top of page

Could this clash among Facebook’s billionaires end up changing the entire digital economy?

If Hollywood producers are hunting for dramatic subject matter to make a sequel to The Social Network – David Fincher’s brilliant 2010 film about Mark Zuckerberg’s founding of Facebook – they will find plenty of promising material in the social media giant’s real life boardroom battles of the past few months.

It would seem Menlo Park has been the arena not only for a titanic clash of billionaire personalities but also a profound philosophical disagreement over privacy. And the fallout of this row could help shape the future of the internet and the entire global digital economy. Any screenwriter worth their salt should be able to make something out of that.

This week’s resignation of the WhatsApp founder Jan Koum from Facebook’s board was plainly a long time in the making. Indeed, one could argue that it was inevitable from the moment Facebook snapped up Koum’s messaging app phenomenon for $ 19bn in 2014, netting Koum personally around $ 7bn.

Facebook’s business model is essentially monetising the personal data of its 2.2 billion strong active user base. The site scrapes your data off your page in order to serve you up with targeted advertising. It’s hard to overstate Facebook’s reliance on selling adverts. Of the firm’s $12bn of revenues in the first quarter of 2018, more than 98 per cent came from this source.

WhatsApp’s business model was historically very different. There has never been any advertising on the ubiquitous app. Indeed, Koum once described online ads as an “insult to your intelligence” and “the interruption of your train of thought”. When it was founded, WhatsApp’s revenues came from a $1 a year subscription price. And, unlike Facebook, WhatsApp has always refused to gather any data on users except their phone number.

The app has also, unlike Facebook, traditionally put a high premium on users’ privacy, with Koum claiming this was motivated by his upbringing in the repressive Soviet Union. In 2016 WhatsApp even introduced “end-to-end encryption” of messaging, something that once irritated our former home secretary Amber Rudd. But when WhatsApp was folded into the Facebook empire it also surrendered ultimate control. And in 2016 the WhatsApp subscription charge was scrapped.

So: no advertising, no subscription price, no personal data. Where was the profit from WhatsApp’s 1.5 billion users, which Facebook needed to justify that lofty acquisition price, to come from? The answer came two years ago when Facebook updated WhatsApp’s terms of service and privacy policy to include data sharing across the social network. And there seems to have been pressure from Zuckerberg for more.

We don’t know precisely what – there are reports about a weakening of encryption – but it was plainly enough for Koum to walk.

WhatsApp’s other founder, Brian Acton, left Facebook last November. And he seems to be even more disaffected than Koum. Acton recently suggested on Twitter that the Cambridge Analytica scandal – which has seen some 87 million Facebook users’ data transferred to a political consulting firm – meant it was time for people to “delete Facebook”. Pretty remarkable from someone who earned an estimated $3.8bn from Zuckerberg’s buyout of his company.

Acton is investing some of that Facebook cash in something called the Signal Foundation whose mission is “to develop open source privacy technology that protects free expression and enables secure global communication”. That sounds rather like a potential rival to WhatsApp, perhaps even to Facebook. Koum has said he now wants to spend more time playing “ultimate Frisbee”. But perhaps he might be persuaded to lend a hand to his old partner.

We seem to be at a crossroads in the development of the digital economy. Privacy breaches, tax dodging, fake news and a host of other scandals mean the golden aura of media and political favour in which the technology leviathans once basked has faded. The age of indulgence for Silicon Valley is over. But now comes the money question. How much do users truly value their personal data, or even understand it? Has the penny dropped among the public that Facebook is not – and never was – a “free” service? Do enough people care to make a viable market for privacy-focused rivals? 

Perhaps the answer is no, in which case Facebook can, having done its penance and tightened up its data rules, return to delivering Zuckerberg’s project of global digital domination. But if the answer is yes, then we might, just, be living through the beginning of the end for one of the fastest-growing and most highly valued companies the world has ever seen.


bottom of page