Why the WhatsApp acquisition ended with everyone mad at each other

Why the WhatsApp acquisition ended with everyone mad at each other

September 27, 2018 0 By Nazmul Khan


On September 17th of last year, WhatsApp cofounder Brian Acton quit the company to start a nonprofit foundation. Six months later, after several former Facebook executives had come forward to criticize the company, Acton tweeted “It is time. #deletefacebook.” Ever since, we’ve wondered what exactly led him to tweet.

Now we know. In his first interview since leaving Facebook, Acton told Forbes’ Parmy Olson that he felt betrayed by the company in two ways. One, Acton believes Facebook misled European Union regulators about its plans to commingle WhatsApp and Facebook data so as to improve its ad targeting capabilities. Two, Facebook began to “explore” advertising-based revenue models for WhatsApp without the founders’ consent. In both cases, Acton felt that Facebook had made him look like a liar. And so he quit, leaving behind $850 million in unvested stock.

”At the end of the day, I sold my company,” Acton told Forbes. “I am a sellout. I acknowledge that.”

On Twitter, pundits mostly rolled their eyes at Acton’s change of heart. Kara Swisher, quoting an unnamed source, offered the funniest parody of Acton’s mea culpa: “I live with this guilt every day on this beachfront property here in Fiji. I can barely see my brand new 200 ft yacht out there in the harbor through the tears I’m shedding for my users’ privacy.”

But not everyone thought it was funny.

David Marcus, who used to lead Facebook Messenger and now runs the company’s experimental blockchain division, was galled by Acton’s chutzpah. In a remarkable post, Marcus filled in what he called “the other side of the story” — which is that the WhatsApp founders had very few workable ideas for repaying the $22 billion that Mark Zuckerberg spent to acquire the company, and in any case they didn’t seem to be working very hard on any of them. Marcus writes:

During this time, it became pretty clear that while advocating for business messaging, and being given the opportunity to build and deliver on that promise, Brian actively slow-played the execution, and never truly went for it. In my view, if you’re passionate about a certain path — in this case, letting businesses message people and charging for it — and if you have internal questions about it, then work hard to prove that your approach has legs and demonstrate the value. Don’t be passive-aggressive about it.

Marcus went on:

I find attacking the people and company that made you a billionaire, and went to an unprecedented extent to shield and accommodate you for years, low-class. It’s actually a whole new standard of low-class.

The value of Acton and Marcus having this discussion in public is that both can be right — and that each sheds light, in his own way, on Facebook’s most expensive (and maybe worst-performing, from a return-on-investment perspective) acquisition.

Acton describes how eager Zuckerberg was to acquire the company’s fast-growing network of users, which was about to eclipse the global SMS user base, and to keep it away from Google. Zuckerberg wanted it to much that he made several expensive concessions, including a five-year (!) window in which he promised not to put any pressure on the founders to monetize their app. And he promised that the app would remain end-to-end encrypted, making WhatsApp much more difficult to monetize in the long run.

Marcus fills in some of the other concessions that Facebook made, some of which were first reported in a June piece by Kirsten Grind and Deepa Seetharaman. WhatsApp demanded different offices, larger desks, and a policy against speaking out loud in their workspace — which, according to Marcus, Zuckerberg personally defended. (The founders also demanded toilets with doors that reach the floor, for privacy purposes, a feature that the Guardian’s Olivia Solon memorably described today as “end-to-end encraption.”)

On the other hand, Acton’s account reveals Zuckerberg’s patience for what it was: a time-limited promise to wait out the founders’ principles. In a Twitter thread, Facebook’s just-departed chief security officer, Alex Stamos, defended Zuckerberg’s interest in monetizing WhatsApp. (And at the risk of repeating myself, he did pay $22 billion for it!)

”It is foolish to expect that FB shareholders are going to subsidize a free text/voice/video global communications network forever,” Stamos tweeted. “Eventually, WhatsApp is going to need to generate revenue.” If Acton and his cofounder Jan Koum cared about generating revenue, they presumably would have tried to do so before they left Facebook with their billions.

In short, the WhatsApp founders presented an extremely expensive pain in the ass for a company that, at least before this week, prided itself on low drama among the senior leadership. But Acton wasn’t wrong, really: Facebook wound up having to pay a $122 million fine for commingling that user data. And the fact that WhatsApp ultimately will monetize through advertising does indeed make him look like a liar.

If there’s a happy ending to all this, it’s that Acton eventually got to put his money where his considerable mouth is. He donated $50 million to the folks behind Signal, a nonprofit, end-to-end encrypted app, and is committed to finding non-advertising-based solutions to ensuring its future prosperity. Living your principles can be very expensive — but thanks to Facebook, Brian Acton can now afford it.

Democracy

In Senate hearing, tech giants push lawmakers for federal privacy rules

Zack Whittaker reports on Wednesday’s Senate Commerce Committee hearing, at which Apple, Amazon, Google and Twitter, along with AT&T and Charter, met to discuss privacy. Two big takeaways: they all want a national privacy law to supercede (and weaken) the one recently passed in California; and also Google took a beating over China:

Google to date has refused to confirm or comment on the reports, but Enright said that “there is a Project Dragonfly.”

“We are not close to launching a search product in China,” he said, in response to one lawmaker. Later, he said that he didn’t think the company “could or would launch a product” without including its privacy and security policies.

Former Google scientist slams ‘unethical’ Chinese search project in letter to senators

Former Google scientist Jack Poulson asked senators to push the company on its controversial Chinese search engine plans. (And Ted Cruz did!)

UK issues first-ever GDPR notice in connection to Facebook data scandal

Canadian firm AggregateIQ, linked to the Facebook & Cambridge Analytica data scandal, violated the new General Data Protection Regulation and could face a fine.

UK newspaper industry demands levy on tech firms

British people want Facebook and Google to fund their newspapers:

The British newspaper industry’s trade body has said the government should force social media sites such as Facebook and Google to pay an annual financial levy to fund journalism, and set up a regulator that would force them to take legal responsibility for all the content on their platforms.

Is a New Russian Meddling Tactic Hiding in Plain Sight?

Kevin Roose explores USAReally, an RT-style propaganda outlet masquerading as a news agency. The founder denies he’s doing anything untoward, but it was just banned by Reddit this week:

The amateurish appearance of USAReally has led some critics to assumethat it is either a bizarre vanity project or a decoy meant to attract attention away from more covert Russian campaigns happening elsewhere. But some cybersecurity experts believe the website may be a part of a retooled Russian propaganda operation that is experimenting with new tactics ahead of November’s midterm elections, and testing the boundaries of what American social media companies will allow.

“It’s a very overt operation,” said Lee Foster, an intelligence analysis manager with the cybersecurity firm FireEye. “Perhaps it’s an attempt to move this type of activity more into the mainstream, to try to legitimize it as a media entity so that it’s tougher to take action against it.”

On Reddit, Russian propagandists try new tricks

Some people will do anything to get back on Reddit after they’re banned. Particularly Russian hackers, reports Ben Collins:

Reddit users last week were able to trace links posted to a pro-Trump community back to a Russian propaganda website that shares web infrastructure with the Kremlin’s Internet Research Agency (IRA). The links appeared to have been custom-made to appeal to a particular community, /r/The_Donald, which is known to be the most fervent and active in support of the president.

The address-changing effort highlights how propagandists continue to push disinformation on digital media platforms, employing new strategies to hide their origins as companies begin to crack down on foreign influence campaigns.

The Crisis of Election Security

America’s electronic voting systems are more vulnerable than ever, Kim Zetter argues in a big new feature. So why isn’t anyone trying to fix them?

Two years later, as the 2018 elections approach, the American intelligence community is issuing increasingly dire warnings about potential interference from Russia and other countries, but the voting infrastructure remains largely unchanged. D.H.S. has now conducted remote-scanning and on-site assessments of state and county election systems, but these are still largely Band-Aid measures applied to internet-facing servers. They don’t address core vulnerabilities in voting machines or the systems used to program them. And they ignore the fact that many voting machines that elections officials insist are disconnected from the internet — and therefore beyond the reach of hackers — are in fact accessible by way of the modems they use to transmit vote totals on election night. Add to this the fact that states don’t conduct robust postelection audits — a manual comparison of paper ballots to digital tallies is the best method we have to detect when something has gone wrong in an election — and there’s a good chance we simply won’t know if someone has altered the digital votes in the next election.

Elsewhere

Facebook Is Giving Advertisers Access to Your Shadow Contact Information

Kashmir Hill has a great investigation into what Facebook does with your phone number once you give it to the company for the purposes of two-factor authentication. Advertisers can target you at that number within a couple weeks.

Instagram Founders’ Exit Means No One Challenges Zuckerberg

Sarah Frier smartly frames the Instagram founders’ departure as the final step in Mark Zuckerberg’s risky consolidation of power:

Instagram will probably become more integrated behind the scenes, sharing some teams and product goals with Facebook, people familiar with the matter said. No longer will anyone have founder-level authority to challenge Zuckerberg’s ideas with a discrete vision for the app’s future and brand. While absorbing Instagram more completely could help Facebook reach the goals it’s set for the app’s contribution to revenue growth targets, it may also threaten the unique culture that Instagram’s founders sought to preserve. Amid mounting scrutiny around Facebook’s data practices and its role in the spread of misinformation and hate speech, people have flocked to Instagram as an alternative. Any shift to become more Facebook-like could risk the very thing that has attracted new users and kept them coming back to Instagram.

Snap briefly jumps after rival Instagram loses its founders

Meaningless but funny stat: Snap stock jumped 5 percent when Kevin Systrom and Mike Krieger quit Instagram.

Inside Facebook Stories’ quest for originality amidst 300M users

Josh Constine reports on Facebook’s little-loved Stories product, which just hit 300 million daily users (out of 2.2 billion monthly) after 18 months in the marketplace, despite being the first thing that users see when they open the app. Still, that’s apparently enough to start selling ads in stories, so Facebook is doing that. (The most interesting nugget here is in the lede, which reveals the existence of a Facebook sandbox app called Blink where employees test new features. I’d love to see it sometime!)

WhatsApp Is Not the Main Problem in India’s Mob Violence

Alexis Madrigal says WhatsApp gets too much of the blame for communal violence in India. (Counterpoint: it doesn’t seem like it’s helping much, either!)

It could be that centering the technology in these cases obscures more important solutions in the civic, governmental, or social realms. WhatsApp might be successful, and, therefore, heavily used now, but its basic utility is duplicated by several other services. “If it weren’t WhatsApp, it would be Telegram. If it weren’t Telegram, it’d be iMessage. If it weren’t iMessage, it would be Signal,” Riana Pfefferkorn, a cryptography fellow at the Stanford Center for Internet and Society, told a Brazilian publication. “Fake news is spreading, and it would spread whether it was any other communications app that people want to use.”

Instagram has a drug problem. Its algorithms make it worse.

Lizza Dwoskin investigates Instagram’s drug problem. (Her findings were substantial enough to trigger this response blog post from Facebook’s Monika Bickert.)

Recent searches on Instagram, which is owned by Facebook, for hashtags of the names of drugs — such as #oxy, #percocet, #painkillers, #painpills, #oxycontin, #adderall and #painrelief — revealed thousands of posts by a mash-up of people grappling with addiction, those bragging about their party­going lifestyle and enticements from drug dealers.

Following the dealer accounts, or even liking one of the dealer posts, prompted Instagram’s algorithms to work as designed — in this case, by filling up a person’s feed with posts for drugs, suggesting other sellers to follow and introducing new hashtags, such as #xansforsale. Ads from some of the country’s largest brands, including Target, Chase and Procter & Gamble, as well as Facebook’s own video streaming service, appeared next to posts illegally selling pills.

Tech Companies Spend $80 Billion Building a Competitive Edge

Tech giants are buying giant amounts of equipment, Shira Ovide reports:

Google parent Alphabet Inc. and the other four dominant U.S. technology companies—Apple, Amazon​.com, Microsoft, and Facebook—are fast becoming industrial giants. They spent a combined $80 billion in the last year on big-ticket physical assets, including manufacturing equipment and specialized tools for assembling iPhones and the powerful computers and undersea internet cables Facebook needs to fire up Instagram videos in a flash. Thanks to this surge in spending—up from $40 billion in 2015—they’ve joined the ranks of automakers, telephone companies, and oil drillers as the country’s biggest spenders on capital goods, items including factories, heavy equipment, and real estate that are considered long-term investments. Their combined outlay is about 10 times what GM spends annually on its plants, vehicle-assembly robots, and other materials.

Oculus Connect

Oculus Quest is a new, $399 standalone VR headset shipping next year

Adi Robertson, who attended Facebook’s VR conference today, reports that Oculus’ next headset is the Quest: a $399 standalone virtual reality headset that’s launching in the spring of 2019:

Zuckerberg says that the Oculus Quest combines “the key attributes of the ideal VR system” — a wireless design, virtual hand controllers, and full positional tracking. “If we can bring these three qualities together in one product, we think that will be the foundation of a new generation of VR.”

The Oculus Quest is a consumer version of what was previously known as Project Santa Cruz. It uses motion controllers similar to Oculus Touch, and four wide-angle cameras provide positional tracking that lets people walk through virtual space. It’s supposed to support “Rift-quality” experiences, with a starting catalog of over 50 titles, including well-known existing games like climbing simulator The Climb and adventure-puzzle game Moss. Oculus VR head Hugo Barra describes the Oculus Quest as “made for games,” distinguishing it from Oculus’ other, more video-focused mobile headsets. “We are going to invest significantly in this new platform,” he says.

Oculus is launching new ‘expressive’ avatars for more realistic VR representation

Oculus’ new avatars will be more lifelike, using “simulated eye and mouth movement and micro-expressions,” Nick Statt reports.

YouTube is finally coming to all Oculus mobile VR headsets

OK!

Takes

Facebook’s Red Flag

Ben Thompson is excellent today on what the Instagram founders’ departure means for the company:

Not only was Facebook slowing its efforts to grow Instagram, it appears the company was increasingly doing the opposite: using Instagram to drive Facebook usage, both in terms of users (through notification in the Instagram app) and content (through cross-posting without indications that the content was from Instagram).

For me this is a huge red flag: it reminds me of late Ballmer-era Microsoft trying to use Office to prop up Windows, when the core of the company’s business model had always been the other way around. In this case, yes, I understand that Facebook ads still monetize better than Instagram ads, but Facebook should be able to handle its own growth and engagement while Instagram continues to ramp up. That there appears to be a pressing need — so pressing that Zuckerberg was willing to risk losing Systrom and Krieger — to leverage Instagram to prop up the blue app suggests that usage and engagement for the latter are at best flat-lining, and most likely deteriorating.

And finally …

Zendaya Is Meechee Is a Post-Vine Vine

Gabriel Gundacker amassed 800,000 followers on Vine before Twitter killed it. Now he’s back with what writer Jonah Engel Bromwich calls “the post-Vine Vine”: a slightly extended riff on a thing that still falls a bit short of a traditional YouTube video. Gundacker’s viral post-Vine Vine — a dadaist tribute to a movie poster featuring the actress Zendaya as a character named Meechee — offers a fittingly absurd end to the day.

Talk to me

Send me tips, comments, questions, and Brian Acton stories: casey@theverge.com.





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