Why WhatsApp Founder Declines $850 Million Facebook Deal For Moral Reasons

Why WhatsApp co-founder Brian Acton made the most expensive moral stand in history, walking away from $850 million.

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It takes some serious cajones to turn down $850 million, but that’s exactly what WhatsApp co-founder Brian Acton did when he departed from Facebook. It was only four years ago that Acton and the other co-founder Jan Koum sold their messaging app to Facebook for $22 billion. Three years later, Acton announced his departure from Facebook to put all his energy and resources into a nonprofit.

On his way out he snapped a screenshot of the stock price of Facebook, which was soon followed by the Cambridge Analytica scandal, at which point Acton tweeted “It is time. #deletefacebook.” He didn’t offer any more explanation, leaving his former colleagues at Facebook in shock. His Twitter account has remained inactive since that last tweet.

In a recent interview with Forbes, Acton explained the decision which cost him $850 million.

Acton explained that it came down to a difference in opinion, with Facebook looking for ways to monetize WhatsApp, and although hie and Koum were not opposed to the concept, they had a very different strategy for how it should be executed.

Together, Acton and Koum built the end to end encryption for WhatsApp and stood behind their work. Facebook didn’t like this extra layer of privacy and anonymity which the encryption offered since it would affect the targeting of ads to users or potentially injecting commercial messages. Acton refused to partake in these new monetization strategies, so he boldly walked away.

While under the ownership of Facebook, Acton never developed a strong relationship with Mark Zuckerberg, so when he was summoned to Zuckerberg’s office last fall after he told Facebook he planned to leave, he wasn’t sure what the CEO’s reaction might be.

The co-founders of WhatsApp, Brian Acton and Jan Koum.

Acton and Koum had a clause in their contract which allowed them to get their stock over structured over four years only if Facebook began “implementing monetization initiatives” which didn’t require the co-founders consent. Acton and Koum viewed this as Facebook taking their own deliberate path to monetizing the messenger app while ignoring the options they presented.

Acton and Koum were vehement about preserving the privacy of their millions of WhatsApp users, since the app grew rapidly due largely in part to their encryption of messages. Facebook, now notorious for neglecting the privacy of it’s users, of course had no interest in the co-founders vision.

Acton and Koum hated ads, which they believed would create an intrusive and obnoxious user experience while diminishing the trust of their users in their encrypted data. When Facebook moved forward with plans to show targeted ads in the Status feature, Acton rightfully believed that this broke an implied contract with users.

Similar to how Facebook required you provide your phone number for “security” purposes, and then went on to sell that information to big data providers and advertisers. It’s a misleading and devious tactic.

The only problem that remained for Facebook was the end to end encryption which made WhatsApp so popular to begin with, which would prevent Facebook from reading users messages.

One of the ideas for monetization proposed by Acton was a metered-user model in which after a certain large number of free messages were used, a small fee of a tenth of a penny would be applied. It was Sheryl Sandberg to axed this plan, which she didn’t believe could scale. In the eyes of Acton, Sandberg meant that it would not make as much money as Facebook’s plan.

When Acton arrived at Zuckerberg’s office after being summoned, he was joined by an attorney from Facebook. He explained how Facebook’s monetization strategy would violate the trust of their users, which violated the contract he had with Facebook. He demanded his full allocation of stock.

Facebook’s legal team disagreed, explaining that they had only been exploring monetization plans, not implementing them. Acton took the high road and decided not to fight a company with seemingly endless resources.

The initial acquisition of WhatsApp in 2014 was rushed due to rumors that the co-founders Koum and Acton had been invited to Google for talks and he did not want to lose this opportunity to their number one competitor. That’s how the largest internet deal in a decade was rushed through over a weekend in February in the offices of WhatsApp’s lawyers. There wasn’t enough time to go over the details thoroughly, like the clause about monetization. At the end of the weekend, the co-founders agreed that they couldn’t walk away from a deal as lucrative as this. The two founders were assured that there would be “zero pressure” to monetize WhatsApp over the next five years.

That was of course not the case. Before the deal was even closed, it became apparent that Facebook was not so interested in the vision the two had for the messaging apps future. He quickly discovered that there were plans and technology to implement them within Facebook to use the 128-bit string of numbers that were assigned to each phone number to match with those in Facebook’s database, which would link the two accounts, effectively removing any anonymity the app had previously offered.

A year and a half passed since the acquisition and Koum and Acton found themselves writing a new terms of service for WhatsApp that linked the two accounts. This link between your 128-bit phone number and your Facebook account was the critical first step towards monetization, so Koum and Acton pushed back, reaching a compromise that there wouldn’t be any ads for the time being, but Facebook was keeping the accounts linked so that friend suggestions could be presented and also so ad partners could better target their advertisements.

The co-founders did everything they could to stop Facebook’s plans for monetization. When Snapchat began threatening Facebook’s dominance, Zuckerberg was focused on that situation, leaving the founders to focus on new product features similar to that of Snapchat. That worked for a short while, but by February 2017, three years after the deal, Zuckerberg grew impatient and made everyone aware of it at an all hands meeting with the WhatsApp staff.

Despite Facebook’s claim of “zero pressure” to monetize in the first five years, Facebook had actually set a target of $10 billion in revenue from WhatsApp within five years. It was clear that those revenue projections were too steep to be achieved in any other way except advertising.

A decade earlier, Acton had left Yahoo over ads and their impact on user experience. He saw history repeating itself at Facebook. He knew his time had come to an end at the company. Koum began avoiding the offices as much as possible, employing his “rest and vest” option. He left Facebook in April and is now focused on air-cooled Porsches.

Acton is funding a small messaging app called Signal, with a mission of putting users before profit. He works with the same people who built the 128-bit open source encryption protocol at WhatsApp, Facebook Messenger, Skype, and Allo.

Acton is resurrecting his initial vision for WhatsApp – that of free messages and calls, with end-to-end encryption, and most importantly, no ad platforms. He has also donated over $1 billion of the money he made from the sale to Facebook on charity, with a primary focus on supporting healthcare in impoverished areas of the United States, as well as in early childhood development.

He’s also determined to give his kids a normal upbringing. They attend private schools. He drives a Honda minivan and lives in a modest home, which is ironically less than a mile from Mark Zuckerberg’s.

Brian Acton is a man of integrity. A brilliant entrepreneur who puts his promise to his users above making money. He should be an inspiration to all of us.

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