The Genesis of WhatsApp

The WhatsApp saga begins with Brian Acton and Jan Koum, two software engineers who first crossed paths at Yahoo! They both spent nearly a decade working at Yahoo! and became good friends during their tenure. When they eventually resigned from their positions in 2007, they decided to take a year off to travel around South America, using their savings to fund their escapades.

After their hiatus, the duo sought new opportunities. 

They both applied to Facebook, believing they could lend their extensive technical expertise to the social media giant. To their surprise, they were rejected, a setback that came at a time when their savings were running low. However, as often happens, this rejection turned out to be a disguised opportunity.

In January 2009, Jan Koum purchased an iPhone. Browsing through the App Store, which was only a few months old, he saw vast potential. Koum had the idea of creating an app that displayed statuses next to individual users' names, a sort of "away message" that was popular in the early days of instant messaging. This eureka moment would eventually lead to the creation of WhatsApp.

WhatsApp 1.0 and early challenges

The first version of WhatsApp launched in May 2009. Koum's original concept was to create an application that allowed users to display their Status to their contacts - statuses such as "At Work," "Battery about to die," or "Can't talk in a meeting."

He chose the name 'WhatsApp' because it resembled the casual greeting "What's up," fitting the concept of statuses. 

However, developing WhatsApp was challenging too. Koum struggled to get the code right, and the app kept crashing multiple times. On top of that, they faced user adoption issues as some of Koum's friends whom he had asked to test the app weren't initially enthusiastic about it. Facing problems like battery drainage and app crashes, Koum became disheartened and contemplated seeking a new job.

 At one point, Koum considered abandoning the project. Still, Acton, who had unofficially collaborated with him, encouraged him to stick with it for several months.

The evolution of WhatsApp 2.0

In June 2009, Apple launched push notifications, allowing developers to ping users even when they weren't using an app. Koum updated WhatsApp to send a notification to all of a user's contacts when their Status changed. What was initially intended to convey small bits of information about people's availability soon transformed into a real-time status network. 

The only other free texting service at the time was BlackBerry’s BBM, but that only worked among BlackBerrys. There was Google’s G-Talk and Skype, but WhatsApp was unique in that the login was your own phone number. 

In September 2009, Koum released a new version with a messaging component. It was an instant hit with users, and within a few months, the user base increased from just a handful to 250,000.

He needed help and went to see Acton, who was still unemployed and dabbling in another startup idea that wasn’t going anywhere.

Seeing this potential, Acton decided to come on board officially, assuming the role of a co-founder. Acton's first task was to seek investment. 

He brought in $250,000, sourced from Acton's network of five ex-Yahoo! colleagues. This investment came at a crucial juncture, providing the necessary financial support to accommodate the rapid expansion that WhatsApp was experiencing.

The WhatsApp value proposition

The full version of WhatsApp was finally launched on the App Store in November 2009. Unlike other messaging apps, it didn't require pins or usernames, reducing friction for new users. The app's primary function was replacing traditional, expensive SMS with a free, internet-based messaging service. WhatsApp quickly gained popularity, especially among international users who had to pay high costs for international texts. The app differentiated itself by prioritizing user privacy and avoiding advertisements, a stance that would later shape its trajectory.

WhatsApp's success on iOS encouraged them to cater to other operating systems. Two months after the launch, the duo released a version of BlackBerry, a popular choice, particularly among business users. 

They recognized that while U.S. smartphone users were transitioning towards unlimited texting plans, users in developing countries still dealt with expensive and limited texting options. This led to further support for other operating systems like Nokia's Symbian, Microsoft's Windows Phone, and later, Google's Android.

The paid model and growth

In its early days, WhatsApp operated out of a converted warehouse in Mountain View, California. The company ran lean, with the founders working for free, and most of the initial investment was spent on sending verification texts to users when they signed up. As costs started mounting, the founders charged users $0.99 for the app.

The paid model was bold, as most apps in the App Store were free. Despite this, users were more than willing to pay for WhatsApp because of the value it provided. The user base continued to grow steadily, and by the end of 2011, WhatsApp was among the top 20 apps in the U.S. App Store.

How Did Whatsapp Go “Viral?”

WhatsApp achieved virality through its cross-platform compatibility, user-friendly interface, and affordability. Offering a clean interface and easy navigation, it stood out for its simplicity. Unlike traditional advertising, WhatsApp refrained from significant ad expenses. Instead, it prioritized providing a high-quality user experience to encourage organic growth.

Moreover, the absence of ads and a one-time fee attracted users seeking a non-intrusive experience. Leveraging internet-based messaging, it provided a cost-effective alternative for international communication, particularly in developing regions. 

Its features, like group messaging and multimedia sharing, expanded its functionality, contributing to its popularity. Further, word of mouth, reliability, and global events further fueled its growth. 

Network effects played a crucial role as more users joined, creating a self-reinforcing cycle and establishing WhatsApp as a globally dominant messaging platform. WhatsApp's simplicity and usefulness made it naturally viral. Users who enjoyed the app were likely to recommend it to others, contributing to its widespread adoption.

The Sequoia Capital investment

In 2011, Jim Goetz, a partner at Sequoia Capital, discovered WhatsApp and recognized its potential. Goetz spent almost eight months trying to meet with Koum and Acton. Initially hesitant to accept venture capital, the founders eventually agreed to take $8 million from Sequoia Capital for more than 15% of the company. This investment provided WhatsApp with much-needed resources to scale its product.

As the user base continued to increase rapidly, reaching 200 million active users by April 2013, Sequoia Capital decided to invest another $50 million, valuing the company at $1.5 billion. WhatsApp also tweaked its business model to maintain its operations and introduced an annual subscription fee of $1 after the first year of free use.

Facebook's acquisition and business model changes

Koum’s inbox had a mail from Mark Zuckerburg in 2012, and its subject line read “Get together?” Mark expressed that he has been using WhatsApp and wanted to meet him for dinner. 

Koum hesitated before responding, ultimately stating that he would be traveling soon and handling server-related matters. In response, Zuckerberg proposed a meeting before Koum's departure. Sharing this correspondence with his co-founder, Brian Acton, and his only venture supporter, Jim Goetz from Sequoia Capital, Koum was impressed by Mark’s persistence.

“When someone of Mark’s status contacts you directly, you answer the phone,” said Acton, and they agreed to the meeting. This marked the inception of what would become the most lucrative two-year courtship in the annals of technology.

In February 2014, Facebook acquired WhatsApp in a landmark deal worth $19 billion. The founders agreed to the acquisition, viewing it as an opportunity to join a company that shared their goal of connecting the world. They were also keen to access resources that would allow them to continue developing a communications service that catered to the needs of the masses.

WhatsApp's impact on the telecommunications industry was profound, particularly in disrupting the traditional revenue stream generated by Short Message Service (SMS).

The app disrupted SMS revenue, erasing $33 billion for wireless carriers. Future monetization plans included partnerships with airlines and companies. 

However, following the acquisition, Facebook began to change WhatsApp's business model. There was an increased focus on monetization, and the company started to explore ways to facilitate business communication and allow businesses to reach their customers more effectively.

Expansion and new features

In the following years, WhatsApp underwent significant development and expansion. The team rolled out several substantial updates and features, such as end-to-end encryption, voice and video calling, and the introduction of Status, a feature reminiscent of the original conception of WhatsApp as a status-sharing app.

Another significant milestone was the launch of WhatsApp for Business in 2017. This app version allowed businesses to create profiles and become verified businesses on WhatsApp. It enabled businesses to set up autoresponders, link their landline numbers to WhatsApp, and more. This was a game-changer for customer relationship management for small and medium enterprises.

Around the same time, the company also piloted WhatsApp payments, allowing users in India to send money through the app. This was a significant step towards transforming WhatsApp from a simple messaging app to a more comprehensive platform for communication and transactions.

Farewell to founders

Despite their initial enthusiasm, Acton and Koum gradually grew dissatisfied with WhatsApp's direction under Facebook's stewardship. They were uncomfortable with Facebook's approach to user data and privacy and the pressure to monetize the app more aggressively.

Acton left Facebook in September 2017 and co-founded the Signal Foundation, which developed Signal, a direct competitor to WhatsApp, emphasizing privacy and security. Koum stayed on for a few more months.

Conclusion

One thing is clear Brian Acton and Jan Koum are true to their principles and mission in building a secure and easy messaging app that protects people's privacy. 

However, they lost control of their application, of course, made loads of money, and then parted ways with Facebook. 

What worked for the co-founder duo was a series of things. Firstly, they had an early movers advantage. They launched WhatsApp when the App Store was just a few months mature and free of competition. 

There was a space for virality in applications. Next, they knew what they were disrupting! They had a better alternative to SMS. However, there were several messaging apps like Skype, BBM, Google Talks, Yahoo Messenger in 2009 and later iMessage, Kik, WeChat, and Facebook Messenger in 2012. 

But WhatsApp managed to stand out by focusing on simplicity, reliability, and cross-platform compatibility. While other messaging apps offered a range of features, WhatsApp's strength lay in its straightforward approach – offering a user-friendly platform for text messaging without the clutter of additional functionalities.

The founders, Jan Koum and Brian Acton understood the drawbacks of existing messaging apps. Applications like Skype and Google Talk were often associated with more extensive features, including video calls and desktop integration, which could be overwhelming for users seeking a simple texting solution. BlackBerry Messenger (BBM) was limited to BlackBerry devices, and others like Yahoo Messenger and AIM had their user bases but lacked global appeal.

WhatsApp positioned itself as a direct replacement for SMS, providing a familiar interface with added benefits like group chats, multimedia sharing, and status updates. Using the phone number as the login ensured a seamless onboarding process, eliminating the need for usernames and passwords.

Additionally, WhatsApp's commitment to maintaining a clean, ad-free environment resonated with users who were increasingly wary of intrusive advertising on other platforms. The founders were determined to create a service that prioritized user experience over monetization, an approach that set WhatsApp apart in an era where many tech companies were aggressively exploring various revenue models.

Furthermore, the timing of WhatsApp's launch coincided with the rising popularity of smartphones and the increasing affordability of mobile data plans. This facilitated the app's rapid global adoption, especially in regions where unlimited texting plans were not the norm.

The focus on reliability was evident in WhatsApp's dedication to minimizing downtime and ensuring message delivery. This reliability became crucial, especially as users relied more on the app for real-time communication.