both sides.

• 1:51Ben Gilbert?

  This is as classic as a classic acquired episode gets. We have more than five years of hindsight. We've got a big price tag. We had lots of reporting around the time of the sale and frankly, not a ton of follow-up since. So it's going to be fun to tell, tell the WhatsApp story from the very beginning and as you said, debate that very question. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you prove that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 2:27David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature, or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 2:48Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 3:10David Rosenthal?

  In half! Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 3:28Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you. If you're a fan of the show and you want to go deeper on company-building topics, the nitty-gritty of how companies today are solving problems in real time, you should consider becoming an Acquired Limited Partner. In recent episodes, we interviewed the founder

• 4:09Ben Gilbert?

  of fast-growing Chicago startup Cameo, and we did another episode that turns the tables and interviewed us on the business strategy behind Acquired. You can get started with a seven-day free trial and listen right here in the podcast player of your choice by clicking the link in the show notes or going to glow.fm slash acquired. David, I think it is time to dive in.

• 4:30Speaker 01

  Let's dive in. You know, there's something funny about messaging apps. Just thinking, looking at our script here and where we're going to start and how we started the Slack episode with Dharma Butterfield, soon to become Stuart Butterfield.

• 4:46Ben Gilbert?

  On a commune.

• 4:47Speaker 01

  Growing up in a commune in British Columbia. There's something about communism and messaging apps. I don't know what it is, but it just makes for, it's a really good breeding ground for founders of messaging apps.

• 4:59Ben Gilbert?

  It's that strong community.

• 5:00Speaker 01

  It is that strong community. So of course I'm referring to, we are going to start in the mid 1970s in the Soviet Union, in Ukraine, in a little village just outside of Kiev, where a boy named Jan Koom is born to a Jewish family in 1976 in this village in the then Soviet Union. And this is a pretty not great time to be all of those things. A Jewish child in Ukraine, in the Soviet Union, under communism in the mid 1970s. And Jan actually kind of later talks

• 5:42Speaker 01

  about this and he says, he says of his time, the school he attended there, "It was so rundown that our school didn't even have an inside bathroom. Imagine the Ukrainian winter, negative 20 degrees Celsius, where little kids have to stroll across the parking lot to use the bathroom. Society was extremely closed off. You can read 1984, of course, the book 1984, but living there was experiencing it. I didn't own my own computer until I was 19, but I did have an abacus." That was the reality that this young man, Jan Koom, was growing up in. And he would stay in Ukraine until he was 16 years old. And, and this would have just such

• 6:23Speaker 01

  an impact on everything that's to come, this entire story. His dad worked for a state-run construction company in the village. It was really hard and it was a very anti-Semitic environment. Finally, by the time Jan was 16, His mother and his grandmother and he were able to escape. This is in 1992. The Berlin Wall had fallen at this point. They were able to get out of the country and come to America. So the three of them moved to Mountain View, California. Jan is 16 years old. He barely speaks any English. And when they arrive, his mom starts working as a nanny to support the family. But it's not enough. They live in government assisted housing in Mountain View.

• 7:09Speaker 01

  They're on food stamps. Jan's dad never is able to leave the Ukraine. He very sadly passes away in 1997, never comes to America. And then even more tragically, you know, a few years after that in 2000, we're going to talk much more about what happens before the year 2000. Jan's mom is diagnosed with cancer and passes away in 2000. So here's this, this guy, you know, now at the end of the day, in the end of this story, you know, Jan walks away with nearly $7 billion after taxes from the WhatsApp sale. His life was, this man has been through a lot.

• 7:43Ben Gilbert?

  Yeah, no kidding. And I think you opened that chapter with saying it was a pretty not great time. That is a very soft way to describe a very hard, hard existence.

• 7:53Speaker 01

  So when he comes to America, like he doesn't speak much English. You know, he enrolls in American high school in, you know, California. He doesn't get along with the other kids there. He's had a lot of trauma in his life. He's got this kind of one thing that's sort of, uh, ends up becoming a light in his life. And that he get is that he's in Silicon Valley. This is the mid 90s. He gets really into computers. He actually teaches himself programming and like computer, like networking by purchasing manuals from a used bookstore, a local used bookstore and reading through them, teaching himself, probably working on the school computers, learning how to program and then returning them to the store. I mean, getting the money back after he's done. He ends up kind of through this.

• 8:36Speaker 01

  He joins, while he's still in high school, a hacker group online called WooWoo. W zero zero, W zero zero.

• 8:44Ben Gilbert?

  That's Elite Speak WooWoo.

• 8:45Speaker 01

  Elite Speak WooWoo. And he ends up meeting NAFTA co-founder Sean Fanning through that. And he's like, Kind of finds his community on the internet. After high school and through all this, he enrolls in San Jose State University in college. But college is kind of not for him and he ends up dropping out. He first takes a job bagging groceries, then he ends up working at Fry's Electronics. And if you've hung out in Silicon Valley, and I remember when I was, when I was at GSP at Stanford, there's still like, well, now in 2020, I don't know. But when I was at GSP, there's still a Fry's Electronics on El Camino Real in Palo Alto.

• 9:23Ben Gilbert?

  Yep.

• 9:24Speaker 01

  Jan works there. Then from there, he ends up working at a early internet service provider, a local ISP. And through that, then he ends up actually joining Ernst & Young as a like computer security, like penetration tester. So he's putting all of his like hacker cred to use, even though he's a college dropout.

• 9:45Ben Gilbert?

  White hat.

• 9:46Speaker 01

  Yeah.

• 9:48Speaker 01

  Unclear, you know, white hat by day, unclear what Jan was doing at night.

• 9:54Speaker 01

  This is where kind of everything changes. So he goes to a conference while he's with Ernst & Young. And at the conference, this is now kind of mid 90s. He meets Yahoo co-founder David Filo. He's at an Apache Security Conference. They kind of hit it off and David's like, hey, you know, when we get back to California, why don't you come into Yahoo and interview for a job? So Jan does, he ends up joining Yahoo as an infrastructure engineer, becomes a real engineer. And he meets in his group when he joins, a man who ends up, you know, I think at first kind of becoming a mentor figure and then a deep friend, a man named Brian Acton. Now, who is Brian?

• 10:40Speaker 01

  Brian has kind of a, not quite as dramatic, but equally really interesting story. Brian was born in Michigan in 1972. I believe his parents may have divorced when he was quite young, but he was mostly raised by his mom who ran her own freight forwarding business. Kind of incredible, like this woman, you know, with a child, just like running a freight forwarding business. I would imagine not a super female friendly business in those days.

• 11:11Ben Gilbert?

  Not the venture capital darling that freight forwarding is today.

• 11:14Speaker 01

  Yeah, this is way pre-Convoy. And

• 11:18Ben Gilbert?

  And pre-

• 11:20Speaker 01

  Flexport.

• 11:20Ben Gilbert?

  What's the Flexport?

• 11:22Speaker 01

  Yeah. She then moves him to Florida and he spends most of his growing up years in central Florida, I believe. She instills in him kind of this ethos of like both entrepreneurship and like small business entrepreneurship, but also like huge responsibilities of like beating payroll and like scraping by and getting, you know, getting through month to month. He ends up, he's super bright. He ends up going to Penn on a full scholarship to study engineering. While he's there and he's learning about engineering in his freshman year, he first, you know, hears kind of about Silicon Valley and about this, you know, university called Stanford. He probably like heard of Stanford before, but like, you know, him and his background and nobody in Florida was thinking about going to Stanford.

• 12:07Speaker 01

  He ends up applying to transfer and is accepted into Stanford and transfers out to California his sophomore year and majors, ends up majoring in computer science at Stanford. This ends up being huge for him. He interns at Apple his junior year. And then after graduation, he joins Yahoo as employee number 44 in the really early days. And he works super closely with David Filo. He works with Chi Lu and like all these like super legendary engineering leaders that end up coming out of Yahoo because in a lot of ways, you know, Yahoo was the first, we haven't really covered it enough on this show yet, but it was the first like

• 12:49Ben Gilbert?

  Successful.

• 12:50Speaker 01

  Successful. Well, internet company.

• 12:53Ben Gilbert?

  Yeah. Yeah. Right. Internet directory, basically. It's funny. Yeah, you mentioned Chi Lu. So she obviously is very notable for his work at Yahoo. I know him as like my mega skip level boss from Microsoft when he ran Bing because Microsoft recruited him over and he ran search for Microsoft and then ultimately actually took over all of Office as well.

• 13:13Speaker 01

  And of course, you know, the relationship between Yahoo and Microsoft, many of our listeners probably know, is really long and complicated, a topic for another day. But Brian and Jan kind of become kindred spirits when Jan joins Yahoo and Brian really rises through the ranks. He ends up becoming the chief architect of Project Panama within Yahoo, which was super, you know, they would talk about it on their earnings calls. I remember Carol Bartson talking about it all the time and then Marissa Mayer after she became CEO. And that was a massive project to re-architect all of the backend of how Yahoo search worked and how ads worked on Yahoo search.

• 13:58Speaker 01

  So the two of them, with Brian kind of leading on the technical side, go through this experience of re-architecting at massive scale this, you know, original internet company, but doing it for like, while this company is going from, you know, over a hundred billion dollar market cap, darling of Silicon Valley, all the way down to below 10 and then

• 14:21Ben Gilbert?

  Just plummeting.

• 14:22Speaker 01

  Plummeting. And what did Verizon ultimately buy Yahoo for? I think it was like $3 billion or something.

• 14:27Ben Gilbert?

  I don't know, but yeah, if your final resting place is at Verizon, then yeah, it's sort of irrelevant where your final market cap was.

• 14:36Speaker 01

  So they get this incredible technical experience, but they also see like this business model of a portal that Yahoo is like, it's so fickle and it's so dependent on user attention and it's so dependent on advertising. And they start to believe that Yahoo makes a ton of product compromises in service of their ad partners and that that was a big reason, you know, they simultaneously through these years see the rise of Google and you know, Google famously is just like, these days, just one white page with a search box on it. Meanwhile, Yahoo's throwing up all of these display ads and doing all this stuff and

• 15:20Speaker 01

  they become super, super disillusioned with it.

• 15:23Ben Gilbert?

  Bring up an important point there. Yahoo was the very first internet company that's business model was to monetize attention. I don't need to paint the picture for listeners that the most successful company to ever be on the internet and monetize attention is Facebook. And so I think there's this, this sort of incredible bookending of the story.

• 15:40Speaker 01

  Well, and that's where I was, I was gonna be going with it. And it's also during this time famously that Yahoo tries to acquire Facebook for a billion dollars. You know.

• 15:50Ben Gilbert?

  Is this when Mark cried in the bathroom after rejecting it?

• 15:53Speaker 01

  I think so. I think so.

• 15:55Ben Gilbert?

  Yeah.

• 15:55Speaker 01

  And, you know, this is gonna be a meta theme of this episode, but like this idea of monetizing attention through advertising is in many ways as old as the internet itself. Yahoo was the first big company that was built to do that. And Facebook is the new Yahoo in so many ways. So they get so disillusioned. I don't know if this is still the case on, on Jan's LinkedIn. But when he was leaving Yahoo and then the first couple of years of WhatsApp, he described his last three years at Yahoo, you know, his sort of like description on LinkedIn of your role and what you did. He said, did some work, period.

• 16:33Speaker 01

  And of course, they were working on Project Panama. In November of 2007, Brian and Jan have finally kind of had enough and they both leave right at the same, I think it may even been the same day that they leave Yahoo. And they're just like completely burned out. They both decide they're gonna take a bunch of time off. Brian had recently been through a divorce, you know, and Jan had had such a hard life up until that point, lost his parents in the past few years. So they say, you know, we have enough savings. We got into Yahoo, especially Brian, early enough that they can afford to just really take extended time off and travel. And at one point, after they get pretty bored, they both, this is famously

• 17:17Speaker 01

  end up applying for jobs at Facebook, which is of course on the rise now. We're in 2008. And they are both rejected for jobs at Facebook. Brian even tweets about it.

• 17:28Ben Gilbert?

  Facebook clearly does not need their talents or ideas.

• 17:30Speaker 01

  Yeah. Which is so funny because like they are, especially Brian, but both of them, especially Brian, like truly world-class engineers.

• 17:38Ben Gilbert?

  There's a thing, though, that was going on at Facebook at that time that I think a lot of people forget about, not that the company's benevolent now, but whereas Google was hiring a lot of the smartest people who were academic and sort of obsessed with-

• 17:52Speaker 01

  Really like pedigreed.

• 17:54Ben Gilbert?

  Right, and really like deep nerdy academic sort of learning. Facebook was obsessed with hiring a lot of people who were well-known in the communities of the languages that they wrote in. And so they had, you know, many of the early sort of Python people. They had a lot of sort of open source leaders. And frankly, there was a lot of like, there was a lot of "not invented here" sort of syndrome, and there was a lot of "you're not good enough for us." And we are sort of, there was a cockiness that permeated, I think, the development organization at that company early on, that it's not surprising that someone really accomplished but who may have been of a different stripe or tribe was, you know, not welcomed and not revered.

• 18:35Speaker 01

  It's really interesting. I wasn't going to get into this in history and fact, but it's worth a pause. Most of the backend of WhatsApp ends up getting written in Erlang, which is like this super obscure programming language that was actually developed by Ericsson in like the 80s, maybe. Ericsson, the big telecom, the Nordic telecom giant, as like just purely for telecom use cases, for like, you know, rapid messaging, but like was super looked at as like, this is backwater, outdated, old school, like, you know, this is about as far away from go as it gets.

• 19:10Ben Gilbert?

  And of course, now if you start your company and write it in Erlang, like now you have two problems. The problem that you're trying to solve for your company and the problem that you can't recruit any engineers.

• 19:18Speaker 01

  Can't recruit any engineers, exactly.

• 19:20Ben Gilbert?

  There's tons of engineers that are specifically obsessed with things like Erlang and Rust and very like more up and coming and/or fringe programming languages, but gosh, you have to get specific then in your hiring when you make a decision like that.

• 19:33Speaker 01

  So, okay, back to picking up the story. Jan, he's single, he's traveling around. And remember, he's got this history of he was a hacker. He was, you know, a woo woo member. And it started as a, as a pen tester. He is traveling around lots of countries and he has a Nokia candy bar phone that he loves. He like really loved the old, he still talks about how he loves the old Nokia phones. Dude, you could play Snake, it was great. It was great. And he had, of course, jailbroken this phone and installed all sorts of like super hacker, you know, dev tools on it that, you know, you can monitor everything that's going on on the network and all this stuff. So he's like obsessively learning about all of these different telecom networks and the countries he's traveling to.

• 20:17Speaker 01

  And he would buy different SIM cards, you know, in all the, all the countries and swap them in. But even like Jan is as techie and confident as it gets. He's basically a walking IT department. He still is having a nightmare trying to communicate with his friends back home and all around the world via SMS and, and phone too. Like there are all these country codes you've got to dial. You send off an SMS, you have no idea if it was delivered. Even if you did everything right, it might drop and fall through. And so he's, especially when he's, he talks a lot about Argentina. He does a trip to Argentina. And for some reason, he thinks that the country code in Argentina is just like so ridiculous that he's like dropping all of these messages and he starts getting really fed up and like he wants his friends to know back home what he's doing, that he's okay

• 21:02Speaker 01

  and everything. So he finally comes back. And in January of 2009, his birthday is in February, but he's just hanging out and he says, you know what? I'm going to buy myself an early birthday present. I'm going to buy an iPhone just to like hack around with. And of course, the iPhone had come out in 2007, but 2009. I think this would have been the iPhone 3G. Either the 3G or the 3DS. I think probably the 3GS at this point. I think July is when the 3GS came out, if memory serves. So maybe it was the 3D. But Apple had just, I believe it was in January of 2009, they had just announced the SDK to allow developers to make apps.

• 21:44Speaker 01

  And I think it wasn't even like, apps weren't, the App Store wasn't going to ship until the summer, but the SDK was out there. Yeah.

• 21:51Ben Gilbert?

  I think that's right. I think it may have been earlier, it may have been at WWDC 08, they announced it. But yeah, I don't think it had shipped yet, or it was shipping right around that time. But the SDK came out with iPhone OS 2.

• 22:04Speaker 01

  Yep. And so Jan, of course, is like, okay, great. Like, I'm gonna hack around on this. So he's got all this stuff swirling, and he has an idea. And he tells a friend of his, who's also a, I believe it's Russian immigrant in San Jose, named Alex Fishman, who is a good buddy of Jan's, "Hey, you know, I have this problem. I have an idea. Remember like, you know, AIM and ICQ and all these messaging services on desktop? They all have these, you know, the away messages. What I really want, and what I would have loved when I was in Argentina and all these other countries, is that I could just throw up the equivalent of an away message, and all my friends could know what I was doing and that I was okay. I'm just gonna build this out on the new, this new iPhone that I got." And Alex is

• 22:47Speaker 01

  like, "Yeah, that seems like a good idea." And so Jan starts hacking on it. He starts thinking about what to do. And he says, "You know, really, like, what I want this to solve is, you know, everybody asking like, what's up? I just want, you know, this to be like the answer to what's up. So I'm just gonna call it WhatsApp." And Alex is like, "Yeah, great idea." And so Jan's thinking some more. And he says, "You know, okay, well, two things. One, AIM and ICQ and all these messaging services on the desktop, there's kind of this issue with them, which is you have a cold start problem with the network. You know, you join, but none of your friends are on there. And so you gotta convince people

• 23:27Speaker 01

  to go, convince all their friends to join. But with phones, you know, I'm really, I'm digging into the, this new iPhone, well, it wasn't even called iOS yet at this point, right? It was like, I forget what Apple was, iPhone OS SDK. And it's pretty locked down. But there's one feature that Apple lets developers access, and that's the address book, the contacts. What if instead of-

• 23:53Ben Gilbert?

  And at the time, there was no special permission prompting for that.

• 23:56Speaker 01

  Absolutely. Yeah, you just access-

• 23:57Ben Gilbert?

  Reach right in.

• 23:59Speaker 01

  Reach your hand into the cookie jar. And he's like, man, what do you think if instead of having, you know, screen names and usernames, we just use phone numbers? Because all of the phone numbers of people you have, you're only going to give your phone number to somebody you really want to communicate with and you'd want them to know, you know, what your status is. So this might solve that cold start problem. And so Alex is like, yeah, that that seems good. But you know, you're, there's one thing you're going to need, like, Jan, like, you're great developer, you know, you work at Yahoo and everything, but you don't really know how to, you know, code for iOS. But it just so happens through another-

• 24:35Ben Gilbert?

  You don't know this archaic thing called Objective C-

• 24:38Speaker 01

  Yeah, right.

• 24:39Ben Gilbert?

  That was written at Next that Apple has decided to carry forward into all their products to date.

• 24:43Speaker 01

  I know. So ridiculous that like Next is the, you know, core of Objective C and Swift now.

• 24:50Ben Gilbert?

  It's still, still one of the greatest acquisitions of all time.

• 24:52Speaker 01

  Still. That'll have to go on our forthcoming acquired top 10 list.

• 24:57Ben Gilbert?

  Yeah, wait. So before you get into hiring the iOS dev, did they grow by texting all of your friends? Like, did they, did they reach in, grab the phone numbers out of your address book? And then like carpet bomb or how did that work?

• 25:09Speaker 01

  Good question. I don't believe so. I didn't find anything that they did, like the LinkedIn playbook of actually go the step further in carpet bomb. But they did reach in and get all the contact information. And so they were checking, they would grab your address book and check everybody on there. And I remember when I on boarded on the WhatsApp years ago, it checks and then they surface for you like, oh, hey, I think it even shows you your whole address book and then like checks like these are the people that are on WhatsApp.

• 25:37Ben Gilbert?

  Who are in your address book.

• 25:39Speaker 01

  Yep, exactly.

• 25:40Ben Gilbert?

  Got it.

• 25:40Speaker 01

  So anyway, Alex is like, oh yeah, I was working on another project. And I found this awesome dude in, back in Russia on rentacoder.com, who's a really great iOS dev.

• 25:53Ben Gilbert?

  I loved reading that in the research.

• 25:54Speaker 01

  I know. So great. This guy named Igor Salomenikov. I think I'm pronouncing that right. And so Jan's like, cool. He contracts up Igor. They code up an app, this, you know, away message app, and they're getting ready to ship it. And Jan's like, oh, man. It turns out, you know, in the, in the App Store, this new App Store that Apple has, I guess the App Store must have shipped at this point in time because we're now in.

• 26:21Ben Gilbert?

  Yeah, if I remember right, I think that they announced the SDK at WWDC 08, which would have been June and then shipped it probably four months later, three months later. So it would have been out for a few months, but they wouldn't have had push yet because that came in iOS.

• 26:35Speaker 01

  Right, push is coming in a sec. So no, no push, no push messages, no push notifications that apps, third party apps can provide. So Jan's ready to, Jan and Igor are ready to ship the app. And he's looking through the App Store and he's like, oh, we need to incorporate this as a company because there are all these developers and remember back, if you remember back in, well, you, Ben, you were probably doing this. You needed a Dunce number, but also if you didn't, you could ship it as an individual, but then your name is listed as the developer and then people start contacting you.

• 27:09Ben Gilbert?

  Oh, yeah, you had to like fax stuff to Apple. Like this is, this is the, why I incorporated my first business is because this was a requirement of the App Store, otherwise your name was on it.

• 27:17Speaker 01

  Totally. So get this, you will, Ben, you will totally appreciate this. So this is on Jan's birthday in 2009, February 24th. He, he's like, shoot, we gotta incorporate this. He drives up to San Francisco. He had talked to like an accountant friend of his, was like, how do I like incorporate a company? And the accountant's like, oh, no, no, don't worry about it. Like I got, here's a template, articles of incorporation in the state of California. There's like five articles there. And he's like, just like, you know, do a Ctrl H, you know, find and replace and put, you know, WhatsApp instead of whatever I got here. Then you drive up to San Francisco, you go to the Secretary of State in San Francisco, you show them the articles, they stamp it, you pay a hundred bucks and you're done. So that's what Jan does.

• 27:59Speaker 01

  He drives up, he does that, he takes a photo of it and he sends it into Apple and boom, WhatsApp Inc. is born.

• 28:08Ben Gilbert?

  Love it.

• 28:09Speaker 01

  Uh, not exactly, you know, usually, you know, typically you're starting a startup. You have all these ambitions. You're like, oh yeah, gonna go talk to, you know, gonna go talk to Wilson Cincini or gonna go talk to any of the great law firms out there.

• 28:20Ben Gilbert?

  No way, man.

• 28:21Speaker 01

  They incorporate us.

• 28:22Ben Gilbert?

  Dude, my first app LLC was LegalZoom. Like, why not?

• 28:26Speaker 01

  Well, you even use LegalZoom. Jan was just like, he literally scribbled some stuff on paper and did it by hand. Um, so they get that done. They ship the app with these great expectations. Jan thinks it's gonna be so awesome. And in his own words, direct quote, "It fails horribly."

• 28:46Ben Gilbert?

  And so what's the functionality at this point? It's just the statuses? Like, you can just say, like, "Hey, in case you happen to open this app and check..."

• 28:55Speaker 01

  And you're curious what I'm up to. This is my status. It's literally just away messages, no notifications. If you happen to, exactly like you said, if you happen to open the app, you can see...

• 29:05Ben Gilbert?

  And away messages seem like pretty useless unless someone's trying to message you.

• 29:09Speaker 01

  Right, right. I mean, the, the, the, literally the name of it is like, "I'm sending you a message that I am away."

• 29:19Speaker 01

  So, use- usage is horrible. But they pick up people registering and downloading the app. And this is, this I thought was so fun, reminded me of these days. They do a pretty interesting growth hack. So, there were so few apps in the App Store back then, and I remember this, like, I did this for years. I would check like every week, what are the new apps?

• 29:40Ben Gilbert?

  Oh yeah, like what are the new apps?

• 29:41Speaker 01

  Apple had the what's new section. And Jan realizes, he's like, "You know what? I can get a lot of people just trying this out. If every week I change the name of the app slightly, Apple will put me in the what's new section."

• 29:55Ben Gilbert?

  No way.

• 29:56Speaker 01

  Week after week. I swear, this is what he did.

• 30:00Speaker 01

  Crazy. Totally crazy. And so as a result, he's getting all these users. They're like trying at once, being like, this is stupid and stopping. But he does have a bunch of people like he's at least getting that feedback. He knows like he's been in the valley a while and he's like, all right, gotta keep like working on it, iterating on the product, tries adding a bunch of features. Doesn't really help. One thing I forgot to mention from back in the Yahoo days, Brian and Jan bonded not just kind of over becoming friends and their ethos, but they also both are incredibly passionate about ultimate frisbee and they would play ultimate frisbee together. And so they go to a game together one day when Jan's working on this and he's talking with Brian afterwards and he's like, you know, this is not working.

• 30:45Speaker 01

  I should probably just give up and go back to looking for a job, go back to, you know, Facebook or find some other startup. And Brian is like, no, you gotta keep going. Like, literally the quote is, he says, you'd be an idiot to quit now. Give it a few more months, keep working on it.

• 31:04Speaker 01

  And Brian's not actually involved with the company, right? Not at all. He's just a friend at this point in time. And Brian was working on his own startup at this point in time. I actually couldn't find out what that was, but whatever it was, he eventually made the right decision to stop that. And this was, I mean, it's so funny, we haven't used the history turns on a knife point phrase in a while here on. Maybe since Blockbuster. Yeah, maybe since Blockbuster. But like Jan was ready to quit. And if Brian hadn't told him to keep going, he wouldn't have kept going long enough through WWDC 2009 in the summer when Apple introduces push notifications for third-party apps. Boy is timing everything.

• 31:44Speaker 01

  Oh, man. Is it ever. The funny thing is, you would think, and in hindsight now, this is like so obvious. It's like, oh, now, you know, I can send, I don't have to rely on users randomly deciding to open up my app and see what's going on. I can now send them notifications and prompt them to do this and like messaging, duh, why don't we just build all of AIM instead of AOL Instant Messenger and ICQ instead of just away messages? Funnily enough, at first Jan is like, oh, this is great. Now I will update WhatsApp so that every time you change your status, it'll just broadcast the away message out to everyone. So you couldn't actually message. He was only broadcasting away messages.

• 32:25Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is no longer the hard part.

• 32:39David Rosenthal?

  Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 32:53Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 33:03David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 33:21Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise: the workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 33:37David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 33:54Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 34:03David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 34:14Ben Gilbert?

  I was fortunate to be living through this era and be very, very, very obsessed with the iPhone as I was starting to create apps. So you might be wondering, like, why didn't AIM come to the iPhone? Well, they were. Like, AIM was an early, early partner for Apple. Yeah, they had an app on the App Store very early. I want to say... iOS 3, like this early? The other app that came out really early that was originally, I can't remember if it was a Flash website or an HTML5 website, like a really early one, but it was called Mebo. And it was a cross-service messaging client where you could have AIM and ICQ, and it sort of like subscribed to all those different APIs. And there was also a Mebo app.

• 34:53Speaker 01

  It was desktop, right? Originally.

• 34:56Ben Gilbert?

  It was desktop, but they, they, right, exactly. But then they, they were one of the early companies to have an app. And I, I should go watch all Dub Dub videos, but I do think they were at one of these, I think AIM was like demoed onstage as this is a really good way to use notifications, to send messages to people. If you're out there wondering, like, why didn't those companies just do it? They did. They brought the functionality. They sort of ported from desktop. So it was sort of, it had potentially too many features. It was, it was not sort of necessarily a native feeling experience. But it also didn't have the sort of genius thing that, that Jan had with the network being based on phone numbers.

• 35:37Speaker 01

  Yeah, nobody else had that. That was a major, major key to WhatsApp's success and ability to, to outstrip all of the, you know, new entrants and AIM and Mebo and all these legacy guys transitioning. The other important thing to know about, remember about what was going on at this time was there was, are you gonna say BBM?

• 35:57Ben Gilbert?

  No, go for it.

• 35:58Speaker 01

  Oh, well, BBM, BlackBerry Messenger. There also was a playbook of how to execute messaging on mobile that had been around for several years, and that was BlackBerry Messenger. And these were the days people used to talk about BlackBerry being crackberries. And, you know, there really were two core use cases of BlackBerry, and I think people forget this. One was corporate email, and that's what now when people think of and remember RIM and Blackberries, they think of that. But actually, no, a lot of consumers were using Blackberries. And the killer app was BlackBerry Messenger. And it was a fully featured mobile messenger, just like way ahead of its time, but it was

• 36:42Speaker 01

  limited to the BlackBerry network.

• 36:44Ben Gilbert?

  Yeah, and the way people talk about BBM then is very similar to the way that people in a very uppity way talk about iMessage today and the way that like people refer to, oh, blue bubbles versus green bubbles. Like, I remember my friends who had BlackBerrys then, and of course, I didn't. I was rocking my candy bar, or I think I had a flip phone at that point. But I remember one of my friends in college being like, oh, yeah, no, I don't really, I don't like texting. Like, I don't text people. But if they have BlackBerrys, like, I'll definitely BBM. Like, I really like, you know, that's nice. And of course, like, there's slightly different feature set. Like, you can see when things are red or not red. But like, it was the sort of like, cool network to be on.

• 37:22Speaker 01

  It was the blue bubble. Yeah. So Jan's smart, and Brian's smart. And, you know, Brian's kind of advising him at this point, and their friend Alex is helping them. And they realized pretty quickly. And remember, also, they had this user base, because they kept doing these growth hacks of changing the name and getting new people coming in every week. They had this user base, and the users were like, guys, I really just want a message. Like, these away messages are nice, but can I, can you please, like, just implement messaging?

• 37:50Ben Gilbert?

  Yeah. And they, and they found that people were actually using the away messages coupled with the push notification that had just come out to sort of use it as a messenger anyway. So they would like frequently update their, their status, other, and their friends would update their status back. Like, they were sort of hacking it to make it a messaging app.

• 38:07Speaker 01

  And it's going out to everybody in their network. It was like, it was like WhatsApp and Twitter combined.

• 38:14Ben Gilbert?

  Yeah, as I say, it's kind of like early Twitter. Yeah.

• 38:16Speaker 01

  Anyway, so they, they figured this out, like, okay, great. We're gonna build messaging into this. They do. They launch it in like, late August, early September of 2009. And it immediately takes off. Again, one, because it's, they really do a good job with the execution. It's super simple. The UI is very straightforward. But again, this address book innovation, the contacts, and not having to go through usernames and finding your friends and all that, and everybody just being on there is major. And because, again, they had had all those users that had used previous versions of the app, they had, you know,

• 38:55Speaker 01

  suddenly about a quarter of a million users. And so that's enough network density that people can start getting real value out of the app. And it just starts growing like gangbusters. So at this point, Jan goes to see Brian again and says like, hey, this is really working. Like, what do you think about coming and joining me full time and like doing this for real? And like, let's raise some money and make this happen. Brian says, yeah, I'm in. This is now for real. I'm going to do this. And he says, I'm going to invest some of my own money from my Yahoo savings.

• 39:35Speaker 01

  And let's go round up a bunch of our former friends at Yahoo and put an angel financing together. So they put together $250,000, all from former friends and coworkers. Ryan joins the company officially. He gets, it's been reported roughly about a 20% stake in the company. Jan owns the rest of the company. And then I don't know what the valuation was on the seed round. So the angel investors for their 250K obviously get a stake. And it kind of goes gangbusters from there. You know, Jan, he says much later in a talk, he's very direct, as you would imagine, given his Ukrainian upbringing. You know, he says, and he's so right. He's like, look, we were lucky. We stumbled into something that people found really meaningful.

• 40:20Speaker 01

  And what it was messaging is the killer app for mobile, like period, full stop. Like, and it's true.

• 40:27Ben Gilbert?

  It's come to bear in every country, on every platform.

• 40:30Speaker 01

  Yeah, there's, there's so many things that you can do on your phone. And, you know, Matt Koller at Benchmark famously, you know, talks about like, the smartphone is the remote control for your life. And it's right, you can order a car to come pick you up and do all these things. But if you think about, you know, both, I imagine everybody listening to this, you personally, and certainly in aggregate, the population, you spend by far the majority of your time, forget Instagram, forget, you know, Uber, forget all of that, messaging with your friends. That's the real primary killer app for mobile phones.

• 41:01Ben Gilbert?

  Do you consider Twitter to be messaging?

• 41:04Speaker 01

  That's a good question. No, I think it's different. I think it's social media. Maybe social media is near or equal importance. But if like, you think about like, what's, definitely this is true for me. I'm curious if it is for you. Like, what is the most important thing? Like, I could live without Twitter on my phone, but I could not live without iMessage.

• 41:24Ben Gilbert?

  My most used app by almost a factor of two is Twitter on my phone by amount of time spent over the past week.

• 41:31Speaker 01

  Interesting.

• 41:32Ben Gilbert?

  And then mail coming in at number two and messages is down probably at like number four. I do probably the most important communication in messages, but I'm in and out of it. I mean, it doesn't have to be the dominant thing, taking up the screen most of your time to be the most important thing on your phone.

• 41:48Speaker 01

  That's true. And probably Brian and Jan would totally agree with that. It's not about time spent, it's not about, but, but the most important conversations you're having in a, you know, in a messaging relationship. Once they figure this out, you know, Jan then also talks about like before, you know, in sort of the WhatsApp 1.0 version, when it was just about statuses and away messages, it was just like Ben, you talk about all the time about the definition of product market fit. It was like you're pushing a boulder up a hill, you know, everything is hard, like getting users to use it is hard, getting engagement. Nobody wants to invest. Nobody wants to work for you.

• 42:24Ben Gilbert?

  This is before product market fit?

• 42:25Speaker 01

  Before product market fit. And then all of a sudden they have instant product market fit with messaging and everything changes. People are adopting like crazy. All of their old Yahoo friends want to come work for them. Investors start beating down their doors and

• 42:42Ben Gilbert?

  Like literally looking for them in unmarked locations and attempting to network their way to the founders.

• 42:50Speaker 01

  Totally. And we'll get into how that comes together next in just a sec. But before they do take money, they do another really smart thing, again, for them at the time. And I think this might've actually been Brian that kind of came up with this and advocated for doing it. So they were free. It was a free app in the App Store. But again, remember, think back to 2009, they're paid and free. You could do both in the App Store and it hadn't yet shaken out that like free was the way to go. There were a lot of

• 43:23Ben Gilbert?

  Yeah, and there were certainly no in-app purchases or subscriptions. Like you could, you could pay an amount of money to download an app or it could be free.

• 43:30Speaker 01

  Yep. And so Brian suggests, well, what if we charge 99 cents for the app in the App Store? That would do two things. One, it would dial down growth a little bit, which on the one hand is bad, but on the other hand, our servers are melting down and we gotta like pay for server costs. And remember, they don't run on AWS because they're using Erlang. And I think they ran on FreeBSD.

• 43:53Ben Gilbert?

  It's also 2010. Like, it's, I don't know, what services are available? S3 and like maybe EC2, but like AWS is not huge yet.

• 44:02Speaker 01

  And certainly not anywhere.

• 44:05Ben Gilbert?

  Like cloud at all.

• 44:06Speaker 01

  Yeah.

• 44:07Ben Gilbert?

  Yeah, dynamically scaling apps are not, or dynamically scaling backends are not a thing yet.

• 44:13Speaker 01

  And remember, reliability for our messaging service and preserving chat history is like the number one thing. So you don't want your service going down. So he's like, okay, this might solve our, our rate scaling problem or give us some breathing room. And then two, you know, give us a business model and we can kind of control our own destiny.

• 44:31Ben Gilbert?

  I thought that was the craziest thing when I read it that like, that I always knew it was a dollar and I knew like, okay, because that's like, they think of this as like, it's not that expensive to run the service. The most expensive thing is like sending the SMS verification every once in a while when a new person joins the service and we need to verify their phone number. So like.

• 44:50Speaker 01

  And that actually ends up being quite expensive to do that.

• 44:52Ben Gilbert?

  Totally. But they're not these, these guys aren't in value capture mode. They're just trying to figure out a sustainable way to sort of like keep the lights on. So it's this dollar a year thing. It blew my mind when I realized that they were toggling the dollar on and off when they wanted to throttle growth so that their backend could catch up. That is like, that is some unbelievable product market fit right there.

• 45:13Speaker 01

  I know, I know. Unbelievable. Well, and so the other thing though, yeah, they can charge 99 cents for the app because the value prop to consumers is. Unlike AIM and ICQ that are desktop, mobile messaging is truly an SMS replacement, and SMS is super expensive, even in the US.

• 45:33Ben Gilbert?

  Like, you were paying, I remember this being the stupidest thing, because you would pay for like, I think I had to pay an extra $10 a month to get unlimited SMS. Like, there was some era in like 07 to 2010 where you would pay buy SMS, and that was the dominant feature of phone plans. And I think that's how it mostly was internationally. But at least by like 2010, AT&T and others had adopted this unlimited texting for a $10 add-on, which, can I?

• 45:58Speaker 01

  You're paying $120 a year for texting.

• 46:01Ben Gilbert?

  It's ridiculous. It's like, yeah. To go in a little bit of a technical aside here, the SMS protocol is limited to 160 characters, which is obviously a super small size of data that's transmitted back and forth, because with early cell phones, the way that the cell towers would know that your phone was still on their network was every second or two, they would just go ping all the phones. And there was an extra, basically enough room for an extra 160 characters in that heartbeat that it was communicating back and forth with every phone anyway. And so it literally had no additional cost of goods sold to carriers to do this, because it was just sending and receiving these extra, you know, pieces of information when it would have been pinging those phones anyway.

• 46:46Ben Gilbert?

  And so it's kind of a genius business model move on the carrier part, but I remember when I learned that as a consumer, being so pissed.

• 46:53Speaker 01

  Well, these were the days, you know, all those news stories of like, you know, middle-aged dad in, you know, name your suburban, you know, town outraged, get $100,000 bill from carrier because teenage daughter is sending 60,000 text messages, you know, in a month. And so that was all in the US. But then, as you said, in many countries around the world, especially in Europe, but lots of countries around the world, it was still, it was either a metered per message fee that consumers were paying. But then think about like, a continent like Europe, where there are lots of countries all together, they're like states in America, you know, people are texting and have friends like 20 miles away that are in a different country.

• 47:37Speaker 01

  You're paying a tariff to go outside of your country. It's costing you like $5 a text message to text your friends. So here's WhatsApp out there and they're like, even for 99 cents for the app.

• 47:49Ben Gilbert?

  Right.

• 47:49Speaker 01

  That's an amazing value proposition.

• 47:51Ben Gilbert?

  It's this magical arbitrage opportunity where they could say, we could basically provide the same service, if not better, because.

• 47:59Speaker 01

  No limit on characters.

• 48:01Ben Gilbert?

  Right. All the way the business models are set up is for this gorge consumers on SMS. And this new thing came out, the data layer, you know, the, the, the data network, which I don't, so 3G was new, it was edge and 3G, but it had just rolled out and, and suddenly you could basically spoof the functionality of SMS just over the data layer. These moments like don't happen that often in the world at the scale that they happened here, where you can, you get like a six month window as a startup to be like, oh my God, the business model of the time is so misaligned with the technology that's available.

• 48:33Speaker 01

  We'll get to playbook later, of course, but I think this is a huge one of like, there are these moments that happen with every, you know, paradigm shift in technology where, you know, we've talked about it with the internet before. We've talked about it with, a little bit with mobile where it's like, oh man, this is the window. It's only going to be open for, for a short period of time. But like, if you can get through, you can realize billions of dollars in value. They do this. They ship, I believe really fast. I think at like the end of 2009, they ship the ability to add multimedia to WhatsApp messages, so photos, videos.

• 49:11Ben Gilbert?

  I think, yeah, I think video came later, but definitely photos.

• 49:14Speaker 01

  Definitely photos. And so then, and gross just goes through the roof. Now the VCs start banging, literally banging, literally hounding Yan and Brian. And it's so funny, the, so now we're in 2010, towards the end of 2010. I didn't realize this, you know, in doing research. I guess one venture capitalist, Jan doesn't say whom and what firm, literally gives them a blank term sheet, like a term sheet with like the amount to be raised and the valuation blank. And they say, fill in the numbers. And, um, you know, this is so funny, a lesson, thinking back on this time, you know, this is when I started in venture.

• 49:56Speaker 01

  Series As were happening at this time I was doing them of like, series As were like $3 million at like a $8 million post-money valuation. And so for a venture firm to just literally give a blank term sheet, this is right after the financial crisis is insanity.

• 50:15Ben Gilbert?

  Which of course they're, they're non-binding. So like, you know,

• 50:18Speaker 01

  Right, of course. But actually, interestingly though, and this is, you know, a good lesson as a venture capitalist, that tactic backfires and Jan says, you know, Brian and I talked about it and we were like, you know, if these guys are that callous with other people's money, do we really want to like, are those the partners that we want, you know, to be our, you know, board members and advisors and our financial partner? And so they ultimately end up going with Sequoia, Sequoia Capital, and Jim gets there. And Jan talks about why, also the great quote from Jim as he's talking about this, he says, he and Sequoia had looked at, you know, they famously do this. They look at every company in an emerging space. They think of their, they have a thesis on a space. They go meet with everybody.

• 51:02Speaker 01

  And he said, you know, we met with, he says, Pinger, Tango, Beluga, you know, Kik was getting started at this time, all the other messengers, everybody was trying to get through this window.

• 51:09Ben Gilbert?

  Beluga, by the way, got acquired by Facebook and became Facebook Messenger.

• 51:13Speaker 01

  Indeed it did. And he's like, but it was clear that WhatsApp was the leader. And he says, you know, when he finally got to talk to Jan and Brian, he said, this is the only time this has ever happened and he's ever seen this in his venture career. They were already paying corporate income taxes, like they were profitable. So it's like, here's, clearly this is the product leader in the space. And oh my God, these guys are printing cash. Like I've never seen this. So he convinces them to, they ultimately raise $8 million that Sequoia leads.

• 51:43Ben Gilbert?

  I think it was hard to find them, right? Because they didn't put a sign outside their office. They weren't answering emails. They weren't answering phone calls. So I think Jim finds their address and drives there. And he's the one you're referring to that's banging on the door and saying, like, I really, really would like to talk to you.

• 51:59Speaker 01

  Yeah. And he talks about that. He, Jan and Brian used to like to work out of the Red Rock Cafe in downtown Mountain View, which I've been to many times, famous spot in Silicon Valley lore. Jim eventually gets, sits down with them and meets them at Red Rock and just starts like answering all of their questions and pitching them on why they should work together. So they do an $8 million round at a slightly lower than an $80 million post-money valuation. I believe Sequoia got somewhere between 10% to 15% of the company for this investment. Again, crazy for this moment in time. But Jan talks about why they picked Sequoia and Jim. And he says, you know, there are three reasons.

• 52:39Speaker 01

  One, all of Sequoia's past successes that we talked about in Sequoia Part One, including Yahoo and the brand associated with that. Two, kind of personal chemistry with Jim. And then three, this is really important and is going to come back here in a second as we get into Facebook. He said, it was really important that they didn't meddle. He's like, the business was working. We were printing cash. We were the clear market leader. We were growing super fast all around the world. And he said, Jim and Sequoia, they said to me, like, look, we, you know, you don't want us, like, we're not going to mess with you, you know? Things are working here. Like, if they're not working, we can talk about it. But like, we will help you and do whatever you need. But like, you guys are doing a great job. I think that's just like so, A, so powerful in terms of what that sets up for a relationship

• 53:24Speaker 01

  between a founder and a venture capitalist. But also, like, clearly that was so important to Jan and Brian all throughout everything and foreshadows what's about to come with Facebook here.

• 53:35Ben Gilbert?

  Yeah, when others do start to exert control.

• 53:38Speaker 01

  So this happens and then they're off to the races by October 2011. It was early 2011 when that round finally closes. By October 2011, WhatsApp is processing over 1 billion messages per day. By the next year, August, August 2012, they grow to 10 billion messages per day. That's exponential growth right there, 1 to 10 billion in one year. A few months later, by February 2013, WhatsApp has about 200 million active users around the world. And at this point, Sequoia in secret, at this point in time, invests another $50 million in the company at a $1.5 billion valuation.

• 54:21Speaker 01

  For a company that, you know, they're making their $1 a year fee that they're only charging in some countries. It's in the US, it's in the UK, I believe, it's in some other European countries, but nowhere else around the world are they actually charging for the app. But clearly the strategic value of this is just so high that the growth is incredible.

• 54:40Ben Gilbert?

  Yeah, it's not like on any multiple of net income, you're gonna, any reasonable multiple, you're gonna get to 1.5 billion dollars. One of the fascinating things here is, you know, Sequoia, there's no one that invests between. So the last time Sequoia invested, it was 70, 80 million dollars. They come in two years later with a term sheet for a company that they're already basically the only investor in, the only institutional. They mark up their own deal and they're not shy about marking it up and saying, hey, like, we think this thing's worth $200 million now. They say, nope, it's worth a billion and a half. And like, of course, the growth of the company, and there's lots of good reasons why you could justify that, the outcome certainly justifies that.

• 55:23Ben Gilbert?

  But it takes, you know, a firm like Sequoia and a partner like Jim, I think, to be able to make that call, yeah.

• 55:30Speaker 01

  Let's bring in another thread of the story. There was probably one specific thing that was giving Sequoia and Jim a lot of confidence here. And that was before, almost a year before that round took place in the spring of 2012, Jan gets an email with the subject line, get together, question mark.

• 55:52Speaker 01

  And that email is sent from Mark Zuckerberg. That's interesting to start with. But I believe as the story goes, Jan kind of tries to stiff arm him. He's not really interested in meeting with Mark. And famously, they like totally resisted talking to the press. They didn't have a sign on the building. They weren't doing any of the Silicon Valley hype game. They really just wanted to focus on the product and growth. And most of the usage is international. People in the US use WhatsApp, but by far it's much more dominant in other countries around the world. And so Jan's trying to give Mark the stiff arm and Mark just keeps coming at him. And so at the, at, at one point, Jan forwards the email chain to Brian and to Tim Getz and says,

• 56:37Speaker 01

  persistent, as the story goes. So they decide to take the meeting.

• 56:43Ben Gilbert?

  There's one other fun thing to note here before we move on from the 50 million that Sequoia invested. Jan and Brian tell Jim, by the way, we don't need your money because we never spent any of the original eight million. And after the deal closed, they, they actually sent, I think, a screenshot or a photograph or something of the bank account before the financing that says like, you know, 8.125 million or something like that to prove it to him. That yes, we grew to 50 employees and we scaled and we didn't need to spend any of your money in the first place.

• 57:13Speaker 01

  I think it was actually, it was over 8.25 million because it was over the total amount of capital they had raised altogether, including the 250 seed round. But again, before the, before the $50 million round, Jan and Zuckerberg and Zuck do end up getting lunch together. Nothing kind of happens, but Zuck makes it clear. He's really, really interested in what WhatsApp is doing. And there might be really interesting things that these two companies could do together. And of course, Facebook had just gone public and had a liquid public currency. And I'm sure all of these things were.

• 57:52Ben Gilbert?

  Stock may have been in quite the dip, but, but still.

• 57:56Speaker 01

  And that's probably actually why nothing happened at that point in time was the stock was in the dumps. But then as we've chronicled it, then, then they bought Instagram and everything turned around. And the stock went way, way higher over the next year. Also over the next year, WhatsApp grows to over 300 and then over 400 million users. And so now we get to early 2014. They've done the Sequoia deal, the second Sequoia deal. And this is really interesting. There's only been very little reporting on this. So we have only a few tidbits to go on. But apparently Tencent, which at this point, as we've chronicled, you know, and developed WeChat and owns WeChat and QQ before that, and they're the largest social and messaging app in China.

• 58:41Speaker 01

  Apparently Tencent was ready to do a deal to buy WhatsApp for in the single digit billions, high single digit billions. And the deal was pretty far along. And Pony Ma, the CEO, was scheduled to come over to California to finalize the deal with Yan and Brian and Jim. But he had to have back surgery and had to delay the trip. And we're now in February, like late January, early February 2014. During this period of time, I'm sure WhatsApp, you know, and Yan and Brian and Jim engineered all this, they kind of let it be known to two parties that things might be going on.

• 59:24Speaker 01

  One of course is Mark and Facebook. The other is Google. They had gotten to know Sundar, who at that point in time was running Android, remember, at Google. And they kind of let it be known to Sundar that something might be going on. Sundar gets them a meeting scheduled with Larry Page for Tuesday, February 11th, 2014. Somehow Facebook and Zach find out that this meeting is scheduled. And he gets Yan over to his house the Monday night before February 10th. In that meeting, he says, no, we're serious about an acquisition.

• 1:00:07Speaker 01

  I know all your beliefs about advertising and your product beliefs of WhatsApp and how committed you are to privacy and being independent. And so here's the deal. We want to acquire you. It'll be a big number. WhatsApp is going to remain independent. And now, remember, Facebook can credibly say this, as we've talked about on the show. They are the poster child for making these leave them alone acquisitions, you know, Instagram being number one here. And it's going to be mostly-

• 1:00:36Ben Gilbert?

  It's been what, two years since Instagram? So there was like real historical-

• 1:00:40Speaker 01

  Two years since Instagram at this point. Yep, and it had really gone well. And he said, you know, I really want this to be a partnership, so much so that most of the, we'll do most of the deal in stock and you're going to become a very large shareholder in Facebook, Jan, you personally, and we will make you a board member of Facebook.

• 1:00:57Ben Gilbert?

  Which is, I think, one of six or seven at the time.

• 1:01:00Speaker 01

  Yeah. And nobody else. The only Facebook employee board members are Mark and Cheryl. And everyone else is a outside board member. So this is pretty big. He really, it's unclear if Facebook knew about Tencent, but they knew about Google and they really did not want Google to acquire WhatsApp. Jan says, okay, interesting. Thank you very much. The next day, he and Brian go down to Google. They meet with Larry Page, you know, they talk for an hour, have a nice conversation. Unclear-

• 1:01:34Ben Gilbert?

  And where's Google in their messaging world right now? Because Google's launched some new form of Messenger. I think it's like an annual tradition for them to launch a new messaging product. And so I think at this point, like G Chat, I don't think was totally dead, but Hangouts, they were trying to double down on. It was before Duo and some of these new fangled ones. But like, you've got to remember back at this time, people really felt that, or at least the tech press was obsessed with writing about the mobile messaging wars. And there were these deep dives on WeChat in China and WhatsApp's crazy growth. And Facebook had acquired Baloo Guy, I think, and launched Messenger at this point. And it was, you know, who will win this new, is this the new App Store?

• 1:02:17Ben Gilbert?

  You know, is messaging sort of the new app? Like now, we don't think of Google really as a messaging company, even though obviously tons and tons of messages are exchanged on Android all the time. They were very much still in this race for what everyone thought was going to be the next user interface paradigm.

• 1:02:32Speaker 01

  Yep, yep. And bailing at it.

• 1:02:36Ben Gilbert?

  Like I said, annual tradition to launch a new one.

• 1:02:40Speaker 01

  In the meantime, Jan and Jim and Brian, they're trying to figure out like, well, what's our number? What's this? What do we think we're worth? And Twitter had gone public recently and Twitter had a $30 billion market cap and had fewer MAUs than WhatsApp. And of course, Twitter had a very robust advertising business model at this point and WhatsApp had very little business model. But they kind of look at each other and they're like, well, Twitter's worth 30 billion. We're bigger than they are. We gotta be worth at least 20 billion. And so they put this out to cut all the parties and Zuck bites. And so the next day, Jan and Zuck get back together.

• 1:03:19Ben Gilbert?

  He's like, I just dropped a billion on Instagram. So what's 20 of that?

• 1:03:23Speaker 01

  What's 20 of that? And the week goes on. And then by the end of the week, Friday, February 14, Valentine's Day, that evening, Jan goes back on Valentine's, also Jenny's birthday, by the way, my wife Jenny, wonderful wife Jenny's birthday.

• 1:03:38Ben Gilbert?

  Dude, you are like ruining her, her like two factor off security answers here. Jan's is hosed, like.

• 1:03:47Speaker 01

  Totally. Yeah. Everybody's birthday. We're just all about birthdays here on acquired. So Valentine's Day, Mark and Jan have a romantic dinner at Zuck's house. I believe it was during that dinner that they hammer out the details and Zuck puts 19 billion on the table. And I don't know if he literally put 19 billion on the table, but.

• 1:04:08Ben Gilbert?

  I think it was 16 billion. And then the next day, they negotiated up to 19.4 or something. Like, there was something where there was an initial offer and then.

• 1:04:19Speaker 01

  You know what it might have been? It was $16 billion acquisition plus $3 billion in stock awards and retention grants for Jan and Brian. So that might have been what brought it up. They agree. They shake hands, they hug. Supposedly, Zuck says that this was F-bomb exciting. And takes out a bottle of Johnnie Walker Blue, which he knew Jan loved. They have a shot. And then they hand it off to the lawyers. And so over the weekend, remember, this is a Friday. Now, Mobile World Congress is coming up the next week. They want to announce this and get it done before Mobile World Congress. They hand it off to the lawyers and over the weekend, the lawyers put everything together.

• 1:05:02Speaker 01

  Now, it's super important, Zuck just wants this done. It's super important to Jan and Brian that like they don't want advertising on WhatsApp. Facebook's an advertising company. And so they get their lawyers to put a clause in the documents that says if Facebook ever implements advertising on WhatsApp, that the two of them, and this is where this, the $3 billion in retention and stock grants for them becomes super important. They would get full acceleration of any vesting on that stock and that they could walk away with all the money.

• 1:05:36Ben Gilbert?

  Which may have kept Facebook from doing, putting that on the roadmap until much more recently.

• 1:05:42Speaker 01

  Exactly. And so I don't know if this was something that because the deal came together so quickly, Facebook didn't think hard enough about this, or they agreed to it and thought, you know, whatever, we'll just do it anyway. This is in the final documents. The Wall Street Journal did a big, the willing to in our sources, did a big article about this, that it actually made it into the final docs. And so it was part of the deal. The next week, they announced the deal, $19 billion total consideration. By the time the deal actually closed, Facebook stock had run up and it was 22 billion in total value. 22. You know, what's another 3 billion between friends? At Mobile World Congress, Mark Zuckerberg gives a keynote speech. He talks all about the acquisition.

• 1:06:27Speaker 01

  He says that it's, it's, you know, WhatsApp going to be independent. It's not going to be advertising. It's really the vision is related to internet.org. It's that they're building like this suite of utility services for the internet.

• 1:06:39Ben Gilbert?

  Particularly in developing areas outside the US where their monetization currently isn't working at all.

• 1:06:44Speaker 01

  It's all gonna be great. And for a while, things are great. No pressure to monetize.

• 1:06:49Ben Gilbert?

  And before we move on, we should talk a little bit about the way the financial terms of the deal broke down. So sure, it's this 16 gone 19 gone $22 billion all in package. Four and a half billion of that is in cash. Close to 14 billion of that is stock, Facebook stock consideration for WhatsApp. So that goes to all shareholders, including their existing investors. You got to remember the share price back then.

• 1:07:13Speaker 01

  If Sequoia had held that stock.

• 1:07:14Ben Gilbert?

  Exactly.

• 1:07:15Speaker 01

  I mean, their returns were incredible already. Oh, man.

• 1:07:18Ben Gilbert?

  Seventy seven bucks a share. So today, there'd be an additional 25 billion for the combined total of those shares would be up another 25 billion. You then go and look at the shares that were the RSUs given to the founders when they, when they came over to Facebook, that would be an additional $7 billion today if they had held on to that stock. I don't think they did for philosophical reasons.

• 1:07:41Speaker 01

  No, we're gonna get into that.

• 1:07:42Ben Gilbert?

  As we'll get to, came out against Facebook, but like, oh, my gosh, what Facebook was giving up here, and we'll talk about this in the grading, I don't think you should think about is the cash value. I think you should think about as the percentage of their equity value, which is about 10%. Like, they're a 200 something billion market cap company at this point. They basically sold 10% of the company in order to go and get this asset.

• 1:08:07Speaker 01

  And for reference, we'll talk about this in analysis later, but Facebook is a $630 billion market cap company today.

• 1:08:15Ben Gilbert?

  Pretty wild.

• 1:08:15Speaker 01

  Wow. Totally wild.

• 1:08:18Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:08:31David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:08:48Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:09:03David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:09:27Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:09:46David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:10:16Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 1:10:41Speaker 01

  Well, we'll bring things on home here on the history and facts. Couple of things that we'll go through quickly. At first, things do go great. There's no pressure to monetize. Growth massively accelerates. They were 400-ish million MAUs at the time of the acquisition. By August of that year in 2014, they hit 600. Also, that fall in 2014, importantly, they implement full end-to-end encryption and privacy within WhatsApp. January 2015, 700 million MAU. April, 800 million MAU. And then by the end of the year, they're at a billion users.

• 1:11:14Ben Gilbert?

  Which then importantly makes them, in 2015, the most popular messaging application in the world, surpassing WeChat.

• 1:11:22Speaker 01

  Entire world, yeah, surpassing WeChat. Which is still something I think is so underappreciated today. Like WhatsApp is the largest messaging application in the world today. They have 1.5 billion monthly active users.

• 1:11:32Ben Gilbert?

  Yep. We talk a lot on this show about it's hard to grasp the scope of China scale. But like WeChat, as of I think the end of last year, had like 1.1 billion users. And it's kind of the like operating system for how people do things on their phones of all types, including messaging in China. And like, you know, it's 40% bigger than that.

• 1:11:51Speaker 01

  Yeah, yeah. Now, a very different business, as we'll get into. But some cracks start to form. So, you know, remember, Facebook had agreed to this no advertising thing and all this messaging. Behind the scenes, though, Facebook is of course like, yeah, we're an advertising company. That's why we're a, that's our business model. That's what works on the internet. And that's why we're a huge, you know, at this point, hundreds of billions going to $630 billion market cap company. And yeah, WhatsApp, like, you should be part of that. Jan and Brian fight it. Apparently, it gets really heated internally. Apparently, Sheryl Sandberg keeps saying to them, it worked for Instagram. And they keep rejecting any participation in the ad ecosystem within Facebook.

• 1:12:35Speaker 01

  And importantly, that means two things. Not just showing ads on WhatsApp. That's actually, at first, the less controversial thing.

• 1:12:44Ben Gilbert?

  It's about sharing user data, right?

• 1:12:46Speaker 01

  Sharing user data from WhatsApp users with Facebook. And then Facebook has a highly sophisticated ad targeting system across all their properties. You know, core Facebook, Instagram, which is Instagram is on their hyper growth trajectory at this point. Messenger, everything else. They want to use all the data from Facebook or from WhatsApp to help with targeting within those other products. And Jan and Brian are like, NFW.

• 1:13:15Speaker 01

  So things start to get really heated. And of course, remember, they instead, at the time of announcement, even in a blog post by WhatsApp, that they would never do this.

• 1:13:23Ben Gilbert?

  And Facebook, to show they're really serious here, in January 2016, they say, oh, also, yeah, that, that, that revenue model that, you know, was so benevolent and scaling so nicely of $1 a year. Yeah, it's gone. We're just making it free now.

• 1:13:36Speaker 01

  Yep. In May of 2017, the European Commission fines Facebook over 100 million euros for misleading it during the antitrust process during the buyout of WhatsApp and saying that it falsely claimed that they weren't gonna use data from WhatsApp to improve advertising and that they are. So that was

• 1:13:58Ben Gilbert?

  To which Facebook responds something like, oh, whoops, we didn't mean to. That was a clear, that was some sort of oversight.

• 1:14:03Speaker 01

  They say it was not intentional. It was an oversight.

• 1:14:06Ben Gilbert?

  Another interesting thing to note, right around the same time, status goes from being an away message-like feature to looking exactly like stories that is just, you know, being rolled out in Facebook and Instagram and Messenger, which is a product that happens to lend itself very well to advertising.

• 1:14:21Speaker 01

  Very well to advertising. You can see where the setup is going here. So in September 2017, Brian is like, I've had enough. I haven't hit my earn out yet, but I'm leaving. He walks out.

• 1:14:34Ben Gilbert?

  I'm so fed up that I'm leaving billions of dollars on the table.

• 1:14:38Speaker 01

  He leaves 850 million dollars on the table, but he tries not to. He tries to invoke, and again, Wall Street Journal did a big investigative reporting on this, he tries to invoke the clause and he says, you guys are implementing advertising. Seems pretty clear. I haven't hit my, you know, earn out yet, but I'm gonna get acceleration here. And Facebook fights it and they're prepared to go to the mat. And finally Brian says, look, you know, I don't need this in my life. I'm already a billionaire. And he walks and he leaves 850 million dollars on the table. He immediately donates 50 million dollars to an organization called Signal that is essentially making an open source and to end encrypted WhatsApp competitor. He becomes the executive chairman there, sets it up

• 1:15:20Speaker 01

  as a nonprofit, says, you know, they're funded in perpetuity and like, everybody should stop using Facebook-owned products.

• 1:15:27Ben Gilbert?

  Which I totally did not realize. Like I've, obviously I know about Signal, like tons and tons of journalists use it, people that it's sort of the, one of the most widely accepted sort of private, secure messaging platforms on mobile. Had no freaking idea it was the co-founder of WhatsApp that, that sort of in his disillusioned post-Facebook state.

• 1:15:48Speaker 01

  But this, you know, yeah, exactly. He, he gives the, it was not started by him, but then he gives, he turns it into a foundation, gives them 50 million and becomes executive chairman. Then in March 2018, the Cambridge Analytica scandal hits and Brian, you remember he left in September 2017, he sends out a tweet that reads, on March 20th, 2018, "It is time, period, hashtag delete Facebook." And then all the, all the crap hits the fan. Supposedly Cheryl calls Jan, who's still, you know, at WhatsApp and Facebook at this time. It's like, what? WTF? Um, you know, of course.

• 1:16:27Ben Gilbert?

  Hey, do you know this guy? Can you talk to him?

• 1:16:29Speaker 01

  Yeah, but he doesn't retract it. And in fact, Brian goes and does a big interview with Forbes. He says, quote, "At the end of the day, I sold my company. I sold my users' privacy to a larger benefit. I made a choice on a compromise and I live with that every day."

• 1:16:44Ben Gilbert?

  On my yacht.

• 1:16:46Speaker 01

  Yeah, on my yacht. Yes, of course. I mean, Brian really seems like, both Brian and Jan seem like really wonderful people. But, um, but yeah, I mean, that's, uh, that's where it goes. And so then April, the next month, Jan announces on Facebook that he is also going to leave WhatsApp and Facebook. He leaves about 400 million on the table.

• 1:17:02Ben Gilbert?

  And at the point where he leaves there, that's like, that's like right when they hit 1.5 billion monthly. So like now they're just kicking the pants off of any other mobile messaging app and.

• 1:17:11Speaker 01

  And it's funny, you know, in his post, when I saw this at the time and I remember this, I thought, oh man, Jan is just trolling Facebook because his post reads that he's going to, quote, "Take some time off to do things I enjoy outside of technology, such as collecting rare air-cooled Porsches, working on my cars and playing ultimate frisbee." And I didn't know all that I know about Jan now at the time. And I was just like, oh my God, this is such a troll. Like, uh, you know, I mean, on the one hand, good for him for doing this. But like, the funny thing is though, I now feel like I'm so in Jan's head. I think he was totally serious. He actually is a nut. Like there's, um, I listened to a great podcast about like collecting rare Porsches. Like he's so into it. Like I think

• 1:17:55Speaker 01

  he was being dead serious. Uh, that's his like.

• 1:17:57Ben Gilbert?

  It is crazy that he decided to get specific and say rare air-cooled Porsches in the press quote.

• 1:18:03Speaker 01

  We'll link to this in the show notes, but that is exactly like he doesn't like turbocharged Porsches. He likes naturally aspirated. He thinks it's the best of like, I had no idea until I found this podcast. There is a whole niche community of Porsche 911 enthusiasts that have like religious wars about, you know, naturally aspirated versus turbocharged engines. It's amazing.

• 1:18:24Ben Gilbert?

  You can have a religious war about anything, my friend.

• 1:18:26Speaker 01

  About anything. I think the moral of the story is podcasts are the next platform for the internet. So he's gone. And that kind of gets us to today. I mean, a couple of things we'll cover, but WhatsApp continues to grow hugely.

• 1:18:42Ben Gilbert?

  Yeah, they did. They did one other thing that's worth calling out during this time period in the last few years, and that's they launch WhatsApp Business, which is a second WhatsApp app that I installed on my phone that basically works a lot like WhatsApp. But if, if you're a business and you're communicating with your customers through WhatsApp, this is a sort of optimized for business way to do it, which foreshadows some of the stuff that they, they potentially plan on doing with the app. But, you know, I opened this show by saying like, they haven't done much. I mean, they really haven't like they've scaled it. They've simplified the UI a little bit and they launched WhatsApp Business.

• 1:19:17Speaker 01

  So there are four quick things that have happened. One is trying to launch WhatsApp Business, which hasn't really has been kind of a failure to launch. Two, they tried to get into mobile payments in India. It's in beta, but it's been in kind of perpetual beta has also been sort of a-

• 1:19:32Ben Gilbert?

  It's been in fricking 2018. Yeah, like early 2018. There's also regulatory issues. There's something like they built a data center to support like 500 million people using it concurrently, but it got tied up in, you know, some terrible regulatory thing. And on earnings calls recently, they've said it's ready to launch. So like, maybe we'll see it this year, but-

• 1:19:54Speaker 01

  We'll see, maybe. But, and this is one of the reasons we've waited so long to do this episode is, you know, the messaging out of Facebook has been for years like monetization for WhatsApp is coming. Well, now it's been six years and like, you know, it's not here.

• 1:20:10Ben Gilbert?

  I just want to touch on this, this peer-to-peer payments thing. Like if you run the playbook of everybody in India right now, or tons of people are using WhatsApp to message, we just make it easy for them to send money back and forth. Then suddenly it's like Venmo or Square Cash. Then, and that doesn't have a business model, I should note. So they're going from something without a business model to something without a business model. And we heard this, you know, directly from Andrew Cortina when he joined us for the Venmo episode. Like peer-to-peer payments, there's no consumer acceptable way to take a vig on a peer-to-peer payment.

• 1:20:37Speaker 01

  But it is from merchant payments. Merchant payments. Yeah, exactly. So, you know, peer-to-peer payments can be a way to bootstrap into merchant payments.

• 1:20:44Ben Gilbert?

  Right. There's one more leap that they need to then take, which is, hey, all the consumers are exchanging money. Let them pay at your store with this thing. But like, we're still two leaps away from that.

• 1:20:53Speaker 01

  Yep. Okay. So the next two things that sort of are the most natural, you know, one is, okay, fine, the founders are now gone. This clause doesn't apply anymore. You'd think that they would just implement advertising, at least in status, which is the stories, you know, Snapchat competitor that they baked into WhatsApp. So they announced, Facebook announced last year in 2019 that they were going to do that. They even showed prototypes of what advertising in stories on WhatsApp would look like. And stories on WhatsApp are pretty popular. Like a lot of people around the world use them.

• 1:21:23Ben Gilbert?

  As a matter of fact, on the Q2 earnings call this year, there's a quote from Facebook saying WhatsApp status is already the most popular ephemeral stories product in the world, which is a hell of a statement.

• 1:21:34Speaker 01

  Yeah, totally. Seems obvious, right? Well, they just announced last week that they're not going to do that, that they're pulling all advertising from stories on WhatsApp. So back to no advertising on WhatsApp. And then this is where, you know, things really jumped the shark. The final thing that has happened in the post-founder exiting world is Libra and Calibra within Facebook, you know, which of course the Facebook's cryptocurrency efforts that were supposed to be, you know, the thesis was, well, WhatsApp would make a lot of sense as a remittances platform for, you know, people use it to communicate with trusted interpersonal relationships between countries. Shouldn't it also be, you know, a really great platform for remittances?

• 1:22:18Speaker 01

  And people have always said cryptocurrencies are great for remittances. You can avoid all these tariffs. That makes sense, but like, we all know. Libra is a mess right now. I think they're being sued by the government. I don't know the latest state of it, but seems unlikely that that is going to be a viable business model anytime soon.

• 1:22:35Ben Gilbert?

  Anytime soon is the right thing there. I think there's a variety of things that could still work out for WhatsApp, but the important takeaway, listeners, is we could not sit on our hands any longer before doing this episode and just keep hearing wait and see from Facebook on earnings calls. It's not happening in the near future. There might be something interesting. It might be with paying businesses. It might even be tools for businesses to promote. I don't know. I'm not being articulate here because I don't actually have a really great thesis around this, but the thing to take away here is it's not going to be very soon.

• 1:23:08Speaker 01

  Yeah. Okay. So I think this is the perfect transition to acquisition category. And this is the place to ask the question again that you asked at the top of the show, which is, okay, what is this? Like 22 billion for no revenue, six years later, effectively no revenue. What's going on here?

• 1:23:29Ben Gilbert?

  Yeah, David, before we categorize it, I have two things to say. One is a thank you that I want to issue as we get into the analysis here to friend of the show Turner Novak of Gelt VC for helping us tremendously in how to think through analyzing this one. Turner's a really smart person in all things sort of consumer social and we spent some time trying to figure out how to slice this one up. The second thing that I want to say is I would love to quote for you how Facebook broke this down when they reported the acquisition to their investors, which I think is really illustrative of their thinking at the time. So they reported a $17 billion total sale based on the price that they knew at the time.

• 1:24:12Ben Gilbert?

  Two billion was for the users that they acquired, a half a billion dollars for trade names. So WhatsApp has a half billion dollar value brand out in the world, a third of a billion for technology. Okay. And then 15.3 billion of goodwill.

• 1:24:28Ben Gilbert?

  And I think that actually adds up to a little more than 17, but that's okay. So then they go on to articulate, this is from the 2014 annual report, that goodwill generated from the WhatsApp acquisition is primarily attributed to expected synergies from future growth, from potential monetization opportunities, from strategic advantages provided in the mobile ecosystem, and from expansion of our mobile messaging offerings, which to me says 15.3 billion of, we have no idea. Like, we just needed to own this thing.

• 1:24:58Speaker 01

  Now, of course, this is accounting treatment and anybody who's, you know, worked in investment banking or certainly accounting knows goodwill is, you know, it's just where you stuff, it's a plug. But, but I think you're right. Like, this is illustrative. You know, I think they were thinking like, yeah, yeah, yeah, this is gonna take a while and whatnot. But like, I think Facebook was fully expecting that this was gonna be a cash flow monster, just like Instagram.

• 1:25:22Ben Gilbert?

  Yeah. So listeners, if you're new to the show, the way that we categorize these acquisitions are people, technology, product, business line, asset, or other. And occasionally, we categorize it as something that I'm going to elect to use today, which is a takeout, which is, it is worth a lot of our money to stop this thing from existing as an independent entity or in the hands of someone else. And we are willing to pay handsomely in the form of goodwill to make that happen.

• 1:25:53Speaker 01

  Goodwill towards, man.

• 1:25:54Ben Gilbert?

  You could argue product. Yes, you could argue the asset of the users certainly wasn't the business line. Technology, lord knows, Facebook could build. People, you know, there were 50 people that worked there at the time. Obviously, some talented founders, lots of talented engineers. But my God, this thing was a takeout acquisition.

• 1:26:11Speaker 01

  Yeah. Well, I don't care who the people are. Nobody is worth 22 billion. So, yeah, totally. It's takeout or I was thinking defensive, you know, both in the moment of like, oh my God, we can't let Google have this. And whether they knew about Tencent or not, you know, the other thing is we've talked about in previous episodes. Facebook was really trying to enter, Mark was really trying to come up with a plan to enter China at this point in time. And he really believed that China was going to be the next frontier for Facebook. Man, if Tencent were to acquire WhatsApp, then that would be terrible. Now, of course Tencent ends up acquiring Musically and building TikTok. So,

• 1:26:51Speaker 01

  you know, Facebook won the battle but lost the war here. But yeah, I think like defensive end and then fast forward to now. And yeah, like, things are pretty sad, the state of affairs as we just described. On the other hand, this gets into, if you're ready to move on to what would have happened otherwise. What if WhatsApp had, you know, certainly, we just talked about what would have happened if Google or Tencent or somebody else had acquired them. But I think the bigger threat is what if WhatsApp had remained independent? Would it, in this world now where like, everybody's so privacy motivated, Mark Zuckerberg has said, once he decided not to enter China, that like, his vision for Facebook is a privacy oriented world, right? Like, what if WhatsApp were to-

• 1:27:33Ben Gilbert?

  To use a Ben Thompson phrase there, that's a massive strategy credit. It's like, yeah, yeah, yeah, privacy is super important to us. Kind of, like that-

• 1:27:41Speaker 01

  Except when it comes to ad targeting.

• 1:27:44Ben Gilbert?

  But, to be fair, they keep all the data to themselves. Like, they, by virtue of owning the entire end-to-end experience, they, they never, well, I mean, they don't, they don't exchange it with third-party ad networks or other websites, or that because you spend so much time with them, they own the data end-to-end.

• 1:28:00Speaker 01

  Yep, absolutely true. But it would be interesting if there were a viable third, you know, standalone, independent, public company, which WhatsApp would certainly be at this point, you know, that were a different vision of what a social, you know, app looks like. Would they have figured out some of these business models that we talked about along the way independently? You know, I don't know. I don't know. A lot of execution risk there. But certainly would have been a threat.

• 1:28:26Ben Gilbert?

  You nailed it. This is the real crux of grading. It's, it's not so much about what, what is Facebook gaining by owning it. It's how much are they decreasing their risk of having no value in the future by, by this thing existing? Facebook's entire business is maintaining attention share. So long as you are spending your time and attention with Facebook, they're going to keep printing money at, to the tune of 45% operating margin, 20-plus billion dollars of profit a year. It's a frickin' cash machine. And so- By looking out in the world and observing what's happened saying, we'll have to squint,

• 1:29:07Ben Gilbert?

  to your point on execution risk, but there could be this thing that leverages all that connectivity that people have with each other and they're exchanging messages, which isn't so different than sort of public posts and they're exchanging statuses, which isn't so different than the way that we started with wall posts. It could evolve into a thing that steals attention share. And the what would have happened otherwise way to think about this is they could have been independent and they could have sort of evolved into their own social network. Or to your point earlier, Google could have bought them and that would have been catastrophic because I think Google would have been sort of the only formidable ones, as you mentioned, who could have paid up, but then also who would have executed a sort of attention grabbing strategy there. And so to wrap this, I think

• 1:29:50Ben Gilbert?

  my little rant here, you know, what would have happened? A billion people could have shifted attention from Facebook to WhatsApp, but I'm going to hold off right now on trying to put a price on that until we get to grading.

• 1:30:02Speaker 01

  Well, I want to go one step further, which is like, okay, you know, yeah, all this line of logic. You could say if you're listening, that doesn't add up, right? Like they, the same thing could have been said more credibly about Snapchat and Facebook wasn't able to buy Snapchat. Zach only offered $3 billion, you know, things fall apart. Certainly, if he was willing to pay $22 billion for WhatsApp, why, you know, he certainly could have had Snap for $22 billion that I suspect. Now, I don't know, I don't know for sure, but like, why didn't he put that $22 billion on the table for Snap? Here's what I think is interesting. Snap, execution wise, is a much clearer path to what we were just talking

• 1:30:45Speaker 01

  about, like advertising based network, super attention based, all that stuff. But it's a much smaller network, much, much smaller. WhatsApp is the largest, I believe, the largest network in the world and it's global.

• 1:31:00Ben Gilbert?

  I pulled some stats here. These are all monthly active users. Facebook has 2.4 billion MAUs. YouTube has 2 billion. WhatsApp has one and a half, making it the largest messaging network. iMessage, which I think is an interesting one to consider here, is 1.3 billion. Facebook Messenger also 1.3.

• 1:31:18Speaker 01

  Yeah, I didn't realize iMessage was that big.

• 1:31:20Ben Gilbert?

  Yeah, and it might be devices, not users. Apple's a little tougher to read on that, but Instagram with a billion users and WeChat right there at around 1.1. So that's sort of

• 1:31:32Speaker 01

  the set. Isn't TikTok hitting a billion-ish now?

• 1:31:36Ben Gilbert?

  Good question. Yeah. But the important thing to know is today Snapchat's only 310, Twitter's only 330, and I actually think TikTok may only be like 500 million, but I could be wrong in that. But importantly, Twitter and Snapchat subscale sort of networks when you're thinking global scale.

• 1:31:57Speaker 01

  So like, I think that's an interesting point for us to consider in grading. Yeah, a lot of execution risk ahead for WhatsApp. But they were the only kind of player out there that had the scale to really be a global threat.

• 1:32:10Ben Gilbert?

  Yeah, and I mean, it's really interesting to think about. Of the, what, seven networks that have, the seven social networks that have over a billion people, Facebook owns four of them.

• 1:32:20Speaker 01

  Yeah. And of the others that are that high, YouTube is off the table. Google already owns it. iMessage. No way Apple's gonna sell.

• 1:32:28Ben Gilbert?

  The most bundled product in the world, yeah.

• 1:32:30Speaker 01

  Yep. WeChat, you know, and Tencent, that's off limits because of, you know, the whole China issue. So yeah, WhatsApp's kind of the only, you know, and they already own Instagram. Facebook already owns Instagram, so it's kind of the only one in play.

• 1:32:44Ben Gilbert?

  Yep, totally agree. Playbook?

• 1:32:48Speaker 01

  Playbook. Let's do it.

• 1:32:50Ben Gilbert?

  All right. So listeners, this is where we sort of analyze, what did this acquisition enable them to do, them being Facebook, and what plays or what tactics did WhatsApp and Facebook use along the way to become this behemoth that it's become? So David, you want to go first?

• 1:33:09Speaker 01

  Yeah, sure. We've touched on a lot of them. The only one that I want to highlight again is just the These magical moments that only come once every sort of platform shift or every, roughly every decade in tech and who knows what the next one's going to be, but these windows that open up where they're not obvious in the beginning. You know, again, remember Jan was, he wanted this to be away messages, but like, if you can get in there and figure out the right product, there's an opportunity to just serve such a clear need that a new platform enables and turn over the kind of, you know, guard of, of technology and, and networks that if there

• 1:33:54Speaker 01

  is one of those and you think you have one of those opportunities and you see it like, good God, take Brian's advice and do not give up. Go a couple more months.

• 1:34:03Ben Gilbert?

  So funny. That was exactly, exactly the point that I wanted to make here and specifically around both push notifications becoming available and also the wide, widely available data networks that lived on top of telephony and on top of SMS completely obsoleting the way that all the carriers were billing for messaging at that time.

• 1:34:24Speaker 01

  Yeah, we didn't talk as much about that. We hit on it a little bit in the beginning of the episode, but like, yeah, that's, it's just such a disruptive business model of like, I could pay $10,000 a month for my, you know, child's 16,000 text messages or I could pay a dollar a year.

• 1:34:43Ben Gilbert?

  Yeah. Yeah. It's actually, it's funny. So sometimes we do this section and I'd like to do it today on value creation versus value capture. Cause a lot of companies can create a ton of value in the world, but one of the sort of hard things to do is make sure that you're able to capture some of that value you create. What's up? Didn't really try. Like, WhatsApp created so much value. I mean, and frankly, they destroyed tons of value for carriers, but until acquisition-

• 1:35:09Speaker 01

  That's actually a little slightly debatable, I think.

• 1:35:11Ben Gilbert?

  Okay.

• 1:35:11Speaker 01

  I think you're probably right, but Jan and Brian got this question all the time. And their kind of canned answer that they came up with was, no, no, no, we're actually helping carriers because we're encouraging people to adopt smartphones and move over to data plans, which data plans are more expensive than tech plans. And I think it's a

• 1:35:31Ben Gilbert?

  That's fair.

• 1:35:31Speaker 01

  It's a, it's a, it's a fair argument, but it's flawed in that that was going to happen anyway. So.

• 1:35:37Ben Gilbert?

  Yeah. It is worth noting, too, that carriers just figured out a way to bill everyone. Like, they just repackaged all of their, their, their pricing. It's not like they actually materially lost, uh, lost money on this. Yeah.

• 1:35:51Ben Gilbert?

  But like, I don't, I don't consider WhatsApp an effective value capture machine and still is not.

• 1:35:56Speaker 01

  Clearly. They're capturing basically zero value, but massive value creation for the world. And, and also, again, we didn't talk about this as much, but the end-to-end encryption and being the first platform to implement that platform-wide across everything. You know, nobody saw that coming in 2014, but in the world we live in today, like, I think that's really important. And like, really, you know, really good for the world that they did that.

• 1:36:22Ben Gilbert?

  Totally agree. And to get into some of the nitty-gritty of that, they actually then WhatsApp later implemented the Signal Protocol, which is, I believe, also end-to-end encryption and Facebook.

• 1:36:33Speaker 01

  Is the same thing as the foundation that Brian and the, and the open source messenger and.

• 1:36:39Ben Gilbert?

  Yep. Facebook can read something like, and, and we're not privacy experts, but from sort of a cursory read over it, what really, people that are really into privacy would want is Facebook to not be able to read, of course, the contents of your message, but also not be able to read, like, who sent what when. David, if I sent you a message on WhatsApp right now, Facebook would have it in their server logs, I believe. Listeners, please email us, [email protected] or, or tweet at us. I believe they would know that I just sent you a message.

• 1:37:09Speaker 01

  Hmm, interesting. Which is kind of what they, one of the things they really wanted out of this, anyway.

• 1:37:16Ben Gilbert?

  There is more data they could get out of WhatsApp, but I do think they get a good amount of data as it is today.

• 1:37:21Speaker 01

  Interesting.

• 1:37:23David Rosenthal?

  All right, listeners, now is a great time to talk about one of our favorite companies, Statsig.

• 1:37:29Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:37:40David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:38:00Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:38:13David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:38:24Ben Gilbert?

  And now, David, grading.

• 1:38:27Speaker 01

  Oh, you're gonna make me go first?

• 1:38:29Ben Gilbert?

  Well, okay, let's tee it up first. So what's the criteria? Like, what do we consider A+, what do we consider an F?

• 1:38:38Speaker 01

  Well, okay, for me personally, anything in the A range is off the table just because I'm offended by the execution here. But that's just me. I think you could still make an argument it's in the A range. I think the criteria by which I at least am going to grade is like, how important was this defensive move and how valuable was it? So taking the perspective of grading, as we always do, from the acquirer's perspective as Facebook, I think this is still probably either a B or a B+. And they would, maybe people there would argue it's in the A range just by virtue of like, yeah, yeah, yeah, they gave up 10% of their equity value,

• 1:39:20Speaker 01

  but they took out the one viable global network in this generation that could have been independent. The stock has gone from 200 billionish market cap to 630 billion market cap in the intervening six years. Of course, in many ways, due to not WhatsApp, but like, just the, by virtue of having the clear runway to do that, has been good for Facebook, very, very good for Facebook. It pains me to say this because I want to give it an F, but that's my grade.

• 1:39:52Ben Gilbert?

  All right. Well, I'm glad I wrote down my grade before I heard you say yours. So I can be sort of unbiased here. Two things to keep in mind, listeners. One, they sold 10% of their market cap to be able to buy this company. Another way to think about this is Facebook was, is a phenomenally profitable business. And another way to frame this is they basically spent all of their 2019 net income or profit to buy this company. So was it worth spending an entire year of profit to go and buy them? I am going to grade this an A. I don't think it's an A plus, but I'm going to grade this an A. And the reason I'm going to do that is, is obviously the same sort of defensive

• 1:40:34Ben Gilbert?

  play argument. But the way that I sort of think about it, it's like, what are the key risks to Facebook at this point? There's regulation. Like, I think there's regulatory reasons that they could go away. There's obsolescence because attention shifts elsewhere.

• 1:40:48Speaker 01

  I mean, yes, they're real, of course. But if you look at history, and obviously a lot of this will depend on the coming election and whatnot, but like, even, you know, Ben Thompson talks about this a lot. The DOJ didn't kill Microsoft. I mean, Microsoft's actually backing better than ever, but didn't kill the old version of Microsoft. Google killed the old version of Microsoft. Like, regulation is such a slow process and technology moves so fast that is that a real risk?

• 1:41:12Ben Gilbert?

  Right. So like, okay, so we're going to say regulation's not really their key risk. It's really fading into obsolescence. And it's the thing that happened to social networks before them. And it's the, Facebook has a lot of core competencies, but their very, very most central is not fading into obsolescence. Like, buying Instagram, brilliant. You know, company-saving move on multiple fronts. Bought them another generation. I think WhatsApp is sort of this similar thing where, you know, they carved off 10% of their, the value of their company to go get it. But like, should they have done that? Absolutely. Should they do it again? They should go do it five more times. Every time there's, there's one of the seven, you know, billion-plus user social networks, or billion-to-be in

• 1:41:56Ben Gilbert?

  the near future, user social networks is up for sale. They should go make a Horcrux carve off a piece of themselves or do whatever they have to do to go and get that thing and keep their keep their dominant position. I mean, it is like the consumer sentiment couldn't be freaking worse on this company based on a lot. I mean, there was delete Facebook, there's election stuff, there's they're in trouble left, right and center. And it is making more money than ever. There are more people using it than ever. Sure, growth has slowed, but like, oh, my gosh, it's because they saturated humans on the internet. And I just think that this is such a complete and total no brainer. And even if they never make a dollar off of WhatsApp to neutralize that threat and get to continue to own the world's digital attention, I think is

• 1:42:40Ben Gilbert?

  is not invaluable, but is very, very, very valuable to them. And one way to sort of look at this is if you think there was a 10% chance that WhatsApp could have totally wiped out Facebook at some point in the future, then it was break even to buy it, even if they never ever generate any cash flow.

• 1:42:58Speaker 01

  I agree. I just can't bring myself to give it an A. That's not for like logical reasons. Two comments to add on to that. One, in talking to a bunch of friends at, you know, at Facebook and former Facebook friends, in thinking about this episode, you know, one thing that is a core competency, and I think from my understanding, really viewed as a core competency within Facebook is extremely robust competitive intelligence. Like, they know this. They know everything you just said, and they are paranoid about it.

• 1:43:32Ben Gilbert?

  What was that VPN app that they were using that they use for competitive intelligence to help them understand?

• 1:43:38Speaker 01

  Anavvo or something like that?

• 1:43:39Ben Gilbert?

  Onvato or Anavvo? Yeah. And then they eventually bought it, and then they got into a bunch of trouble because they were, yeah.

• 1:43:45Speaker 01

  So that's one. And then two, you know, I think this brings up an interesting question, right? Like, if you'll indulge me for a minute, given my

• 1:43:54Speaker 01

  non-logical, from an investor's standpoint, discussion of why I can't give this an A. Emotional being. You know, I think there's a legitimate question, given all this and consumer sentiment on Facebook. Well, how should the public and how should governments think about Facebook? Is it more like a tobacco company than a technology company? You know, like, if you look at tobacco companies, they are still many, many billions, tens of billions of market cap, publicly traded companies, because, just like you've been saying, Ben, they are like wild cash flow monster producing machines. But they're also tobacco companies, right? Like,

• 1:44:28Ben Gilbert?

  They're also good at not dying.

• 1:44:30Speaker 01

  Right. So I'm not sure I'm ready to go so far and say like, social media or Facebook is tobacco. But certainly there are some like questions about the societal good of, you know, data privacy, ad targeting, the emotional effects on people of social media and in particular Instagram and Facebook.

• 1:44:51Speaker 01

  You know, I think there's a real question.

• 1:44:51Ben Gilbert?

  You're looking at a guy who's number one time consuming app on his phone is Twitter, so.

• 1:44:56Speaker 01

  Well, it's not a Facebook app.

• 1:44:59Ben Gilbert?

  Yeah, that's true. Yeah, I mean, maybe there's an LP show deep dive there somewhere of the, uh, have someone come on and debate the, the ethics of social media with us.

• 1:45:10Speaker 01

  I think that'd be super fun. Let's do it.

• 1:45:15Ben Gilbert?

  Man, well, there it is. There's WhatsApp. We finally did it.

• 1:45:20Speaker 01

  I'm glad we waited this long.

• 1:45:22Ben Gilbert?

  Yeah, me too. It's not like we would have gotten any more information, but at least we know that Facebook wasn't, going to effectively immediately gain any, uh, new cash flow out of it.

• 1:45:33Speaker 01

  Yeah. Well, I think by waiting this long too, it also made it super clear what this was really about. And if we had done this episode two years ago, we probably would have graded this like much lower, because we wouldn't have seen how important this defensive move was.

• 1:45:49Ben Gilbert?

  That's interesting.

• 1:45:51Speaker 01

  Or at least I don't think I would.

• 1:45:52Ben Gilbert?

  Yeah, maybe not. Maybe not. Do you want to do carve outs?

• 1:45:56Speaker 01

  Yeah, let's do carve outs. We haven't done them in a while. Good way to kick off season six.

• 1:46:01Ben Gilbert?

  It is. You want to go for it?

• 1:46:02Speaker 01

  I'll go. This may come as a shock to you, Ben. I'm glad you're sitting down. I have been wearing different sneakers, uh, recently.

• 1:46:11Ben Gilbert?

  Dude, I almost did a sneaker carve out too, and it was almost also not Flyknits. Yeah.

• 1:46:16Speaker 01

  You know?

• 1:46:17Ben Gilbert?

  What are you, what are you wearing?

• 1:46:18Speaker 01

  I'm wearing Reebok Floatrides, uh, float rides. They're excellent. I wear them both for running and for just around town because they're like super stylish. I loved my Flyknits. I still have my Flyknits, but A, Nike is like moving away from Flyknits and free Flyknits.

• 1:46:35Ben Gilbert?

  The new ones are not good.

• 1:46:37Speaker 01

  No, they, they look terrible. Um, they're like a really messed up Back to the Future thing, like,

• 1:46:45Speaker 01

  these FlowRides, they, okay, so sticker price a hundred bucks. I got mine on Amazon for like 65 bucks. Runner's World reviewed this. I found out about them. Runner's World reviewed these things and they were like, You're not gonna believe this, but these Reeboks are the best hundred dollar or less running shoe you can buy on the market. And so I was like, alright, great. I need some new running shoes. I'm gonna try that. I got them and I'm like, these might be my everyday shoes. Like, they're that good.

• 1:47:11Ben Gilbert?

  Are they float rides?

• 1:47:13Speaker 01

  Float rides. There's, there's a couple of different models. I'll link to the one that, um, that I got. But yeah, I'm loving them.

• 1:47:20Ben Gilbert?

  Pretty nice, man. You sure you're not, you're not Reebok endorsed, right? You didn't get a, you didn't get a deal?

• 1:47:26Speaker 01

  Uh, working on that. Working on the shoe deal.

• 1:47:30Speaker 01

  Hey, if Kanye can have a shoe deal, I think Acquired can have a shoe deal.

• 1:47:33Ben Gilbert?

  Oh, yeah. Now we should get on that for sure. Okay, so my carve out is a product category that I'm going to recommend, uh, because I don't know the brand, but I recently went to the eye doctor. I, I wear contacts. After getting my contact fitting, I was talking to my eye doctor and she brought up, uh, do you have computer glasses? And I sort of seen other people with them, didn't really understand and got like totally sold on the value. And I've been wearing them and like absolutely love them. They do this interesting thing. I wear them over my contacts and what they do is they do two things. One, they change my, where my eyes naturally are at rest to like 18 inches in front of my face instead of being like off in the far distance, which is what my contacts naturally have them do.

• 1:48:18Ben Gilbert?

  And I think what our eyes naturally would do if you don't require, uh, glasses or contacts. It makes it so that when you're staring at a screen, you don't get eye strain from constantly having your muscle, your eye muscle sort of tensed up to be like looking at something close to you. So like, I find that working is much more comfortable and I can like read and write longer. Um, the other thing that they do, so there's this like slight magnification from changing where the resting focus is. So the screen, everything on the screen looks a little bit bigger. That's how you know I'm becoming an old person. Um, and the other thing is it, uh, it filters out blue light. It doesn't really change materially, the, the color or the hues of what you're looking at, but it makes it kind of safer for your eyes, better for your brain. You can sleep more easily at night. They're awesome. I actually

• 1:49:00Ben Gilbert?

  now feel very strange sitting down at my computer without wearing the glasses.

• 1:49:05Speaker 01

  That's awesome. So how do they work? Are they, so they're not prescription? It's just, or they are prescription?

• 1:49:12Ben Gilbert?

  They're, I think they are prescription, but they sell ones that aren't prescription. But basically it's they have the two features. One is the blue light filtration and the other is changing your resting focus to be about 18 inches from your face.

• 1:49:26Speaker 01

  Got it. So the, they're not designed for vision, the like, outside of working a computer, vision correction, that would be like you to everyone. They're like, huh, interesting.

• 1:49:36Ben Gilbert?

  Correct. Yeah. I actually take them off when I stand up to like walk to a meeting or something. Cause it's kind of like freaky when you look all the way down the hall. It's not like as stark as not wearing your glasses or something like that. But it is kind of like a, you gotta refocus your eyes aggressively to go look at something far away.

• 1:49:52Speaker 01

  Huh. I'm gonna have to check these out because A, it sounds like a great product and benefit. B, I've always thought that I might like look good with glasses, but I don't, lucky I don't have, I have normal vision and I'm like, I'm not gonna be that guy that's just gonna wear glasses for.

• 1:50:09Ben Gilbert?

  Now you have an excuse.

• 1:50:10Speaker 01

  Yes. And now I have an excuse.

• 1:50:13Ben Gilbert?

  It does, it makes you look really like big eyed though, like kinda like bug. Like what I'm wearing right now, I don't know if my eyes look bigger to you, but they, I always like, whenever I've seen, yeah, like see, it caught my reflection. I was like, whoa, eyes look huge.

• 1:50:25Speaker 01

  I didn't, I didn't notice, but now that I'm looking, yeah, you look like a, you look like a snap tap filter.

• 1:50:30Ben Gilbert?

  That's like what I've always wanted.

• 1:50:34Speaker 01

  Oh, I love it. Well, that's a good.

• 1:50:36Ben Gilbert?

  All right. Let's bring it home.

• 1:50:39Ben Gilbert?

  Listeners, if you aren't subscribed and you like what you hear, you should, especially if you're listening in Apple podcasts, we deeply appreciate you hitting the subscribe button and helping us, of course, get delivered to you every time that you want to listen to a new episode. But then also it really helps us in the iTunes technology charts. So hit that subscribe button if you like the show. If you want to become a limited partner, subscribing gets you access to our bonus show where we dive deeper into the nitty gritty of building companies. And you can listen by clicking the link in the show notes or going to glow.fm/acquired. And all new listeners get that 70%. ...free trial. With that, we will see you next time. See you next time.