Moneybox

There Is No Justification for What Mark Zuckerberg Did to WhatsApp

Mark Zuckerberg speaks on the opening day of the Mobile World Congress in Barcelona, on February 24, 2014, just after Facebook bought WhatsApp.
Mark Zuckerberg speaks on the opening day of the Mobile World Congress in Barcelona, Spain, on Feb. 24, 2014, just after Facebook bought WhatsApp.
Lluis Gene/Getty Images

The Wall Street Journal published a bombshell story on Tuesday about what reporters Kirsten Grind and Deepa Seetharaman call “the messy, expensive split between Facebook and WhatsApp’s founders.” The dishy piece makes for great reading. (Do the multibillionaire founders of global communications platforms make time to grouse at each other about who gets to pick out office chairs? Yes. Yes, they do.) Behind the dishiness, however, is a very important story that pretty much clears up any doubt as to whether Mark Zuckerberg is a trustworthy man who keeps his promises—or a profit-obsessed machine who’s much stronger on greed than he is on morals.

By the time you’ve finished the WSJ piece, only two options seem possible: Either Zuckerberg is a liar, or he’s a liar with absolutely no concept of the sunk-cost fallacy. When Facebook bought WhatsApp for $22 billion in 2014, the companies rolled out a very clear messaging campaign, based around WhatsApp’s motto of “no ads, no games, no gimmicks.” The messaging service  would be owned by Facebook, and Facebook could continue to make as much money as it wanted from ads on its own platform, but WhatsApp would retain its purity of product and even roll out end-to-end encryption. As co-founder Jan Koum wrote in a blog post after the deal was announced:

Respect for your privacy is coded into our DNA, and we built WhatsApp around the goal of knowing as little about you as possible: You don’t have to give us your name and we don’t ask for your email address. We don’t know your birthday. We don’t know your home address. We don’t know where you work. We don’t know your likes, what you search for on the internet or collect your GPS location. None of that data has ever been collected and stored by WhatsApp, and we really have no plans to change that.

If partnering with Facebook meant that we had to change our values, we wouldn’t have done it. Instead, we are forming a partnership that would allow us to continue operating independently and autonomously. Our fundamental values and beliefs will not change. Our principles will not change …

Make no mistake: our future partnership with Facebook will not compromise the vision that brought us to this point.

WhatsApp wasn’t an easy acquisition for Zuckerberg, because the two apps have very different founding principles. Koum, who grew up in Ukraine, believes deeply in privacy; Zuckerberg thinks that the more open and connected we are, the happier we all become. And so in order to acquire WhatsApp, Zuckerberg not only had to pay a lot of money and give up a board seat to Koum; he also had to make a lot of promises. Some of those promises were even enshrined in the acquisition agreement: If Facebook imposed “monetization initiatives” like advertising onto WhatsApp, its founders’ shares would vest immediately, and they could leave without suffering any kind of financial penalty.

Thus did WhatsApp retain exactly the independence that it had been promised—until it didn’t.

Today, it seems inevitable not only that advertising will make it onto WhatsApp, but also that the advertising in question will be targeted—which is to say that when you use the app, Facebook will know exactly who you are, where you live, and what kind of products you might be interested in buying. It’s a complete repudiation of WhatsApp’s founding principles, and makes a mockery of its end-to-end encryption.

What’s more, WhatsApp’s two founders both left hundreds of millions of dollars on the table, so keen were they to leave Facebook’s ad-friendly walls. (It turns out that their contractual right to being paid out in full would require them to sue for the money, and, according to the Journal, neither of them had the appetite for that.) Brian Acton resigned in September; Koum stayed on until the end of April. In leaving before November of this year, Acton gave up some $900 million; Koum gave up about $400 million. You need to be really unhappy at work if you’re willing to quit a job that’s effectively paying you some $60 million per month, and from which you basically can’t be fired.

The cause of that unhappiness seems as clear as Koum’s 2012 blog post titled “Why We Don’t Sell Ads”—a post that starts off by saying that “advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need,” and gets more vehement from there. Koum and Acton really didn’t want ads, but, as the WSJ puts it, Zuckerberg and his number two, Sheryl Sandberg, “grew impatient for a greater return on the company’s 2014 blockbuster $22 billion purchase.” After the two founders left, Zuckerberg installed in their place “a longtime Facebook executive who is tasked with finding a business model that brings in revenue at a level to justify the app’s purchase price.”

This makes some amount of sense on the surface. Given how much Facebook paid for WhatsApp, doesn’t it have a right to get a return on its investment? Might the purchase price, in some sense, justify Zuckerberg changing his mind on ads?

The answer to that question is simple: No, it doesn’t. This is where the sunk-cost fallacy comes in. It doesn’t matter any more how much money Facebook paid for WhatsApp; all that is water under the bridge. If Zuckerberg wants to aggressively monetize WhatsApp, installing ads between every other text message, it is within his rights to do that regardless of how much the acquisition cost. But the acquisition cost poses zero current burden on Facebook that requires the imposition of advertising.

When Zuckerberg was paying for WhatsApp, he didn’t promise to leave it alone provided that it hurdled some predetermined return on investment; instead, he promised to leave it alone, period. Koum and Acton had a huge amount of control over how WhatsApp was run. The one thing they had no control over was the amount of money that Facebook had paid to acquire them. If the problem here was the purchase price, then that’s Facebook’s problem, not WhatsApp’s. And so it shouldn’t be WhatsApp’s problem to fix.

Zuckerberg’s actions, in other words, cannot be justified by the WhatsApp purchase price. The decision of how much to pay for WhatsApp was a strategic one, which centered in large part on keeping the app out of a rival’s hands. It was also Zuckerberg’s decision alone. He promised that he wouldn’t run ads on WhatsApp, and then he broke his promise.

The only real question is: Did Zuckerberg know that he would break his promise as the words were coming out of his mouth, or was he talked into breaking his promise by Sandberg and other executives looking covetously at WhatsApp’s unmonetized user base? Either way, he has clearly failed a key leadership test. One more reason for him to go.