And in the darkness bind them

Why did the founders of Instagram and WhatsApp all quit their jobs last year, and give up over $1.2 billion in stock options to do so?

We now know the answer.

Mark Zuckerberg is merging Facebook Messenger, Instagram messaging and WhatsApp.

On Friday The New York Times revealed:

Mark Zuckerberg, Facebook’s chief executive, plans to integrate the social network’s messaging services — WhatsApp, Instagram and Facebook Messenger — asserting his control over the company’s sprawling divisions at a time when its business has been battered by scandal.

The services will continue to operate as stand-alone apps, but their underlying technical infrastructure will be unified, said four people involved in the effort. That will bring together three of the world’s largest messaging networks, which between them have more than 2.6 billion users, allowing people to communicate across the platforms for the first time.

The move has the potential to redefine how billions of people use the apps to connect with one another while strengthening Facebook’s grip on users, raising antitrust, privacy and security questions. It also underscores how Mr. Zuckerberg is imposing his authority over units he once vowed to leave alone.

When Facebook first bought these companies, it promised their products would remain separate and independent.

In fact, the European Commission only gave Facebook the go-ahead to buy WhatsApp in 2014 because it found:

“Facebook Messenger and WhatsApp are not close competitors and that consumers would continue to have a wide choice of alternative consumer communications apps after the transaction.”

At the time, Facebook coached the people dealing with the Commission to say that linking Facebook and WhatsApp accounts would be extremely difficult.

“I was coached to explain that it would be really difficult to merge or blend data between the two systems,” said Brian Acton, WhatsApp’s co-founder.

But Facebook was planning to blend that data all along. It just didn’t want the EU to know it, as it would have impacted the decision.

After enough time had passed, Facebook began merging that data.

“I think everyone was gambling because they thought that the EU might have forgotten because enough time had passed,” said Acton.

But the EU found out and out and fined Facebook €110m in 2017, for feeding it “incorrect or misleading information.”

But that number linking was just the start. As we learned last week, Facebook is now planning to do a whole lot more than just number linking.

Why is Facebook doing it?

When the four founders of two companies Facebook had bought out all quit within a few months of each other, it was clear Facebook was up to no good.

I say “up to no good” because The WhatsApp founders said as much. In fact, when WhatsApp co-founder Acton quit, he posted this on Twitter:

He also invested $50 into privacy-focused messaging app Signal. I’ll get on to Signal in a minute.

Forbes later published a piece with Acton explaining why he was willing to walk away from so much money.

From the piece:

Under pressure from Mark Zuckerberg and Sheryl Sandberg to monetize WhatsApp, he pushed back as Facebook questioned the encryption he’d helped build and laid the groundwork to show targeted ads and facilitate commercial messaging. Acton also walked away from Facebook a year before his final tranche of stock grants vested. “It was like, okay, well, you want to do these things I don’t want to do,” Acton says. “It’s better if I get out of your way. And I did.” It was perhaps the most expensive moral stand in history. Acton took a screenshot of the stock price on his way out the door—the decision cost him $850 million.

So, why does Facebook want to merge all these services, what’s in it for them? Money. And lots of it.

As it stands now, WhatsApp is a fairly separate entity to Facebook. If someone wants to contact you on WhatsApp, they need your number. If they want to reach you on Facebook, all they need is your name.

If you’re a company and you want to reach a whole new world of clients, WhatsApp could be a treasure trove.

The problem is, how do your get their phone numbers? Well, when WhatsApp is merged with Facebook messenger, you won’t have to.

This is something Facebook has been planning for a while.

From Forbes:

Facebook also wanted to sell businesses tools to chat with WhatsApp users. Once businesses were on board, Facebook hoped to sell them analytics tools, too. The challenge was WhatsApp’s watertight end-to-end encryption, which stopped both WhatsApp and Facebook from reading messages.

From a user’s perspective, there is no positive and only negative here. Basically, your apps are going to get more bloated and you’re going to start seeing ads in WhatsApp.

Facebook will also start analysing your WhatsApp data and combining it with your Facebook and Instagram data, to send you targeted ads over all three platforms.

From Facebook’s perspective, it’s going to be an amazing money-spinner.

The eye of Zuckerberg

I can’t help noticing the similarities to the plot of The Lord of the Rings here.

Facebook buys up every popular messaging or social media app that lets it, so that it can merge them all into one and wield a supreme amount of power.

Remember, in today’s world, data is power.

In The Lord of The Rings, this is basically what the main baddy, Sauron, wants to do.

Here’s the passage from The Lord of The Rings (emphasis added):

Three Rings for the Elven-kings under the sky,

Seven for the Dwarf-lords in their halls of stone,

Nine for Mortal Men doomed to die,

One for the Dark Lord on his dark throne

In the Land of Mordor where the Shadows lie.

One Ring to rule them all, One Ring to find them,

One Ring to bring them all, and in the darkness bind them,

In the Land of Mordor where the Shadows lie.

Now, I’m not saying that Mark Zuckerberg is the dark lord… but he certainly isn’t doing so well in the image stakes right now.

And the weird thing is, he doesn’t seem to care.

You would have thought that, given the huge backlash Facebook has had over the last couple of years, it would try to do things differently.

You’d have thought it would try show it values its users over its bottom line. You’d have thought that it would at least have taken notice when all the founders of WhatsApp and Instagram quit. But it has done no such thing.

It printed a few ads saying “Fake news is not our friend” and got right on back with its master plan.

Who cares about user experience? Who cares about user privacy? Who cares about regulations or anti-trust laws?

Is this just hubris? Are we watching a “slow-motion car crash”? (As people like to say.) Or does Zuckerberg know something we don’t?

Either Facebook genuinely distains its users, thinks it’s too big for laws, countries or governments to bring it down, and believes that everyone will just go on using its services, no matter what it does.


I actually have no idea what that “or” could be.

I’m trying to see this from Facebook’s perspective. Not from just a getting more money from advertisers perspective, but from a long-term strategic perspective, and I’m struggling.

Any ideas?

It’s not all bad news

There are some good things to come out of the Facebook debacle.

As I said, when Acton quit WhatsApp he donated $50 million to rival messaging app, Signal.

From Forbes:

Acton says that Signal now has unspecified “millions” of users, with a goal to make “private communication accessible and ubiquitous.” While Acton’s $50 million should take it a long way—Signal could afford only five full-time engineers until he came along—the foundation wants to figure out a perpetual business model, whether that means taking corporate donations like Wikipedia or partnering with a larger company, as Firefox has done with Google.

Signal is starting to look like a viable alternative to the Facebook machine. And there are more like it out there.

I guess the question is, how far will Facebook have to go before people are willing to switch to something else?

And when they do, that “something else” will be much, much less likely to sell out in the way Instagram and WhatsApp did.

If you want to find out where that “something else” might come from, you can read Eoin Treacy’s December issue of Frontier Tech Investor here. It’s all about the big themes for 2019 and the companies to watch.

If you’re not a Frontier Tech Investor subscriber, you can take out a trial here – and you’ll also get a free copy of Nick O’Connor’s book, The Exponentialist.

As I said in my 2019 Big Tech predictions piece:

I think the next tech darling will be much, much less likely to sell out to any of the Big Tech incumbents.

If that happens, we could start to see some real competition in the world of Big Tech and social media.

In the world of tech, a new upstart has the potential to usurp the current king, no matter how big that king is at the time. Just think back to Myspace.

I fully expect Facebook and other Big Tech names will face their own Myspace moments in the coming years.

And chances are those moments will be brought to bear by companies created by former Facebook employees.

For now though, I guess we can look forward to companies that we never gave our number to contacting us over WhatsApp to try sell us things we don’t need.

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Technology

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697.

© 2019 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy Policy | Cookie Policy | FAQ | Contact Us | Top ↑